Proxy Statement Pursuant to Section 14(a)

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(Amendment No.  )

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To Shareholders:

The 2022 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 12, 2022 via live audio webcast at www.virtualshareholdermeeting.com/UNP2022 for the following purposes:

Only shareholders of record at the close of business on March 18, 2022, are entitled to notice of, and to vote at, the Annual Meeting.

As part of our precautions regarding the coronavirus pandemic, the Annual Meeting is being held solely by means of remote communication. You may listen to the live audio webcast of the Annual Meeting via the Internet at www.virtualshareholdermeeting.com/UNP2022. 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/UNP2022.

Your vote is very important. New York Stock Exchange rules provide that if your shares are held by a broker, your broker will NOT be able to vote your shares on most matters presented at the Annual Meeting, including the election of directors, 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.

 

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 4, 2022, 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 12, 2022, at 8:00 A.M., Central Daylight Time

Place^*: Via live audio webcast at www.virtualshareholdermeeting.com/UNP2022

Record Date: March 18, 2022

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

In 2021, the Company recorded its most profitable year ever despite the effects of the coronavirus pandemic and its variants, global supply chain disruptions, and the adverse impact of large scale weather events and wildfires on our network operations. These challenges required adjustments to our transportation plans and impacted the overall fluidity of the network. Even so, we were able to leverage our great rail franchise to generate positive business mix and core pricing gains. Our safety and operational performance in 2021 did not meet expectations, and many of our operating metrics declined year-over-year. The Company drew on its strengths and its dedicated employees to continue to serve our customers, communities, and shareholders. Highlights of the Company's 2021 financial and operational performance include:

Union Pacific operates across 23 states in the western two-thirds of the nation. 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. Together, these actions allow Union Pacific to build a more sustainable future.

Our environmental, social and governance (ESG) 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. Highlights of these accomplishments follow. This approach addresses the evolving needs of our stakeholders and is more inclusive of the overall impact we can have.

Proxy Summary

In 2021, we completed a comprehensive ESG materiality assessment to determine which ESG topics were most important to our stakeholders. We engaged our internal and external stakeholders, through an online survey and individual interviews, to understand a broader stakeholder perspective on certain ESG issues to inform the continued evolution of our sustainability strategy. As a result of the assessment, we added a new pillar to our strategy called “Building Responsible Foundations.” This addition underscores the importance of the health, safety, and well-being of our employees, ethical business practices, cybersecurity, and strong risk management processes to our business and to our stakeholders.

 

More information about our ESG materiality assessment is available in the 2021 Building America Report, which will be available on our website up.com under the Investor drop-down menu, under “Sustainability.”

At the end of January 2022, we announced plans to purchase 20 battery-electric locomotives for testing in yard operations. The combined purchases and upgrades to yard infrastructure are expected to exceed $100 million, representing the largest investment in battery-electric technology by a U.S. Class I railroad.

Battery-electric locomotives do not use fuel and emit zero emissions. For every 10 battery-electric locomotives used, approximately 4,000 tons of carbon will be eliminated annually, the equivalent of removing 800 cars from the highway. By working with the locomotive manufacturers in this test phase, we hope to advance battery-electric technology development and evaluate its potential deployment in long-haul service.

Additional details can be found in our 2021 Climate Action Plan report. The report is available on our website up.com under the Investor drop-down menu, under “Sustainability”.

Proxy Summary

PEOPLE

In 2021, we saw a continuation of the previous year’s pandemic, social unrest, political discord, market volatility, and the continued presence of service-disrupting natural disasters. Despite these challenges, our employees remained focused and dedicated to delivering on our commitments to our customers, communities, shareholders, and to one another. We are proud of our talented and dedicated workforce, which reflects the diverse and inclusive culture we are cultivating.

 

Union Pacific remains 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 are also focusing on talent attraction, development, and retention, which is 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, as well as programs designed to recognize potential and retain our talented workforce.

