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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant Filed by a Party other than the Registrant      

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  Preliminary Proxy Statement
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Definitive Proxy Statement
  Definitive Additional Materials
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Otis Worldwide Corporation

(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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We are Otis

 

 

We are the world’s leading company for elevator and escalator
manufacturing, installation and service.

 

You’ll find us in the world’s most iconic structures, as well as residential and commercial buildings,
transportation hubs and everywhere people are on the move.

 

 

 

Our Vision

 

 

We give people freedom to connect and thrive in a taller, faster, smarter world.

 

 

 

The Otis Absolutes

 

 

In realizing our vision, our employees are guided by our commitment to The Otis Absolutes:

 

Safety

 

We are in the safety business. The well-being of
our colleagues, our customers and the riding public
is paramount.

 

EVERYTHING DEPENDS ON MOVING
PEOPLE SAFELY.

 

 

 

Ethics

 

We strive to be a trusted company, and the employer
and supplier of choice. Doing business the ethical,
lawful and honest way is who we are and our
reputation depends on it.

 

DOING BUSINESS THE RIGHT WAY – IT’S WHO
WE ARE.

 

 

 

Quality

 

We stand for delivering quality results in everything we
do – from engineering, manufacturing, installation and
service, to selling, marketing and financial reporting.

 

WE DELIVER QUALITY RESULTS IN

EVERYTHING WE DO.

 

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Creating value in 2020

 

 

In 2020, Otis Worldwide Corporation (“Otis”) became an independent public company trading on the New York Stock Exchange (“NYSE”), following the spinoff from United Technologies Corporation (“UTC”). In our first independent year, we grew stronger, showed our resilience and accelerated our innovation – thriving through change.

 

Our reach is global, our people are local

 

We maintain approximately
2.1 million customer
units worldwide
  We serve customers in more than
200 countries and territories
         
We have more than 69,000
employees, including 40,000 field professionals
  We have over 1,400 branches and
offices and a direct physical presence in
approximately 80 countries

 

Executing on our strategy

 

As an independent company, we are focused on optimizing our business model and driving returns for shareholders. A foundation of our strategy is balanced capital allocation that supports a sustainable dividend, debt reduction, share repurchase and acquisitions. Our strategy is growth-oriented, and our business is focused on executing against our strategic pillars.

 

STRATEGIC PILLARS   2020 RESULTS
Sustain new equipment growth  

   Grew new equipment share by approximately 60 basis points(1)

   Expanded sales force and networks in key markets and improved effectiveness through digitalization

   Expanded product offerings by launching new Gen2 Prime in key markets to address unique customer needs

   Launched new LINK commercial and public escalator products in China and India

Accelerate service portfolio growth  

   Leveraged digital tools to improve productivity and customer satisfaction and retention

   Used targeted initiatives to improve new equipment conversion, reduce cancellations and bring Otis units back to the portfolio

   Enhanced service model in key regions to train and develop more specialized maintenance and callback service mechanics to improve response times and maintenance completion

   Expanded service portfolio through targeted acquisitions

Advance digitalization  

   Accelerated deployment of Otis ONE, our IoT offering, driving service productivity for our field mechanics and value for our customers

   Opened an Industry 4.0 escalator factory in China, upgrading our smart manufacturing capabilities

   Introduced 16th generation of Compass destination dispatching software, continuing to help improve traffic flow

   Moved network infrastructure to global cloud-based solutions to improve collaboration, efficiency and security for our teams

Focus and empower our workforce  

   Strengthened our culture as a standalone Otis, reinforcing our commitment to The Otis Absolutes and diversity, equity and inclusion

   Continued to develop process discipline around safety, our First Absolute, with an emphasis on ownership through global safety stand-downs, stop-work authority and speak-up culture that empowers our workforce to continuously improve outcomes for colleagues and customers

 

(1) Based on Otis internal estimates.

 

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CREATING VALUE IN 2020

 

 

Financial highlights

 

Otis delivered solid financial results in 2020. On an adjusted basis, we were able to grow operating profit and expand operating profit margins with our continuous, multiyear focus on productivity and swift and concerted focus on cost containment amid a challenging environment due to the impact of COVID-19. Organic sales(1) were down due to COVID-19, but our contractual maintenance business proved resilient. Against this backdrop, we also executed on our capital deployment initiatives, returning $260 million in dividends to our shareholders, about 38% of net income, and paid down $350 million in debt, $100 million more than we planned at the beginning of the year due to our strong cash flow.

 

 

(1) As defined more fully in Appendix A on pages 80-82, the company refers to non-GAAP sales as organic sales, non-GAAP operating profit as adjusted operating profit, non-GAAP cash flow as free cash flow and non-GAAP diluted earnings per share as adjusted EPS. Appendix A also provides a reconciliation of these non-GAAP financial measures to the corresponding GAAP financial measures

 

Our pandemic response

 

As a global company, the impact of the COVID-19 pandemic on Otis and its customers differed regionally. The services we provide, however, were deemed essential. We worked swiftly to protect our employees, liquidity and supply chain to minimize disruptions.

 

PROTECTING
OUR EMPLOYEES

 

Secured critical personal protective equipment that enabled field professionals to safely continue their essential work at job sites, customer locations and our manufacturing operations

 

 

EXPANDING REMOTE
CAPABILITIES

 

Expanded our systems and network capabilities to maximize our employees’ ability to securely and efficiently perform their work remotely

 

 

PROTECTING
LIQUIDITY

 

Implemented stepped plan to rationalize expenses across the organization, while maintaining investments in our workforce, research and development, and innovation

 

         

PROMOTING WORKFORCE
WELLBEING

 

Provided employees with additional benefits, support and assistance programs to promote workforce health and wellness

 

 

CONTRIBUTING
FINANCIALLY

 

Contributed to the World Health Organization’s COVID-19 Response Fund

 

Expanded our platform to match employee giving for select COVID-19 causes

 

MOBILIZING
SUPPLY CHAIN

 

Mobilized global supply chain to minimize disruptions in meeting global customer demand

 

 

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CREATING VALUE IN 2020

 

 

Commitment to our people and our communities

 

With customers in more than 200 countries and territories, and more than 1,400 branches and offices around the world, Otis is a true global citizen. Everywhere we do business, we operate on the belief that financial performance and corporate responsibility go hand in hand. Our vision – to give people freedom to connect and thrive in a taller, faster, smarter world – depends on us doing well by doing good for the people and places we impact. It’s why we uphold the highest standards of safety, ethics and quality; nurture a workplace culture of diversity, equity and inclusion; invest in our local communities; encourage employee volunteerism; and aim to minimize our environmental footprint.

 

A few of our initiatives are highlighted below. Read more at www.otis.com/en/us/our-company/social-impact.

 

Protecting our people

 

We will not be satisfied until every Otis employee and subcontractor returns home safely at the end of every day. We are actively working to ensure our workplaces are safe and our employees and subcontractors have the tools, training and support to create an injury-free environment. Our fundamental work-safety principles, which we call the Cardinal Rules, are designed to deal with the hazards in our industry – from fall protection in the hoistway to controlling elevator movement during service to electrical safety procedures on the jobsite. Our deep commitment to the health and safety of our employees and subcontractors expanded in 2020 as we developed comprehensive safety measures to allow our teams to work safely during the COVID-19 pandemic.

 

Globally, the Otis total recordable incident rate (“TRIR”) and lost time incident rate (“LTIR”) have been reduced by 13% and 35%, respectively, between 2015 and 2020. TRIR and LTIR are lagging indicators used by industries of all sizes to measure safety performance by comparing significant injuries to the number of hours worked by all employees. Otis’ safety rates are best-in-class compared to the latest reported metrics across our industry, the result of focused initiatives aimed at strengthening our safety culture, demonstrating safety leadership at all levels of our organization and significantly increasing employee engagement and empowerment.

 

Our key safety initiatives in 2020 included the following:

 

Speak Up and Stop Work Policy   We continue to empower all of our employees and subcontractors with stop work authority to use when they perceive an unsafe condition or behavior that may cause a risk of injury. In 2020, employees and subcontractors participated in training to reinforce the need to recognize and take immediate action to stop work where conditions threaten anyone’s safety. Actual stop work examples were shared and recognized as they occurred.
     
The Season of Safety 2020   This global program focused on strengthening our safety culture by promoting strong employee engagement through gamification, sharing lessons learned and best practices, and encouraging meaningful conversations at various levels of our management team. We emphasized our Cardinal Rules and stop work programs, outlining their importance in keeping all employees safe on jobsites and in the workplace. We achieved a high-level of engagement, further developing our progress toward creating a true culture of care where employees take care of and look out for one another.
     
Subcontractor risk management   We completed field safety risk assessments with our active installation and modernization subcontractors to strengthen our partnerships with them and to promote keeping their employees safe. In 2020, we ensured that risk assessments were completed for all of these subcontractor partners and that action plans were developed and executed for certain subcontractors based on the results of their assessments.
     
COVID-19 pandemic   As we adjusted to new ways of working in the midst of a global health crisis, we took actions to ensure our workforce remained safe, including:
     
       Employee protection measures. We took significant measures to protect the health and well-being of our field professionals, factory and office employees, and contractors. Our robust, multilayered approach to prevent the spread of COVID-19 – which will continue as long as COVID-19 transmission remains a threat – uses advanced risk assessment and control techniques. It is focused on four key areas: safe workplace measures, such as increased air filtration, field, factory and office jobsite evaluations and temperature screening capabilities; sanitization and personal protective equipment, including enhanced cleaning and disinfection techniques, touch-free fixtures and use of face masks; social distancing and workspace improvements, including modified work stations and large gathering prohibitions; and exposure and confirmed case reporting procedures.
       Our New Workplace: A Guide to Protecting Your Health. We created a comprehensive manual for our employees to assist them in navigating the work environment during the COVID-19 pandemic. The guide provides information on resources and benefits available to employees and describes procedures for creating and maintaining a safe and healthy work environment.

 

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CREATING VALUE IN 2020

 

 

Prioritizing diversity, equity and inclusion

 

Our Commitment to Change initiative outlines actions we have taken or will take to ensure that Otis is a place where every voice feels safe, welcome and heard. It advances these goals by building transparency and accountability into the process. Specifically, we commit to:

 

         
   
         
Conduct an independent review of Otis to uncover and eliminate biases affecting any of our colleagues in our hiring, compensation, professional development and other business practices   Accelerate anti-racism, unconscious bias and inclusion learning for employees at all levels of the organization and throughout their Otis careers   Create an advisory group to ensure transparency and hold us accountable for achieving measurable progress toward a diverse, inclusive culture
         
         
         
         
         
Amplify our ongoing commitment to STEM and vocational education, as we join with community and business partners to invest in and build a diverse talent pipeline   Make social justice and racial equity an integral part of our community giving, volunteerism and external reporting programs   Promote and expand mental health and well-being benefits, policies and practices to support our colleagues
         

 

In support of Our Commitment to Change, we have already:

 

Completed the first commitment, an independent review of Otis to uncover and eliminate biases, with key findings related to: accelerating gender diversity, increasing focus on career growth for field professionals, expanding diversity measurements, modifying existing talent lifecycle practices to ensure equity and inclusion throughout all touch points and building accountability at all management levels
Finalized the design and implementation plan to launch unconscious bias training globally during 2021
Invested in our talent and culture, providing underrepresented talent throughout our organization increased opportunities to attend professional development events
Launched a series of webinars to support our employees during these times of crisis, with topics focused on mental health, managing stress, resiliency and thriving during the COVID-19 pandemic
Forged new, meaningful relationships with a diverse set of nonprofits and non-governmental organizations, including the Thurgood Marshall Scholarship Fund, the Urban League, UNICEF, The Asia Foundation, the China Women’s Development Foundation and Serving People with Disabilities in Singapore

 

We encourage our employees to join Employee Resource Groups (“ERGs”), which provide mentoring, career guidance, allyship and mutual support for colleagues who share the concerns and affinities of race, ethnicity, gender, gender identity, sexual orientation, disability, generation, veteran status and more.

 

For example, in 2020, the North America ERGs hosted a series of programs for Otis employees, called Breaking Bread & Breaking Barriers, that focused on and encouraged more dialogue about diversity, equity and inclusion. To support the goal of developing relationships with people from a variety of backgrounds and groups to discuss these topics, our employees organized and gathered in small groups that included a wide range of seniority (including executives), work roles, geographies and other characteristics.

 

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CREATING VALUE IN 2020

 

 

Preparing tomorrow’s leaders

 

We are committed to providing education and training resources to develop tomorrow’s diverse leaders.

 

Made to Move Communities

 

Made to Move Communities, the cornerstone of our Corporate Social Responsibility strategy, focuses on two issues that are vital both to Otis and to the communities where we live and work: STEM education and inclusive mobility. This program features an annual global student challenge for student teams from around the world to develop and apply creative, technology-based solutions for eliminating the barriers to mobility that our neighbors in underrepresented communities often encounter. Students in the program’s first year focused their research on mobility solutions for those communities most affected by the COVID-19 pandemic.

 

Our Employee Scholar Program

 

We support a culture of lifelong learning in which our employees are encouraged to expand their knowledge and capabilities to maintain their competitive skills in an ever-changing world. We aspire to maintain a highly educated workforce capable of the innovation required of our technology-driven company.

 

Our Employee Scholar Program is one of the most comprehensive company-sponsored employee education programs in the world. Otis provides financial and program support to participating employees attending classes at universities around the world.

 

UP TO 100% SUBSIDIZED EDUCATION

 

We pay for our eligible employees to attend credit-bearing classes in approved degree or certificate programs, and tuition, fees and books are covered up to a maximum amount per year and per degree.

 

BROAD ELIGIBILITY

 

All employees worldwide, full-time or part-time, are eligible once they have worked at Otis for one year or are on military leave of absence.

 

 

APPLIES TO ANY FIELD OF STUDY APPLICABLE TO OTIS

 

Employees can pursue degrees or certificates in their current field or learn an entirely new field that applies to Otis’ business or operations.

 

 

PAID STUDY TIME

 

We provide eligible employees up to three hours per week of paid time off to study.

 

 

Closing the gender gap

 

We are committed to ensuring that women are equally represented throughout our workforce. We believe that gender should not be a barrier to success in any role, and we are taking action to increase engagement of women in all roles. To encourage more women to consider field positions, we have:

 

Advanced the efforts of FORWARD, our first global ERG, to support women in field operations
Re-evaluated the criteria for these field positions to ensure we draw upon a diverse applicant field

 

Paradigm for Parity

 

We are the first in our industry to join the Paradigm for Parity coalition, pledging our commitment to establish gender parity across our executive ranks by 2030. We have committed to implement Paradigm for Parity’s 5-point Action Plan, a set of specific actions that when concurrently implemented, aim to catalyze change and enable companies to more effectively increase the number of women of all races, cultures and backgrounds in leadership positions.

 

PARADIGM FOR PARITY’S 5-POINT ACTION PLAN

 

1
Eliminating, or minimizing, unconscious bias in the workplace
2
Significantly increasing the number of women in senior operating roles
3
Measuring targets and maintaining accountability through regular progress reports
4
Basing career progress on business results and performance, rather than physical presence in the office
5
Providing sponsors, not just mentors, to  women well-positioned for long-term success

  

We have already begun putting our commitment into action. In 2020, we:

 

Defined clear representation goals in our executive ranks and in the non-executive grades to sustain progress
Participated in the benchmark survey study offered by Paradigm for Parity to identify gaps and opportunities and to contribute to strengthening the coalition to improve gender parity overall

 

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CREATING VALUE IN 2020

 

 

Strengthening sustainability

 

We are committed to reducing the impact of our environmental footprint and to developing the sustainable solutions the world needs. We are using our resources judiciously and are relying more on renewable energy. We also are innovating products and services that reduce energy consumption and that are made with recycled and recyclable material.

 

ENVIRONMENTALLY
SUSTAINABLE FOOTPRINT
RESOURCE EFFICIENCY SUSTAINABLE PRODUCTS
           

Our factory greenhouse gas emissions were reduced by over 30% between 2015 and 2020 through measures such as using solar fields at a number of our facilities to reduce our reliance on fossil fuels.

 

Otis was a pioneer in the construction of green elevator production facilities. We now have two Gold LEED-certified production factories in Asia. In addition, nearly 85% of our factories are certified to the environmental management standard ISO 14001; and in Europe, six of our factories are certified to energy management standard ISO 50001.

 

Measured globally, we reduced our factory water use by over 40% between 2015 and 2020 by implementing practices that promote a more efficient use of this valuable natural resource. An example is at our factory in São Bernardo do Campo, Brazil, where we installed separate rainwater collection and wastewater reuse systems that allow us to use the reclaimed water for non-potable water sources. This project allowed us to reduce freshwater use by over 2 million gallons annually.

 

Between 2015 and 2020, we have recycled over 99% of all waste products generated by factory operations and reduced generation of hazardous waste, less than 1% of our total waste generation, worldwide by over 30%.

Our Gen2 elevator with ReGen technology is smaller and capable of reducing energy consumption by 75% under normal operating conditions compared to conventional systems without regenerative technology.

 

Our ReGen drive captures energy that would otherwise be wasted as heat and converts it into reusable energy for use by other building systems.

 

Our CompassPlus destination dispatching technology saves energy by putting some elevators on standby mode when traffic is light.

