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(Amendment No.  )

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April 5, 2023

To Shareholders:

The 2023 Annual Meeting of Shareholders (the Annual Meeting) of Union Pacific Corporation (the Company) will be held at 8:00 A.M., Central Daylight Time, on Thursday, May 18, 2023, via live audio webcast at www.virtualshareholdermeeting.com/UNP2023 for the following purposes:

Only shareholders of record at the close of business on March 17, 2023, are entitled to notice of, and to vote at, the Annual Meeting. This Proxy Statement and the accompanying proxy card are being distributed and made available to shareholders of the Company on April 5, 2023.

You may listen to the live audio webcast of the Annual Meeting via the Internet at www.virtualshareholdermeeting.com/UNP2023. Instructions on how to participate in the Annual Meeting via live audio webcast are described in the accompanying proxy statement and posted at www.virtualshareholdermeeting.com/UNP2023.

Your vote is very important. New York Stock Exchange rules provide that if your shares are held by a broker, your broker is NOT permitted to vote your shares on most matters presented at the Annual Meeting, including the election of directors, and may elect not to vote your shares at all, unless you provide voting instructions to your broker. We strongly encourage you to submit your proxy card to your broker or utilize your broker’s telephone or internet voting services (if available) and exercise your right to vote as a shareholder.

 

Craig V. Richardson

Executive Vice President,

Chief Legal Officer and

UNION PACIFIC CORPORATION

PROXY STATEMENT

This Proxy Statement includes statements and information regarding future expectations, outcomes or results of the Company that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements and information should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times that, or by which, such performance, targets, goals, or results will be achieved. Forward-looking statements and information are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Forward-looking statements and information reflect the good faith consideration by management of currently available information and may be based on underlying assumptions believed to be reasonable under the circumstances. However, such information and assumptions (and, therefore, such forward-looking statements and information) are or may be subject to variables or unknown or unforeseeable events or circumstances over which management has little or no influence or control and may be derived from internal controls and processes that continue to evolve and standards for measuring progress that are still developing. Factors that could cause results or outcomes to differ, including the risk factors in Item 1A of the Company’s Annual Form 10-K, filed February 10, 2023, also could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements and information. This Proxy Statement should be read in consideration of these risk factors. Information included in this document, and any issues identified as important for purposes of this document, may not be considered material for SEC reporting purposes. Website references and/or hyperlinks have been provided for convenience only, and the contents therein are not incorporated into, nor do they constitute a part of, this document.

This summary highlights information that may be contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider. You should read the entire Proxy Statement carefully before voting.

Meeting Information and Availability of Proxy Materials

Date and Time: May 18, 2023, at 8:00 A.M., Central Daylight Time

Place: Via live audio webcast at www.virtualshareholdermeeting.com/UNP2023

Record Date: March 17, 2023

How to Vote

We encourage you to vote in advance of the meeting. You may vote using one of the following voting methods. Make sure to have your proxy card or voting instruction form in hand and follow the instructions. Participants in Union Pacific’s thrift and retirement plans who hold Company stock through such plans will receive separate voting instructions. You can vote in one of three ways:

Proxy Summary

2022 was marked by service challenges, economic uncertainty, and protracted labor negotiations. The year saw the conclusion of a national labor negotiations process that began more than two years ago. The labor agreements that went into place on December 2, 2022, included a well-deserved 24% wage increase, maintained premium-level health care, added an additional day of paid time off, and addressed several quality-of-life issues.

Our operational performance and our operating metrics declined year-over-year. Throughout 2022, our network was congested in several key corridors, which hindered our ability to handle all of the demand in several markets. Constrained crew bases in critical locations and elevated freight car inventory levels impacted our ability to support customers and their needs. To address constrained crew bases and congestion, we aggressively hired and graduated 1,302 new train, engine, and yard employees; temporarily relocated train, engine, and yard employees to areas with the greatest need; added locomotives to the fleet in select locations; and reduced freight car inventory, relative to carloads, from our network. Our carload and revenue growth were partially offset by higher operating expenses due to these operational challenges and a higher inflationary environment.

We are making positive strides on safety, and progress toward our carbon emission reduction goals as we improved our fuel consumption rate for the fourth consecutive year. We improved our 2022 full year fuel consumption rate on a year-over-year basis, lowering it 1% to a new all-time record. This improvement helped our customers avoid over 23 million metric tons of greenhouse gas emissions by choosing Union Pacific versus truck. In 2022, we also increased our biofuel blend to over 4.5%, on pace to achieve our 2030 target of 20%. Union Pacific’s first-ever selection as a member of the Dow Jones Sustainability Index (DJSI) North America and inclusion in the JUST Capital 100 demonstrates our position as a leader in the sustainability space.

Highlights of the Company's 2022 financial and operational performance include:

Union Pacific operates across 23 states in the western two-thirds of the United States. Our vision of Building America means we connect the nation’s businesses and communities to each other and the world by providing safe, reliable and efficient supply chain solutions. We strive to serve our customers, enhance shareholder value, invest in our communities, and provide promising careers, while operating in an ethical manner. It is our responsibility to emphasize the importance of diversity and inclusivity within our workforce, pursue innova- tive technology, protect clean air and water, and set and reach targets to reduce our carbon footprint.

Our environmental, social and governance strategy, Building a Sustainable Future 2030, is built on five areas of concentration: Building Responsible Foundations, Investing in our Workforce, Driving Sustainable Solutions, Championing Environmental Stewardship and Strengthening our Communities.

Proxy Summary

We are proud of our commitment to disclose our sustainability data in several disclosure initiatives such as the Carbon Disclosure Project and the S&P Global Corporate Sustainability Assessment. We were honored to be the recipient of several awards, rankings, and recognitions over the last year, including the following:

Proxy Summary

In 2021, we committed to reduce absolute Scope 1 and 2 GHG emissions and GHG emissions on a well-to- wheel basis from locomotive operations 26% by 2030 from a 2018 baseline. This target was validated by the Science Based Target Initiative (SBTi). Our 2022 Climate Action Plan describes the actions we are taking to pursue our target, and ultimately net zero emissions goal.

Highlights from our 2022 Climate Action Plan include:

Additional information and details can be found in our 2022 Climate Action Plan. The report is available on our website up.com under the Investor drop-down menu, under “Sustainability.”

Proxy Summary

At Union Pacific, our employees are central to our Serve, Grow, Win-Together strategy, and Investing in our Workforce is one of the five areas of concentration in our Building a Sustainable Future 2030 strategy. We are committed to providing an inclusive environment where employees feel valued, engaged and inspired. We are also committed to investing in the communities in which we operate in across America.

Union Pacific is committed to our 2030 hiring goals to reach 11% women and 40% people of color representation. Our commitment is based on our desire to create an environment where people can be their best, personally and professionally. We believe diversity improves the Company’s decision making, problem solving, and strategic thinking, which translates into a competitive advantage with bottom line results.

We made steady progress in 2022, battling the competitive labor market to increase our people of color repre- sentation by 1.5 percentage points. Progress toward our female representation goal remains more challenging – we gained 0.2 percentage points, driven primarily by increased hiring along with improved retention.

 

Proxy Summary

We are also focusing on talent attraction, development, and retention, which are critical to our growth strategy. We focus on providing a world-class employee experience, regardless of role or rank. The process begins with recruitment, then advances to training and development, and includes programs designed to recognize potential and retain our talented workforce.

Every worker has the right to expect equal pay for equal work regardless of their gender, race, color, religion, national origin, age, disability, sexual orientation, or other status protected by law. Each year, Union Pacific performs a review to identify potential pay equity concerns relative to race and gender for management employees and takes steps to address any concerns. In 2022, a third-party compensation expert assessed our pay practices and validated equal pay at Union Pacific. The results showed there is no statistically significant difference in pay across gender or race: men and women, and people of color, are currently paid within 1% of each other.

More information about our workforce can be found in our 2022 We Are One Report, which is available on our website up.com under the Investor drop-down menu, under “Sustainability.”

Based on our preliminary year-end assessment, our 2022 reportable personal injury rate was 0.80. While our safety incident reports are based on preliminary information and remain subject to confirmation and possible adjustment, our management is committed to a safety-focused culture with zero injuries by recognizing risks, taking action to mitigate those risks and empowering our employees to speak up if they see an unsafe situation. All employees are engaged to drive our safety culture via our COMMIT (Coaching, Observing, Mentoring, and Motivating with Integrity and Trust) activities, safety process analytics, Courage to Care commitment and local engagement activities like Total Safety Culture, as well as compliance with safety regulations. Company leadership constantly reviews safety performance, and safety results are reviewed monthly by our Board of Directors.

Proxy Summary

The Company’s commitment to strong corporate governance, effective risk management and strong indepen- dent oversight of management by the Board is reflected in our sound governance practices and policies.

Corporate governance highlights include:

 

Note: These statistics reflect the tenure, independence and diversity of the ten director nominees.

Proxy Summary

The Board of Directors provides oversight of our sustainability strategy. The Corporate Governance, Nominating and Sustainability Committee is responsible for reviewing current developments in sustainability and recommends adoption of new, or modifications to existing practices, policies, and procedures. To oversee and guide the appropriate management of sustainability, we have established the following governance structure.

 

To advance our sustainability governance efforts, we are continuing to evolve sustainability-related key performance indicators in our executive compensation scorecard. Continuous improvement in achieving the Company’s fuel efficiency goals, trip plan compliance and use of biofuels, all of which directly impact emissions, are tied to executive compensation. Please refer to pages 61 and 62 of the Compensation Discussion and Analysis for how these metrics were incorporated into executive compensation for 2022.

Additionally, we became the first U.S. railroad to formally support the Task Force on Climate-Related Financial Disclosures (TCFD), reinforcing our commitment to transparent disclosures.

Proxy Summary

Union Pacific is committed to frequent, focused and transparent reports that address the topics most important to our stakeholders. Our annual sustainability disclosures include:

 

These reports are or will be available on our website up.com under the Investor drop-down menu, under “Sustainability.”