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

SAFETY

The health, safety, and well-being of our employees is our most important ESG topic. Safety is ingrained in our culture because we want every employee to return home safely every day. In 2021, our overall safety performance declined compared to 2020. Our recent safety performance has not met expectations, and illustrates that we have work to do. Accordingly, we undertook an evaluation of the effectiveness of our safety programs in 2021 with the help of a third-party expert.

Proxy Summary

We are striving for a step-change performance in safety that we believe is possible. Our approach is twofold: apply design thinking to engineer hazards out of the work environment with the goal of preventing accidents from happening and fully engage employees in behavior-based safety programs to drive world-class results.

COMMUNITIES

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

 

COMMITMENT TO ETHICAL BUSINESS CONDUCT

ESG GOVERNANCE

On February 3, 2022, Elizabeth F. Whited was appointed Executive Vice President—Sustainability and Strategy. In this new role, Ms. Whited will help develop and implement Union Pacific’s strategic vision as it strives to become the nation’s No. 1 supply chain provider and oversee ESG strategy and sustainability initiatives, which will be foundational to our efforts on the Company’s pathway to reach net zero by 2050.

To oversee and guide the appropriate management of ESG, we have established the following governance structure.

 

 

In order to advance our ESG governance efforts, we are further integrating ESG risk into our enterprise risk management framework, conducting a climate scenario analysis in 2022 and continuing to evolve ESG-related key performance indicators in our executive compensation scorecard.

Proxy Summary

ESG DISCLOSURE

In response to feedback from our stakeholders, Union Pacific is changing its approach to its ESG disclosure to include more frequent, focused and transparent reports that address the topics most important to our stakeholders. Annual 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 2021, as part of our regular shareholder engagement, management participated in 12 investor conferences, over 75 virtual or in-person investor meetings, and hosted more than 400 conference calls with investors and analysts. In May 2021, we conducted an Investor Day, our first since May 2018. At this virtual event, we presented our strategic plan for future business growth, while providing financial targets for 2022 to 2024.

We engaged in dialogue with holders of more than 50% of our total shares outstanding. Additionally, we met with 60% of our top 100 investors. We engaged with investors on various topics, including:

We have made several enhancements to our ESG disclosures in response to shareholder feedback we received in the past year, including the disclosure of our 2018, 2019, and 2020 EE0-1 reports and the recent publication of our Human Capital Report, We Are One. We also published our initial Climate Action Plan in December 2021 outlining our approach to driving innovative climate action and responding to emerging risks affecting the rail industry. Additionally, we became the first U.S. rail to announce our commitment to achieve a net zero greenhouse gas (GHG) emissions target by 2050.

We were encouraged with the results of our say-on-pay vote at our 2021 Annual Meeting of Shareholders as we received shareholder support of 93.7% for our executive compensation program. We believe that the executive compensation decisions made in 2021 together with the revisions we made in prior years 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

 

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 By-Laws 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) and Proposal Number 3 (advisory vote to approve executive compensation) requires the affirmative vote of a majority of the votes cast on the proposal (either in person or by proxy).

If your shares are held in 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, New York Stock Exchange (NYSE) rules allow, but do not require your broker to vote on the ratification of the independent registered accounting firm in Proposal Number 2. If you do not provide voting instructions, your broker will not have discretion to vote your shares on Proposal Numbers 1 and 3 resulting in what is referred to as broker non-votes on those matters. 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.

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 and which matters are approved under Proposal Numbers 2 and 3.

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 and “FOR” Proposal Number 3. 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 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 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 $17,500, 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/UNP2022 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/UNP2022. 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 2021 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.

PROPOSAL NUMBER 1 – Election of Directors

The Corporate Governance and Nominating 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 23 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 and Nominating 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 and Nominating 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 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 2021, the Company retained the services of Heidrick & Struggles to help identify and evaluate suitable director candidates. Mses. Edison and Finley were first identified as director candidates by non-management directors.

