Governance

United Parcel Service, Inc. Corporate Governance Guidelines
as of February 9, 2005

 

The Company's shareowners elect the Board of Directors. The Board establishes policy for the Company and provides oversight to the Company's management.


Board Structure

The Company's by-laws provide that the number of directors shall be not less than seven nor more than sixteen.

The Board's membership will include a majority of independent directors. In order to reflect the Company's unique ownership structure, the Board's membership also will include a significant number of management directors.

Definition of "Independent" Director

The Board's definition of an independent director is set forth on Attachment A to these Guidelines.

The Board annually will determine whether each director is independent.

Board Committees

The Board currently has four committees: Audit; Compensation; Executive; and Nominating and Corporate Governance. From time to time, the Board may provide for other standing or special committees as are necessary to carry out its responsibilities.


Annual Election of Directors

Each director will be elected by the shareowners annually for a one year term.


Board and Chairman and Chief Executive Officer Evaluations

The Board annually will evaluate its own performance and that of the Company's Chairman and Chief Executive Officer. Board evaluations will be administered by the Nominating and Corporate Governance Committee; Chairman and Chief Executive Officer Evaluations will be administered by the Compensation Committee.


Board Interaction with Institutional Investors, the Media and Customers

Management speaks for the Company. Board members may participate from time to time in interaction with the Company's various constituencies at the request and with the knowledge of management.


Board Compensation

A meaningful portion of each director's compensation should be provided in Company stock, stock options or other forms of equity. The Board recognizes that excessive compensation could compromise a director's independence.

It is appropriate for management to report from time to time to the Compensation Committee on the status of Board compensation in relation to other leading U.S. corporations.

The Board has delegated to the Compensation Committee the responsibility to recommend changes, if any, to Board compensation. Any such recommended changes will be discussed and approved by the full Board.

Board Membership Criteria and Selection of New Director Candidates

The Board has delegated to the Nominating and Governance Committee the responsibility for reviewing and recommending nominees for membership on the Board.

The Committee's objective is to maintain a Board of individuals of the highest personal character, integrity and ethical standards, and that reflects a range of professional backgrounds and skills relevant to the Company's business.

The Committee identifies new director candidates through a variety of sources, including independent third parties.

In evaluating each candidate, the Committee considers factors such as personal character, values and disciplines, ethical standards, diversity, professional background and skills, all in the context of an assessment of the needs of the Board at that point in time.

Each director is expected to ensure that other existing and planned future commitments do not materially interfere with his or her responsibilities as a director.

The invitation to join the Board will be extended by the Chairman and Chief Executive Officer on behalf of the entire Board. The Board and the Company will have a complete orientation and education process for directors, including background materials, meetings with senior management and visits to Company facilities.

Selection of Chairman and Chief Executive Officer

The Board is responsible for selecting the Company's Chairman and Chief Executive Officer. The Board is free to select a Chairman and Chief Executive Officer any way that is best for the Company at a given point in time.


Former Chairmen and Chief Executive Officers on the Board

The Company's immediate-past Chairman and Chief Executive Officer may, at the discretion of the Board, continue to serve on the Board of Directors. He or she should be eligible for nomination or election to the Board, following his or her retirement as the Company's Chairman and Chief Executive Officer, and may, at the discretion of the Board, serve until such time as his or her successor as Chairman and Chief Executive Officer shall retire.


Retirement

A director should not be eligible for nomination or election as a director of the Company after he or she attains the age of 70.

Director Changes in Professional Status

As soon as practicable after any director's retirement or resignation from, or any other significant change in, his or her business or professional roles or responsibilities, he or she should offer his or her resignation as a member of the Board. This guideline applies to both management and non-management directors, other than the Company's Chairman and Chief Executive Officer, whose board tenure is discussed above.

Upon the receipt of a director's resignation under these circumstances, the Nominating and Corporate Governance Committee will evaluate the appropriateness of the director's continuing membership on the Board and, based upon this evaluation, recommend to the Board that the director's resignation either be accepted or declined.

Board Access to Senior Management

Directors will have complete access to members of the Company's management as long as contact does not become disruptive to the Company's operations. Selected senior managers may be invited to attend all or part of each Board meeting. Other managers also may be invited to attend Board meetings as appropriate.


Board Agendas and Materials

The Chairman and Chief Executive Officer will establish the agenda for each Board meeting.

Information and data that are important to the Board's understanding of the Company will be distributed to the Board before it meets. Management will distribute materials periodically between meetings to update the Board on the Company's interim operations and results.

Succession Planning and Management Development

The Chairman and Chief Executive Officer, with assistance from the Nominating and Corporate Governance Committee, will report to the full Board periodically on the Company's succession planning and management development efforts.


Meetings of Outside Directors

The outside directors will have the opportunity to meet without management present as frequently as they deem appropriate, and will meet at least two times each year. The Chairman and Chief Executive Officer should be available to them at these sessions.


Attachment A

An "independent" director is a director whom the Board has determined has no material relationship, other than as a director of the Company, 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. In addition, when determining whether a director is independent, the Board applies the categorical standards set forth below.

Under no circumstances is a director independent if:

1.                 the director is, or has been within the past three years, an employee of the Company, or an immediate family member of the director is, or in the past three years has been, an executive officer of the Company, other than on an interim basis;

2.                 (A) the director or an immediate family member is a current partner of a firm that is the Company's external auditor; (B) the director is a current employee of such a firm; (C) the director has an immediate family member who is a current employee of such a firm and who participates in the firm's audit, assurance or tax compliance (but not tax planning) practice; or (D) the director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the Company's audit within that time.

3.                 the director, or a member of the director's immediate family, is or in the past three years has been, an executive officer of another company where any of the Company's present executives concurrently served on the compensation committee;

4.                 the director, or a member of the director's immediate family, has, in any twelve-month period within the past three years, received any direct compensation from the Company in excess of $100,000, other than compensation for service on the Board or any of its committees, compensation received by the director's immediate family member for service as a non-executive employee of the Company, and pension or other forms of deferred compensation for prior service with the Company; or

5.                 the director is a current employee, or a member of the director's immediate family is an executive officer, of another company that makes payments to or receives payments from the Company, or during any of the last three fiscal years has made payments to or received payments from the Company, for property or services in an amount that, in any single fiscal year, exceeded the greater of $1 million or 2% of the other company's consolidated gross revenues. For purposes of this section, a contribution to a tax-exempt entity is not a "payment."

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.