Proxy Summary

We believe that engagement with our shareholders is an important part of our Company’s success and have an active shareholder engagement program. Our shareholder engagement efforts help us to better understand our shareholders’ priorities and concerns and enable the Company to most effectively address issues important to our shareholders. Our Investor Relations team regularly meets with investors and investment analysts. Our head of Investor Relations communicates topics discussed and shareholder feedback to senior management and the Board for consideration in their decision-making.

In 2022, as part of our regular shareholder engagement, management participated in 13 investor conferences, over 85 virtual or in-person investor meetings, and hosted more than 450 conference calls with investors and analysts.

We engaged in dialogue with holders of more than 50% of our total shares outstanding. Additionally, we met with 50% of our top 100 investors. Our lead independent director, Michael McCarthy, and board member, Sheri Edison, also conducted in-person meetings with shareholders representing approximately five percent of the total shares outstanding. We engaged with investors on various topics, including:

We continue to make several enhancements to our sustainability disclosures in response to shareholder feedback. Our 2022 Climate Action Plan published in November 2022 highlights the significant and innovative steps we have taken to address climate change, while outlining long-term strategies to reduce greenhouse gas (GHG) emissions and achieve net zero by 2050. Our recently published Climate Lobbying Alignment Assessment describes if, and how, our lobbying activities align with the Paris Agreement—an international treaty with the goal of limiting global warming to well below 2°C above pre-industrial levels and pursuing efforts to limit it to 1.5°C. We also disclosed our 2021 EE0-1 report and the recent publication of our 2022 We Are One Report highlights our people and our workforce goals.

We were pleased with the results of our say-on-pay vote at our 2022 Annual Meeting of Shareholders as we again received support from 93.7% of our shareholders for our executive compensation program. We believe that the executive compensation decisions made in 2022 and described in this Proxy Statement benefit shareholders and continue to align with our strategy and pay-for-performance philosophy.

Proxy Summary

UNION PACIFIC CORPORATION

1400 Douglas Street, 19th Floor

Omaha, NE 68179

 

PROXY STATEMENT

FOR

ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON MAY 18, 2023

Important Notice Regarding the Availability of Proxy

Materials for the Shareholder Meeting to Be Held on May 18, 2023

This Proxy Statement and our 2022 Annual Report on Form 10-K are available at www.up.com under the

“Investors” caption link by selecting “Annual Reports/Form 10-Ks/Proxy”

www.up.com/investor/annual.

Shareholders may also request a copy of this Proxy Statement and our 2022 Annual Report

on Form 10-K by emailing investor.relations@up.com or by calling (402) 544-4227.

This Proxy Statement is being furnished to shareholders of Union Pacific Corporation (the Company) in connection with the solicitation of proxies by the Board of Directors of the Company (the Board) for use in voting at the Annual Meeting of Shareholders or any adjournment or postponement thereof (the Annual Meeting). The Annual Meeting will be held on Thursday, May 18, 2023, at 8:00 A.M., Central Daylight Time, via live audio webcast at www.virtualshareholdermeeting.com/UNP2023. This Proxy Statement and the accompanying proxy card are being distributed and made available to shareholders of the Company on April 5, 2023.

Only holders of record of the Company’s common stock at the close of business on March 17, 2023 (the Record Date), will be entitled to vote at the Annual Meeting. On the Record Date, we had 610,253,359 shares of common stock outstanding and entitled to vote. If a majority of the shares outstanding on the Record Date are present and entitled to vote on any matter at the Annual Meeting, we will have a quorum at the Annual Meeting. Any shares represented by proxies that are marked for, against or to abstain from voting on a proposal will be counted as present for the purpose of determining whether there is a quorum.

Again this year, we are using the Securities and Exchange Commission (SEC) rule that allows companies to furnish their proxy materials over the Internet. As a result, we are mailing a Notice of Internet Availability of Proxy Materials instead of a paper copy of the proxy materials. All shareholders receiving the notice will have the ability to access the proxy materials over the Internet and may request to receive a paper copy of the proxy materials by mail. Instructions on how to access the proxy materials over the Internet or to request a paper copy may be found in the Notice of Internet Availability of Proxy Materials. In addition, the notice contains information on how you may request access to proxy materials in printed form by mail or electronically on an ongoing basis.

INFORMATION ABOUT THE ANNUAL MEETING, VOTING AND PROXIES

Your Notice of Internet Availability of Proxy Materials, proxy card or voting instruction card will contain instructions on how to:

Our proxy materials will be available for shareholders of record during the voting period at www.proxyvote.com. From this website, you also will be able to vote prior to the Annual Meeting. To access this website, you will need your 16-digit control number included on your Notice of Internet Availability of Proxy Materials, on your proxy card or on the instructions that accompanied your proxy materials.

Your Notice of Internet Availability, proxy card or voting instruction card will contain instructions on how you access our proxy materials electronically and, if you currently receive paper copies of these materials, how you may request proxy materials electronically on an ongoing basis. Choosing to access your future proxy materials electronically will help us conserve natural resources and reduce the costs of distributing our proxy materials.

Holders of our common stock are entitled to one vote for each full share held as of the Record Date.

Under Proposal Number 1, directors will be elected by a majority of the votes cast by the shares of common stock present at the Annual Meeting (either in person or by proxy) and entitled to vote on the election of directors, which means that a nominee will be elected if he or she receives more “for” votes than “against” votes. Pursuant to Section 9 of Article I of the Company’s Bylaws and applicable laws of the State of Utah, a nominee who does not receive more “for” votes than “against” votes will be elected to a shortened term expiring on the earlier of: (i) 90 days after the day on which the Company certifies the voting results; or (ii) the day on which a person is selected by the Board to fill the office held by the director.

Approval of Proposal Number 2 (ratification of the appointment of the independent registered public accounting firm), Proposal Number 3 (advisory vote to approve executive compensation), Proposal Number 5 (shareholder proposal regarding independent chairman), Proposal Number 6 (shareholder proposal requesting an amendment to our Bylaws to require shareholder approval for certain future amendments), and Proposal Number 7 (shareholder proposal requesting a paid sick leave policy) requires the affirmative vote of a majority of the votes cast on the proposal (either in person or by proxy).

For Proposal Number 4 (advisory vote on the frequency of future advisory votes on executive compensation) Utah state law does not specify a voting standard.

If your shares are held in a street name (that is, through a broker, bank, trustee, nominee or other holder of record), you are considered a beneficial owner of those shares. As the beneficial owner of those shares, you have the right to direct your broker, bank, trustee, nominee or other holder of record how to vote. If you do not provide voting instructions to your broker in advance of the Annual Meeting, your broker is not permitted to vote on certain proposals and may elect not to vote on any of the proposals. If you do not provide voting instructions and the broker elects to vote your shares on some but not all matters, it will result in a “broker non-vote” for the matters on which the broker does not vote. Accordingly, in order for your shares to be voted on all proposals, we encourage you to provide voting instructions to your broker as described in these proxy materials.

The Board recommends that you vote FOR each of the nominees in Proposal Number 1 and FOR Proposal Numbers 2 and 3, for 1 YEAR in Proposal 4 and AGAINST Proposal Numbers 5, 6 and 7.

Although the advisory votes on Proposal Numbers 3 and 4 are non-binding, the Board will review the results of the votes, and consistent with the Company’s strong record of shareholder engagement, will take them into account when making determinations concerning executive compensation and the frequency of such advisory vote.

In accordance with Utah law, abstentions and broker non-votes are not treated as votes cast and, therefore, are not counted in determining which directors are elected under Proposal Number 1 or in determining the outcome on Proposal Numbers 2, 3, 4, 5, 6 and 7.

INFORMATION ABOUT THE ANNUAL MEETING, VOTING AND PROXIES

Whether you hold shares directly as a shareholder of record or in street name (that is, through a broker, bank, trustee, nominee or other holder of record), you may direct how your shares are voted without participating in the Annual Meeting. There are three ways to vote by proxy:

If you sign and return your proxy card but do not give any voting instructions, your shares will be voted “FOR” the election of each of the director nominees listed in Proposal Number 1 below, “FOR” Proposal Number 2, “FOR” Proposal Number 3, “1 YEAR” in Proposal Number 4, “AGAINST” Proposal Number 5, “AGAINST” Proposal Number 6, and “AGAINST” Proposal Number 7. To our knowledge, no other matters will be presented at the Annual Meeting. However, if any other matters of business are properly presented, the proxy holders named on the proxy card are authorized to vote the shares represented by proxies according to their judgment.

The Board maintains a confidential voting policy pursuant to which Broadridge Financial Services, Inc. (Broadridge) receives shareholder proxies or voting instructions, and representatives of Broadridge, serving as independent inspectors of the election, certify the vote. Proxies, as well as telephone and Internet voting instructions, will be kept confidential from management (except in certain cases where it may be necessary to meet legal requirements, including a contested proxy solicitation or where a shareholder writes comments on the proxy card). Reports concerning the vote may be made available to the Company, provided such reports do not reveal the vote of any particular shareholder.

After you submit your proxy you may revoke it at any time before voting takes place at the Annual Meeting. You can revoke your proxy in two ways: (i) deliver to the Secretary of the Company a written notice, dated later than the proxy you want to revoke, stating that the proxy is revoked or (ii) submit new telephone or Internet instructions or deliver a validly executed later-dated proxy. For this purpose, communications to the Secretary of the Company should be addressed to Union Pacific Corporation, 1400 Douglas Street, 19^th Floor, Omaha, Nebraska 68179 and must be received before the time that the proxy you wish to revoke is voted at the Annual Meeting. Please note that if your shares are held in street name (that is, a broker, bank, trustee, or nominee or other holder of record holds your shares on your behalf) and you wish to revoke a previously granted proxy, you must contact that entity and submit new voting instructions to your broker, bank, trustee, nominee or other holder of record. You may also revoke your proxy by attending and voting during the Annual Meeting before the polls are closed.

INFORMATION ABOUT THE ANNUAL MEETING, VOTING AND PROXIES

The Company will pay the entire cost of preparing, printing, mailing and distributing the notices and proxy materials and soliciting votes. In addition to the mailing of the notices and proxy materials, proxies may be solicited by personal interview, telephone and electronic communication by the directors, officers and employees of the Company acting without special compensation. We also make arrangements with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of solicitation material to the street name holders of shares held of record by such individuals, and the Company will reimburse such custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them in connection with such solicitation. In addition, the Company engaged Morrow Sodali, LLC, 470 West Avenue, Stamford, CT 06902, to solicit proxies on its behalf. The anticipated fees of Morrow Sodali LLC are approximately $20,000, plus certain other customary fees and expenses.