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 charts below reflect the Board tenure of our current directors and the tenure of our director nominees standing for election at the Annual Meeting. The average tenure of all directors currently serving on our Board is 7.3 years. Excluding Mr. Card and Mr. McLarty, who will retire from our Board in May and who are not standing for re-election, the average tenure of our Board nominees is 5.8 years.

 

The Corporate Governance and Nominating 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 and Nominating Committee and the Board on its self-evaluation and review of its Charter.

During 2021, 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 and Nominating 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 By-Laws provide for “proxy access” for certain director candidates nominated by shareholders. Under the By-Laws, 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 2023 Annual Meeting of Shareholders should provide the information specified in the By-Laws to the Secretary of the Company in writing during the period beginning on October 30, 2022 and ending on November 29, 2022, and should include the information and representations required by the proxy access provisions set forth in the Company’s By-Laws.

The Corporate Governance and Nominating 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 2023 Annual Meeting should advise the Secretary of the Company in writing during the period beginning on January 12, 2023 and before the close of business on February 11, 2023, and should include the following information required by the nomination procedures set forth in the Company’s By-Laws, 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 By-Laws 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 and Nominating 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 former director, Mr. Patel, and all remaining directors, except for Mr. Fritz, Mses. Edison, Finley, Hopkins and Lute and Messrs. Card, DeLaney, Dillon, McCarthy, McLarty, 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.

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’s independence determination included a review of the payments over the last three years between the Railroad and LyondellBasell Industries, N.V. (LyondellBasell). Mr. Patel was the Chief Executive Officer of LyondellBasell until December 31, 2021, and a director of the Company until May 13, 2021. LyondellBasell paid the Railroad approximately $180 million, $127 million, and $127 million for transportation services in 2021, 2020 and 2019 respectively. These amounts were significantly less than 2% of LyondellBasell’s consolidated gross revenues for any of the past three years (0.4% for 2021, 0.5% for 2020 and 0.4% for 2019).

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 director of the Company, 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.

The Board also reviewed a payment made in 2019 to The Williams Capital Group, L.P. (Williams Capital). Mr. Williams is the Chairman of Siebert Williams Shank & Co., the successor to Williams Capital. The Company paid Williams Capital $87,500 in fees to serve as a co-manager in a July 2019 debt transaction. The Board noted that this payment was significantly less than 2% of Williams Capital’s consolidated gross revenues.

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.

BOARD CORPORATE GOVERNANCE MATTERS

Under the Company’s Related Party Policy, transactions with related parties are subject to approval by the Corporate Governance and Nominating 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 in which 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 2021, the Railroad paid Omaha Track or its affiliates approximately $21.8 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 $63,650 in 2021 in connection with these transload services. Ms. Whited is not involved in any commercial or rate discussions involving Omaha Track.

The Railroad provides transportation services to LyondellBasell. Mr. Patel was the Chief Executive Officer and a director of LyondellBasell until December 31, 2021, and a director of the Company until May 13, 2021. Payments to the Railroad over the last three years from LyondellBasell are detailed on page 26 of this Proxy Statement.

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 2021 was approximately $121,000.

These transactions were approved by the Corporate Governance and Nominating 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. By retaining flexibility to adjust the Company’s leadership structure, the Board is best able to provide for appropriate management and leadership of the Company and address any circumstances the Company may face. In accordance with the Company’s Corporate Governance Guidelines and Policies, the Board annually will elect a Chairman of the Board, who may or may not be the CEO of the Company. Additionally, the Guidelines provide that if the individual elected as Chairman of the Board is not an independent director, the independent directors also will elect a lead independent director.

The Board determined that having a combined Chairman and CEO at this time best allows the Board and management to focus on the oversight and implementation of the Company’s strategic initiatives and business plan to efficiently and effectively protect and enhance the Company’s long-term success and shareholder value.