 

 

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Independent lead director letter

 

 

 

 

TO OUR SHAREHOLDERS:

 

In 2020, we returned to our roots as an independent company, 100 years after Otis’ initial listing on the New York Stock Exchange. Even before the listing, our Board came together to ensure that we had the background, foundation and relationships to enable us to operate effectively. From financial expertise, global experience, innovation leadership and risk management to gender and ethnic diversity, we have the right combination of experience and variety of perspectives to guide Otis on the path to continued industry leadership and long-term growth. These attributes were instrumental as we navigated the year’s unique challenges, including a global pandemic and social unrest. Fueled by these challenges, our Board worked closely with our management team to execute our strategies and deliver on our commitments.

DIVERSE,
EXPERIENCED
BOARD OF
DIRECTORS

 

SOLID
EXECUTION OF
OUR STRATEGIES
I am pleased to report that we performed well in 2020, as demonstrated by our solid results and strong financial position. Our results validate our key strategies to sustain new equipment growth, accelerate portfolio growth, advance digitalization, and focus and empower our workforce. These strategic pillars are part of a broader operational framework to optimize our business model and implement balanced, shareholder-friendly capital allocation.

 

We also are aligning compensation with strategy execution. Our Compensation Committee introduced new performance goals in the annual incentive plan for executives. Previously, Otis’ annual incentive plan was tied to achievement of free cash flow and EBIT (earnings before interest and taxes) results. Although these are important objectives for any business, and we have retained them, our Compensation Committee added performance goals for sales and new equipment orders. These additional goals support our strategic priority of growing the business. COMPENSATION
METRICS TIED TO
GROWING THE
BUSINESS

 

THE OTIS
ABSOLUTES
Beyond financial performance, we continue to shape our standalone culture. The Otis Absolutes, our code of ethics, are the foundation of that culture and are based on the pillars of Safety, Ethics and Quality. They apply across our enterprise, represent how we operate as a company and contribute to realizing our vision to give people freedom to connect and thrive in a taller, faster, smarter world.

 

The culture we have put in place demands that we advance diversity, equity and inclusion, and I am proud of the progress we have made. Our Commitment to Change establishes the Otis roadmap to a more diverse, equitable and inclusive future. Our Made to Move Communities program expands upon our commitment to STEM and vocational education, joining with community and business partners to invest in and build a diverse talent pipeline. Otis joined the Paradigm of Parity coalition as well, pledging to achieve gender parity in executive roles by 2030. ACTIVE
COMMITMENT
TO DIVERSITY,
EQUITY AND
INCLUSION

 

2020 represented a strong start for the newly independent Otis. I am confident this Board, working with senior management, can achieve long-term growth and expand Otis’ iconic leadership in the industry we helped create. I also look forward to engaging with you, our shareholders, and to creating the framework for continued dialogue as Otis continues its journey. As such, I request your support for the board-recommended proposals contained in this Proxy Statement.

 

Yours truly,

 

 

JOHN H. WALKER

INDEPENDENT LEAD DIRECTOR AND

CHAIR OF THE COMPENSATION COMMITTEE

 

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Notice of 2021 Annual Meeting of Shareholders

 

 

 

Meeting information

 

 

DATE AND TIME:

April 27, 2021

9:00 a.m. Eastern time

 

LOCATION:

We will be holding our 2021 Annual Meeting of Shareholders (“Annual Meeting”) virtually via live webcast.

To attend, vote or submit questions during the Annual Meeting, please see “How to attend” below. You will not be able to attend the meeting in person. For more information, see “Virtual Annual Meeting.”

     
Your vote is important. Please submit your proxy or voting instructions as soon as possible.
     

 

Agenda

 

1. Election of the Nine Director Nominees Listed in the Proxy Statement
2. Advisory Vote to Approve Executive Compensation
3. Advisory Vote on Frequency of Advisory Vote to Approve Executive Compensation
4. Appointment of PricewaterhouseCoopers LLP to Serve as Independent Auditor for 2021
5. Other Business, if Properly Presented

 

Who may vote:

 

If you owned shares of Otis common stock at the close of business on March 3, 2021, you are entitled to receive this Notice of the 2021 Annual Meeting of Shareholders and to vote at the meeting, either online or by proxy.

 

How to attend:

 

To attend the meeting, please go to www.virtualshareholdermeeting.com/OTIS2021. To participate by voting or submitting questions during the Annual Meeting, you will need to log in to www.virtualshareholdermeeting.com/OTIS2021 using the control number located on your Notice of Internet Availability of Proxy Materials (“Notice of Internet Availability”), proxy card or voting instruction form. You will not be able to attend the Annual Meeting in person.

 

Please review your 2021 proxy statement (“Proxy Statement”) and vote using one of the methods described on the following page.

 

By Order of the Board of Directors.

 

 

NORA E. LAFRENIERE

EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL & CORPORATE SECRETARY

 

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How to Vote

 

   

INTERNET

Online during the Annual Meeting:

Go to www.virtualshareholdermeeting.com/OTIS2021 and follow the instructions on the website.

Online in advance of the Virtual Annual Meeting:

Up until 11:59 p.m. Eastern time on April 26, 2021, go to www.proxyvote.com and follow the instructions on the website.

 

TELEPHONE

Up until 11:59 p.m.
Eastern time on
April 26, 2021,
call 1-800-690-6903

 

MAIL

Sign, date and return your proxy card or voting instruction form in the enclosed postage-paid enclosed envelope.

 

Important notice regarding the availability of proxy materials for the Annual Meeting to be held on April 27, 2021. This Notice of the 2021 Annual Meeting of Shareholders and Proxy Statement and our 2020 Annual Report to Shareholders (“2020 Annual Report”) are available free of charge at www.proxyvote.com. References in either document to our website or any third-party website are for the convenience of readers, and information available at or through these websites is not a part of nor is it incorporated by reference in the Proxy Statement or 2020 Annual Report.

 

The Board of Directors is soliciting proxies to be voted at our Annual Meeting on April 27, 2021, and at any postponed or reconvened meeting. We expect that the proxy materials or a Notice of Internet Availability will be mailed and made available to shareholders beginning on or about March 12, 2021. At the Annual Meeting, votes will be taken on the matters listed in this Notice of 2021 Annual Meeting of Shareholders.

 

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Virtual Annual Meeting

 

For our Annual Meeting, we have adopted a virtual meeting format. This format enables shareholders to participate regardless of geographic location or physical or resource constraints, and also safeguards the health and safety of our shareholders, employees and members of our Board of Directors (“Board”) as the COVID-19 pandemic continues. All that is required is an internet-connected device.

 

How will the Annual Meeting be held?

 

The Annual Meeting will be held via live webcast through an online virtual meeting platform that allows shareholders around the globe to listen to the entire meeting on their computer or other device and submit questions. Members of management, our Board and a representative of our independent auditor will be in virtual attendance.

 

How can shareholders attend and participate in the Annual Meeting?

 

Only shareholders of record and beneficial owners as of March 3, 2021, the record date, may attend or participate in the meeting by voting or submitting questions. To attend and participate, go to www.virtualshareholdermeeting.com/OTIS2021 and log in using the 16-digit control number included on your Notice of Internet Availability, Proxy Card or voting instruction form.

 

On the day of the Annual Meeting, April 27, 2021, shareholders may begin to log in to the online Virtual Meeting platform beginning at 8:45 a.m. Eastern time. The meeting will begin promptly at 9:00 a.m. Eastern time. Please allow ample time to log in.

 

How can shareholders receive technical assistance in connection with the Annual Meeting?

 

Beginning at 8:45 a.m. Eastern time on the day of the meeting, we will have technicians ready to assist you with any technical difficulties you may have logging in to or accessing the Annual Meeting. For technical support, you may call 844-986-0822 (U.S.) or 303-562-9302 (International). These technical support numbers also will be displayed on the login page of the online virtual meeting platform.

 

How can shareholders submit questions at the Annual Meeting?

 

Once logged in to the virtual meeting platform as instructed above, shareholders may submit questions directly by following the instructions on the website. We will answer as many shareholder-submitted questions that are pertinent to the meeting matters and appropriate as time permits during the Annual Meeting. Substantially similar questions may be answered as a group.

 

YOU WILL NOT BE ABLE TO ATTEND THE ANNUAL MEETING IN PERSON.

 

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Table of contents

 

 

 

12   PROXY STATEMENT SUMMARY
    12   Governance and Board highlights
        12   About the Separation
        12   Foundation of good governance
        14   Our director nominees
16   CORPORATE GOVERNANCE
    16    PROPOSAL 1:  Election of directors
    16   Board responsibilities and oversight
        16   Leading through change
        17   Areas of Board oversight
        18   Our code of ethics – The Otis Absolutes
    19   Creating and maintaining an effective Board
        19   How we select our directors
        21   Criteria for Board membership
        21   Director skills and attributes
        22   Board effectiveness
    24   Our Board nominees
        24   Biographical information
        28   Nominee skills and attributes matrix
        29   Director independence
    29   Our leadership and Board structure
        29   Our leadership structure
        30   Board committees
    33   Board engagement
        33   Engagement with the Board
        34   Engagement with management
        34   Engagement with shareholders
    35   Compensation of directors
        35   Pay structure
38   EXECUTIVE COMPENSATION
    38    PROPOSAL 2:  Advisory vote to approve executive compensation
    39   Compensation discussion and analysis
        39   Who we are
        39   Introduction
    39   Named Executive Officers
        39   Pre-Separation compensation
        40   Compensation best practices
        40   Executive compensation philosophy
        41   How we make pay decisions and assess our programs
        43   Elements of our 2020 executive compensation program
        49   Other executive compensation policies and practices
        52   Other compensation elements
    53   Report of the Compensation Committee
    54   Compensation tables
        54   Summary Compensation Table
        56   Grants of plan-based awards
        58   Outstanding equity awards at fiscal year-end
        61   Option exercises and stock vested
        61   Pension benefits
        62   Nonqualified deferred compensation
        63   Potential payments on termination or change-in-control
    66    PROPOSAL 3:  Advisory vote on frequency of advisory vote on executive compensation
67   AUDIT MATTERS
    67   Report of the Audit Committee
    68    PROPOSAL 4:  Appoint an independent auditor for 2021
        68   Audit Committee assessment of PwC
        68   Audit Committee controls relating to independent auditor
        69   Policy on Audit Committee pre-approval of audit and permissible non-audit services of independent auditor
        69   Fees billed by PwC
70   OTHER IMPORTANT INFORMATION
    70   Stock ownership
        70   Beneficial Stock ownership of directors and executive officers
        71   Certain beneficial owners
    71   Delinquent Section 16(a) reports
    71   Transactions with related persons
    73   Other matters
75   FREQUENTLY ASKED QUESTIONS ABOUT THE ANNUAL MEETING
80   APPENDIX A: RECONCILIATION OF GAAP MEASURES TO CORRESPONDING NON-GAAP MEASURES
83   APPENDIX B: FINANCIAL PERFORMANCE METRICS USED IN OTIS’ SHORT-TERM INCENTIVE COMPENSATION PLAN

 

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Proxy Statement summary

 

 

 

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

 

Proxy voting roadmap

 

  PROPOSAL
1
  Election of directors
BOARD RECOMMENDATION:  FOR  EACH DIRECTOR NOMINEE
PAGE
16
         
  PROPOSAL
2
  Advisory vote to approve executive compensation
BOARD RECOMMENDATION:  FOR 
PAGE
38
         
  PROPOSAL
3
  Advisory vote on frequency of advisory vote to approve executive compensation
BOARD RECOMMENDATION:  ONE YEAR 
PAGE
66
         
  PROPOSAL
4
  Appoint an independent auditor for 2021
BOARD RECOMMENDATION:  FOR 
PAGE
68

 

Governance and Board highlights

 

About the Separation

 

In 2018, UTC announced its intention to spin off its Otis reportable segment into a separate publicly traded company (the “Separation”). We became an independent, public company as of April 3, 2020. The Separation is further described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (“2020 Annual Report on Form 10-K”), available on our website at www.otisinvestors.com/financials/sec-filings.

 

Foundation of good governance

 

Otis is committed to best corporate governance practices. Our governance structure reflects processes from across industries that we believe provide the basis for effective board oversight. Our governance is dynamic, reflecting the Board’s continuous review of best practices and goal of maintaining optimum effectiveness.

 

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PROXY STATEMENT SUMMARY

 

 

Below are Otis’ key corporate governance practices, together with where in this Proxy Statement and/or other publicly available documents you may find further information on these practices. Publicly available documents such as our Corporate Governance Guidelines, Certificate of Incorporation, Bylaws, Committee Charters and The Otis Absolutes are available on our website at www.otisinvestors.com/governance/governance-documents.

 

Board independence and composition For more information
Fresh perspectives – the tenure of eight of our nine directors on the Otis Board or its predecessor, UTC, is less than three years page 15
7 of 9 director nominees are independent page 29
All committees are comprised of independent directors only pages 31-33
Independent Lead Director has expansive responsibilities page 30
Corporate Governance Guidelines (“CGG”)
Private sessions of independent directors are held following each regularly scheduled Board and committee meeting without management present; presided by the Lead Director or committee chair CGG
All directors are elected annually page 20
Bylaws and Certificate of Incorporation
Overboarding is prevented – all directors are restricted in the number of other boards on which they may serve page 20
CGG
Majority voting standard applies for uncontested elections; resignation policy is in place if a director fails to receive the majority of votes cast CGG
   
Director engagement  
5 Board meetings and 13 committee meetings in 2020 page 33
100% director attendance at Board and committee meetings in 2020 page 33
Robust onboarding education program for all directors page 23
CGG
Annual self-evaluations completed by all directors page 22
CGG
   
Environmental, social and governance (“ESG”) matters  
Strong commitment to diversity, equity and inclusion page 4
The Otis Absolutes, our code of ethics, applies to all employees globally as well as the Board The Otis Absolutes and CGG
Extensive ESG program and active Board and committee oversight of ESG matters in place page 18
   
Shareholder rights  
Nomination of director candidates available through the proxy access process; properly made shareholder nominations considered by the Nominations and Governance Committee Bylaws
Request for a special meeting of shareholders can be made by shareholders holding at least 15% of outstanding shares of Otis common stock Bylaws
No dual class or cumulative voting structure – one vote per share Certificate of Incorporation
No supermajority shareholder vote requirements or poison pill plan Bylaws and Certificate of Incorporation
   
Stock ownership requirements  
Robust stock ownership requirements for directors and executive officers pages 36 and 49
CGG
Prohibition on hedging and pledging of our common stock by directors and employees (including officers) page 49

 

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PROXY STATEMENT SUMMARY

 

 

Our director nominees

 

The Board has nominated nine individuals for election to the Otis Board upon recommendation of the Nominations and Governance Committee. These nominees are deeply experienced executives with the highest integrity and represent a highly diverse collection of backgrounds, experience, skills and perspectives. The nominees have led companies as chief executive officers, presidents, chairmen, and managing or lead partners in a wide range of sectors, including high-tech manufacturing, asset management, consumer products, professional services and transportation. Each of the nominees is a current Otis director, appointed in connection with the Separation. During this past year of unpredictability and change, the nominees have proven that they work well together with respect, agility and dedication.

 

INDEPENDENT
       

Jeffrey H. Black, 66

Former Senior Partner and Vice Chairman,
Deloitte LLP

Kathy Hopinkah Hannan, 59

Former Global Lead Partner, National
Managing Partner and Vice Chairman,
KPMG, LLP

       

Shailesh G. Jejurikar, 54

CEO and Executive Sponsor, Corporate
Sustainability, Fabric & Home Care,
The Procter & Gamble Company

Harold W. McGraw III, 72

Former Chairman, President & CEO,
McGraw-Hill Companies

       

Margaret M. V. Preston, 63

Former Managing Director,
U.S. Wealth Management,
TD Bank

Shelley Stewart, Jr., 67

Former Chief Procurement Officer,
E. I. du Pont de Nemours and Company

       

John H. Walker, 63

Former Chairman and CEO,
Global Brass and Copper Holdings, Inc.

   
       
       
NON-INDEPENDENT
       

Christopher J. Kearney, 65

Executive Chairman,
Otis Worldwide Corporation

Judith F. Marks, 57

President & CEO,
Otis Worldwide Corporation

 

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PROXY STATEMENT SUMMARY

 

 

Focus on Board diversity

 

Otis places great emphasis on diversity in its workplace and beyond, and the Board is no exception. The Nominations and Governance Committee actively considers diversity in recruitment and nominations of directors and assesses its effectiveness in this regard when reviewing the composition of the Board. The current composition of our Board reflects those efforts and the importance of diversity to the Board. Further, the Nominations and Governance Committee itself is specifically composed of a diverse group of directors, which gives it a strong foundation for considering diversity in Board leadership and governance matters.

 

NOMINEES NOMINATIONS AND GOVERNANCE COMMITTEE
   

 

Independent, focused board with fresh perspectives

 

 

* Harold W. McGraw III served as a UTC director from September 2003 until the Separation.

 

Board qualifications

 

Our Board values the varying perspectives that individuals of differing backgrounds and experiences bring. Each of our nominees meets the fundamental criteria required to be an Otis Board member:

 

Objectivity and independence Broad senior-level experience Professional and personal ethics
Loyalty Diversity

Alignment on corporate purpose

Commitment to enhancing long-term shareholder value Capacity to devote time required    

 

Our nominees as a group also possess the following highly valuable skills that the Board has identified as most relevant and desirable to support and guide Otis in excelling now and into the future:

 

 

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Corporate governance

 

 

 

Proposal 1:

Election of directors

 

We are seeking your support for the election of the nine individuals that the Board has nominated to serve on the Board for a one-year term beginning on the date of the Annual Meeting.
All the nominees are current directors of Otis, first appointed in connection with the Separation in April 2020.
The Board believes that the nominees have the qualifications consistent with our position as a global leader in the elevator and escalator manufacture, installation and service industry with operations worldwide.