This year’s Annual Meeting is being held solely by means of remote communication, and shareholders may not physically attend the meeting. Shareholders of record as of the record date may attend, participate in, vote at, and listen to the Annual Meeting via live audio webcast via the Internet at www.virtualshareholdermeeting.com/UNP2023 when you enter your 16-digit control number included on your Notice of Internet Availability of Proxy Materials, on your proxy card or on the instructions that accompanied your proxy materials. Instructions on how to access the Annual Meeting via the live audio webcast are posted at www.virtualshareholdermeeting.com/UNP2023. If your shares are held in street name and your voting instruction form or Notice of Internet Availability of Proxy Materials indicates that you may vote those shares through the www.proxyvote.com website, then you may access, participate in, and vote at the Annual Meeting with the 16-digit control number indicated on that voting instruction form or Notice of Internet Availability of Proxy Materials. Otherwise, shareholders who hold their shares in street name should contact their bank, broker, or other nominee (preferably at least 5 days before the Annual Meeting) and obtain a “legal proxy” in order to be able to attend, participate in, or vote at the Annual Meeting.

Access to the meeting will begin approximately 15 minutes before the scheduled meeting time, and you are encouraged to log on early to test your access. If you have technical problems accessing the Annual Meeting, you may contact the technical support number that will be posted on the virtual shareholder meeting log-in page.

Shareholders will be provided an opportunity to ask questions in advance of and during the Annual Meeting. We will only respond to questions that relate to the Company or the matters being presented at the Annual Meeting, and that otherwise comply with the rules of conduct that will be posted on the Annual Meeting website. We may group similar questions together and present a combined response. In the event that we are not able to respond to all proper questions that are submitted during the meeting, we will post responses on our Investor Relations website as soon as practical following the Annual Meeting.

References to the Company’s website included in this Proxy Statement and in the Company’s 2022 Annual Report on Form 10-K are provided as a convenience and do not constitute, and should not be deemed, an incorporation by reference of the information contained in, or available through, the website.

The Board currently consists of ten members. At the recommendation of the Corporate Governance, Nominating and Sustainability Committee, the Board has nominated Mses. Edison, Finley, Hopkins and Lute and Messrs. DeLaney, Dillon, Fritz, McCarthy, Villarreal and Williams for election as directors. Each of the ten nominees currently serve as a director of the Company. Each of the nominees has consented to being named as a nominee and to serve if elected. If any nominee(s) for director for any reason becomes unavailable for election, it is intended that discretionary authority will be exercised by the persons named in the enclosed proxy in respect of the election of such other person(s) as the Board shall nominate.

Directors will be elected by a majority of the votes cast by the shares present at the Annual Meeting and entitled to vote on the election of directors, which means that a nominee will be elected if he or she receives more “for” votes than “against” votes. Pursuant to Section 9 of Article I of the Company’s Bylaws and applicable laws of the State of Utah, if a nominee does not receive more “for” votes than “against” votes, he or she will be elected to a shortened term that terminates on the earlier of: (i) 90 days after the day on which the Company certifies the voting results; or (ii) the day on which a person is selected by the Board to fill the office held by the director.

The following identifies the Company’s nominees for election to the Board. Each of the nominees currently serves as a director. Each nominee, if elected, will serve for a term of one year or until his or her successor is elected and qualified.

PROPOSAL NUMBER 1 – Election of Directors

PROPOSAL NUMBER 1 – Election of Directors

PROPOSAL NUMBER 1 – Election of Directors

PROPOSAL NUMBER 1 – Election of Directors

PROPOSAL NUMBER 1 – Election of Directors

PROPOSAL NUMBER 1 – Election of Directors

PROPOSAL NUMBER 1 – Election of Directors

PROPOSAL NUMBER 1 – Election of Directors

PROPOSAL NUMBER 1 – Election of Directors

The Corporate Governance, Nominating and Sustainability Committee considered the character, experience, qualifications and skills of each director nominee when determining whether he or she should serve as a director of the Company. Consistent with the stated criteria for director nominees described on page 27 below and included in the Company’s Corporate Governance Guidelines and Policies, the Committee determined that each director nominee exhibits a high degree of integrity, has significant professional accomplishments, and has proven leadership experience. Each director nominee is or has been a leader in his or her respective field and brings diverse talents and perspectives to the Board. The Committee also considered the experience and qualifications that each director nominee brings to the Board outlined above in each director’s biographical information, as well as service on boards of other public companies.

The Committee utilizes the following list of skills and qualifications identified in the table below that are particularly relevant to the Company when evaluating director nominees, both from an individual and collective standpoint. The fact that a particular skill or qualification is not designated does not mean the director nominee does not possess that particular attribute. Rather, the skills and qualifications noted below are those reviewed by the Corporate Governance, Nominating and Sustainability Committee and the Board in making nomination decisions and as part of the Board succession planning process. We believe the combination of the skills and qualifications shown below demonstrates how the Board is well-positioned to provide strategic oversight and guidance to management.

 

PROPOSAL NUMBER 1 – Election of Directors

The Corporate Governance, Nominating and Sustainability Committee is responsible for developing and periodically reviewing and recommending to the Board the appropriate skills and characteristics required of Board members in the context of the current composition of the Board. Such criteria, as described in the Company’s Corporate Governance Guidelines and Policies, include: business and management experience; familiarity with the business; customers and suppliers of the Company; varying and complementary talents, backgrounds and perspectives; diversity (inclusive of gender, race, ethnicity and national origin); and relevant legal, regulatory and stock exchange requirements applicable to the Board and certain of its Committees.

All potential new Board candidates should exhibit a high degree of integrity and ethics consistent with the values of the Company and the Board. In all our director nominee searches, the Committee is committed to actively seeking out highly qualified women (Mses. Edison, Finley, Hopkins and Lute) and other diverse candidates (Ms. Edison and Messrs. Villarreal and Williams), for consideration as nominees to the Board. The Committee ultimately seeks to identify and nominate candidates with diverse talents, backgrounds and perspectives who will enhance and complement the skills and expertise of the Board and satisfy the Board membership criteria included in the Company’s Corporate Governance Guidelines and Policies. In determining the independence of a candidate, the Committee relies upon the independence standards adopted by the Board. In addition, the Committee requires that all candidates:

The Committee also values familiarity with the rail transportation industry, complex operations and logistics and considers the number of other public boards on which candidates serve when determining whether the individual circumstances of each candidate will allow the candidate sufficient time to effectively serve on the Board and contribute to its function and activities.

The Committee meets each year to consider the inclusion of nominees in the Company’s proxy statement. During this meeting, the Committee considers each nominee by:

As part of the Committee’s oversight of the Board’s self-evaluation process, the Committee assesses the effectiveness of the criteria listed above when evaluating all new director candidates and when assessing the composition of the Board. The Committee will consider candidates recommended by shareholders under the same standards after concluding that any such recommendations comply with the requirements outlined below. During 2022, the Company retained the services of Heidrick & Struggles to help identify and evaluate suitable director candidates.

PROPOSAL NUMBER 1 – Election of Directors

We believe that Board tenure diversity is important, and directors with many years of service provide the Board with a deep knowledge of our Company, while newer directors lend fresh perspectives. The chart below reflects the Board tenure of our current directors who are also our director nominees standing for election at the Annual Meeting. The average tenure of all directors currently serving on our Board and standing for re-election is 6.7 years.

 

The Corporate Governance, Nominating and Sustainability Committee is responsible for overseeing the annual self-evaluation process of the Board and its committees, which is used by the Board and each committee to assess their effectiveness, their performance and opportunities for improvement. In addition, each committee reviews its Charter annually and reports to the Corporate Governance, Nominating and Sustainability Committee and the Board on its self-evaluation and review of its Charter.

During 2022, the Board and committee evaluation process involved the distribution of a self-assessment questionnaire to all Board and committee members inviting a review and written comments on all aspects of the Board and each committee’s role and responsibilities, as well as director performance and Board dynamics. Comments solicited related to a holistic review of how the Board can improve its key functions overseeing the Company’s overall governance and the enterprise risk profile of the Company, approving the Company’s strategic plan, monitoring strategy implementation and generally overseeing management’s operations of the business. In particular, for both the Board and the relevant committee, the process solicited ideas from directors about (i) improving prioritization of issues, (ii) improving quality of Board and committee discussions on key matters, (iii) identifying specific issues that should be discussed in the future, and (iv) identifying any other matters of importance to the functioning of the Board or committee.

The Corporate Governance, Nominating and Sustainability Committee will provide oversight for each committee and the Board as the directors continue discussing the results of this evaluation and work to address the recommendations.

PROPOSAL NUMBER 1 – Election of Directors

The Company’s Bylaws provide for “proxy access” for certain director candidates nominated by shareholders. Under the Bylaws, a shareholder or group of shareholders who have continuously held for three years a number of shares of Company common stock equal to three percent of the outstanding shares of Company common stock may request that the Company include in the Company’s proxy materials director nominees representing up to the greater of two directors or 20% of the current number of directors. Eligible shareholders wishing to have such candidates included in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders should provide the information specified in the Bylaws to the Secretary of the Company in writing during the period beginning on November 7, 2023 and ending on December 7, 2023, and should include the information and representations required by the proxy access provisions set forth in the Company’s Bylaws.

The Corporate Governance, Nominating and Sustainability Committee will consider and evaluate individuals for service on the Board suggested by directors and other interested parties. Shareholders desiring to recommend candidates for consideration at the 2024 Annual Meeting should advise the Secretary of the Company in writing during the period beginning on January 19, 2024 and before the close of business on February 18, 2024, and should include the following information required by the nomination procedures set forth in the Company’s Bylaws, as well as any other information that would assist the Committee in evaluating the recommended candidates: (i) the name, age, and business and residence addresses of the candidate, (ii) the principal occupation of the candidate, and (iii) the number of shares of Company common stock beneficially owned by the candidate. A shareholder should also provide (i) his or her name and address, (ii) the number of shares of Company common stock beneficially owned by such shareholder, (iii) a description of all arrangements between himself or herself and the candidate and any other person pursuant to which the recommendation for nomination is being made, and (iv) the candidate’s written consent agreeing to any resulting nomination and to serve as a director if elected. The Bylaws are available on the Company’s website at www.up.com/investors/governance, and shareholders may obtain a printed copy by contacting the Secretary of the Company at the address set forth on the notice page of this Proxy Statement.