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

The independent directors conducted executive sessions at all Board meetings in 2021. 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 believes that the current leadership structure and succession planning coupled with an active lead independent director provides effective oversight of management and responsiveness to shareholders, while also continuing the solid leadership of the Company and the Board necessary to effect execution of the Company’s strategic plans.

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 Audit Committee regularly receives reports throughout the year from the chief 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 Information 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.

We have recently defined climate risk 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 Nominating and Corporate Governance Committee monitors the allocation of risk and sustainability oversight among the Board and its Committees, as well as overseeing policies to address human rights risks in the Company’s supply chain. 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 By-Laws 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 2021, 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 eleven 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 and Nominating Committee. Each of the committees operates under a written charter adopted by the Board, copies of which are 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.

 

 

Under its charter, the Compensation and Benefits 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 2022 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.

BOARD CORPORATE GOVERNANCE MATTERS

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 49 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 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 2021, 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 2022, 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

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.

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, and agreed-upon procedures performed on the Annual Report R-1 filed by Union Pacific Railroad Company with the Surface Transportation Board.

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, 2021 and 2020.

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 2020 and 2021 fees and services.

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 will support best-in-class safety, a customer experience that drives growth, and shareholder returns.

Coronavirus Pandemic – Our results during 2021 continued to be impacted by the effects of the coronavirus pandemic (COVID). Most notably were supply chain issues in the automotive industry due to semiconductor chip shortages and congestion in several parts of the intermodal supply chain. The impact of the semiconductor chip shortage is masked in our year-over-year financial comparison for 2021 and 2020 as the second quarter of 2020 saw a temporary suspension of automotive production due to the pandemic. Excluding the second quarter, automotive shipments were down 14% year-over-year. The pandemic also upended the intermodal supply chain as demand for consumer goods remained high. The elevated demand adversely affected the ports, chassis availability, truck driver supply, and warehouse receiving capacity. These disruptions limited our revenue growth by slowing asset turns and increasing costs through lower freight car velocity and multiple container handlings

that impeded our operating efficiency. Rail carloadings also were impacted as adjustments made to compensate for constrained inland drayage and warehouse capacity shifted traffic patterns, driving declines in international intermodal shipments. Demand in other markets increased as the economy recovered.

Safety – The health and well-being of our employees was a focal point in 2021 as we navigated the continuously changing environment due to COVID. We have and are continuing to adapt to protect the safety of our employees, our customers, and the communities we serve. Safety procedures and policies continue to be refined based on Centers for Disease Control and Prevention (CDC) guidelines.

In this ever-changing environment, we remain intently focused on reducing risk and eliminating incidents for our employees, our customers, and the public. We continued to use Total Safety Culture, Courage to Care, COMMIT (Coaching, Observing, Mentoring, and Motivating with Integrity and Trust), and Peer to Peer throughout our operations to enhance employee safety and engagement. Throughout the year, we worked to implement a physics engine and proprietary software to evaluate train and route characteristics to enable proactive intervention to prevent derailments. Despite these efforts, our safety results deteriorated year-over-year. Our reportable personal injury incidents rate per 200,000 employee-hours of 0.98 increased 9% from 2020 and our reportable equipment incident rate per million train miles increased 7%. In the second half of 2021, we engaged a third-party expert to evaluate the effectiveness of our safety programs and received a number of recommendations for improvement, which we are in the process of implementing in 2022.

Network Operations – We faced many operational challenges throughout 2021, including Winter Storm Uri, global supply chain disruptions, wildfires, bridge outages, mudslides, and hurricanes. These challenges required adjustments to our transportation plans and impacted overall fluidity of the network. As a result, many of 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 trip plan compliance. To assist with improving network fluidity we are maintaining higher crew and locomotive resources in the short-term. Once the network is balanced and service is restored, we will adjust our resources to the current volume levels.