 

THE BOARD RECOMMENDS A VOTE FOR EACH DIRECTOR NOMINEE:

 

  Jeffrey H. Black   Christopher J. Kearney   Margaret M. V. Preston
                 
  Kathy Hopinkah Hannan   Judith F. Marks   Shelley Stewart, Jr.
                 
  Shailesh G. Jejurikar   Harold W. McGraw III   John H. Walker

 

Board responsibilities and oversight

 

Leading through change

 

2020 was a year of tremendous change for Otis. Most significantly, we became an independent public company, pursuing our strategies that we expect will lead to long-term value creation for our shareholders. At the same time, the world was being transformed by a pandemic unseen in our lifetimes. Workplaces, residences and public spaces took on new meanings and functions. Health and safety, already paramount concerns, took on expanded importance. Moreover, our commitment to diversity, equity and inclusion was made more urgent by widespread social unrest rooted in the basic human need for equality and dignity. Through it all, our strong financial position, agile operations and a steadfast adherence to our values enabled us to succeed.

 

Our Board led strongly, soundly and with unwavering commitment as we pursued our strategies and supported our colleagues, customers and communities. The Board was deeply engaged as Otis quickly adapted to the rapidly changing business environment, ensuring that the company continued to provide critical and essential services while protecting its liquidity and its employees. The Board never lost focus on The Otis Absolutes and the need for inclusion and empowerment to remain a constant through uncertainty. The Board’s collective breadth and depth of experience and expertise proved invaluable.

 

OVERSEEING CHANGE

Members of the Otis Board bring with them experiences that are helpful in overseeing a company undergoing change. They have experience with:

 

 

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CORPORATE GOVERNANCE

 

Areas of Board oversight

 

The Board is responsible for overseeing Otis business and activities. Board oversight is divided into several key areas, with oversight responsibility delegated in some instances from the Board as a whole to one or more of its committees. Key areas of Board oversight are set forth below. More information about committee oversight and responsibilities is set forth in “Our leadership and Board structure – Board committees.”

 

STRATEGY

While management is responsible for executing Otis’ strategy, the Board actively engages with management to guide, inform and advise on that strategy in order to support and promote long-term shareholder value.

  The Board receives updates from management on status of company performance, key strategic initiatives, global socioeconomic conditions, competitive trends, capital markets and other developments.  
  The Board, primarily through the Audit Committee’s review and advice, has oversight responsibility over capital allocation policy, including financings, dividends, share repurchases, and significant investments and capital appropriations.  
  Throughout the year, the Board, through its committees, is briefed on strategies for issues falling under the oversight of those committees, such as corporate social responsibility and diversity, equity and inclusion.  
  The Board’s varied experiences and perspectives allow it to probe and, if appropriate, challenge management’s assumptions and conclusions on strategies and their implementation.  
  Engagement by the entire Board is supported and promoted through discussions at private sessions of the independent members of the Board following every Board meeting led by the independent Lead Director, and following every Board committee meeting led by its committee chair.  

RISK MANAGEMENT

Successful execution of a robust and innovative growth strategy involves accepting a certain measure of risk. Otis identifies, assesses, monitors and manages risks through its comprehensive enterprise risk management (“ERM”) program that conforms to the Enterprise Risk – Management Integrated Framework established by the Committee of Sponsoring Organizations of the Treadway Commission. The Board works with management to develop appropriate risk tolerances, and oversees and monitors the management of risks that could significantly affect the company’s operations or growth. The Board, its committees and management work together on risk management as follows:

 

 

Board of Directors

 

The full Board has oversight responsibility for the following areas of risk and risk management:

 
  Overall risk management program and structure; risk tolerance levels Management succession planning and development  
  Selection and evaluation of senior executive management

 

Business objectives and major strategies

Risks deemed significant

 
 

The Board delegates certain risk management responsibilities to committees upon recommendation from the Audit Committee.

 

Risk oversight delegated to committees includes:

 
               
 

Audit Committee

•  Enterprise risk management policies and practices

•  Financial statements, reporting and controls

•  Legal, ethical and regulatory compliance

•  Financial and capital

•  Operational

•  Reputational

•  Cybersecurity

 

Compensation Committee

•  Executive incentive plan performance metrics and goals

•  Compensation levels for senior leaders

•  CEO and Executive Chairman performance goals

•  Stock ownership requirements

 

Nominations and
Governance Committee

•  Director qualifications and nomination

•  Director independence

•  Assessment of Board effectiveness

•  Board refreshment

•  Corporate governance

•  Corporate social responsibility

•  Safety and environment

•  Diversity, equity and inclusion

•  Public policy issues

   
               

 

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ESG PROGRAMS

 

For Otis, being a good corporate citizen is fundamental to everything that we do. Underscoring that importance, the Nominations and Governance Committee engages in extensive review and oversight of issues falling under the ESG umbrella.

 

Otis has developed an ESG Governance Model that supports its ESG efforts. ESG matters impact every corner of the business, and, accordingly, ESG governance is cross-functional, involving team members from multiple functional and business areas. The ESG Council – composed of the Executive Vice President, General Counsel & Corporate Secretary; Executive Vice President & Chief People Officer; Executive Vice President, Operations; and Vice President, Financial Planning & Analysis & Investor Relations – works closely with an internal ESG Working Group and reports regularly to the CEO.

 

 

In 2020, the Nominations and Governance Committee received information from management at every meeting concerning progress on key ESG objectives. The Committee engaged in reviews of issues including: employee health and safety; corporate social responsibility and giving; sustainability; diversity, equity and inclusion, including Our Commitment to Change and the Made to Move Communities initiative. More information about the Committee’s oversight of ESG can be found in “Our leadership and Board structure – Board committees.”

 

Our code of ethics The Otis Absolutes

 

Otis’ code of ethics is called The Otis Absolutes. This code, which applies to all directors and employees, including all executive officers, is based on The Three Absolutes of Safety, Ethics and Quality. These core values establish standards of conduct and ethical principles that guide every employee and Board member across the globe in their day-to-day decisions. The Board, through its Audit Committee, receives reports from management, the Chief Compliance Officer and Otis’ internal auditor on any significant issues regarding compliance with The Otis Absolutes.

 

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Creating and maintaining an effective Board

 

How we select our directors

 

 

STEP 1

Establish qualifications for selection as a director

The Board, upon recommendation by the Nominations and Governance Committee, has established fundamental criteria that any prospective director must possess. Additionally, recognizing that Otis and its strategy must continuously adapt to ever-changing business, social, environmental and other global dynamics, the Board considers which skills, attributes and experiences are necessary to support Otis in executing its current strategy as well as to guide the company in the future.

 

The qualifications used by the Board in selecting the nominees for directors are described under “Criteria for Board membership” and “Director skills and attributes.”

 

STEP 2

Identify persons qualified to serve as directors, consistent with approved qualifications

The CEO, in consultation with the Executive Chairman and the Nominations and Governance Committee, is responsible for identifying candidates for the Board. The Board has delegated the screening and evaluation process for director candidates to the Nominations and Governance Committee. The Nominations and Governance Committee also may engage search firms to assist in identifying and evaluating qualified candidates and to ensure that a large and diverse pool of potential candidates is being considered.
 

 

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STEP 3

Review candidates recommended by management and shareholders in light of the approved qualifications

 
 

The Nominations and Governance Committee will consider candidates recommended by directors, management and shareholders who meet the qualifications Otis seeks in its directors. Each candidate is reviewed to ensure that he or she meets the criteria for Board membership established by the Board. While objectivity and independence of thought is a critical attribute for any nominee, the Board also considers whether the candidate satisfies the independence and other requirements for service on the Board and its committees in accordance with the rules of the NYSE and Securities and Exchange Commission (“SEC”).

 

Shareholder nominations. Shareholders may recommend nominees for consideration by the Committee by advance notice or proxy access, pursuant to the procedures set forth in Otis’ Bylaws. See “Frequently Asked Questions About the Meeting – How do I submit proposals and nominations for the 2022 Annual Meeting of Shareholders?” for more information on shareholder nominations of directors for the 2022 Annual Meeting of Shareholders.

 

Conflicts of interest. Directors must be loyal to and act in the best interests of Otis and promote shareholder value, thus avoiding conflicts of interest and any appearance thereof, as defined by applicable laws and as set forth in The Otis Absolutes. Candidates for Board membership must disclose all situations that could reasonably represent a conflict of interest.

 
 

Additional considerations for renomination

 

Change in principal responsibilities. If a director’s principal employment or principal responsibilities outside of Otis change substantially, the director must offer to resign from the Board. The Committee will recommend to the Board whether the resignation should be accepted.

 

Service on other boards. A director may not serve on the boards of more than four other public companies in addition to the Otis Board. Additionally, the Committee will review the appropriateness of a director’s continuing Board service if a director joins the board of a public company or for-profit company where a relationship between Otis and such other entity may affect the independence of the director, require disclosure or conflict with other legal requirements.

 

Retirement policy. Our Corporate Governance Guidelines require that directors will not stand for re-election and will retire from the Board as of the Annual Meeting of Shareholders following their attainment of age seventy-five (75). The Board retains the authority to approve exceptions to this policy based upon special circumstances. There are no fixed term limits for members of the Board since such a policy could deprive Otis of the benefit of the experience and insight into Otis’ operations that develop and strengthen over time.

 
     
   
 

STEP 4

Recommend a slate of director candidates to be proposed for annual election by shareholders

 
 

The individuals nominated for re-election to the Board at the Annual Meeting have served diligently, capably and vigorously in 2020. Each has been determined by the Nominations and Governance Committee and the Board to possess the skills, experiences and attributes necessary to lead Otis strongly into the future. While the world has experienced much change since the nominees were initially elected to the Board in April 2020, their skills, experience and agility have proven to be invaluable in guiding the company.

 

 

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Criteria for Board membership

 

The Board, upon recommendation by the Nominations and Governance Committee, has established fundamental criteria that a prospective director must possess:

 

Objectivity and independence in making informed business decisions
Broad, senior-level experience to be able to offer insight and practical wisdom
The highest professional and personal ethics and values in accordance with The Otis Absolutes
Loyalty to the interests of Otis
A commitment to enhancing long-term shareholder value
A capacity to devote the time required to successfully fulfill a director’s duties
The ability to contribute to the diversity of the Board, consistent with Otis’ diversity, equity and inclusion initiatives
Alignment on the corporation’s goal to positively impact employees, communities, the environment and other stakeholders

 

Recognizing that Otis and its strategy must continuously adapt to ever-changing business, social, environmental and other global dynamics, the Board also considered which skills and attributes were necessary to support Otis in executing its current strategy and navigating through change. As a result, the Board, upon recommendation from the Committee, determined that the Board should be composed of individuals possessing one or more of the following skills and attributes, so that each crucial skill and attribute is adequately represented on the Board:

 

Director skills and attributes

 

 

Senior industry leadership

Industry knowledge through service as a senior leader or as a director

 

Environmental, social and governance

Experience managing or overseeing matters related to environmental, health and safety, and social and governance initiatives

 

Innovation and optimization

Executive experience overseeing product development, operations and/or technological innovation translating into an understanding of how to adapt to rapid change and generate optimized solutions

 

Financial

Proficiency in complex financial management, financial reporting processes, capital allocation, capital markets, and M&A

 

Risk management

Experience in overseeing and understanding major risk exposures, including significant financial, operational, compliance, reputational, strategic, regulatory, global, trade and cybersecurity risks

 

Global

Extensive leadership experience with a significant, global enterprise providing relevant business and cultural perspectives

 

Diversity

Contributes to the diversity of the Board consistent with Otis’ diversity, equity and inclusion initiatives

 

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Board effectiveness

 

A strong and effective Board is the foundation of Otis’ governance. The Board monitors and maintains its effectiveness through its interrelated Board governance practices. The Board’s self-evaluation process allows it to improve its practices and policies in order to increase effectiveness. Continuous improvement includes understanding and staying current on industry, global, financial and other trends impacting the business. Otis’ governance practices include robust onboarding and continuing education opportunities.

 

 

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Director onboarding

 

As required by the Corporate Governance Guidelines, all Otis directors participated in a comprehensive onboarding program in 2020. The multiday onboarding program, which took place over the course of two months, included:

 

Sessions familiarizing directors with the roles and responsibilities of the Board, including topics tailored to each director’s committee assignments
Meetings with senior leaders reviewing the company’s strategy; the business; financial statements; significant financial, accounting and risk management issues; compliance programs and The Otis Absolutes; and the internal audit function and the independent auditor
Attendance at Otis Investor Day
Meetings with key executives, including regional and functional area leaders
Visit to the Otis Bristol Test Tower facility in Connecticut to view the 13 test elevator shafts and the testing labs for quality-control products and digital tools for field professionals
Visit to a customer site to understand modernization and service practices and to see demonstrations of Otis’ digital products

 

The extensive onboarding program also gave the directors the opportunity to meet each other and establish their working relationships – an essential component of a healthy, effective and respectful board.

 

Director continuing education

 

We encourage our Board members to visit our branches, service centers and other facilities. However, apart from the director onboarding program, these in-person visits were postponed in 2020 due to the COVID-19 pandemic. Going forward, it is the Board’s intention to conduct at least one annual on-site visit to an Otis operating unit, factory or construction or customer site, giving directors a firsthand understanding of Otis operations and providing an opportunity for employees and directors to interact. Directors also are encouraged to attend outside continuing education programs. Several times throughout the year, management and/or external advisors may provide presentations and materials to directors at Board and committee meetings, at the request of a director or as deemed relevant and beneficial.

 

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Our Board nominees

 

The Board, upon the recommendation of the Nominations and Governance Committee, has nominated for election the nine individuals below. All are current directors of Otis who were appointed to the Otis Board in connection with the Separation. Six of the nine directors are new to Otis, while three bring continuity and an understanding of Otis’ pre-Separation business and the UTC governance model in which Otis operated – Ms. Marks, Otis President & CEO, and Messrs. Kearney and McGraw, who served as UTC directors prior to the Separation.

 

Biographical information

 

Each nominee’s biography highlights the key skills and attributes upon which the Board particularly relies, in addition to describing each director’s significant work experience and service.

 

 

INDEPENDENT DIRECTOR

 

BOARD COMMITTEES:

 

Audit (Chair)

 

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

 

None

JEFFREY H. BLACK | 66 | BIRTHPLACE UNITED STATES
SKILLS AND ATTRIBUTES:       OTHER LEADERSHIP EXPERIENCE:
Senior industry leadership   Risk management  

•   Director, Vantage Airport Group, LTD (non-public)

•    Director, Basin Holdings LLC (non-public)

•   Board Chair, The Research Foundation for the State University of New York

•   Treasurer and Director, The University at Albany Foundation

Environmental, social and governance   Global  
Financial        
EXPERIENCE:      

•   Senior Partner and Vice Chairman, Deloitte LLP, 2002-2016; Member of Board of Directors, 2004-2011

•   Partner-in-Charge of Metro New York audit practice, Arthur Andersen LLP, 1988-2002

 


 

 

INDEPENDENT DIRECTOR

 

BOARD COMMITTEES:

 

Audit, Nominations and Governance

 

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

 

Annaly Capital Management, Inc.