We are committed to implementing and following high standards of corporate governance, which we believe are important to the success of our business and create shareholder value. The Board has adopted Corporate Governance Guidelines and Policies, and, with ongoing input from the Corporate Governance, Nominating and Sustainability Committee, will continue to assess the appropriateness of these guidelines and policies and implement such changes and adopt such additions as may be necessary or desirable to promote the effective governance of the Company. We post these guidelines and policies on our website at www.up.com/investors/governance.

To assist it in making determinations of a director’s independence, the Board has adopted the independence standards set forth below. The Board affirmatively determined that, except for Mr. Fritz, all of our current directors, Mses. Edison, Finley, Hopkins and Lute and Messrs. DeLaney, Dillon, McCarthy, Villarreal and Williams, have no material relationship with the Company or any of its consolidated subsidiaries, including Union Pacific Railroad Company (the Railroad), (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company) and are independent within the meaning of the applicable listing standards of the NYSE and the Director Independence Standards adopted by the Board, which are available on our website at www.up.com/investors/governance.

Additionally, the Board determined that all Board Committees are comprised entirely of independent directors and that all members of the Audit Committee, Compensation and Benefits Committee and Finance Committee meet the additional independence standards applicable to such committee members as set forth below.

The Board also determined that former directors, Messrs. Card and McLarty, who retired from the Board at our 2022 Annual Meeting of Shareholders, were independent during the time they served on the Board. In reaching such determination, the Board reviewed the Railroad’s donation of the George Bush Locomotive (U.P. No. 4141) to The George H. W. Bush Presidential Library and Museum. Mr. Card, a former director of the Company who retired from the Board on May 12, 2022, is a board member of the George and Barbara Bush Foundation. The Railroad incurred approximately $1.7 million to retire and donate the locomotive to the George H. W. Bush Presidential Library and Museum.

An “independent” director is a director whom the Board has affirmatively determined has no material relationship with the Company or any of its consolidated subsidiaries either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company. Accordingly, a director is also not independent if:

BOARD CORPORATE GOVERNANCE MATTERS

For purposes of these standards, an “immediate family” member includes a director’s spouse, parents, children, siblings, mother and father-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than a domestic employee) who shares the director’s home.

In addition to the Board’s Director Independence Standards above, a director is not considered independent for purposes of serving on the Audit Committee or the Compensation and Benefits Committee, and may not serve on such committees, if the director: (a) accepts, directly or indirectly, from the Company or any of its subsidiaries, any consulting, advisory, or other compensatory fee, other than Board and committee fees and fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with the Company; or (b) is an “affiliated person” of the Company or any of its subsidiaries; each as determined in accordance with NYSE and SEC rules and regulations.

Since assuming the CEO role in February 2015, Lance Fritz has overseen a period of growth, innovation and value creation, and transformed the Company’s operating plan to improve asset efficiency. As disclosed in a Form 8-K filed in February 2023, following discussion between the Board and Mr. Fritz as part of the Board’s succession planning process, in March 2022 the Board engaged a leading outside consultant to identify Union Pacific’s next CEO. The Board is seeking a CEO with a strong track record of success and expertise across safety, operational excellence, enhancing and driving customer service, innovation, employee culture and sustainability. The Board is focusing the process on highly-qualified candidates both within the industry and adjacent industries to identify a CEO capable of leading the Company for a long-term tenure. The Board currently expects to name a successor who will assume the position in 2023.

BOARD CORPORATE GOVERNANCE MATTERS

Under the Company’s Related Party Policy, transactions with related parties are subject to approval by the Corporate Governance, Nominating and Sustainability Committee (the Committee). Transactions subject to Committee review and approval include any transaction in which (i) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (ii) the Company is a participant, and (iii) any related party will have a direct or indirect interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity).

“Related party” is defined under the policy as any (i) person who is or was during the last fiscal year an executive officer or director of the Company or nominee for election as a director, (ii) greater than 5% beneficial owner of the Company’s common stock, or (iii) immediate family member of any of the foregoing. “Immediate family” member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers and fathers-in-law, sons and daughters-in-law, and brothers and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee).

In determining whether to approve or ratify a transaction, the Committee will consider, among other factors it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction. The Committee will not approve any transaction if it determines it to be inconsistent with the interests of the Company and its shareholders.

Under the Related Party Policy, the Committee has pre-approved certain transactions. Such transactions include (i) any transaction with another company at which a related party’s only relationship is as an employee (other than an executive officer), direct or beneficial owner of less than 10% of that company’s shares, if the aggregate amount involved does not exceed the greater of $1 million or 2% of that company’s total annual revenues and the related party does not otherwise have a direct economic interest in the transaction; and (ii) any charitable contribution, grant or endowment by the Company or the Company’s foundation to a charitable organization, foundation, or university at which a related party’s only relationship is as an employee (other than an executive officer) or a director, if the aggregate amount involved does not exceed the lesser of $1 million or 2% of the charitable organization’s total annual receipts.

Additionally, the Board has delegated to the Chair of the Committee the authority to approve any transaction with any related party where the aggregate amount involved is expected to be less than $1 million. At each regularly scheduled meeting of the Committee, a summary of each new transaction approved will be provided to the Committee for its review.

Since 1994, the Railroad has historically and routinely done business with Omaha Track, Inc. and its related companies (Omaha Track). Kelvin Whited, who became the Chief Financial Officer of Omaha Track in July 2015, is the spouse of Elizabeth F. Whited, who became the Company’s Executive Vice President Sustainability and Strategy in February 2022 and was previously the Executive Vice President and Chief Human Resource Officer from August 2018 to January 2022.

In 2022, the Railroad paid Omaha Track or its affiliates approximately $21.2 million for tie disposal services, on-track scrap metal removal, and railcar repairs. All of these transactions are managed by the Railroad’s Supply Department and Ms. Whited has no involvement in these matters.

Omaha Track has been a transload provider to customers of the Railroad for transload shipments of various materials. The Railroad paid Omaha Track approximately $56,465 in 2022 in connection with these transload services. Ms. Whited is not involved in any commercial or rate discussions involving Omaha Track.

April Rocker, Senior Manager Signal Design, is the spouse of Kenny G. Rocker, who became the Company’s Executive Vice President Marketing and Sales on August 15, 2018. Ms. Rocker has been employed by the Railroad since March 1, 2004. Ms. Rocker’s taxable compensation from the Railroad in 2022 was approximately $170,918.

These transactions were approved by the Corporate Governance, Nominating and Sustainability Committee pursuant to the Company’s Related Party Policy.

BOARD CORPORATE GOVERNANCE MATTERS

The Board believes it is in the best interest of the Company for the Board to periodically evaluate the leadership structure of the Company and make a determination regarding whether to separate or combine the roles of Chairman and CEO based on circumstances at the time of its evaluation. As a result of the Board’s recent evaluation, the Board believes that upon the retirement of Mr. Fritz as CEO, which currently is expected to occur in 2023, the positions of Chairman and CEO should be separated, with the position of Chairman being filled by an independent director.

Accordingly, the Board has amended the Corporate Governance Guidelines and Policies to provide for an independent director to serve as Chairman upon the retirement of the Company’s current Chairman and CEO, and to provide that until the separation of the Chairman and CEO positions becomes effective, the Board will have a lead independent director elected by the independent directors.

The independent directors of the Board elected Mr. McCarthy as the lead independent director with the following responsibilities:

At the time of the separation of the Chairman and CEO positions, the independent Chairman shall assume the responsibilities discharged by the lead independent director and will have the following additional responsibilities:

The independent directors conducted executive sessions at all Board meetings in 2022. Mr. McCarthy also has the authority to call executive sessions of the independent directors. The Board has adopted a number of strong corporate governance practices that provide effective, independent oversight of management, including:

The Board welcomes and takes under consideration any input received from our shareholders regarding the Board’s leadership structure, and informs shareholders of any change in the Board’s leadership structure through press releases or, as applicable, by posting amended corporate governance guidelines on the Company’s website.

BOARD CORPORATE GOVERNANCE MATTERS

The Board of Directors is responsible for overseeing the assessment and management of the critical enterprise risks affecting the Company. Management identifies and prioritizes enterprise risks (included in the risk factors disclosed in our Annual Report on Form 10-K) and reviews them with the Board at least once a year to answer any questions and obtain input related to mitigation strategies and categories of risk. The Board has delegated to the Audit Committee primary responsibility for oversight of risks related to financial and operational controls of the Company, as well as compliance, regulatory, safety, sustainability, climate, and cyber risks. The Chief Accounting, Risk and Compliance Officer, who reports to the Chief Financial Officer and is responsible for the Company’s enterprise risk management program, meets with the Audit Committee at each of its scheduled meetings. The Audit Committee regularly receives reports throughout the year from the Chief Accounting, Risk and Compliance Officer and the senior executives responsible for financial reporting processes, safety and compliance, cybersecurity, and environmental and litigation matters. Additionally, the senior executives responsible for implementation of appropriate mitigation strategies for the Company’s top enterprise risks provide reports and updates directly to the Audit Committee and/or the Board throughout the year.

The Audit Committee also oversees the Company’s internal audit of enterprise risks selected for review and evaluation based upon the Company’s annual risk assessment model with the purpose of evaluating the effectiveness of mitigating controls and activities of Company personnel. The Company’s internal auditors present to the Audit Committee findings regarding the mitigating controls and processes for the enterprise risks selected for review. The Audit Committee, in turn, reports those findings to the entire Board.