Financial Results – In 2021, we generated operating income of $9.3 billion, 15% above adjusted 2020 which excluded the $278 million one-time non-cash impairment charge related to our Brazos yard investment. Higher fuel prices, increased volume-related costs, inflation, and costs associated with Winter Storm Uri and the wildfires in California drove operating expenses up 9% from adjusted 2020. Revenue from the additional volume and traffic mix, higher fuel surcharge revenue, improved pricing, productivity initiatives, and intermodal accessorial charges more than offset the increased expenses, producing an all-time record 57.2% operating ratio, improving 1.3 points from adjusted 2020. Net income of $6.5 billion translated into earnings of $9.95 per diluted share, up 21% from adjusted 2020.

Our net return on invested capital of 16.4% increased 2.5 points compared to 2020. In 2021, we paid dividends of $2.8 billion, which included two 10% dividend increases during the year. In addition, we repurchased 33 million Union Pacific shares. Combining dividends and share repurchases, Union Pacific returned $10.1 billion to our shareholders in 2021.

Please also refer to the Company’s Annual Report on Form 10-K for a complete analysis of the Company’s 2021 financial and operating performance and Appendix A for reconciliation to GAAP.

The Company’s executive compensation philosophy is to:

The Compensation and Benefits 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. As described above, 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 56 and 57 . The Committee recommends the operating income and operating ratio targets 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 operating income and operating ratio results, its achievement compared to the business objectives, 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) a bonus and equity award for the Company’s CEO.

For more information on the operation of the Committee, including information on its compensation consultant, see pages 34 and 35 of this Proxy Statement.

Executive Compensation Philosophy and the Compensation-Setting Process

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 2021 target pay opportunities for the NEOs, the Committee considered competitive market information gathered in 2020 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 2021 target pay opportunities for the NEOs, the Committee considered competitive market information gathered in 2020 from the following 15 company Peer Group:

The Committee selected this Peer Group in 2020 with the assistance of its compensation consultant, FW Cook, after considering U.S. based public companies in the same Global Industry Classification System (GICS) Industry Group 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, 2020, except as of October 2020 for Deere & Co., and November 2020 for FedEx. Market Capitalization is a 12-month average as of December 31, 2020.

Mr. Fritz was elected President and Chief Executive Officer on February 5, 2015. The Compensation and Benefits Committee increased Mr. Fritz’s salary for 2021 to $1,230,000, a 2.5% increase, and maintained Mr. Fritz’s 2021 Annual Incentive Plan bonus target of $2,200,000. Mr. Fritz received an annual incentive bonus for 2021 of $2,581,700 at 117% of target based on the formulaic bonus program under the Company’s 2021 Annual Incentive Plan. The Committee maintained Mr. Fritz’s long-term incentive target grant value of approximately $10,500,000 consisting of 60% performance stock units and 40% stock options granted on February 4, 2021. Mr. Fritz’s 2019 grant of performance stock units paid out at 50% 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, Vice President - Planning & Analysis from October 2017 to March 2019, and Vice President & General Manager - Marketing and Sales - Autos team from February 2016 to September 2017. The Compensation and Benefits Committee set Ms. Hamann’s salary for 2021 at $550,000 and her 2021 Annual Incentive Plan bonus target at $750,000. Ms. Hamann received an annual incentive bonus for 2021 of $880,125 at 117% of target based on

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, Executive Vice President and Chief Marketing Officer from December 2016 to August 2018 and Vice President and General Manager - Marketing and Sales - Chemicals team from October 2012 to December 2016. The Compensation and Benefits Committee increased Ms. Whited’s salary for 2021 to $488,000, a 2.1% increase, and maintained Ms. Whited’s 2021 Annual Incentive Plan bonus target of $750,000. Ms. Whited received an annual incentive bonus for 2021 of $892,625 at 119% of target based on the formulaic bonus program under the Company’s 2021 Annual Incentive Plan. The Committee made no change to Ms. Whited’s long-term incentive target value of approximately $1,500,000 consisting of 60% performance stock units and 40% stock options granted on February 4, 2021. Ms. Whited’s 2019 grant of performance stock units paid out at 50% of target.