KATHY HOPINKAH HANNAN | 59 | BIRTHPLACE UNITED STATES
SKILLS AND ATTRIBUTES:       OTHER LEADERSHIP EXPERIENCE:
Environmental, social and governance   Risk management  

•   Director, Blue Trail Software (non-public)

•   Board Chair and National President, Girl Scouts of the United States of America

•   Board Chair, Smithsonian National Museum of the American Indian

•   Trustee of the Committee for Economic Development

•   President George W. Bush’s National Advisory Council on Indian Education

Financial   Diversity  
EXPERIENCE:    

•   Global Lead Partner, Senior Advisor for Board Leadership Center and National Leader Total Impact Strategy, KPMG LLP, 2015-2018

•   National Managing Partner of Diversity and Corporate Responsibility, KPMG LLP, 2009-2015

•   Midwest Area Managing Partner, Tax Services, KPMG LLP, 2004-2009

•   Vice Chairman, Human Resources, KPMG LLP, 2000-2004


 


 

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INDEPENDENT DIRECTOR

 

BOARD COMMITTEES:

 

Audit, Compensation

 

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

 

None

SHAILESH G. JEJURIKAR | 54 | BIRTHPLACE INDIA
SKILLS AND ATTRIBUTES:       OTHER LEADERSHIP EXPERIENCE:
Senior industry leadership   Risk management  

•   Member, Nanyang Technological University, Singapore Business Advisory Board, 2008-2018

•   Vice Chairman, ACI-American Cleaning Institute, 2014-2017

Environmental, social and governance   Global  
Innovation and optimization   Diversity  
Financial        
EXPERIENCE:      

•   Chief Executive Officer, Fabric & Home Care, The Procter & Gamble Company, since 2019

•   Executive Sponsor, Corporate Sustainability, The Procter & Gamble Company, since 2016

•   President, Global Fabric Care & Home Care Sector, The Proctor & Gamble Company, 2018-2019

•   President, Global Fabric Care & Brand Building Organization, The Proctor & Gamble Company, 2015-2018

•   President, Fabric Care, North America, The Proctor & Gamble Company, 2014-2015

 


 

 

EXECUTIVE CHAIRMAN

 

BOARD COMMITTEES:

 

None

 

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

 

Nucor Corporation

CHRISTOPHER J. KEARNEY | 65 | BIRTHPLACE UNITED STATES
SKILLS AND ATTRIBUTES:       OTHER LEADERSHIP EXPERIENCE:
Senior industry leadership   Financial  

•   Director, United Technologies Corporation, 2018-2020

•   Director, Polypore International, Inc., 2012-2015

Environmental, social and governance   Risk management  
Innovation and optimization   Global  
EXPERIENCE:      

•   Executive Chairman, Otis Worldwide Corporation, since 2020

•   Non-Executive Chairman of SPX FLOW, Inc., 2016-2017

•   Chairman, President and Chief Executive Officer, SPX FLOW, Inc., October-December 2015

•   Chairman, President and Chief Executive Officer, SPX Corporation, 2007-2015

•   President and Chief Executive Officer, SPX Corporation, 2004-2007

•   Managing Partner, Eagle Marsh Holdings, LLC, since 2016

 


 

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PRESIDENT & CEO

 

BOARD COMMITTEES:

 

None

 

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

 

None

JUDITH F. MARKS | 57 | BIRTHPLACE UNITED STATES
SKILLS AND ATTRIBUTES:       OTHER LEADERSHIP EXPERIENCE:
Senior industry leadership   Financial   Director, Hubbell, Inc., 2016-2020
Environmental, social and governance   Global  
Innovation and optimization   Diversity  
EXPERIENCE:      

•   President & Chief Executive Officer, Otis Worldwide Corporation, since 2020

•   President (since 2017) & Chief Executive Officer (since 2019), Otis Elevator Company

•   Chief Executive Officer, Siemens USA and Dresser Rand, a Siemens business, 2016-2017

•   Executive Vice President, New Equipment Solutions, Dresser Rand, 2015-2016

•   President & Chief Executive Officer, Siemens Government Technologies, 2011-2015

 


 

 

INDEPENDENT DIRECTOR

 

BOARD COMMITTEES:

 

Compensation, Nominations and Governance

 

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

 

Phillips 66 Company

HAROLD W. MCGRAW III | 72 | BIRTHPLACE UNITED STATES
SKILLS AND ATTRIBUTES:       OTHER LEADERSHIP EXPERIENCE AND SERVICE:
Senior industry leadership   Global  

•   Chairman, U.S. Council for International Business

•   Member, U.S. Trade Representatives’ Advisory Committee for Trade Policy and Negotiations

•   Honorary Chairman, International Chamber of Commerce

•   Director, ConocoPhillips, 2005-2012

•   Director, United Technologies Corporation, 2003-2020

Environmental, social and governance        
EXPERIENCE:      

•   Chairman, McGraw-Hill Companies, 1999-2015

•   President & CEO, McGraw-Hill Companies, 1998-2013




 


 

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INDEPENDENT DIRECTOR

 

BOARD COMMITTEES:

 

Compensation, Nominations and Governance (Chair)

 

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

 

McCormick & Company

MARGARET M. V. PRESTON | 63 | BIRTHPLACE UNITED STATES
SKILLS AND ATTRIBUTES:       OTHER LEADERSHIP EXPERIENCE AND SERVICE:
Environmental, social and governance   Global  

•   Board Member, Lincoln Center, Women’s Leadership Council

•   Board Member, United Way of New York City Women’s Leadership Council

Financial   Diversity  
Risk management        
EXPERIENCE:      

•   Managing Director, North Region Leader, U.S. Wealth Management, TD Bank, N.A., 2014-2019

•   Managing Director and Regional Executive for U.S. Trust, Bank of America Private Wealth Management, 2006-2014

•   Executive Vice President, Wealth Management and Investments, PNC Bank (formerly Mercantile-Safe Deposit & Trust Co.), 2002-2006

 


 

 

INDEPENDENT DIRECTOR

 

BOARD COMMITTEES:

 

Audit, Nominations and Governance

 

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

 

Kontoor Brands, Inc.

SHELLEY STEWART, JR. | 67 | BIRTHPLACE UNITED STATES
SKILLS AND ATTRIBUTES:       OTHER LEADERSHIP EXPERIENCE:
Senior industry leadership   Risk management  

•   Director, Cleco Corporation, 2010-2016

•   Board of Trustees, Howard University

•   Chair, Board of Visitors, Howard University School of Business

•   Board of Governors, University of New Haven

Environmental, social and governance   Global  
Innovation and optimization   Diversity  
Financial        
EXPERIENCE:      

•   Vice President, Sourcing and Logistics, and Chief Procurement Officer, E. I. du Pont de Nemours and Company, 2012-2018

•   Senior Vice President, Operational Excellence, Chief Procurement Officer, Tyco International plc, 2005-2012

•   Vice President, Supply Chain Management, Tyco International plc, 2003-2005

•   Senior Vice President, Supply Chain, Invensys PLC, 2001-2003

•   Managing Partner, Bottom Line Advisory LLC, since 2018

 


 

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LEAD DIRECTOR

 

INDEPENDENT DIRECTOR

 

BOARD COMMITTEES:

 

Compensation (Chair)

 

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

 

Nucor Corporation O-I Glass, Inc.

JOHN H. WALKER | 63 | BIRTHPLACE UNITED STATES
SKILLS AND ATTRIBUTES:       OTHER LEADERSHIP EXPERIENCE:
Senior industry leadership   Financial  

•   Director, United Continental Holdings, Inc., 2002-2016

•   Director, Delphi Corporation, 2005-2009

•   Executive Director, Weirton Steel Corporation, 2000-2003

Environmental, social and governance   Risk management  
Innovation and optimization        
EXPERIENCE:      

•   Non-Executive Chairman, Nucor Corporation, since 2020

•   Non-Executive Chairman, Global Brass and Copper Holdings, Inc., 2014-2019

•   Executive Chairman, Global Brass and Copper Holdings, Inc., 2013-2014

•   Chief Executive Officer, Global Brass and Copper Holdings, Inc., 2007-2014

•   President and Chief Executive Officer, The Boler Company, 2003-2006

 


 

Nominee skills and attributes matrix

 

We are proud of the breadth, depth and diversity of skills and expertise that our Board possesses. No one skill is more important than the other, and the strength of our Board comes from its collective perspectives. The chart below and the biographical information for each director nominee above illustrate the diverse set of key skills, attributes and areas of expertise represented on our Board. The absence of a “l” for a particular skill or attribute does not mean the director is unable to contribute to the decision-making process in that area.

 

    Jeffrey H. Black Kathy
Hopinkah
Hannan
Shailesh G.
 Jejurikar
Christopher
J. Kearney
Judith F.
Marks
Harold W.
McGraw III
Margaret
M. V.

Preston
Shelley
Stewart, Jr.
John H.
Walker
Senior industry leadership l   l l l l   l l
Environmental, social and governance l l l l l l l l l
Innovation and optimization     l l l     l l
Financial l l l l l   l l l
Risk management l l l l     l l l
Global l   l l l l l l  
Diversity   l l   l   l l  

 

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Director independence

 

Objectivity and independence of thought are critical attributes for all our Board members, enabling our Board as a whole to respect and consider the broad range of viewpoints offered by our diverse directors. To further ensure that our directors are guided by independent thought and interest, the Board, under the Corporate Governance Guidelines, requires that a substantial majority of directors be independent in accordance with applicable law and the listing standards of the NYSE.

 

Independence determinations by the Board are further guided by the Board’s Director Independence Policy (available at www.otisinvestors.com/governance/governance-documents), pursuant to which a director is considered independent if the Board makes an affirmative determination, after consideration of all relevant facts and circumstances, that the director does not have a material relationship with Otis (other than as a director) either directly or as a partner, shareholder or executive officer of another entity that has a relationship with Otis. When assessing the materiality of a director’s relationship with Otis, the Board will consider the issue both from the director’s standpoint and from that of persons or organizations affiliated with the director.

 

Before joining the Board and annually thereafter, the Nominations and Governance Committee conducts an assessment for each nominee and director that considers all known relevant facts and circumstances about relationships bearing on the independence of the nominee/director. This assessment is based on a questionnaire completed by the nominee/director, as well as company information about sales and purchases of products and services in the ordinary course of business, as well as other transactions, between Otis (including its subsidiaries) and other companies or charitable organizations, where directors and nominees (and their immediate family members) may have relationships pertinent to the independence determination. The assessment also examines relationships that may affect heightened independence standards that apply to members of the Audit Committee and Compensation Committee.

 

Following its assessments in connection with the nomination of the nine incumbent directors to the Board at the Annual Meeting, the Nominations and Governance Committee has concluded, and the Board affirmatively determined, that all of the directors other than Christopher J. Kearney and Judith F. Marks, who are employed by Otis, are independent under Otis’ Director Independence Policy and the NYSE listing standards because none of the directors, other than Mr. Kearney and Ms. Marks, has a business, financial, family or other relationship with Otis that is considered material.

 

Our leadership and Board structure

 

Our leadership structure

 

The Otis Board is led by an Executive Chairman and an independent Lead Director, with the CEO as a vital member of the Board. As a newly public company, Otis’ Board leadership structure reflects the desire for both continuity of leadership and fresh, independent oversight. Otis has no fixed policy on whether the roles of Executive Chairman and CEO should be separate or combined, but rather allows the Board to determine the best structure based on the circumstances. The Otis Board believes that the current structure continues to serve the best interests of Otis at this time.

 

 

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The roles of CEO, Executive Chairman and Lead Director are separate and distinct, but function together and support each other. The separate roles of CEO and Executive Chairman allow CEO Judith F. Marks to focus on leading and growing our newly independent business and operations. At the same time, Executive Chairman Christopher J. Kearney can focus on strong Board governance and leadership, while working collaboratively with senior management. Mr. Kearney, who served on the UTC board of directors prior to the Separation, is well-suited for this role since he brings an understanding of Otis’ pre-Separation business and the UTC governance model in which Otis operated. Additionally, Mr. Kearney has recent, extensive and highly relevant experience leading a Fortune 500 manufacturing company as Chairman, President and Chief Executive Officer of SPX Corporation and overseeing the spinoff of a large segment into a standalone public company (SPX FLOW, Inc.), following which he served as Chairman, President and Chief Executive Officer, and subsequently Non-Executive Chairman of SPX FLOW, Inc.

 

Since the Executive Chairman is not independent, the Corporate Governance Guidelines require the independent directors to annually select an independent member to serve as Lead Director to act in an advisory capacity to the CEO and Executive Chairman and to management in matters concerning the interests of the organization and the Board and relationships between management and the Board. The independent directors selected John H. Walker to fill this role in light of his extensive executive and board leadership experience.

 

In electing the individuals to serve as Executive Chairman and independent Lead Director, the Board considers skills and experiences as well as personal characteristics that will best support a strong and collaborative working relationship among them and the CEO. The key roles and responsibilities of the Executive Chairman and the Lead Director are described below.

 

Executive Chairman   Lead Director

•  Presides at all meetings of the full Board

•  Presides at annual and special shareholders meetings

•  Fosters open and inclusive discussion at Board meetings

•  Consults with the CEO and Nominations and Governance Committee in identifying Board candidates

•  Plans the schedule and agenda for Board meetings, in consultation with the Lead Director and the CEO

•  Reviews Board materials to ensure quality and sufficiency

•  Provides ongoing feedback to the CEO

•  Works closely with the CEO to provide strategic operational and governance advice

 

•  Presides at all meetings of the full Board when the Executive Chairman and the CEO are not present

•  Calls, develops agendas for and presides at all private sessions of the independent directors

•  Serves as liaison on boardwide issues between the independent members of the Board and the CEO and the Executive Chairman

•  Communicates on an individual basis as needed with the other independent directors

•  Jointly leads, with the Chair of the Nominations and Governance Committee, the Board self-evaluation and works with the Committee to address any issues that arise

•  Ensures that ongoing evaluation and compensation of the CEO and Executive Chairman is conducted by the Board

•  Meets, as representative of the Board, with representatives of significant stakeholder constituencies

 

Board committees

 

While it is the responsibility of the Board as a whole to exercise its business judgment and to act in the best interests of Otis in overseeing Otis’ business and affairs, the Board delegates oversight of certain matters to its committees, who act on behalf of the Board and report back to the Board on its activities.

 

Actions reserved to the full Board include:    

•  Determine the appropriate size of the Board from time to time

•  Oversee the selection and evaluation of senior executive management

•  Review business objectives and major strategies

 

•  Oversee significant risks

•  Evaluate the performance of the CEO and the Executive Chairman

•  Review succession planning and management development

 

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Our Board has three standing committees: Audit, Compensation, and Nominations and Governance. Each committee is composed exclusively of independent directors. Each standing committee has the authority to retain independent advisors to assist in the fulfillment of its responsibilities, to approve the fees paid to those advisors and to terminate their engagements.

 

All committee charters, which are reviewed by the respective committee annually, are available on our website at www.otisinvestors.com/governance/governance-documents.

 

     
Audit Committee Meetings in 2020: 6

MEMBERS:

Jeffrey H. Black,

Chair

 

Kathy Hopinkah Hannan
Shailesh G. Jejurikar
Shelley Stewart, Jr.

 

All members of the Audit Committee are independent.

 

ADDITIONAL INDEPENDENCE REQUIREMENTS:

All members of the Audit Committee satisfy the heightened independence requirements under the relevant rules of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and NYSE, both of which require that the Board consider the source of member compensation.

 

FINANCIAL EXPERTISE AND AUDIT COMMITTEE FINANCIAL EXPERTS:

The Board has determined that each member of the Audit Committee meets the financial expertise requirements of the NYSE, and that Jeffrey H. Black and Kathy Hopinkah Hannan are “audit committee financial experts” under the relevant rules of the Exchange Act.

 

PRIMARY RESPONSIBILITIES:

 

Financial statements and disclosure matters

 

•  Reviews and discusses with management and the independent auditor the content, preparation, integrity and independent auditor review of Otis’ financial statements filed with the SEC, including significant financial reporting issues and judgments, and the adequacy and effectiveness of Otis’ internal control over financial reporting

 

Independent auditor and internal audit

 

•  Selects the independent auditor, subject to shareholder ratification, and monitors its performance, audit and non-audit services and independence

•  Approves the annual Internal Audit plan, budget and staffing, and reviews significant findings and key trends

 

Compliance

 

•  Oversees the implementation and effectiveness of Otis’ legal, ethical and regulatory compliance programs, including The Otis Absolutes

•  Oversees complaints and concerns submitted by employees or external parties regarding accounting and internal accounting controls, auditing matters or business practices

 

Enterprise risk management

 

•  Oversees the overall policies and practices for enterprise risk management

•  Reviews and oversees the evaluation and management of Otis’ major financial, operational, compliance, reputational, strategic and cybersecurity risks

 

Significant financial actions

 

•  Oversees Otis’ policies and strategies with respect to financing, dividends, share repurchases, capital appropriations, derivative transactions, and insurance and risk management.

•  Reviews plans for and execution of significant acquisitions and divestitures

 

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Compensation Committee Meetings in 2020: 4

MEMBERS:

John H. Walker,

Chair

 

Shailesh G. Jejurikar
Harold W. McGraw III
Margaret M. V. Preston

 

All members of the Compensation Committee are independent.

 

ADDITIONAL INDEPENDENCE REQUIREMENTS:

All members of the Compensation Committee satisfy the heightened independence requirements under the relevant rules of the Exchange Act and the NYSE, which require that the Board consider the source of member compensation.

 

PRIMARY RESPONSIBILITIES:

 

Compensation practices and policies

 

•  Oversees executive compensation programs, practices and policies, including establishing incentive plan performance goals

•  Annually reviews a risk assessment of compensation policies, plans and practices

 

CEO and Executive Chairman compensation

 

•  Reviews and approves annual goals and objectives relevant to CEO and Executive Chairman compensation, and leads an evaluation of the CEO’s and Executive Chairman’s performance against those goals and objectives

•  Determines and approves, subject to review by the other independent directors, the CEO’s and Executive Chairman’s compensation levels based on the evaluation

 

Executive compensation

 

•  Reviews and approves compensation peer group

•  Reviews and approves changes to compensation for named executive officers (“NEOs”) and other key officers

•  Approves benefit arrangements and agreements for the CEO, Executive Chairman, NEOs and other key officers

•  Assists the Board in overseeing and managing risk related to executive compensation practices

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION:

 

During the year ended December 31, 2020:

 

•  No member of the Compensation Committee was a current or former officer or employee of Otis or any of its subsidiaries.

•  None of our executive officers served as a member of the board of directors or compensation committee of any entity that has one or more of its executive officers serving as a member of the Otis Board or its Compensation Committee.

 

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Nominations and Governance Committee Meetings in 2020: 4

MEMBERS:

Margaret M. V. Preston,

Chair

 

 

Kathy Hopinkah Hannan
Harold W. McGraw III
Shelley Stewart, Jr.

 

All members of the Nominations and Governance Committee are independent.

 

 

PRIMARY RESPONSIBILITIES:

 

Board and committee composition

 

•  Recommends for Board approval the qualifications and criteria for service as a director

•  Identifies, evaluates and recommends director candidates

•  Submits to the Board recommendations for committee assignments

•  Reviews and makes recommendations to the Board regarding whether a director should continue service on the Board if there is a change in his or her principal employment or the number or type of outside boards on which the director serves

 

Stakeholder impacts

 

•  Oversees, reviews and monitors Otis’ policies, programs and practices related to environmental, health and safety and diversity, equity and inclusion initiatives and related matters

•  Oversees, reviews and monitors Otis’ corporate social responsibility and charitable giving programs

 

Corporate governance

•  Reviews and recommends to the Board appropriate compensation for non-employee directors

•  Oversees the design and conduct of the annual self-evaluation of the performance of the Board and its committees

•  Develops, reviews and recommends to the Board updates to the Corporate Governance Guidelines

•  Establishes and monitors policies and practices on Board operations and Board service

•  Reviews and makes recommendations to the Board regarding shareholder rights and shareholder proposals

 

Board engagement

 

Engagement with the Board

 

Throughout 2020, the Board engaged in robust and frequent interaction among themselves as well as with senior leaders, key personnel and advisors. Each Board member participated actively, contributing unique and varied perspectives that allowed the Board as a whole to provide comprehensive and well-reasoned guidance to the company.