To address and mitigate cybersecurity risks, our Senior Vice President – Information Technologies and Chief Information Officer and our Assistant Vice President and Chief Security Officer lead a team responsible for establishing enterprise-wide security strategy, standards, architecture, policies and processes, and report to the Board or Audit Committee at each of its regularly scheduled meetings. The team has robust processes and redundancies in place to prevent, detect and respond to potential threats. We also perform regular vulnerability scanning and system penetration testing to validate our security controls and assess our infrastructure and applications. All management employees take mandatory periodic security awareness training that includes information on data security policies and procedures, which is supplemented by Company-wide testing initiatives, including periodic phishing tests. Our risk-based information security program is designed to align our defenses and resources to identify, assess and address more likely and more damaging potential vulnerabilities, to provide support for our organizational mission and operational objectives, and to position us to detect, mitigate, and recover from a wide variety of potential attacks in a timely fashion.

Over the past year, our Senior Vice President – Information Technologies and Chief Information Officer and our Assistant Vice President and Chief Security Officer presented an educational and training program to the Board, utilizing materials by the SANS (SysAdmin, Audit, Network and Security) Institute, a premier cybersecurity training organization in the United States, which were developed for corporate boards and executives to build a better understanding of cybersecurity issues, oversight and governance. The sessions discussed the training materials, answered questions posed by our directors and discussed how specific cyber incidents addressed in the training materials relate to the Company’s cybersecurity program.

Climate risk, including transition risks, is also defined as part of our enterprise risk management program. To address climate risk, our enterprise risk management program provides for the review, monitoring and mitigation of climate change risks and how these risks may affect the Company’s ability to participate in emerging commodity or financial markets or impact rail’s environmental advantage over other modes of transportation. The Audit Committee and our Board receive updates on Company activities and mitigation strategies related to climate risk.

The Corporate Governance, Nominating and Sustainability Committee monitors the allocation of risk and sustainability oversight among the Board and its Committees. It also annually reviews the Company’s political activities and political activity reporting. The Compensation and Benefits Committee is responsible for assessing risks arising from the Company’s compensation policies and programs and oversees human capital-related risks, including with respect to the recruitment, development and retention of Company personnel and employee engagement and effectiveness.

The Company’s enterprise risk management process is dynamic and continually monitored so that the Company can timely identify and address any potential risks that arise in the ever-changing economic, political, legal and technology threat environment in which the Company operates.

BOARD CORPORATE GOVERNANCE MATTERS

In accordance with applicable provisions of Utah law and the Bylaws of the Company, the business and affairs of the Company are managed under the direction of the Board. The Board has established standing Committees and adopted guidelines and policies to assist it in fulfilling its responsibilities as described below.

During 2022, the Board met six times. None of the directors attended fewer than 75% of the aggregate number of meetings of the Board and the Committees on which he or she served. Our Corporate Governance Guidelines and Policies reflect our policy that all directors should attend the Annual Meeting. In accordance with this policy, all twelve directors then serving attended last year’s Annual Meeting.

The Board currently maintains four standing committees − the Audit Committee, Finance Committee, Compensation and Benefits Committee, and Corporate Governance, Nominating and Sustainability Committee. Each of the committees operates under a written charter adopted by the Board, with copies available on the Company’s website at www.up.com/investors/governance, and shareholders may obtain copies by contacting the Secretary of the Company at the address set forth on the notice page of this Proxy Statement. Each committee has the ability to retain outside advisors to assist it in the performance of its duties and responsibilities.

All Board Committees are composed entirely of independent directors, satisfying both the independence standards of the NYSE and the Director Independence Standards set forth in the Company’s Corporate Governance Guidelines and Policies. Audit Committee members and Compensation and Benefits Committee members also satisfy the additional independence criteria applicable to Audit Committee and Compensation and Benefits Committee members under the listing standards of the NYSE.

 

BOARD CORPORATE GOVERNANCE MATTERS

BOARD CORPORATE GOVERNANCE MATTERS

BOARD CORPORATE GOVERNANCE MATTERS

BOARD CORPORATE GOVERNANCE MATTERS

Under its charter, the Compensation and Benefits Committee (the Committee) has the authority to retain, terminate and approve fees for advisors and consultants as it deems necessary. The Committee, in its discretion, uses outside advisors and experts to assist it in performing its duties and fulfilling its responsibilities. The Committee has retained Frederic W. Cook & Co., Inc. (FW Cook) as its independent compensation consultant. A representative of FW Cook attends all Committee meetings. The Committee is solely responsible for the engagement and termination of this relationship. At its March 2023 meeting, the Committee reviewed and reaffirmed the engagement of FW Cook as the Committee’s compensation consultant and determined that the retention of FW Cook did not raise any conflicts of interest.

FW Cook advises the Committee on compensation philosophy and matters related to CEO and other executive and director compensation. The Committee annually requests that FW Cook update compensation and performance data on the peer companies selected by the Committee, as described on page 54 of this Proxy Statement. In addition, the Committee periodically requests that FW Cook make presentations on various topics, such as compensation trends and best practices, regulatory changes, long-term incentive components and award mix and stock plan utilization. The Committee Chair reviews and approves all charges for these consulting services.

The Committee also has authorized FW Cook to confer with management on a limited basis to promote consistency and efficiency. In such matters, FW Cook acts in its capacity as the Committee’s advisor, and the Committee Chair reviews and approves any major projects for which management requests the assistance of FW Cook. Such projects involve only the amount and form of executive or director compensation and may include analysis of competitive executive and director compensation data, design and development of new compensation and stock plans, calculation of compensation amounts reported in this Proxy Statement and review of materials prior to distribution to the Committee to confirm that the materials conform with the Committee’s philosophy and policies. The Committee Chair reviews and approves all charges for any projects requested by management. During 2022, the Company paid fees to FW Cook only for advising on matters under the Committee’s purview. The Company did not pay any fees for additional projects or services.

In early 2023, the Committee, with the assistance of FW Cook, conducted its annual compensation risk assessment of our incentive compensation programs and confirmed that they were designed to operate within a system of guidelines and controls to avoid creating any material adverse risks to the Company.

BOARD CORPORATE GOVERNANCE MATTERS

BOARD CORPORATE GOVERNANCE MATTERS

The Board has adopted the Union Pacific Corporation Code of Ethics for the Chief Executive Officer and Senior Financial Officers, the Statement of Policy on Ethics and Business Conduct for employees and the Union Pacific Corporation Code of Business Conduct and Ethics for Members of the Board of Directors. We post these codes of conduct on our website at www.up.com/investors/governance, and printed copies are available to any shareholder upon request to the Secretary of the Company at the address set forth on the notice page of this Proxy Statement. To the extent permitted by SEC rules and the NYSE listing standards, we intend to disclose any future amendments to, or waivers from, certain provisions of these codes of conduct on our website.

Interested parties wishing to communicate with the Board, including with the lead independent director, may do so by U.S. mail c/o the Corporate Secretary, Union Pacific Corporation, 1400 Douglas Street, 19th Floor, Omaha, NE 68179. Communications intended for a specific director or directors (e.g., the lead independent director, a committee chairperson or all of the non-management directors) should be addressed to their attention and sent, by U.S. mail, to the address above. The Board has appointed and authorized the Corporate Secretary of the Company to process these communications and forward them to the appropriate directors. We forward appropriate communications from shareholders directly to the appropriate Board member(s). If a communication is illegal, unduly hostile or threatening, or similarly inappropriate, the Corporate Secretary of the Company has the authority to disregard or take appropriate action regarding any such communication.

During 2022, non-employee directors were compensated for their Board service as shown below. Directors who are employees do not receive retainers or any other Board-related compensation. In September 2022, the Corporate Governance, Nominating and Sustainability Committee recommended to the Board and the Board approved the following changes to non-employee director compensation effective January 1, 2023. The Committee’s recommendation was based on a competitive analysis conducted by FW Cook, an independent compensation consultant, and the peer group used to assess competitive non-employee director compensation was the same one used for competitive executive compensation comparisons as shown on page 54 of this Proxy Statement. The last time non-employee director compensation was increased was in 2018.

Under our Stock Unit Grant and Deferred Compensation Plan for non-management directors, a director may, by December 31 of any year, elect to defer all or a portion of any compensation (in addition to the amount mentioned above that is required to be invested in their Stock Unit Account) for service as a director in the ensuing year or years, excluding reimbursements for expenses. Such deferred amounts may be invested, at the option of the director, in (i) a Fixed Rate Fund administered by the Company, (ii) a Stock Unit Account administered by the Company, or (iii) various notional accounts administered by The Vanguard Group. These accounts are unfunded, unsecured obligations of the Company. The Company Fixed Rate Fund bears interest equal to 120% of the applicable federal long-term rate compounded annually. The Stock Unit Account fluctuates in value based on changes in the price of our common stock, and equivalents to cash dividends paid on the common stock are deemed to be reinvested in the Stock Unit Account. The Vanguard Accounts are subject to earnings and value fluctuations from the investment performance of the notional accounts at Vanguard. Payment of all deferred amounts begins in January of the year following separation from service as a director. Deferred amounts may be paid, at the election of the director, in either a lump-sum or in up to 15 equal, annual installments.

Under the 2000 Directors Stock Plan (the 2000 Directors Plan) adopted by the shareholders on April 21, 2000, the Company may grant options to purchase shares of our common stock to non-management directors. Upon recommendation of the Corporate Governance, Nominating and Sustainability Committee in September 2007, the Board eliminated the annual grant of options for 2008 and future years. The Company did not award any options to non-management directors in 2022.

Previously, each non-management director, upon election to the Board of Directors, would receive a grant of 4,000 restricted shares of our common stock or restricted share units that represent the right to receive our

DIRECTOR COMPENSATION IN FISCAL YEAR 2022

common stock in the future (which number has been adjusted to reflect the Company’s two-for-one stock splits on May 28, 2008 and June 6, 2014). The restricted shares or share units vest on the date a director ceases to be a director by reason of death, disability or retirement, as defined in the 2000 Directors Plan. During the restricted period, the director has the right to vote such restricted shares and receive dividends or dividend equivalents, but may not transfer or encumber such shares or units. The director would forfeit such shares or units upon ceasing to be a director for any reason other than death, disability or retirement. Effective August 1, 2018, the Board approved the elimination of this initial equity grant for newly elected directors.