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 and Assistant Vice President – Marketing and Sales – Chemicals team from April 2014 to September 2016. The Compensation and Benefits Committee increased Mr. Rocker’s salary for 2021 to $450,000, a 2.7% increase, and increased Mr. Rocker’s 2021 Annual Incentive Plan bonus target to $700,000. Mr. Rocker received an annual incentive bonus for 2021 of $836,450 at 119% of target based on the formulaic bonus program under the Company’s 2021 Annual Incentive Plan. The Committee increased Mr. Rocker’s long-term incentive target grant value to approximately $1,400,000 consisting of 60% performance stock units and 40% stock options granted on February 4, 2021. Mr. Rocker’s 2019 grant of performance stock units paid out at 50% 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 June 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 set Mr. Gehringer’s salary at $400,000 and increased his salary to $430,000 on July 2021. Mr. Gehringer’s 2021 Annual Incentive Plan bonus target was set at $650,000. Mr. Gehringer received an annual incentive bonus for 2021 of $757,775 at 117% of target based on the

Named Executive Officers

formulaic bonus program under the Company’s 2021 Annual Incentive Plan. The Committee set Mr. Gehringer’s long-term incentive target grant value to approximately $1,000,000 consisting of 60% performance stock units and 40% stock options granted on February 4, 2021. Mr. Gehringer’s 2019 grant of performance stock units paid out at 50% of target.

The majority of the compensation awarded to our CEO and other NEOs, is performance-based, variable compensation and “at-risk.” This is 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 2021.

 

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.

In February 2021 and 2022, 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, resource productivity, market share and employee engagement 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 2021.

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 2021, 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 based on the Operating Income and Operating Ratio targets approved in February 2021 given the Company’s 2021 year-end results.

The non-formulaic component of the 2021 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, resource productivity, market share and employee engagement, and ten percent (10%) is based on individual performance. Our

Elements of Our Executive Compensation Program

Company strategy, Serve, Grow, Win – Together, serves the basis for the strategic scorecard component of the 2021 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 75% participation in the employee engagement survey with an 80% participation rate. However, large scale weather events, wildfires, supply chain disruptions, and coronavirus pandemic impacts all affected our ability to further improve our operating metrics in 2021, lowering trip plan compliance for both Intermodal and Manifest/Autos. The 2021 personal injury rate of 0.98 increased from 2020’s personal injury rate of 0.90, illustrating that the Company has work to do to achieve an incident-free environment. Market share and net promoter score also fell short of expectations. Based on the Committee’s evaluation of the Company’s achievement of the strategic scorecard items, the Committee awarded this component at 45% 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, 117% for Ms. Whited, 121% for Mr. Rocker and 92% 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 2021.

Elements of Our Executive Compensation Program

The Committee generally seeks to make long-term incentives the largest element of each NEO’s 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 2021 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 long-term incentive awards for the NEOs and a description of the terms of these awards are set forth on pages 65 and 66 in the Grants of Plan-Based Awards in Fiscal Year 2021 Table and accompanying narrative discussion.

In February 2021, 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 performance stock units 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 performance stock units that may be earned by each NEO is set forth on page 65 in the Grants of Plan-Based Awards in Fiscal Year 2021 Table.

PSUs granted in 2019 and 2020 are 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 can increase or decrease payment by up to 25% of the stock units earned under the ROIC performance criteria, subject to a maxiumum 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 2021, the Committee recommended Board approval of our ROIC target at 15.3%, lower than the prior year’s target. In setting this target, the Committee considered the uncertainty of economic recovery due to coronavirus pandemic and global supply chain disruptions. The Committee also considered returns commensurate with other Class I railroads and large cap industrial companies.

For PSUs granted in 2019 and 2020, if the Company does not meet the threshold ROIC level for the three-year performance period, executives will not earn any performance stock units. For PSUs granted in 2021, 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.