 

Our Board and its committees met frequently in 2020.

 

 

Each of our current directors attended 100% of the formal meetings of our Board and the committees on which he or she served as a member during 2020.

 

We encourage our directors to attend our Annual Meetings of Shareholders. All of our directors are expected to virtually attend the Annual Meeting.

 

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Engagement with management

 

The Board engaged continuously with management throughout 2020. In addition to interaction with management at each Board and committee meeting, the Lead Director and committee chairs met with management throughout the course of the year to share information, obtain business updates, provide support and offer guidance. The Corporate Governance Guidelines provide that each Board member has full access to Otis management.

 

Regular, thorough and clear communication with management is supported by the following practices adopted by the Board:

 

  Meeting agendas and material. The Executive Chairman and Lead Director, as well as the chairs of each committee, meet with the CEO and key management to develop streamlined and informative material and presentations for Board and committee meetings.
  Intermeeting updates. In addition to the materials provided in connection with Board and committee meetings, management regularly provides the Board updates on business operations, key customer engagements, communication with investors, ESG topics and other key initiatives through written communications and in-depth conversations. During 2020, management provided updates on COVID-19 impacts in Board meetings and through informal meetings and written updates.
  Resource material. Board members receive a daily summary of industry-related and Otis-specific news.

 

Engagement with shareholders

 

Open communication with shareholders is fundamental to good corporate governance. In our first year as an independent company, Ms. Marks and senior leaders engaged extensively with institutional investors and analysts to discuss Otis’ business, strategy, financial performance and capital allocation. The Board received frequent reports from management summarizing feedback and key focus areas from those meetings.

 

Otis 2020 shareholder engagement key statistics:

Otis met with more than 380

institutional investors

 

Our President & CEO engaged with

more than

200 investors and our Chief

Financial Officer engaged with more than

 

250 investors, in addition to the Otis inaugural Investor Day and pre-Separation equity roadshow

 

Management met with

more than 70% of our

top 100 active shareholders

 

as well as with more than

80% of

our top 50 active shareholders

 

representing more than

30% of shares outstanding

 

More than 80 institutions

participated in Otis’ inaugural

Investor Day at the NYSE

 

Approximately 40 institutions

participated in the equity

roadshow preceding the Separation

 

 

Topics discussed included:        

✔   Sustainable growth rate and profitability

✔   Long-term strategy and renewed priorities as a standalone company

 

✔   Capital allocation

   ESG programs and efforts

 

 

✔   Risk management, particularly related to the COVID-19 environment

 

 

The Board values the perspectives of Otis shareholders, who have placed their trust in Otis and its Board. We are eager to engage with those entities whose investments in Otis stock underscore their belief in the long-term shareholder value that Otis is creating. The engagement process will continue to develop and mature, and we expect to engage regularly in meaningful conversations with shareholders concerning our business, executive compensation, corporate environmental and social responsibility, as well as Otis’ diversity, equity and inclusion and sustainability initiatives, and other governance topics. The Board believes that candid and specific feedback from its shareholders will enhance Otis’ governance, social responsibility and compensation practices, and will contribute positively to Otis’ mission, performance and return to shareholders.

 

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We welcome feedback and communications from all stakeholders.

 

Shareholders and other interested persons may send communications to the Board, the Executive Chairman, the Lead Director or one or more independent directors by contacting the Corporate Secretary’s Office by mail or email to the address set forth on the Otis website at www.otisinvestors.com/governance/governance-documents.
Communications relating to Otis’ accounting, internal controls, auditing matters or business practices also may be submitted pursuant to the various reporting channels set forth on our website at www.otis.com/en/us/our-company/ethics-compliance/ reporting-channels.
Communications relating to Otis’ accounting, internal controls, auditing matters or business practices will be reviewed by the Global Ethics & Compliance Office and reported to the Audit Committee pursuant to the Corporate Governance Guidelines. All other communications will be reviewed by the Corporate Secretary and reported to the Board, as appropriate, pursuant to the Corporate Governance Guidelines.
Shareholders and other interested persons may contact Otis Investor Relations by phone or email using the number and address provided on the Otis website at www.otisinvestors.com/resources/contact-us.

 

Compensation of directors

 

Pay structure

 

Our director compensation program is designed to enable ongoing attraction and retention of highly qualified directors and to address the time, effort, expertise and accountability required of active Board membership. This program is described in further detail below.

 

Annual retainer for non-employee directors

 

Under the Board of Directors Deferred Stock Unit Plan (the “Board DSU Plan”), non-employee Board members are compensated for their service as directors in the form of an annual retainer. The Lead Director, the chairs of each committee and the members of the Audit Committee each receive an additional annual retainer to recognize the additional time and responsibility associated with those roles.

 

DIRECTOR RETAINERS HAVE SIGNIFICANT EQUITY COMPONENT  
   

 

40% of the annual retainer is payable in cash and the remaining 60% is payable in deferred stock units (“DSUs”), although a director also may elect to receive 100% of the retainer in DSUs. The significant equity component aligns directors’ interests with those of our shareholders. DSUs are vested when granted.

 

Role Cash
($)
(40%)
Deferred
Stock Units
($)
(60%)
Total
($)
All Directors (base retainer) 124,000 186,000 310,000
Incremental Amounts Above Base Retainer:*      
Lead Director 14,000 21,000 35,000
Audit Committee Chair 10,000 15,000 25,000
Audit Committee Member 6,000 9,000 15,000
Compensation Committee Chair 8,000 12,000 20,000
Nominations and Governance Committee Chair 8,000 12,000 20,000

 

* Directors in multiple leadership roles receive incremental compensation for each role.

 

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Directors do not receive additional compensation for attending regularly scheduled Board or committee meetings, but each non-employee director receives an additional $5,000 for each special meeting attended in person. No such compensation was paid in 2020.

 

Our non-employee directors received initial annual retainers upon joining the Board in 2020. Going forward, annual retainers will be paid each year following the Annual Meeting of Shareholders. Directors joining the Board between an Annual Meeting of Shareholders and the end of September will receive 100% of the annual retainer. Directors joining the Board between October and the next Annual Meeting of Shareholders will receive 50% of the annual retainer for the year they joined the Board.

 

Deferred stock units

 

After a non-employee director leaves the Board, his or her DSUs are converted into shares of our common stock, payable either in a lump sum or in 10- or 15-year installments in accordance with the director’s prior election. When we pay a dividend on our common stock, each non-employee director holding DSUs is credited with additional DSUs equal in value to the dividend paid on the corresponding number of our shares.

 

Executive Chairman compensation

 

Christopher J. Kearney, our Executive Chairman, is an executive officer. He receives an annual salary as well as an annual long-term incentive award. For 2020, he received an annual base salary of $1,000,000 and an annual long-term incentive award with a grant date value of $1,500,000.

 

Director share ownership requirements

 

Each non-employee director is required to own our common stock in order to align his or her interests with those of our shareholders and promote sound corporate governance.

 

Role Stock ownership requirement
Executive Chairman 5x annual base salary
Non-employee director 5x annual base cash retainer

 

Directors must achieve the required share ownership level within five years of joining the Board. If a director does not meet the ownership requirement within this five-year period, then the director is not permitted to sell shares of Otis until he or she achieves the required ownership level. For purposes of determining stock ownership, we count common stock directly or indirectly owned by our non-employee directors or their family members residing in the same household, restricted stock units (“RSUs”) and DSUs.

 

Impact of the spinoffs on continuing directors’ compensation

 

Messrs. Kearney and McGraw were UTC directors prior to the Separation, and they each held vested UTC DSUs and vested UTC deferred RSUs. These awards were converted into vested DSUs and vested deferred RSUs in all three of the post-Separation companies and the obligation to pay these awards was assumed by Otis under our Board DSU Plan. In addition, Mr. Kearney also held unvested deferred UTC RSUs immediately prior to Separation. These awards were converted into unvested deferred Otis RSUs that were also assumed under our Board DSU Plan as part of the Separation. These deferred RSUs, including any dividend equivalents that are credited as additional RSUs, will vest ratably over the next three years on April 30th of 2021, 2022 and 2023, subject to Mr. Kearney’s continued Board service on the applicable vesting date. Upon separation from service, Otis DSUs and vested deferred Otis RSUs will be distributed in shares of our common stock, while DSUs and RSUs in the other two companies will be distributed in cash.

 

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2020 non-employee director compensation

 

The following table provide information on the compensation paid to our non-employee Board members in 2020. Ms. Marks and Mr. Kearney, who are also employees, receive no additional compensation for their service as directors.

 

Name Fees Earned
or Paid in Cash
($)(1)
Stock
Awards
($)(2)
All Other
Compensation
($)(3)
Total
($)
Jeffrey H. Black 134,000 201,000 335,000
Kathy Hopinkah Hannan 130,000 195,000 325,000
Shailesh G. Jejurikar 325,000 25,000 350,000
Harold W. McGraw III 124,000 186,000 310,000
Margaret M. V. Preston 132,000 198,000 330,000
Shelley Stewart, Jr. 130,000 195,000 25,000 350,000
John H. Walker 365,000 365,000
(1) Messrs. Jejurikar and Walker elected to receive additional DSUs in lieu of the cash portion of the annual retainer.
(2) Stock Awards consist of the grant date fair value of DSU awards credited to the director’s account, including any portion of the annual cash retainer that the director elected to receive as DSUs. The value of DSU awards has been calculated in accordance with the Compensation – Stock Compensation Topic of the FASB ASC using assumptions described in Note 13: Employee Benefit Plans, to the Consolidated Financial Statements in Otis’ 2020 Annual Report on Form 10-K. The number of DSU units credited to each director in 2020 for their annual retainer(s) was calculated by dividing the value of the award by $51.81, the NYSE closing price per share of our common stock on May 11, which was the date of grant. DSU awards vest on the grant date, but are not distributed until the director leaves the Board. The aggregate number of DSU awards outstanding for each director can be found in the table on page 70.
(3) Amounts in this column represent matching contributions to eligible nonprofit organizations under our matching gift program that covers non-employee directors as well as Otis employees. Under this program, we will make matching contributions of up to $25,000 per year.

 

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Executive compensation

 

 

 

 

Proposal 2:

Advisory vote to approve
executive compensation

 

WHAT AM I VOTING ON?

 

We seek a non-binding advisory vote from our shareholders to approve the compensation of our Named Executive Officers as described in the “Compensation discussion and analysis” section beginning on page 39 and the accompanying compensation tables on pages 54-65. This vote is commonly known as “say-on-pay” and is advisory and not binding on Otis or the Board. However, the Board and the Compensation Committee will consider the outcome of the vote in making future executive compensation decisions.

 

We encourage you to read the “Compensation discussion and analysis” and accompanying compensation tables to learn more about our executive compensation programs and policies. As described on page 40 of this Proxy Statement, our executive compensation program is guided by the following four principles:

 

Attract and retain talent. We should provide compensation and benefit programs that allow Otis to attract, retain and motivate talent around the globe.
Drive performance. We should incentivize and reward strong company performance and differentiate pay based on an individual’s contribution to that success.
Reinforce core values. We should design compensation and benefit programs that drive fair and equitable pay globally and align with Otis’ values.
Ensure shareholder alignment. We should align the interests of our executives with the interests of our shareholders. We should use stock-based compensation and performance measures that drive long-term shareholder value.

 

Our Board recommends that shareholders vote FOR the following resolution:

 

“Resolved, that the shareholders approve the compensation of the Named Executive Officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the executive compensation tables and other executive compensation disclosures in this proxy statement.”

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.

 

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EXECUTIVE COMPENSATION

 

 

Compensation discussion and analysis

 

This Compensation discussion and analysis (“CD&A”) describes our executive compensation philosophy and the compensation provided to our named executive officers (“NEOs”) for 2020.

 

39 WHO WE ARE
39 INTRODUCTION
39 NAMED EXECUTIVE OFFICERS
39 PRE-SEPARATION COMPENSATION
40 COMPENSATION BEST PRACTICES
40 EXECUTIVE COMPENSATION PHILOSOPHY
41 HOW WE MAKE PAY DECISIONS AND ASSESS OUR PROGRAMS
43 ELEMENTS OF OUR 2020 EXECUTIVE COMPENSATION PROGRAM
49 OTHER EXECUTIVE COMPENSATION POLICIES AND PRACTICES
52 OTHER COMPENSATION ELEMENTS
53 REPORT OF THE COMPENSATION COMMITTEE


 

Who we are

 

We are the world’s leading company for elevator and escalator manufacturing, installation and service. We operate in over 200 countries, employ approximately 69,000 people and have been in business for 168 years. From 1976 to April 2020, we were a business unit of UTC. In April 2020, 100 years after we first listed our common stock on the NYSE, we once again became an independent public company listed on the NYSE as a result of the Separation.

 

Introduction

 

In the discussion that follows, we provide:

 

An explanation of our executive compensation philosophy and governance practices
An overview of our executive compensation programs
A review of the compensation decisions made for our NEOs
The factors considered in making those decisions

 

Named Executive Officers

 

Our NEOs for 2020 were:

 

           

Judith F. Marks

President & Chief
Executive Officer
(CEO)

Rahul Ghai

Executive Vice
President & Chief
Financial Officer

Peiming (Perry)
Zheng

President,
Otis China

Stéphane de
Montlivault

President,
Otis Asia Pacific

Nora E. LaFreniere

Executive Vice
President, General
Counsel & Corporate
Secretary

Richard M.
Eubanks, Jr.

Former President,
Otis EMEA

 

Richard M. Eubanks, Jr. served as President, Otis EMEA, until September 30, 2020. See “Eubanks Separation Agreement” on page 51 for more information.

 

Pre-Separation compensation

 

From 1976 to 2020, we were a business unit of UTC. As a result, we inherited UTC’s executive compensation programs and practices. In 2020, both UTC’s Compensation Committee and our Compensation Committee (the “Committee”) had a role in determining the compensation paid to our NEOs for 2020. Prior to the Separation, UTC’s Compensation Committee decided what compensation was paid to our NEOs and other executives, including their salaries, annual short-term incentive (“STI”) targets and long-term incentive (“LTI”) awards.

 

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Compensation best practices

 

We are committed to executive compensation practices that drive performance, mitigate risk and align the interests of our executives with those of our shareholders. Below is a summary of best practices that we have implemented and those that we avoid because we believe they are not in the best interests of our shareholders.

 

 
WHAT WE DO
   
Pay for performance
Use performance goals aligned with business objectives
Annually assess our executive compensation programs to ensure that they do not encourage imprudent risk taking
Maintain strong clawback provisions
Use an independent compensation consultant
Maintain robust stock ownership requirements
Require our Executive Leadership Group (“ELG”) members, where permitted by law, to sign non-competition and non-solicitation agreements
 
WHAT WE DON’T DO
   
´ Allow hedging or pledging of our stock
´ Reprice, backdate or spring-load equity awards
´ Vest equity on a single-trigger basis on a change-in-control
´ Provide excessive severance
´ Provide change-in-control excise tax gross-ups
´ Provide significant perquisites
´ Include evergreen provisions in our LTI plan
   
   
   


 

Executive compensation philosophy

 

Our executive compensation philosophy, which applies to all our executives, including our NEOs, has four guiding principles that we believe are critical to our success:

 

ATTRACT, RETAIN AND MOTIVATE TOP TALENT

Provide a market-competitive mix of pay and benefit programs designed to attract, retain and motivate top talent globally

 

DRIVE PERFORMANCE

Incentivize and reward strong company performance, while differentiating pay based on an executive’s contribution to our success

 

REINFORCE CORE VALUES

Design programs that drive fair and equitable pay globally and align with our values  

 

ENSURE SHAREHOLDER ALIGNMENT

Establish and maintain well-governed programs that create long-term value for our shareholders and executives

 

To support these principles, we take the following actions:

 

ATTRACT, RETAIN AND MOTIVATE TOP TALENT

We benchmark our programs and target pay (base salary, STI and LTI awards) to be competitive in the markets in which we compete for talent. Our programs also include competitive benefits to promote physical, mental and financial well-being.

 

DRIVE PERFORMANCE

Our compensation programs are designed to ensure that a significant portion of pay delivered is variable and based on a mix of company and individual performance.

 

We offer meaningful upside opportunity in both our STI and LTI programs  for achieving superior performance.

 

We use performance goals aligned with business objectives to drive both near- and long-term success.

 

We retain discretion to increase or decrease compensation based on an individual’s performance.

 

REINFORCE CORE VALUES

We regularly review compensation to ensure it is appropriate and equitable.

 

We consider results and how those results were achieved in setting and approving compensation.

 

We emphasize the importance of adhering to The Otis Absolutes (Safety, Ethics and Quality) and maintain clawback provisions and discretion to reduce compensation where appropriate.

 

ENSURE SHAREHOLDER ALIGNMENT

Our STI and LTI programs use financial performance measures that correlate well with shareholder value.

 

The value of our LTI is tied to our performance on both an absolute and relative basis.

 

We maintain strong stock ownership requirements with hedging and pledging prohibitions.