The following table provides a summary of the compensation of our non-management directors for 2022.

The Audit Committee has appointed Deloitte & Touche LLP as the independent registered public accounting firm to audit the books and accounts of the Company and its consolidated subsidiaries for the year ending December 31, 2023 and submits this selection for ratification by a vote of shareholders as a matter of good corporate governance. In the event that the Audit Committee’s selection of Deloitte & Touche LLP does not receive an affirmative vote of a majority of the votes cast, the Audit Committee will review its future selection of an independent registered public accounting firm.

The Audit Committee believes that the continued retention of Deloitte & Touche LLP as our independent registered public accounting firm is in the best interests of our shareholders as there are several benefits to the Company of having a long-tenured auditor.

The Company expects that a representative of Deloitte & Touche LLP will be present at the Annual Meeting and will have an opportunity to make a statement if such representative desires to do so and will be available to respond to relevant questions by shareholders.

Ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2023 requires the affirmative vote of a majority of the votes cast on this proposal at the Annual Meeting.

Aggregate fees billed to the Company for services rendered by our independent registered public accounting firm for each of the past two years are set forth below:

Audit Fees. Audit services included the integrated audit of financial statements and internal control, quarterly reviews, and comfort letters provided in conjunction with the issuance of debt.

Audit-Related Fees. Audit-related services included consultation on accounting standards and transactions, audits of employee benefit plans, audits of subsidiary companies, agreed-upon procedures performed on the Annual Report R-1 filed by Union Pacific Railroad Company with the Surface Transportation Board, and agreed-upon procedures related to reports to be filed with the Environmental Protection Agency and certain state agencies.

Tax Fees. Tax fees included fees for corporate tax planning and consultation services and work performed for international tax compliance.

All Other Fees. No other services were provided to the Company by Deloitte & Touche LLP during the years ended December 31, 2022 and 2021.

The Audit Committee’s charter requires the Committee to approve in advance all audit engagement fees and the terms of all audit services to be provided by the independent registered public accounting firm. By approving the engagement, which is performed in conjunction with the first Board meeting of each year, the audit services are deemed pre-approved. As part of its pre-approval policy, the Committee considers whether the provision of any proposed non-audit services is consistent with auditor independence. With respect to non-audit services provided by the independent registered accounting firm, the Audit Committee adopted and observes procedures that require the independent registered public accounting firm to present a budget for the three categories of non-audit services: (i) audit-related services, (ii) tax services and (iii) other services. The budget is detailed as to the particular services to be provided so that the Committee knows what services it is being requested to pre-approve in order to facilitate a well-reasoned assessment of the impact of the services on the auditor’s independence. After review and approval of the annual budget by the Committee, no further approval by the Committee is required to undertake specific projects within the three categories of non-audit services. The Committee pre-approved all of Deloitte & Touche LLP’s 2021 and 2022 fees and services.

The Audit Committee has reviewed and discussed with management the Company’s audited consolidated financial statements for the year ended December 31, 2022. The Committee has discussed with the Company’s independent registered public accounting firm, Deloitte & Touche LLP, the matters required to be discussed with the Audit Committee under applicable Public Company Accounting Oversight Board (PCAOB) standards and SEC Rule 2-07 of Regulation S-X. The Committee also has received the written disclosure and correspondence from Deloitte & Touche LLP required by applicable requirements of the PCAOB regarding Deloitte & Touche LLP communications with the Committee concerning independence and has discussed their independence with them. Based on the foregoing reviews and discussions, the Committee recommended to the Board that the audited financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, for filing with the SEC.

The Board of Directors asks shareholders to support a non-binding, advisory resolution approving the Company’s executive compensation as reported in this Proxy Statement.

We design our executive compensation programs to support the Company’s long-term success. As described below in the Compensation Discussion and Analysis section of this Proxy Statement, the Compensation and Benefits Committee has structured the Company’s executive compensation programs to achieve key Company goals and objectives. We believe our compensation philosophy allows us to link realized pay to performance measures and reward management efforts that produce consistent, long-term performance accompanied with effective risk management and execution of the Company’s strategy.

Despite the operational challenges experienced in 2022 and the decline in our operating metrics year-over-year, we made positive strides on safety and demonstrated progress toward our carbon emission reduction goals as we improved our fuel consumption rate for the fourth consecutive year and increased our biofuel blend to over 4.5%. Highlights of the Company’s 2022 financial and operational performance include:

The Board urges shareholders to read the Compensation Discussion and Analysis, beginning on page 53 of this Proxy Statement, which describes in more detail how our executive compensation policies and procedures operate and are designed to align compensation with our Company strategy, goals and objectives and with best practices. Shareholders should also review the Summary Compensation Table and related compensation tables and narrative, appearing on pages 68 through 83, which provide detailed information regarding the compensation of our Named Executive Officers. The Compensation and Benefits Committee and the Board of Directors believe that the policies and procedures articulated in the Compensation Discussion and Analysis create effective incentives for achieving Company goals, including returns to shareholders, and that the compensation of our Named Executive Officers reported in this Proxy Statement has supported and directly contributed to the Company’s performance and success.

In accordance with Section 14A of the Securities Exchange Act of 1934, and as a matter of good corporate governance, the Board asks shareholders to approve the following advisory resolution at the Annual Meeting:

RESOLVED, that the shareholders of Union Pacific Corporation (the Company) approve, on an advisory basis, the compensation of the Company’s Named Executive Officers disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables and narrative in the Proxy Statement for the Company’s 2023 Annual Meeting of Shareholders.

This advisory resolution, commonly referred to as a “say on pay” resolution, is non-binding on the Board of Directors. Although non-binding, the Board and the Compensation and Benefits Committee will review and consider the voting results when evaluating the Company’s executive compensation programs. After the 2023 Annual Meeting, our next advisory vote on executive compensation will occur at our 2024 Annual Meeting of Shareholders.

Pursuant to Section 14A of the Exchange Act, the Board of Directors is asking shareholders to vote on whether future advisory votes on executive compensation of the nature reflected in Proposal Number 3 above should occur every (1) year, every two (2) years, or every three (3) years.

In 2017, the shareholders voted consistent with the Board’s recommendation, to hold advisory votes to approve executive compensation every (1) year.

After careful consideration and taking into account the shareholder vote in 2017, the Board has determined that holding an advisory vote on executive compensation every (1) year continues to be the most appropriate policy for the Company at this time, and recommends that shareholders vote for future advisory votes on executive compensation to occur every (1) year. While the Company’s executive compensation programs are designed to promote a long-term connection between pay and performance, the Board recognizes that executive compensation disclosures are made annually. Holding an annual advisory vote on executive compensation provides the Company with more direct and immediate feedback on its compensation disclosures. However, shareholders should note that because the advisory vote on executive compensation occurs well after the beginning of the compensation year, and because the different elements of the Company’s executive compensation programs are designed to operate in an integrated manner and to complement one another, in many cases it may not be appropriate or feasible to change the executive compensation programs in consideration of any one year’s advisory vote on executive compensation by the time of the following year’s Annual Meeting. An annual advisory vote is also consistent with the Company’s practice of having all directors elected annually and annually providing shareholders the opportunity to ratify the Audit Committee’s selection of independent auditors.

The Board understands that some of the Company’s shareholders may have different views as to what is an appropriate frequency for advisory votes on executive compensation, and the Board will carefully review the voting results of this proposal. Shareholders are not voting to approve or disapprove the Board’s recommendation. Shareholders will be able to specify one of four choices for this proposal on the proxy card: one year, two years, three years, or abstain. This advisory vote on the frequency of future advisory votes on executive compensation is non-binding on the Board. Notwithstanding the Board’s recommendation and the outcome of the shareholder vote, the Board may in the future decide to conduct advisory votes on a less frequent basis and may vary its practice based on factors such as discussions with shareholders and material changes to compensation programs.

Union Pacific Railroad Company is the principal operating company of Union Pacific Corporation. One of America's most recognized companies, Union Pacific Railroad Company connects 23 states in the western two-thirds of the country by rail, providing a critical link in the global supply chain. We serve many of the fastest-growing U.S. population centers, operate from all major West Coast and Gulf Coast ports to eastern gateways, connect with Canada’s rail systems and are the only railroad serving all six major Mexico gateways. The Railroad’s diversified business mix includes Bulk, Industrial, and Premium. Bulk traffic consists of grain and grain products, fertilizer, food and refrigerated, and coal and renewables. The Industrial group consists of several categories, including construction, industrial chemicals, plastics, forest products, specialized products (primarily waste, salt, and roofing), metals and ores, petroleum, liquid petroleum gases (LPG), soda ash, and sand. The transportation of finished vehicles, auto parts, and merchandise in intermodal containers both domestic and international are included as part of our Premium business. The Railroad provides value to its roughly 10,000 customers by delivering products in a safe, reliable, fuel-efficient and environmentally responsible manner.

The Company’s growth strategy focuses on growing customer value through innovative supply chain solutions and aspiring to Serve, Grow, Win – Together.

We believe that operational excellence and an engaged workforce with deep market knowledge and strong customer relationships supports best-in-class safety, a customer experience that drives growth, and shareholder returns.

As we work to transform our railroad into the safest, most reliable, and most efficient in North America, our values continue guiding us. Our passion for performance will help us win; our high ethical standards will lead us to win in a way that supports all of our stakeholders; and our teamwork will make sure we win together.

Safety – Union Pacific is dedicated to maintaining a safe and healthy workplace. Throughout 2022, we continued to use our Total Safety Culture, Courage to Care, COMMIT (Coaching, Observing, Mentoring, and Motivating with Integrity and Trust), and Peer to Peer programs throughout our operations to enhance employee safety and engagement. In addition, based on the evaluation of a third-party expert on the effectiveness of these programs completed in 2021, we are implementing engagement improvements to enhance our safety culture. These

2022 Business Highlights

initiatives include defining and setting standards for employee interactions, corrective actions and follow up, and root cause analysis. We also continued to adapt to the evolving environment due to coronavirus and its variant strains (COVID) and other illnesses. Safety procedures and policies are refined based on Centers for Disease Control and Prevention (CDC) guidelines.