Elements of Our Executive Compensation Program

The Committee has certified the ROIC results as shown in the graph below for performance years 2019-2021.

 

In February 2022, the PSUs granted for the 2019-2021 performance period were settled at an overall payout of 50% of target, based on performance over the three-year performance period against pre-established goals for ROIC. Our relative OIG was in the 48^th percentile so the modifier had no effect on the final payout.

Performance stock units earned under the 2019 grants for each of the NEOs are included as Earned Performance Stock Units in the Stock Awards column of the Outstanding Equity Awards at 2021 Fiscal Year-End Table on page 67.

The table below summarizes how the performance stock units granted in 2019 were earned, and how the performance stock units granted in 2020 and 2021 are tracking as of the end of 2021.

The table below shows the application of the OIG modifier based on the Company’s operating income growth percentile compared to the S&P 500 Industrials Index for the PSUs granted in 2019 and 2020.

The table below shows the application of the one-third (1/3) relative OIG based on the Company’s operating income growth percentile compared to the OIG of the companies in the S&P 100 Industrials Index and the Class I Railroads for the PSUs granted in 2021.

Payout will be linearly interpolated for performance between levels.

The Committee increased Mr. Fritz’s Target Long-Term Incentive for 2022 to reflect his performance and tenure as CEO and to better align his compensation relative to the Peer Group median benchmark. Ms. Hamann also received an increase in her Target Long-Term Incentive for 2022 to incentivize her continued growth in her role as Executive Vice President and Chief Financial Officer.

The Committee increased Ms. Whited’s Target Long-Term Incentive for 2022, noting the increased responsibility in her new role as Executive Vice President – Sustainability and Strategy, while she also continues to lead the Company’s human resources organization.

Both Mr. Rocker and Mr. Gehringer received increases to their Target Annual Incentive and Target Long-Term Incentive for 2022. Mr. Rocker’s increases better align his compensation relative to the Peer Group median benchmark. The increases for Mr. Gehringer reflect the Committee’s alignment of his compensation with the Peer Group and his responsibilities and incentivize his continued growth in his role as Executive Vice President-Operations.

The Committee reviews perquisites periodically for both appropriateness and effectiveness. Key executives, including the NEOs, receive tax and financial counseling services and personal excess liability coverage. In 2016, the Committee eliminated the requirement for the CEO to use Company aircraft for all air travel and set a limitation for personal flights at $90,000 for the CEO and $45,000 for the other NEOs. Executives will pay for any personal flights beyond these limits in accordance with applicable tax rules and regulations and Federal Aviation Administration rules and regulations, as stated in the Company’s policy regarding use of corporate aircraft. Income is imputed to the CEO and NEOs for personal travel below the limits and tax gross-ups are not provided. All use of Company aircraft must be approved in advance by the CEO or a specifically authorized designee.

The value of perquisites provided to the NEOs by the Company is not a significant portion of any of the NEOs’ compensation on an annual basis. Due to the relatively low cost to the Company of these perquisites, combined with the policy regarding use of Company aircraft, the Committee does not consider perquisites in its analyses of Total Direct Compensation for the CEO and the other NEOs.

The Committee, pursuant to its charter, is responsible for oversight of our deferred compensation arrangements. Management and the Committee believe that deferred compensation arrangements are important benefits that contribute to the Company’s competitive compensation arrangements and help attract and retain executives. The Company’s deferred compensation programs allow for elective deferrals of (i) salary, (ii) bonus (iii) performance stock units, and (iv) retention stock units, which accrue earnings during the deferral period as described on page 73. These deferrals are not funded and there are no mechanisms in place (such as insurance or trusts) to protect the executives from any inability of the Company to pay these

Elements of Our Executive Compensation Program

amounts in the future. More detailed descriptions of the features of our non-qualified deferred compensation plans begin on page 72. In addition to these non-qualified deferred compensation benefits, the Company allows its executives to participate in its tax qualified 401(k) plan on terms and conditions similar to the Company’s other employees.