 

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How we make pay decisions and assess our programs

 

Role and responsibilities

 

COMPENSATION COMMITTEE

Oversees our programs

 

 Reviews our executive compensation practices and policies to ensure that they align executive and shareholder interests

 Reviews and approves our clawback provisions

 Annually reviews a risk assessment of our compensation policies, plans and practices

 Assists the Board in its oversight of our human capital management

 Establishes and determines the satisfaction of performance goals for our STI and LTI programs

 Reviews and approves our compensation peer group

 Recommends the CEO’s compensation to the Board

 Reviews and approves the CEO’s recommendations for pay changes for ELG members and executive officers and makes adjustments, as appropriate

 Annually reviews compliance with stock ownership requirements

 Reviews and approves executive compensation program design changes

 Considers shareholder input regarding executive compensation decisions and policies

 

CEO

Provides selective input to the Committee

 

 Considers the performance of ELG members and executive officers, market benchmarks, internal equity and retention risk when determining pay recommendations

 Presents the Committee with recommendations for each principal element of compensation for ELG members (including the other NEOs) and executive officers

 Has no role in the determination of her own compensation

 

     

MANAGEMENT AND THE INDEPENDENT CONSULTANT

Provide insight and assistance

 

The Executive Vice President & Chief People Officer, along with our Vice President, Total Rewards, and the independent compensation consultant, provide insight on program design and compensation market data to assist the Committee with its decisions. Management also has been delegated oversight responsibility for STI plan and LTI plan administration other than for ELG members and executive officers.

 

SHAREHOLDERS

Provide feedback on our programs

 

In assessing our program each year, the Committee will consider feedback from our shareholders. This feedback, along with other factors, will help the Committee in its decisions and its ongoing assessment of the effectiveness of our programs.

     

 

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Independent compensation consultant

 

Prior to the Separation, UTC’s Compensation Committee retained Pearl Meyer & Partners (“Pearl Meyer”), who also served as UTC’s independent compensation consultant, to serve as the independent compensation consultant for the Committee. Although Pearl Meyer may make recommendations on the form and amount of compensation, it does not make any decisions regarding the compensation of our NEOs and other ELG members. These decisions were made by UTC’s Compensation Committee prior to the Separation and by Otis’ Compensation Committee (or the Board for Ms. Marks) following the Separation.

 

During 2020, Pearl Meyer advised on a variety of subjects, including compensation plan design and trends, benchmarking data and related matters. Pearl Meyer reported directly to the Committee, participated in meetings as requested and communicated with the Committee Chair between meetings as necessary. A Pearl Meyer representative attended each of the Committee’s meetings in 2020.

 

The Committee reviewed Pearl Meyer’s qualifications, independence and any potential conflicts of interest. Pearl Meyer does not perform other services for, or receive other fees from, Otis. The Committee determined that Pearl Meyer qualified as an independent consultant. The Committee has the sole authority to modify or approve Pearl Meyer’s compensation, determine the nature and scope of its services, evaluate its performance, terminate the engagement, and hire a replacement or an additional consultant at any time.

 

Our compensation peer group

 

HOW WE USE PEER GROUP DATA

 

We compare our executive compensation programs to those of 17 companies that make up our compensation peer group (the “Peer Group”). Data from a broader range of companies are used for insight into general compensation trends and to supplement Peer Group data when necessary and appropriate. For example, we use data from companies with similar revenues to us when evaluating compensation if we do not have adequate data from the Peer Group (e.g., for assessing pay for other than the CEO and CFO). The Committee evaluates each compensation element relative to the market median for each ELG member’s and NEO’s role and makes adjustments based on the Committee’s assessment of other factors that it determines to be relevant, including Otis and individual performance, job scope, retention risk, internal pay equity and tenure.

 

HOW OUR PEER GROUP WAS CONSTRUCTED

 

In anticipation of the Separation, UTC’s Compensation Committee approved our Peer Group. In determining the Peer Group, UTC’s Compensation Committee considered factors such as revenue, market capitalization, global scope of operations, manufacturing footprint, and research and development activities.

 

The Peer Group for 2020 consisted of the following companies:

 

Cummins Inc. Illinois Tool Works Inc. Rockwell Automation, Inc.
Dover Corporation Trane Technologies plc* Stanley Black & Decker, Inc.
Eaton Corporation plc Lear Corporation TE Connectivity Ltd.
Emerson Electric Co. Motorola Solutions, Inc. Terex Corporation
Fluor Corporation Navistar International Corporation Western Digital Corporation
Fortive Corporation Parker Hannifin Corporation  

 

* Originally, this peer company was Ingersoll Rand Plc. However, this company spun off its industrial business and changed its name to Trane Technologies.

 

Our Committee will regularly reassess the composition of the Peer Group.

 

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Elements of our 2020 executive compensation program

 

In the table below, we discuss for each of the key elements of our executive compensation program for 2020, the key characteristics of the element, why we pay the element, and how the amount was determined.

 

Compensation Element   Key Characteristics   Why We Pay It   How the Amount is Determined
Base Salary   Fixed amount payable in cash   Required for attracting and retaining top talent   Reflects job scope and responsibilities, experience, market value and individual performance
Short-Term Incentive (STI)   Variable compensation payable in cash, based on the achievement of pre-established annual financial goals and individual performance. Amount payable can range from 0%-200% of the NEO’s target incentive, which is a percentage of the NEO’s salary   Aligns compensation with annual performance results and drives the achievement of those results   The STI target percentage is determined based on a market analysis of each NEO’s role. We design our STI program to provide competitive annual incentive payments if target goals are achieved, to provide above-target payments if these goals are exceeded and to provide below-target payments or no payments if the target goals are not achieved. In addition, individual performance is considered when determining STI payments
Long-Term Incentive (LTI)   Variable compensation tied to our stock price  

Aligns the interests of our executives with shareholders and provides the opportunity for upside potential based on stock price appreciation and the achievement of long-term financial goals

 

Encourages long-term company performance and serves to retain talent

  Targets grant value based on job scope and responsibilities, experience, market value and individual performance

 

Our 2020 compensation mix

 

To support our executive compensation philosophy, our NEO compensation mix is heavily weighted toward at-risk compensation within our STI and LTI programs. The following shows the relative weightings of the salary, target STI award and target LTI compensation awarded to our NEOs in 2020.

 

 

To determine these percentages, we used the salary paid, STI target award percentage and the target grant date value of LTI awards.

 

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Base salary

 

We target base salaries at the market median; however, actual salaries may vary from the median depending on individual performance and experience. Prior to the Separation, UTC’s Compensation Committee determined the base salaries for our NEOs. After the Separation, the Committee reviewed the base salaries payable to the NEOs to ensure they remained competitive for an independent public company. Based upon this review and in recognition of the expanded job scope and responsibilities of a Chief Executive Officer, Chief Financial Officer and General Counsel of a public company, as well as the performance of the NEOs, the Committee determined that increases were warranted. However, in light of the uncertainty of the impact of COVID-19 on our business, the Committee decided to delay the effective date of the salary increases for all executives and to apply a 15% salary reduction to our NEOs and other ELG members, along with a 10% salary reduction to other executives, from June 1st to August 31st.

 

The salary increases set forth in the table below became effective on September 1, 2020.

 

   Base Salary
at Separation
($)
  Merit Increase
($)
  New Base Salary
($)
  Percentage
Increase
 
J. Marks  1,000,000  150,000  1,150,000  15.0%  
R. Ghai  675,000  75,000  750,000  11.1%  
P. Zheng  540,000  60,000  600,000  11.1%  
S. de Montlivault  543,578  23,374  566,952  4.3%  
N. LaFreniere  485,000  65,000  550,000  13.4%  

 

The increases for Ms. Marks, Mr. Ghai and Ms. LaFreniere reflected their performance and the additional responsibilities they assumed when Otis became an independent public company. Mr. Eubanks did not receive an increase, and the increases for Messrs. Zheng and de Montlivault reflected a combination of market value and individual performance.

 

STI compensation

 

As a standalone company, we remain committed to providing a market-competitive compensation program designed to motivate and reward key talent. We provide an STI program that rewards our NEOs based on annual financial results and individual performance. The program balances regional (i.e., the Americas, Asia Pacific, China and EMEA regions) and global companywide goals and aligns NEOs on key performance goals critical to our near- and long-term success.

 

Prior to the Separation, UTC’s Compensation Committee approved the 2020 target STI awards for our NEOs based on company-wide free cash flow and earnings before interest and taxes (“EBIT”) performance metrics. After the Separation, the Committee completed a thorough review of the STI program and decided to make two changes for the 2020 awards to ensure the program’s market competitiveness and alignment to our strategic priorities as a newly formed independent company. First, it decided to increase, effective April 1, 2020, the individual STI target percentages of three NEOs with corporate-level responsibilities (Ms. Marks, Mr. Ghai and Ms. LaFreniere) to align their STI target opportunity with market-competitive practice for roles of similar scope and responsibility. The targets percentages for all our NEOs, with the applicable changes, are provided below:

 

   Pre-Separation
UTC Target %
  Post-Separation
Otis Target %
J. Marks  125  150
R. Ghai  80  100
P. Zheng  80  no change
S. de Montlivault  80  no change
N. LaFreniere  70  75
R. Eubanks, Jr.  80  no change

 

Second, our Committee decided to replace the UTC STI design with a new design that was better aligned with Otis’ strategic priorities as an independent company. This design, which reflected shareholder feedback to add performance goals to drive revenue growth, was implemented and effective for the last three quarters of 2020. Due to the complexities of measuring quarterly performance based on the legacy UTC design, the Committee decided that 25% of the 2020 STI opportunity (corresponding to Q1 2020) would be calculated assuming that target performance was achieved, with the remaining 75% (corresponding to Q2-Q4) calculated based on the new design.

 

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Under the new STI design, our corporate NEOs, Ms. Marks, Mr. Ghai and Ms. LaFreniere, were rewarded based solely on the achievement of overall Otis’ performance goals while our region NEOs, Messrs. Zheng, de Montlivault and Eubanks, were rewarded based on the achievement of a combination of region performance goals (80% weighting) and Otis’ overall performance (20% weighting).

 

The graphic below describes the design of the new STI design for our corporate and region NEOs:

 

 

The table below describes why we chose the performance goals, how the relative weightings were chosen, how the targets were determined and information on the minimum and maximum payout levels. Please refer to Appendix A for information on how these goals are defined and calculated.

 

    Net Income/EBIT   Free Cash Flow (FCF)   Organic Sales Growth   New Equipment
Orders Growth
Why the performance goal was chosen by the Committee   Net income was chosen for corporate level NEOs because it includes items such as tax, interest and foreign exchange fluctuations, which are measured and influenced at the corporate level. EBIT was chosen for our region NEOs since it measures operating earnings, which they can influence.   FCF performance measures our ability to generate cash to fund our operations, pay down debt, reward our shareholders and invest in strategic initiatives.   Organic sales is a key measure of top-line growth which helps drive net income and FCF. This goal was added as the result of feedback received during shareholder engagement. Adding this goal provides a more balanced STI program.   New equipment orders are essential in laying the foundation for future or multiyear growth. This goal was added as the result of feedback received during shareholder engagement. Adding this goal helps ensure management balances short- and long-term performance objectives.

 

How the relative performance goal weightings were determined   The Committee wanted to maintain a significant focus on earnings and FCF, which are key metrics for our business, but it also wanted to introduce two new metrics to encourage top-line growth. New equipment orders were set at a higher weighting in the regions as compared to the corporate level because region NEOs have more influence over the achievement of this metric.
How the targets were determined   We provided initial guidance to potential investors at our first Investor Day on February 11, 2020. The targets set for net income, FCF and organic sales goals were consistent with that guidance and were based on the operating plan that was set prior to the Separation and the emergence of COVID-19. The new equipment orders target was set to drive incremental new equipment share gain to support our medium-term growth targets for new equipment sales and was consistent with the same operating plan.
How the maximums and thresholds were determined   Despite the uncertainty on how the COVID-19 pandemic would impact our business, the Committee did not make adjustments to the STI performance goal targets, which were based on our annual financial plan that was set prior to the outbreak of the COVID-19 pandemic. However, the Committee took into account the considerable uncertainty of how COVID-19 could impact our business when it set the threshold and maximum payout levels.

 

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The following table shows the Q2-Q4 corporate performance goals, the payouts at maximum, target and threshold performance, and the actual results and associated payout factors.

 

   Net Income   Free Cash Flow   Organic Sales   New Equipment     
   ($M)   (FCF) ($M)   Growth %   Orders Growth %   Total 
Performance Goals   Goal $    Payout %    Goal $    Payout %    Goal $    Payout %    Goal $    Payout %    Payout % 
Maximum   1,070    80    1,208    60    7.2    40    7.8    20    200 
Target   973    40    1,050    30    2.3    20    2.7    10    100 
Threshold   730    20    735    15    (18.3)   10    (17.8)   5    50 
2020 Actual Results   1,096    80    1,297    60    (2.1)   18    (2.7)   8.7    166.7 

 

Since 75% of the 2020 STI award was based on Q2-Q4 performance and 25% was based on Q1 performance, the final 2020 corporate STI payout factor was 150% (75% times 166.7% plus 25% times 100%). The final region 2020 STI payout factors for Messrs. Zheng, de Montlivault and Eubanks were 136%, 96% and 123%, respectively.

 

DETERMINATION OF 2020 INCENTIVE PAYMENTS

 

Payments under our STI plan are determined based on a combination of financial results against pre-established targets as well as the NEO’s individual performance and can range from 0% to 200% of the NEO’s target STI percentage.

 

 

The 2020 STI Payments for each of our NEOs are shown below.

 

   Salary
($)
  Target STI
%
  Financial
Performance
Payout Factor
%
  Individual
Performance
Payout Factor
%
  STI
Payment
($)
 
J. Marks  1,150,000  143.8  150  108.9  2,700,000  
R. Ghai  750,000  95.0  150  112.2  1,200,000  
P. Zheng  600,000  80.0  136  100.0  655,000  
S. de Montlivault  566,952  80.0  96  100.0  435,618  
N. LaFreniere  550,000  73.8  150  106.8  650,000  
R. Eubanks, Jr.  625,000  60.0  123  100.0  461,250  

 

The base salaries in effect on December 1, 2020, (September 30, 2020, for Mr. Eubanks) were used to calculate the STI payments and STI payment amounts were rounded in some cases. The target STI percentage for Ms. Marks, Mr. Ghai and Ms. LaFreniere is a blended rate reflecting different target STI percentages applied in Q1 and Q2-Q4. For Mr. Eubanks, his target STI percentage was prorated because his employment terminated on September 30, 2020.

 

The increases in the individual performance payout factors for Ms. Marks, Mr. Ghai and Ms. LaFreniere were made in recognition of their efforts leading to the successful Separation, including standing up public company functions and driving strong performance in the face of a challenging global economic environment.

 

The STI plan provides the Committee with the ability to make adjustments to the determination of STI financial performance payout factors to account for material, unforeseen circumstances beyond management’s control that affected financial performance results relative to the pre-established goals, including certain non-recurring charges and credits unrelated to operating performance. The Committee did not make any such adjustments for 2020.

 

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EXECUTIVE COMPENSATION

 

 

Long-term incentive compensation

 

2020 LTI GRANTS

 

Prior to the Separation in February 2020, UTC made its annual LTI awards to our NEOs under its long-term incentive plan. Our NEOs received 50% of their legacy UTC LTI award opportunity in the form of restricted stock units (“RSUs”) and the remaining 50% in the form of stock appreciation rights (“SARs”). Since UTC was expecting the Separation to occur in the first half of 2020, it did not grant performance stock units (“PSUs”) due to the impending structural changes that would make it difficult to measure UTC’s performance over a three-year performance period. In 2021, as described below, the Committee granted 50% of the 2021 LTI opportunity to our NEOs in the form of PSUs.

 

UTC’s annual LTI awards are subject to three-year, service-based vesting requirements, with exceptions for death, disability, retirement, qualifying terminations following a change-in-control and certain qualifying involuntary terminations.

 

UTC RSUs vest three years from the grant date and earn dividend equivalents during the vesting period that are reinvested as additional RSUs each time UTC pays a dividend. The reinvested RSUs vest on the same date as the underlying RSUs.

 

UTC SARs entitle the award recipient to receive shares of UTC common stock with a market value equal to the difference between the market price of UTC common stock on the date the UTC SARs are exercised and the closing price of UTC common stock on the date of grant. UTC SARs vest and become exercisable after three years and expire 10 years from the grant date (or earlier in the case of termination of employment in certain circumstances).

 

The target value of the 2020 LTI awards granted by UTC to each our NEOs is shown below:

 

   Target Value of UTC
LTI Grant
($)
 
J. Marks  5,000,000  
R. Ghai  2,500,000  
P. Zheng  1,250,000  
S. de Montlivault  1,000,000  
N. LaFreniere  1,350,000  
R. Eubanks, Jr.  1,500,000  

 

UTC had historically granted a substantial portion of the value of its annual LTI award opportunity in the form of PSUs, which could vest at the end of a three-year performance period if, and to the extent that, UTC achieved the performance goals it established at the start of the performance period. Between 0%-200% of the target number of awards subject to a PSU award could vest based on the level of performance achieved. If a PSU award vests, it is converted into shares of common stock. Unvested PSUs did not earn dividend equivalents.

 

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CONVERSION OF UTC LTI AWARDS

 

Immediately prior to the Separation, our NEOs held unvested UTC RSUs and PSUs, and they also held unvested and vested UTC SARs. Certain of our executives also held unvested and vested UTC stock options (“Options”).