We continued to refine our proprietary software to evaluate train and route characteristics to enable proactive intervention by our Operating Practices Command Center to prevent derailments. In addition, we increased the replacement of freight car wheels and took steps to address human factor yard derailments related to switch alignment. Despite these efforts, our reportable derailment incident rate per million train miles increased 8% year-over-year.

Network Operations – Throughout 2022, our network was congested in several key corridors, which hindered our ability to handle all of the demand in several markets. To address this congestion, we aggressively hired and graduated 1,302 new train, engine, and yard employees; temporarily relocated train, engine, and yard employees to areas with the greatest need; added locomotives to the fleet in select locations; and reduced freight car inventory, relative to carloads, from our network. Due to this congestion, our operating metrics deteriorated year-over-year. Freight car velocity decreased due to increased terminal dwell and higher operating car inventory levels, which drove lower train speeds.

Financial Results – Higher fuel prices, operational challenges, inflation, increased volume-related costs, and a one-time charge for the labor agreements reached with our labor unions, drove a 20% increase in operating expenses. Partially offsetting these increases were lower weather-related expenses in 2022 compared to 2021, when we incurred additional costs associated with Winter Storm Uri and wildfires in California. Increased revenues, due to higher fuel surcharge revenues, improved pricing, additional volume, and intermodal accessorial charges, more than offset the increased expenses producing operating income of $9.9 billion, a 6% increase over 2021. Our operating ratio was 60.1%, deteriorating 2.9 points from 2021. Net income of $7.0 billion translated into earnings of $11.21 per diluted share, up 13% from 2021.

Our net return on invested capital of 17.3% increased 0.9 points compared to 2021. In 2022, we paid dividends of $3.2 billion, which included a 10% dividend increase in the second quarter. In addition, we repurchased 27 million Union Pacific shares. Combining dividends and share repurchases, Union Pacific returned $9.4 billion to our shareholders in 2022.

Please also refer to the Company’s Annual Report on Form 10-K for a complete analysis of the Company’s 2022 financial and operating performance and non-GAAP reconciliation.

The Company’s executive compensation philosophy is to:

The Compensation and Benefits Committee (the Committee) believes this compensation philosophy allows us to reward behavior that produces consistent, long-term performance accompanied with effective risk management and execution of the Company’s strategy.

The Committee carefully evaluates and considers a number of factors in connection with its executive compensation decisions, including:

Company Performance. Under the Company’s annual incentive cash program, the Company measures its performance against a formulaic component based on pre-established operating income and operating ratio targets, as well as a non-formulaic component based on the Committee’s evaluation of certain business objectives related to safety, service and other strategic performance outlined on pages 60 and 61 . Under the performance stock unit component of the Company’s long-term incentive program, the Company measures three-year average ROIC and relative OIG. The Committee recommends the operating income and operating ratio targets for the annual incentive cash program and the three-year ROIC targets for the performance stock unit program to the Board for approval each February. Management also develops the Company’s overall strategy and the corresponding business objectives and presents them to the Board annually in February. After Board approval of the annual operating plan, the Committee establishes the financial and strategic performance goals for the compensation program with assistance and advice from the Finance Committee of the Board. The Board monitors the Company’s progress concerning execution of its strategy and its business objectives during the year. At the end of the year, the Board assesses the Company’s achievement of these objectives. In February, subsequent to the performance year, management presents to the Committee the Company’s performance against the annual incentive program and performance stock unit program goals, as well as and its relative performance compared to the Peer Group. This process informs the Committee’s decisions on approving earned amounts of annual and long-term incentive compensation for performance periods ending the prior year.

Guidance from Compensation Consultant and Input from CEO. The Committee reviews and recommends the compensation of all NEOs to the Board for its approval. The CEO provides the Committee with his evaluation of the performance of the other NEOs and his recommendations for their compensation. The Committee also receives information and recommendations from its independent compensation consultant (FW Cook) on matters related to the NEOs’ (including the CEO’s) and other executives’ compensation. The Committee then determines (with advice from the Board, and assistance from its consultant) an annual incentive bonus and equity award for the Company’s CEO.

Executive Compensation Philosophy and the Compensation-Setting Process

For more information on the operation of the Committee, including information on its compensation consultant, see page 39 of this Proxy Statement.

Peer Companies. The Committee benchmarks salary, Total Target Cash Compensation (the sum of base salary and target annual incentive compensation) and Total Target Direct Compensation (the sum of Total Target Cash Compensation and the target grant-date fair value of long-term incentives) for the NEOs against competitive market information. To assess competitive market information, the Committee looks primarily to pay data from the proxy statements of the Company’s Peer Group. In determining 2022 target pay opportunities for the NEOs, the Committee considered competitive market information gathered in 2021 from the Peer Group.

As further discussed below, the Committee generally seeks to establish base salaries below the median of the Peer Group, reflecting the Committee’s philosophy that a greater proportion of the cash component of the executives’ compensation should be incentive-based. The Committee generally targets a range around the median of the Peer Group for Total Target Cash Compensation and Total Target Direct Compensation. Actual Total Direct Compensation and Actual Total Cash Compensation may be greater or less than targeted percentiles, depending upon whether and to what degree the Company achieves its business objectives (as described above).

Other factors considered in setting target compensation levels may include the individual performance of each NEO and his or her position relative to the Company’s current internal pay structure or changes in personnel or compensation at the Peer Group companies. In addition, the Committee particularly focuses on competitive pay for railroad executives within the Peer Group and the performance of other comparable railroads. In comparing the executive positions with comparable positions at companies within the Peer Group, the Committee and FW Cook review and consider any adjustments that may be required to account for significant differences in tenure or functional responsibilities.

In determining 2022 target pay opportunities for the NEOs, the Committee considered competitive market information gathered in 2021 from the following 15 company Peer Group:

The Committee selected this Peer Group in 2021 with the assistance of its compensation consultant, FW Cook, after considering U.S. based public companies in similar Global Industry Classification System (GICS) Sub-Industries with comparable revenues and market capitalization and other U.S.-based public companies with comparable (i) revenues, (ii) operating income, (iii) total assets, (iv) market capitalization and (v) employees, while excluding pharmaceuticals, high-tech, insurance and financial services companies. These comparative financial measures and the number of employees for the Peer Group are summarized below.

Dollars in millions. Median/Percentiles determined by FW Cook using Standard & Poor’s Capital IQ Service, Form 8-K filings and Peer Group company information. The financial information provided above is derived from data as of fiscal year ending December 31, 2021, except as of October 2021 for Deere & Co., and November 2021 for FedEx. Market Capitalization is a 12-month average as of December 31, 2021.

Executive Compensation Philosophy and the Compensation-Setting Process

We endeavor to maintain strong governance standards in our policies and practices related to executive compensation. Below is a summary of key executive compensation and governance practices in place during 2022.

This Compensation Discussion and Analysis describes the material elements of our executive compensation program, and the corresponding pay decisions for our 2022 Named Executive Officers (NEOs), who are listed below. The amounts in each NEO’s pie chart below reflect the values in the Summary Compensation Table on page 68.

 

Mr. Fritz was elected President and Chief Executive Officer on February 5, 2015. The Compensation and Benefits Committee increased Mr. Fritz’s salary for 2022 to $1,275,000, a 3.7% increase, and maintained Mr. Fritz’s 2022 Annual Incentive Plan bonus target of $2,200,000. Mr. Fritz received an annual incentive bonus for 2022 of $963,600 at 44% of target based on the formulaic bonus program under the Company’s 2022 Annual Incentive Plan. The Committee increased Mr. Fritz’s long-term incentive target grant value to approximately $12,000,000 consisting of 60% performance stock units and 40% stock options granted on February 3, 2022. Mr. Fritz’s 2020 grant of performance stock units paid out at 72% of target.

 

Ms. Hamann was elected Executive Vice President and Chief Financial Officer effective January 1, 2020. Ms. Hamann previously served as Senior Vice President-Finance from April 2019 to December 2019 and Vice President-Planning & Analysis from October 2017 to March 2019. The Compensation and Benefits Committee set Ms. Hamann’s salary for 2022 at $600,000 and maintained her 2022 Annual Incentive Plan bonus target at $750,000. Ms. Hamann received an annual incentive bonus for 2022 of $328,500 at 44% of target based on the formulaic bonus program under the Company’s 2022 Annual Incentive Plan. The Committee set Ms. Hamann’s long-term incentive target grant value at approximately $2,500,000 consisting of 60% performance stock units and 40% stock options granted on February 3, 2022. Ms. Hamann’s 2020 grant of performance stock units paid out at 72% of target.

Named Executive Officers

 

Ms. Whited was elected Executive Vice President-Sustainability & Strategy on February 3, 2022. Ms. Whited previously served as Executive Vice President and Chief Human Resource Officer from August 2018 to February 2022 and Executive Vice President and Chief Marketing Officer from December 2016 to August 2018. The Compensation and Benefits Committee increased Ms. Whited’s salary for 2022 to $530,000, a 8.6% increase, and maintained Ms. Whited’s 2022 Annual Incentive Plan bonus target of $750,000. Ms. Whited received an annual incentive bonus for 2022 of $338,500 at 45% of target based on the formulaic bonus program under the Company’s 2022 Annual Incentive Plan. The Committee increased Ms. Whited’s long-term incentive target value to approximately $1,750,000 consisting of 60% performance stock units and 40% stock options granted on February 3, 2022. Ms. Whited’s 2020 grant of performance stock units paid out at 72% of target.

Named Executive Officers

 

Mr. Rocker has been Executive Vice President-Marketing and Sales since August 15, 2018. Mr. Rocker previously served as Vice President-Marketing and Sales-Industrial team from October 2016 to August 2018. The Compensation and Benefits Committee increased Mr. Rocker’s salary for 2022 to $475,000, a 5.6% increase, and increased Mr. Rocker’s 2022 Annual Incentive Plan bonus target to $750,000. Mr. Rocker received an annual incentive bonus for 2022 of $335,500 at 45% of target based on the formulaic bonus program under the Company’s 2022 Annual Incentive Plan. The Committee increased Mr. Rocker’s long-term incentive target grant value to approximately $1,500,000 consisting of 60% performance stock units and 40% stock options granted on February 3, 2022. Mr. Rocker’s 2020 grant of performance stock units paid out at 72% of target.