The Company sponsors a tax-qualified defined benefit Pension Plan and a non-qualified excess Supplemental Pension Plan. Management and the Committee believe that the defined benefit Pension Plan and the Supplemental Pension Plan (with respect to our executives, including the NEOs) provide employees with a competitive retirement benefit. The Company offers the Supplemental Pension Plan to allow executives to receive pension benefits for compensation and benefits that exceed government imposed limits applicable to defined benefit plans and to allow for the inclusion of compensation that has been deferred, which cannot be included as compensation under the defined benefit Pension Plan. Benefit amounts are based on the employee’s years of service, salary, bonus and age. More detailed descriptions of the Pension Plan and Supplemental Pension Plan are set forth on pages 70 and 71.

The NEOs do not have individual severance agreements or employment agreements with the Company. In November 2000, the Board adopted the Union Pacific Corporation Key Employee Continuity Plan (the Continuity Plan). The purpose of the Continuity Plan is to assure the smooth transition of management and effective operation of the Company in the event of a change-in-control by providing (i) sufficient economic security to allow key executives to focus on overall shareholder value without concern about personal financial interests and (ii) severance benefits in the event their employment with the Company is terminated within two years following a change-in-control.

The Continuity Plan provides severance benefits to certain senior level executives, including the NEOs, in the event (i) a change-in-control occurs and (ii) the covered executive is involuntarily terminated or constructively discharged within two years following the change-in-control. This two-step requirement will allow the new controlling party to retain certain executives and terminate others with the obligation to provide the benefits set forth in the Continuity Plan. Severance benefits are the same for all covered executives, except for the multiple used to determine an executive’s lump-sum severance payment. The lump-sum severance payment is equal to three times the sum of base salary plus the average of the annual bonus payments earned in the three most recent calendar years for Mr. Fritz and two times this sum for each of Ms. Hamann, Ms. Whited, Mr. Rocker and Mr. Gehringer. The Committee determined these multiples based upon competitive practices at the time the plan was adopted.

The Continuity Plan does not provide for any tax gross-ups. As a result, none of the Company’s executives, including the NEOs, are eligible to receive any excise tax gross-up on any severance payment received under the Continuity Plan.

In December 2021, the Committee recommended, and the Board approved the following changes to the Continuity Plan in the event of a qualifying severance following a change-in-control: the elimination of the automatic vesting and receipt of an additional three years of age and service credit in the Company’s Supplemental Pension Plan, proration of the current year’s annual incentive bonus and the addition of best net treatment for excise taxes.

In September 2003, the Board adopted the Union Pacific Corporation Policy Regarding Shareholder Approval of Future Severance Agreements (Severance Policy). Under this Severance Policy, the Company agreed not to enter into a future severance agreement with a senior executive that provides for benefits in an amount generally exceeding 2.99 times salary plus bonus unless such agreement is approved by a vote of our shareholders.

Payments and certain severance benefits for the NEOs upon a change-in-control, as well as a description of the Continuity Plan are set forth on pages 75 through 78.

Elements of Our Executive Compensation Program

Due to the amendment to Section 162(m) of the Internal Revenue Code (the Code), compensation paid to covered employees in excess of $1 million will not be deductible unless it qualifies for transition relief available for certain arrangements in place on November 2, 2017 (Grandfathered Compensation).

For Grandfathered Compensation intended to satisfy the requirements of Section 162(m) of the Code for performance based compensation, the Committee has, where it deemed appropriate, taken steps intended to preserve the deductibility of said compensation to the CEO and certain executive officers. However, because there are uncertainties as to the application and interpretation of Section 162(m) of the Code and the transition relief described above, it is possible that the Company’s deductions may be challenged or disallowed. Accordingly, there is no certainty that elements of any Grandfathered Compensation discussed in this Proxy Statement will in fact be deductible by the Company.