 

How LTI awards were treated in the Separation depended on whether the awards were vested or not at the time of the Separation.

 

Unvested UTC Awards   Treatment
RSUs, SARs, Options   These were converted into “concentrated” unvested Otis awards of the same type and are subject to the same terms that applied to the original UTC awards, including the original vesting schedule.
PSUs   Since UTC-wide performance conditions could no longer be measured after the Separation, outstanding PSUs that UTC had granted in 2018 and 2019 were converted into concentrated unvested Otis RSUs. The number of Otis RSUs received was further adjusted to reflect UTC’s performance achieved prior to the Separation. The Otis RSUs are otherwise subject to the same terms that applied to the original UTC PSUs, including the original three-year vesting schedule. Otis RSUs received in respect of UTC PSUs are not entitled to dividend equivalents.
     
Vested UTC SARs/Options   Treatment
    These were converted into vested SARs/Options in each of the three companies resulting from the Separation (Otis, Carrier and UTC). Each of these adjusted awards is subject to the same terms that applied to the original UTC award prior to the Separation, except that Carrier and UTC awards are exercisable until the expiration date of the award, regardless of the original terms of the award or the circumstances of the award holder’s termination of employment.

 

The number of shares subject to converted awards, as well the applicable exercise prices for SARs and Options, was adjusted in a manner intended to preserve the aggregate intrinsic value of the award immediately after the Separation when compared to the aggregate intrinsic value of the corresponding UTC award immediately prior to the Separation, subject to rounding.

 

Otis awards received for converted UTC awards became subject to the terms of our 2020 Long-Term Incentive Plan (the “LTIP”), which is a “mirror” plan of UTC’s Long-Term Incentive Plan. Prior service with UTC is recognized for vesting purposes of Otis awards. For details on the Otis awards that our NEOs received for their UTC awards, please see the “Grants of plan-based awards,” “Outstanding equity awards at fiscal year-end” and “Option exercises and stock vested” tables on pages 56-61.

 

OTIS FOUNDERS GRANTS

 

The Committee made a one-time grant of RSUs (“Founders Grants”) to certain senior executives, including our NEOs, on June 1, 2020, to increase the retention and engagement of our senior leaders at a pivotal moment in our history; to recognize the significant efforts undertaken to prepare for our successful Separation; and to reinforce senior executive focus on the long-term success of our newly independent company. In granting these awards, the Committee considered the prevalent market practices of other companies that have gone through similar spin-off transactions. Ms. Marks received a Founders Grant with a target value of $3 million and each of our other NEOs received Founders Grants with a target value of $1 million. The Founders Grants vest on the third anniversary of the date of grant, subject to continued employment through this date with exceptions only in the case of death, disability or a qualifying termination following a change-in-control of Otis.

 

2021 LTI GRANTS

 

In February of this year, when the Committee made its first annual LTI awards to our employees, 50% of each NEO’s LTI opportunity was granted in the form of PSUs. These PSUs have performance-based vesting based on Otis’ performance against three-year cumulative adjusted earnings per share, three-year average annual organic sales growth and relative total shareholder return. Going forward, the Committee expects that a significant portion of the value of the annual LTI award opportunity will require performance-based vesting.

 

EQUITY GRANT PRACTICES

 

The Committee intends to approve annual LTI awards at its meeting in February each year, which will follow the release of our annual earnings by at least two days. The Committee has delegated the authority to certain officers to make individual equity grants to persons who are not officers subject to Section 16 of the Securities Exchange Act or to ELG members within certain parameters. The Committee reviews the use of this delegation each year.

 

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EXECUTIVE COMPENSATION

 

 

Other executive compensation policies and practices

 

Significant stock ownership requirements

 

The Committee believes that our ELG members and executive officers should maintain significant stock ownership to align their interests with those of our shareholders. As a result, we adopted stock ownership requirements when we became a public company on April 3, 2020. These stock ownership requirements must be achieved within five years of the Separation (or, if later, the individual’s appointment to the ELG or as an executive officer), and progress toward meeting these requirements is reviewed by the Committee annually. The ownership requirements are a multiple of the executive officer’s base salary in effect at the end of the five-year period.

 

 

 

If ownership requirements are not satisfied by the end of this period, the executive officer or ELG member is not permitted to sell any Otis shares (other than any sales required to pay applicable taxes) until achieving the required ownership. For purposes of determining stock ownership, we count common stock directly or indirectly owned by the individual or family members residing in the same household, RSUs and DSUs (including units held under non-qualified deferred compensation plans). We do not count Options, SARs and unvested PSUs.

 

Clawbacks

 

Otis can claw back compensation awarded under our STI program and under our LTIP. Under our STI program, the Committee can claw back STI awards if a performance goal is recalculated and the corrected performance goal would have (or likely would have) resulted in a reduced STI payout. The Committee will determine the amount to be repaid, which, at a minimum, will equal the difference between the STI paid and the STI that would have been paid had the corrected performance goal been used. Under our LTIP, the Committee has the authority to cancel awards, including vested awards, and to recoup gains realized by participants from previous long-term incentive awards if the LTIP participant violates post-employment non-competition, non-solicitation or non-disparagement covenants or if the LTIP participant is terminated for cause (or it is discovered within three years that the participant could have been terminated for cause).

 

No short sales, pledging or hedging of Otis securities and no underwater option buyouts

 

Our insider trading policy prohibits our directors, officers and employees from selling our stock “short,” engaging in short-term trading (purchase and sale of Otis or vice versa within six months) or entering into any puts or calls on our stock. The policy also prohibits our directors, officers and employees from entering into any hedging or pledging transactions involving our stock. Our LTIP also prohibits buyouts of underwater Options or SARs.

 

Employment agreements

 

None of our U.S.-based ELG members have an employment agreement. The Committee does not believe that our interests are served by entering into employment contracts because they limit our flexibility and often provide for guaranteed compensation levels. However, we have entered into agreements with executives based outside of the United States where local regulations and practice require employment agreements.

 

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Post-employment restrictive covenants

 

Our ELG members are subject to certain contractual provisions preventing them from engaging in activities after termination of employment or retirement that are detrimental to Otis, such as disclosing proprietary information, soliciting Otis employees or clients, or engaging in competitive activities. Violations can result in a clawback of LTI awards.

 

Severance and change in control arrangements

 

Our NEOs and ELG members are covered by our ELG Severance Plan and our Change in Control Severance Plan which are each described below. The majority of the companies in our Peer Group provide similar plans or arrangements. The Committee believes that such arrangements are a necessary component of a competitive executive compensation program and provide an appropriate level of benefits in the event of qualifying termination. Both our ELG Severance Plan and Change in Change Severance Plan require covered participants to agree to post-employment restrictive covenants designed to protect our interests, including non-competition and non-solicitation obligations.

 

In addition, each of our NEOs received a UTC Executive Leadership Group RSU grant when we were part of UTC. These awards, which were converted into Otis ELG RSU grants in the Separation, will vest if a “mutually agreeable separation” occurs. This would occur when:

 

An ELG member’s position has been eliminated or diminished by a divestiture, restructuring, shift in priorities or similar event;
An ELG member retires between age 62 and 65 with the company’s consent; or
An executive retires at age 65 or older.

 

Receipt of the ELG RSU award is contingent upon the executive entering into an agreement containing the following restrictive covenants: (i) non-competition; (ii) employee non-solicitation; (iii) non-disparagement; (iv) protection of confidential, sensitive and proprietary information; and (v) post-termination cooperation. As explained below, Otis has discontinued the practice of granting ELG RSU grants and has instead adopted the ELG Severance Plan.

 

ELG SEVERANCE PLAN

 

The Committee adopted the ELG Severance Plan (the “Severance Plan”) to provide ELG members with severance benefits upon qualifying terminations of employment. The Committee also was motivated to adopt the Severance Plan because it wanted to provide a more market-competitive severance arrangement based on the ELG member’s annual cash compensation rather than the stock-based severance arrangement previously provided by UTC to its ELG members (i.e., the ELG RSUs awards described above) which varies in value based on trading prices.

 

The Severance Plan provides for the payment of severance and other benefits upon an involuntary termination of employment other than for Cause, Disability (as such terms are defined in the Severance Plan) or death and that is not a qualifying termination under our Change in Control Severance Plan (discussed below). Subject to the execution of a release and covenant agreement, which will contain a release of claims and non-competition and non-solicitation covenants that may extend for up to two years after termination, the Severance Plan provides for the following payments and benefits upon a qualifying termination:

 

a lump sum payment equal to one time (one and one-half times for Otis’ CEO) the sum of the ELG member’s annual base salary and target STI;
a prorated STI for the year of termination, such STI to be paid after the completion of the year based on actual performance, but assuming target performance for any individual performance goals;
continued healthcare benefits for up to 12 months at no cost; and
outplacement services for up to 12 months.

 

The value of any cash severance payable under the Severance Plan to an ELG member will be reduced by the value of any his or her ELG RSU grant (if any) that vests upon termination of employment, as well as by any other severance benefits that the ELG member is entitled to receive upon termination of employment.

 

CHANGE IN CONTROL SEVERANCE PLAN

 

Prior to the Separation, we adopted our Change in Control Severance Plan. The Change in Control Severance Plan provides severance benefits to our executives (including our NEOs) upon a qualifying termination of employment. Approximately 200 people are covered by the Change in Control Severance Plan. The plan was adopted to address the uncertainty that may result from a potential change in control, including the loss or distraction of our executives to the detriment of Otis and its shareholders. The pre-Separation board considered the avoidance of such loss and distraction to be essential to protecting and enhancing the best interests of Otis and its shareholders.

 

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Under the Change in Control Severance Plan, any NEO who is terminated without cause or resigns for good reason on, or within the two years following, a change in control, would be entitled to receive (subject to the officer’s execution of a release of claims and agreement to a one-year post-termination non-competition covenant and a two-year post-termination non-solicitation covenant):

 

a lump-sum cash severance payment equal to three times (for the CEO) or two times (for the other NEOs) the sum of (a) the executive’s annual base salary and (b) the executive’s target STI;
a prorated target STI for the year of termination (reduced by any STI payment to which the NEO is entitled for the same period of service);
up to 12 months of healthcare benefit coverage continuation at no premium cost;
outplacement services for 12 months; and
continued financial planning services for 12 months.

 

The Change in Control Severance Plan provides that if the payments and benefits payable under it, or otherwise would be subject to the golden parachute excise tax imposed under the Internal Revenue Code, then the executive will either receive all such payments and benefits and pay the excise tax, or such payments and benefits will be reduced to the extent necessary so that the excise tax does not apply, whichever approach results in a higher after-tax amount of the payments and benefits being retained by the executive. Under our LTIP, unvested equity awards will vest on an accelerated basis if, within two years following a change in control, an NEO’s employment is terminated in circumstances that would entitle him or her to severance under the Change in Control Severance Plan. For performance-based equity awards, acceleration will occur at either the greater of actual or target performance levels.

 

A change in control will generally be triggered under the Change in Control Severance Plan or the LTIP upon:

 

the acquisition by any individual, entity or group of 20% or more of our outstanding securities or 20% or more of the combined voting power of our outstanding securities;
a change in the composition of a majority of our Board of Directors that is not supported by at least two-thirds of the incumbent board of directors;
the consummation of certain major corporate transactions, such as a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of our assets; or
approval by our shareholders of our complete liquidation or dissolution.

 

EUBANKS SEPARATION AGREEMENT

 

On July 30, 2020, we entered into a separation agreement with Mr. Eubanks (the “Separation Agreement”). Pursuant to the Separation Agreement, on September 30, 2020, Mr. Eubanks stepped down as the President of Otis EMEA. Under the Separation Agreement, we agreed to provide Mr. Eubanks deferred cash payments totaling $1.125 million, which was equal to the sum of his annual base salary and target STI award, a pro-rata STI award for 2020, and continued health benefits coverage for up to 12 months. These benefits are consistent with the benefits that we provide under our ELG Severance Plan (which was not yet in effect at the time of Mr. Eubanks’ termination of employment). In addition, as described in more detail in the “Potential payments on termination or change-in-control” table on page 63, we also agreed to make payments to Mr. Eubanks in respect of outplacement, legal fees and relocation expenses; provide him with continued use of a company car and his apartment for three months after his termination, repatriate him and his family back to the United States from France; and provide tax equalization services.

 

Under the Separation Agreement, Mr. Eubanks forfeited his ELG RSU grant and the equity grants made to him in 2020, including his Founders Grant. He received pro-rata vesting of his 2019 LTI awards in accordance with the terms of those awards, and he received full vesting of his new-hire RSU grant in accordance with the terms of that award. For more details on the equity that vested, please refer to the “Options exercises and stock vested” table on page 61. The Separation Agreement contains customary confidentiality provisions and a mutual release of claims, as well as 18-month non-competition and non-solicitation obligations. The Committee, which was already considering the adoption of the ELG Severance Plan when reviewing the severance package for Mr. Eubanks, determined that the severance benefits provided to Mr. Eubanks were reasonable and appropriate based on historic practices, the soon-to-be-adopted ELG Severance Plan and Mr. Eubanks’ release of claims, as well as his other obligations under the Separation Agreement, including the 18-month non-competition and non-solicitation obligations.

 

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Other compensation elements

 

Retirement and deferred compensation benefits

 

Prior to the Separation, our U.S.-based employees and our internationally mobile employees participated in retirement and deferred compensation benefit plans that were sponsored by UTC. Under the employee matters agreement (“Employee Matters Agreement”) entered into in connection with the Separation, we were required to adopt substantially similar nonqualified plans to those that had been provided by UTC prior to the Separation. Our plans also assumed the responsibility to pay all or a portion of the benefits that had been accrued by our employees under the UTC plans prior to the Separation. Retirement and deferred compensation plans help us to attract and retain talented executives.

 

Below are brief descriptions of each retirement and deferred compensation arrangement that we offer. See the “Pension benefits” table on page 61 and the “Nonqualified deferred compensation” table on page 62 for more details.

 

Plan   Description
Otis Retirement Savings Plan   A tax-qualified defined contribution plan where salaried employees hired on or after January 1, 2010, receive an additional age-based company contribution (ranging from 3% to 5.5% of earnings) to their Otis Retirement Savings Plan account. Salaried employees hired prior to January 1, 2010, who previously participated in the UTC Pension Plan receive additional age-based company contributions (ranging from 3% to 8% of earnings), which is an amount equivalent to the cash balance benefits previously provided under UTC’s pension plans. Eligible participants also receive a matching contribution in cash equal to 60% of the first 6% of pay they contribute.
Otis Savings Restoration Plan (“SRP”)   An unfunded, nonqualified plan that permits eligible employees to defer up to 6% of their compensation to the extent such compensation exceeds the Internal Revenue Code (“IRC”) compensation limit applicable to the qualified Otis Retirement Savings Plan and receive employer matching contributions at the same rate (up to 60% of the first 6% of pay) that would have been provided in the Otis Retirement Savings Plan, if not for the IRC’s compensation limit.
Otis Company Automatic Contribution Excess Plan   An unfunded, nonqualified plan in which eligible employees may receive an age-based company automatic contribution for amounts above the IRC limits applicable to the qualified Otis Retirement Savings Plan. For employees hired on or after January 1, 2010, these age-based contributions range from 3% to 5.5% of earnings. Employees hired prior to January 1, 2010, who previously participated in UTC’s pension plans, receive company contributions ranging from 3% to 8% of earnings. The plan also provides missed matching contributions for employees whose contributions to the Otis Retirement Savings Plan are limited by the IRC’s contribution limits.
Otis Deferred Compensation Plan   An unfunded, nonqualified plan that allows eligible participants to defer up to 50% of base salary and/ or up to 70% of the STI. The compensation deferred is matched to the extent that the deferral election results in a reduction in compensation that would otherwise have been matched under the qualified Otis Retirement Savings Plan or the SRP.
Otis LTIP PSU Deferral Plan   An unfunded, nonqualified plan that allows eligible participants to defer between 10% and 100% of their vested PSU awards granted under the Otis LTIP. Upon vesting, the deferred portion of each PSU award is converted into deferred stock units that accrue dividend equivalents. There are no matching or other employer contributions to this plan.
Otis Pension Preservation Plan (“PPP”)   A frozen unfunded, nonqualified defined benefit pension plan covering salaried participants hired by UTC prior to January 1, 2010, who worked for Otis. The PPP provides supplemental benefits that cannot be paid under the UTC Pension Plan due to IRC pay and benefit limits. The plan formula was originally a final average earnings-based (“FAE”) formula recognizing final five-year average salary and service which changed to a prospective cash balance formula (providing annual pay credits of 3% to 8% of pay based on service) for all participants by January 1, 2015, (earlier for participants hired prior to July 1, 2002, or who elected to participate under a prior pension choice program). Effective December 31, 2019, the PPP was frozen other than with respect to interest credits on cash balance accounts in the plan. Active participants who were previously eligible for cash balance benefits became eligible for equivalent age-based contributions under the Otis Company Automatic Contribution Excess Plan beginning January 1, 2020. The portion of the FAE benefit earned after December 31, 2003, (post-Code Section 409A) and the cash balance portion of the benefit were spun off with the Separation and are now sponsored by Otis. The accruals earned prior to January 1, 2004, and the qualified portion of the benefits were retained by UTC post-Separation.