 

Mr. Gehringer was elected Executive Vice President-Operations effective January 1, 2021. Mr. Gehringer previously served as Senior Vice President-Transportation from July 2020 to December 2020, Vice President-Mechanical & Engineering from January 2020 to July 2020, Vice President-Engineering from March 2018 to January 2020, and Assistant Vice President-Engineering from September 2016 to March 2018. The Compensation and Benefits Committee increased Mr. Gehringer’s salary to $475,000. Mr. Gehringer’s 2022 Annual Incentive Plan bonus target was set at $750,000. Mr. Gehringer received an annual incentive bonus for 2022 of $323,500 at 43% of target based on the formulaic bonus program under the Company’s 2022 Annual Incentive Plan. The Committee increased Mr. Gehringer’s long-term incentive target grant value to approximately $1,500,000 consisting of 60% performance stock units and 40% stock options granted on February 3, 2022. Mr. Gehringer’s 2020 grant of performance stock units paid out at 72% of target.

Named Executive Officers

The majority of the compensation awarded to our CEO and other NEOs, is performance-based, variable compensation and “at-risk.” These characteristics are illustrated in the charts below that show the pay mix for Mr. Fritz, our CEO, and for our other NEOs as a group based on the Total Target Direct Compensation received by these executives in fiscal 2022.

 

The CEO reviews base salaries and prior year performance and accomplishments for the other NEOs and recommends to the Committee a base salary for the coming year for each. The Committee considers and evaluates these base salary recommendations. Among many considerations, the Committee reviews: (i) the executive’s position and responsibility in the organization, (ii) the executive’s experience and expertise, (iii) Company performance, (iv) individual accomplishments and job performance during the year, (v) Peer Group pay data, (vi) internal benchmarking relative to the Company’s pay structure, and (vii) current salary. In making salary recommendations to the Board of Directors, the Committee exercises subjective judgment in evaluating many factors but applies no specific weights to any factor. The Committee, with input from its compensation consultant, and the Board’s review of CEO performance, assesses and determines the base salary of the CEO for subsequent Board approval based on the same considerations described above.

In February 2022 and 2023, the Committee reviewed each of our NEO’s base salary. Upon review of competitive market data, including our Peer Group, the Committee reviewed and recommended the salary increases shown below. The Board approved the Committee’s recommended salary increases.

Seventy percent (70%) of the target annual incentive cash bonuses paid to executives, including the NEOs, is based on the attainment of pre-established objective Company financial performance goals, twenty percent (20%) is based on a shared set of Company goals in key areas such as safety, customer service, trip plan compliance, market share, employee engagement and renewable fuel blend and ten percent (10%) is based on individual performance. The financial performance goals were equally weighted based on operating income and operating ratio. If the minimum performance thresholds for neither operating income nor operating ratio are achieved, then no annual incentive cash bonus is paid to executives. For performance that exceeds target levels, the annual incentive plan payout is capped at 200% of target.

 

When determining individual annual incentive bonus targets for each of the NEOs, the Committee generally targeted the 50^th percentile of Target Total Cash Compensation. These individual annual incentive bonus targets for each of the NEOs were approved by the Committee and then recommended to the Board and approved in February of 2022.

Elements of Our Executive Compensation Program

Annual incentive compensation supports the Committee’s pay-for-performance philosophy and further aligns individual goals with Company goals as set forth in the Company’s annual operating plan. For 2022, the Committee selected Operating Income and Operating Ratio as the key financial metrics because they are key performance measures in the rail industry and focus our executives’ performance on operating results.

Directly tied to Operating Ratio targets and quantifies our profitability.

A key indicator of the Company’s efficiency.

 

The table below shows the weighted average annual incentive payout for the NEOs given the Company’s 2022 year-end results relative to the Operating Income and Operating Ratio targets approved in February 2022.

The non-formulaic component of the 2022 Annual Incentive Plan is divided into two parts: twenty percent (20%) is based on a shared set of strategic goals in key areas such as safety, customer service, trip plan compliance, market share, employee engagement and renewable fuel blend and ten percent (10%) is based on individual performance.

Elements of Our Executive Compensation Program

Our Company strategy, Serve, Grow, Win – Together, serves the basis for the strategic scorecard component of the 2022 Annual Incentive Plan. We communicate to executives, and the Committee assesses, the individual strategic scorecard items shown below, without assigning particular weighting to any one item.

 

The Company exceeded its goal of 80% participation in the employee engagement survey with an 88% participation rate and exceeded its goal of 4% biofuel blend, with a biofuel blend of over 4.5% in 2022. Our 2022 personal injury rate did not satisfy our high expectations and the reportable derailment rate did not improve compared to 2021 . However, service challenges affected our ability to further improve our operating metrics in 2022, lowering trip plan compliance for both Intermodal and Manifest/Autos from 2021. While market share improved, carload growth and net promoter score fell short of expectations due to service issues. Based on the Committee’s evaluation of the Company’s achievement of the strategic scorecard items, the Committee awarded this component at 50% of target for each of the NEOs.

The Committee awarded, based on Mr. Fritz’s recommendation, the individual executive performance component (10%) at 100% for Ms. Hamann, 113% for Ms. Whited, 109% for Mr. Rocker and 93% for Mr. Gehringer. The Committee awarded Mr. Fritz’s individual executive performance component at 100% of target.

The table below reflects the aggregate actual performance incentive cash bonus reported for each of the NEOs for 2022.

Elements of Our Executive Compensation Program

The components of our long-term incentive compensation are:

The Committee generally seeks to make long-term incentives the largest element of each NEO’s Target Total Direct Compensation. In setting the size of long-term incentive awards, the Committee considers the individual performance of the NEO as well as the Total Target Direct Compensation opportunities of similarly situated executives of the Company’s Peer Group and competitive market information from third party compensation surveys. The CEO recommends to the Committee an aggregate value of long-term incentive awards for each of the NEOs (other than himself, a determination reserved for the Committee, taking into account advice from its compensation consultant and the Board’s evaluation of the CEO). The Committee considers these recommendations and determines the final amounts awarded to each NEO. The Committee may vary the mix of each component of equity compensation to some degree depending on Company and individual performance and retention risk regarding an executive.

The long-term incentive awards granted by the Committee in February 2022 reflected the Committee’s desire to provide long-term incentive compensation to ensure the continued efforts of the NEOs to meet the long-term goals and strategic plans of the Company and to align this element of their compensation with the long-term interests of the Company’s shareholders. The Committee increased Mr. Fritz’s and Mr. Rocker’s long-term incentive award for 2022 to better align their compensation with the Peer Group median benchmark. Ms. Hamann also received an increase in her long-term incentive award to incentivize her continued growth in her role as Executive Vice President and Chief Financial Officer. The Committee increased Ms. Whited’s long-term incentive award, noting her increased responsibility in her new role as Executive Vice President-Sustainability and Strategy, while also continuing to lead the Company’s human resources organization. The increase in long-term incentive compensation for Mr. Gehringer reflected the Committee’s alignment of his compensation with the Peer Group and his responsibilities as Executive Vice President-Operations.

The long-term incentive awards for the NEOs and a description of the terms of these awards are set forth on pages 70 and 71 in the Grants of Plan-Based Awards in Fiscal Year 2022 Table and accompanying narrative discussion.

In February 2021 and February 2022, the Committee awarded the NEOs performance stock units (PSUs) that are payable based on the attainment and certification of two-thirds (2/3) average annual return on invested capital (ROIC) for a three-year performance period (Performance Period) and one-third (1/3) operating income growth (OIG) over the Performance Period as compared to the OIG of the companies in the S&P 100 Industrials Index and the Class I Railroads. Payout of the 2021 and 2022 PSUs may be zero if threshold goals are not achieved, or may range from 25% to 200% of the target number of stock units. The threshold, target and maximum number of 2022 PSUs that may be earned by each NEO is set forth on page 70 in the Grants of Plan-Based Awards in Fiscal Year 2022 Table.

Elements of Our Executive Compensation Program

PSUs granted in 2020 were payable based on the attainment and certification of average annual ROIC for the Performance Period and a relative OIG modifier compared to the S&P 500 Industrials Index, which could increase or decrease payment by up to 25% of the stock units earned under the ROIC performance criteria, subject to a maximum payout of 200% of the target.

We define ROIC as net operating profit after taxes, divided by average invested capital. The Committee may adjust ROIC to reflect the effect of special or strategic transactions or events, such as excluding the impact of significant gains on sales of real estate, tax adjustments, accounting charges, or reclassifications. The Committee selected ROIC because it is one of our key measurements that indicates success in making long-term capital investment decisions that improve financial and operational performance and increase shareholder value. In addition, the Board emphasizes ROIC as a key focus area for the Company.

The ROIC performance criteria are set with thoughtful analysis of current and projected business levels and changes in the economic environment that may impact the Company’s ability to achieve levels of return reported in previous periods. For PSUs granted in 2022, the Committee recommended Board approval of our ROIC target at 17.0%, higher than the prior year’s target. The Committee also considered returns commensurate with other Class I railroads and large cap industrial companies.

For PSUs granted in 2020, if the Company did not meet the threshold ROIC level for the three-year performance period, executives would not earn any performance stock units. For PSUs granted in 2021 and 2022, if the Company does not meet the threshold ROIC and OIG level for the three-year performance period, executives will not earn any performance stock units on that component. The Company does not pay dividend equivalents on unearned performance stock units.

The Committee has certified the ROIC results as shown in the graph below for performance years 2020-2022.

 

In February 2023, the PSUs granted for the 2020-2022 performance period were settled at an overall payout of 72% of target, based on 15.9% average ROIC over the three-year performance period. Our relative OIG was in the 43^rd percentile so the modifier had no effect on the final payout.

Performance stock units earned under the 2020 grants for each of the NEOs are included as Earned Performance Stock Units in the Stock Awards column of the Outstanding Equity Awards at 2022 Fiscal Year-End Table on page 72.

The table below summarizes how the performance stock units granted in 2020 were earned, and how the performance stock units granted in 2021 and 2022 are tracking as of the end of 2022.