 

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Plan   Description
Otis Retirement Plan for Third Country National Employees (the “TCN Plan”)   An unfunded, nonqualified defined benefit pension plan covering internationally mobile employees hired prior to January 1, 2008. The TCN Plan was created at the Separation when Otis assumed all obligations under the UTC TCN Plan with respect to current and former Otis employees. The plan formula mirrored the UTC’s Retirement Plan formula and was originally an FAE formula recognizing final five-year average salary and service which changed on January 1, 2015, to a prospective cash balance formula (providing annual pay credits of 3% to 8% of pay based on service) for all participants. The FAE formula was frozen on December 31, 2014, but participants continue to accrue benefits under the cash balance formula. Under the TCN Plan, participants who terminate their employment with less than five years of continuous service forfeit all their rights to benefits. The normal retirement age is 65. Early retirement benefits also are available under the plan for active participants and for participants who terminated employment after attaining age 55 and 10 years of continuous service. These benefits are reduced by 0.2% for each month the early retirement date precedes age 62 (which is based on the sum of the credited service to date of retirement/termination or December 31, 2014, if earlier for the FAE benefits, and as of the benefit commencement date for the cash balance benefits). The normal form of payment is a life annuity, but participants can elect instead a contingent annuity option or a life annuity with a guaranteed number of monthly payments option.

 

Perquisites and other benefits

 

We provide our ELG members with the perquisites and other benefits described below. These benefits were provided by UTC prior to the Separation, and the Committee believes that they are appropriate given their contribution to recruitment and retention.

 

Perquisite/Benefits   Description
ELG Long-Term Disability   The ELG long-term disability program provides an annual benefit upon disability that is equal to 80% of base salary plus target STI.
Executive Physical   ELG members are eligible for a comprehensive annual executive physical.
Executive Leased Vehicle   ELG members receive an annual allowance toward the cost of a leased vehicle. Non-U.S.- based ELG members get a comparable benefit based on local practice. Lease payments above the annual allowance are paid directly by the executive.
Financial Planning   ELG members are eligible to receive an annual financial planning benefit.

 

Our expatriates and foreign executives on local contracts also receive certain perquisites in accordance with their respective local contracts and international assignment packages, for which contracts are customary in those countries. Those benefits may include housing allowance, relocation, educational allowance for their children, tax equalization to their home country and home leave travel. Both Messrs. Zheng and de Montlivault are on international assignment packages. See footnote (7) to the Summary Compensation Table on page 55 for more details on these perquisites and benefits.

 

Report of the Compensation Committee

 

The Compensation Committee establishes and oversees the design and function of Otis’ executive compensation program. We have reviewed and discussed the foregoing compensation discussion and analysis with the management of Otis and have recommended to the Board of Directors that the compensation discussion and analysis be included in the Proxy Statement for the 2021 Annual Meeting of Shareholders.

 

COMPENSATION COMMITTEE

 

John H. Walker, Chair Harold W. McGraw III
Shailesh G. Jejurikar Margaret M. V. Preston

 

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Compensation tables

 

Summary Compensation Table

 

Year  Salary
($)(2)
  Bonus
($)(3)
  Stock
Awards
($)(4)
  Option
Awards
($)(5)
  Change
in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings ($)(6)
  All Other
Compensation
($)(7)
  Total
($)(8)
Judith F. Marks(1)    President & Chief Executive Officer        
2020  1,012,500  2,700,000  5,797,929  2,130,560    346,323  11,987,312
2019  956,250  1,500,000  2,150,799  2,066,540    283,055  6,956,644
2018  868,750  1,400,000  2,950,834  1,051,810    241,555  6,512,949
Rahul Ghai(1)   Executive Vice President & Chief Financial Officer        
2020  674,688  1,200,000  2,325,414  1,065,280    133,592  5,398,974
2019  311,932  875,000  1,875,975  815,474  12,069  190,411  4,080,861
Peiming (Perry) Zheng(1)   President, Otis China     
2020  539,750  655,000  1,719,279  538,482    1,379,777  4,832,288
Stephane de Montlivault(1)   President, Otis Asia Pacific        
2020  530,986  435,618  1,593,948  433,130  534,798  633,908  4,162,388
2019  493,734  433,865  505,379  478,460  586,576  456,449  2,954,463
Nora E. LaFreniere(1)   Executive Vice President, Chief General Counsel & Corporate Secretary   
2020  488,479  650,000  1,782,575  585,316  120,993  154,158  3,781,521
Richard M. Eubanks, Jr.(1)   President, Otis EMEA (Former)        
2020  445,313  461,250  1,839,929  643,846    978,976  4,369,314
2019  468,750  575,000  5,040,871  707,175    662,943  7,454,739

 

(1) Three years of compensation information is presented for Ms. Marks because she was an Otis NEO for 2019 and a UTC NEO for 2018. For each of the other NEOs, one or two years of compensation information is presented based on how long they have been Otis NEOs. Compensation reported for 2018 and 2019 was solely determined by UTC’s Compensation Committee.
(2) Salary. Represents the final salary earned in 2020 and includes any amounts that the NEO elected to defer. For more information, see “Base salary” on page 44 and “Retirement and deferred compensation benefits” on pages 52-53.
(3) Bonus. Cash bonuses provided under the Otis Executive Annual Bonus Plan for 2020 and the legacy UTC program for 2018 and 2019. Payments are primarily based on measured performance against pre-established goals. For 2020, because the Committee chose to set performance for Q1 under the STI program at target and because the Committee exercised discretion to increase amounts for Ms. Marks, Mr. Ghai and Ms. LaFreniere, amounts are reported in the Bonus column rather than in the Non-Equity Incentive Plan Compensation column.

 

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(4) Stock Awards. Grant date fair value of RSUs calculated in accordance with the FASB ASC Topic 718, but excluding the effect of estimated forfeitures. The assumptions made in calculating the fair value of the RSUs granted on February 4, 2020, are set forth in Note 21: Employee Benefit Plans to the Consolidated Statements to Raytheon Technologies Corporation’s 2020 Form 10-K and the assumptions for the RSUs granted on June 1, 2020, are set forth in Note 13: Employee Benefit Plans to the Consolidated Financial Statements to Otis’ 2021 Annual Report on Form 10-K. Additionally, amounts shown include the incremental fair value resulting from the conversion of UTC PSUs into Otis RSUs for the NEOs who held UTC PSUs. Pursuant to accounting guidance prescribed under FASB ASC Topic 718, the conversion resulted in a grant modification that caused incremental fair value determined by comparing the aggregate fair value of the outstanding awards immediately before and after the modification. The following table separates the grant date fair value of RSUs granted during 2020 and the incremental fair value attributable to the conversion of stock awards at Separation, both calculated in accordance with FASB ASC Topic 718, but excluding the effect of estimated forfeitures.

 

 Name  Grant Date Fair Value of Stock Awards
 Granted in February 2020 ($)
  Incremental Fair Value of Stock
 Awards at Separation ($)
J. Marks  2,509,260  87,133
R. Ghai  1,254,630 
P. Zheng  627,275  21,220
S. de Montlivault  504,848  18,316
N. LaFreniere  688,488  23,303
R. Eubanks, Jr.  765,005  4,140

 

(5) Option Awards/SARs. Grant date fair value of SARs, calculated in accordance with the FASB ASC Topic 718, but excluding the effect of estimated forfeitures. The assumptions made in the valuation of these awards are set forth in Note 21: Employee Benefit Plans to the Consolidated Statements to Raytheon Technologies Corporation’s 2020 Form 10-K.
(6) Change in Pension Value and Nonqualified Deferred Compensation Earnings. For Mr. de Montlivault and Ms. LaFreniere, the amounts shown for 2020 reflect the year-over-year increase in the actuarial present value of their accrued benefits under the Retirement Plan for Third Country National Employees (“TCN”) and the Otis Pension Preservation Plan (“PPP”), respectively. For Mr. de Montilvault, the increase was attributable to his benefit accrual under the cash balance formula in the TCN as well as the decrease in the discount rate used to value TCN benefits, which decreased from 3.3% in 2019 to 2.5% in 2020. For Ms. LaFreniere, the increase is attributable to the decrease in the discount rate used to value PPP benefits, which decreased from 3.47% in 2019 to 2.5% in 2020. Since UTC retained responsibility for certain tax-qualified retirement benefits for Mr. Ghai, no amount is shown for him for 2020.
(7) All Other Compensation. The 2020 dollar amounts in this column consist of the following items:

 

Name  Personal
Use of
Corporate
Aircraft
($)(a)
  Leased
Vehicle
($)(b)
  Company
Contributions
to Savings
Plans
($)(c)
  Relocation
Benefits
($)(d)
  Financial
Planning
Benefit
($)(e)
  Health
Benefits
($)(f)
  International
Assignment
($)(g)
  Termination
Benefits
($)(h)
  Equity
Conversion
($)(i)
  Misc.
($)(j)
  Total ($)
J. Marks  11,127  28,857  228,638  42,500  16,000  12,585      3,046  3,570  346,323
R. Ghai    24,489  82,983  10,507    15,324      289    133,592
P. Zheng    22,163  101,897    16,000  12,232  1,225,826    1,659    1,379,777
S. de Montlivault    22,733    24,950    15,779  569,263    1,183    633,908
N. LaFreniere    18,857  109,019    16,000  8,401      1,881    154,158
R. Eubanks, Jr.    21,986  61,422    16,000  13,001  736,017  130,000  550    978,976

 

  (a) The amount invoiced by NetJets to UTC prior to Separation for the personal use of fractionally owned aircraft provided in light of COVID-19 pandemic.
  (b) Annual costs incurred in connection with providing a leased vehicle.
  (c) Company matching and automatic age-based contributions to UTC’s Employee Savings Plan prior to the Separation and to Otis’ Retirement Savings Plan after the Separation and company contributions to the Savings Restoration and Company Automatic Contribution Excess Plan. For more information, please see “Retirement and deferred compensation benefits” on pages 52-53. Mr. de Montlivault does not participate in any deferred compensation arrangements.
  (d) Relocation benefits that were paid by UTC to Ms. Marks and Mr. de Montlivault. For Mr. Ghai, the amount includes $5,638 for new home closing costs and $4,869 for the associated tax gross-up.
  (e) Cost of the annual financial planning benefit.
  (f) Costs incurred by Otis associated with company-covered healthcare benefits. In addition, our NEOs are eligible for ELG long-term disability benefits as described on page 53; however, because no cost is incurred unless the NEO actually becomes disabled, no amount is reflected in this column.
  (g) Certain compensation elements provided in accordance with a local contract for Mr. de Montlivault, who is based in Singapore; international assignment packages for Mr. Zheng, who is based in China, and Mr. Eubanks, who was based in France. Individual contracts for senior executives are customary in Europe and Asia where compensation practices differ from the United States. The amount shown for Mr. Zheng includes the following items: $112,770 for housing and utilities; $878 for home leave travel; $13,602 for driver allowances; $700 for tax preparation and $755 for telephone allowances; $55,071 for a U.S. Social Security Tax gross-up and $1,042,050 for a net tax settlement payment on the difference between taxes paid in China and what would have been payable in

 

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    the United States. The amount shown for Mr. de Montlivault includes the following items: $237,276 for housing; $59,427 for educational expenses for his minor children; $1,784 for club dues; $30,530 for foreign assignment payments; $235,366 for a net tax settlement payment on the difference between taxes paid in Japan and what would have been paid in the United States; and $4,880 for goods and services tax reimbursement. The amount shown for Mr. Eubanks includes: $119,458 for housing and utilities; $92,113 for educational expenses for his minor children; $25,021 foreign assignment payments; $24,882 for home leave travel; $700 for tax preparation; $31,942 for a U.S. Social Security Tax gross-up; $438,864 for a net tax settlement on the difference between taxes paid in France and what would have been paid in the United States; and $3,037 for French visa expenses.
  (h) Mr. Eubanks left the company on September 30, 2020. As part of his severance, he received payments for outplacement services ($35,000), miscellaneous moving expenses ($60,000) and legal fees ($35,000). Subject to his compliance with certain restrictive covenants under his Separation Agreement, Mr. Eubanks will receive severance payments (totaling $1.125 million) in two installments in June 2021 and March 2022 as disclosed in the “Potential payments on termination or change-in-control” table.
  (i) In the conversion of the UTC LTI awards, any fractional shares were rounded down. In accordance with the Employee Matters Agreement, award holders were compensated with an equivalent cash payment.
  (j) Spousal travel benefits incurred prior to the Separation.
(8) Exchange rates. For purposes of the disclosure in this table, (a) all compensation delivered to Mr. Zheng in CNY was converted to U.S. dollars based on the CNY to U.S. dollar conversion rate of 0.15321 as of December 31, 2020, (b) all compensation delivered to Mr. de Montlivault in SGD was converted to U.S. dollars based on the SGD to U.S. dollar conversion rate of 0.75497 as of December 31, 2020, and (c) all compensation delivered to Mr. Eubanks in EUR was converted to U.S. dollars based on the EUR to U.S. dollar conversion rate of 1.22824 as of December 31, 2020.

 

Grants of plan-based awards

 

Name  Grant
Date(1)
  Approval
Date(1)
  All Other
Stock Awards:
Number
of Shares of
Stock or
Units (#)(2,3)
  All Other
Option Awards:
Number of
Securities
Underlying
Options (#)(4)
  Exercise or Base
Price of Option
Awards ($/Sh)(5)
  Grant Date Fair
Value of Stock
and Option
Awards ($)(6)
J. Marks                  
UTC SARs  2/4/2020  1/31/2020    171,958  80.97  2,130,560
UTC RSUs  2/4/2020  1/31/2020  30,990      2,509,260
Founders Grant  6/1/2020  4/27/2020  59,200      3,201,536
Equity Conversion(7)  4/3/2020              87,133
R. Ghai                  
UTC SARs  2/4/2020  1/31/2020    85,979  80.97  1,065,280
UTC RSUs  2/4/2020  1/31/2020  15,495      1,254,630
Founders Grant  6/1/2020  4/26/2020  19,800      1,070,784
P. Zheng                  
UTC SARs  2/4/2020  1/31/2020    43,461  80.97  538,482
UTC RSUs  2/4/2020  1/31/2020  7,747      627,275
Founders Grant  6/1/2020  4/26/2020  19,800      1,070,784
Equity Conversion(7)  4/3/2020              21,220
S. de Montlivault                  
UTC SARs  2/4/2020  1/31/2020    34,958  80.97  433,130
UTC RSUs  2/4/2020  1/31/2020  6,235      504,848
Founders Grant  6/1/2020  4/26/2020  19,800      1,070,784
Equity Conversion(7)  4/3/2020              18,316
N. LaFreniere                  
UTC SARs  2/4/2020  1/31/2020    47,241  80.97  585,316
UTC RSUs  2/4/2020  1/31/2020  8,503      688,488
Founders Grant  6/1/2020  4/26/2020  19,800      1,070,784
Equity Conversion(7)  4/3/2020              23,303

 

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Name  Grant
Date(1)
  Approval
Date(1)
  All Other
Stock Awards:
Number
of Shares of
Stock or
Units (#)(2,3)
  All Other
Option Awards:
Number of
Securities
Underlying
Options (#)(4)
  Exercise or Base
Price of Option
Awards ($/Sh)(5)
  Grant Date Fair
Value of Stock
and Option
Awards ($)(6)
R. Eubanks, Jr.                  
UTC SARs  2/4/2020  1/31/2020    51,965  80.97  643,846
UTC RSUs  2/4/2020  1/31/2020  9,448      765,005
Founders Grant  6/1/2020  4/26/2020  19,800      1,070,784
Equity Conversion(7)  4/3/2020              4,140

 

(1) UTC’s Compensation Committee approved the grants on February 3, 2020, and specified a February 4, 2020, grant date. Ms. Marks’ Founders Grant was approved by the Board on April 27, 2020, and the other Founders Grants were approved by Otis’ Compensation Committee on April 26, 2020. In each case, a June 1, 2020, grant date was specified. UTC awards were made under its 2018 Long-Term Incentive Plan. Otis’ Founders Grants were made under the 2020 Long-Term Incentive Plan.
(2) Number of Shares – All Other Stock Awards. The number of RSUs shown above reflects the number of Otis RSUs received upon conversion of UTC RSUs in connection with the Separation, but excludes any dividend equivalents received after the grant date and prior to the Separation. The number differs from the number of Otis RSUs received at Separation because UTC RSUs were credited with dividend equivalents prior to the Separation and because of the rounding applied upon conversion of the awards. The number of UTC RSUs granted were as follows: Ms. Marks (16,400); Mr. Ghai (8,200); Mr. Zheng (4,100); Mr. de Montlivault (3,300); Ms. LaFreniere (4,500); and Mr. Eubanks (5,000). For more information, see “Conversion of UTC LTI Awards” on page 48. These RSU awards vest on the third anniversary of the grant date, subject to the executive’s continued employment, except in the case of death, disability, a qualifying separation within two years following a change-in-control of Otis, retirement and certain involuntary terminations. The Committee made Founders Grants on June 1, 2020. These RSUs will vest on the third anniversary of the grant date, subject to the executive’s continued employment, except in the case of death, disability or a qualifying separation within two years following a change-in-control of Otis. Ms. Marks received a Founders Grant with a target value of $3 million and each of our other NEOs received Founders Grants with a target value of $1 million. The number of RSUs for the Founders Grants was determined by dividing the applicable target value by the average closing price of Otis common stock over the prior month. Since Otis’ stock price appreciated between the approval date and the grant date, the fair value of these awards exceeds the target values.
(3) RSUs earn dividend equivalents during the vesting period that are reinvested as additional RSUs that vest on the same date as the underlying RSUs. When UTC RSUs were converted to Otis RSUs any resulting fractional shares were rounded down. To compensate award holders, including our NEOs, for these fractional shares, the Employee Matters Agreement provided for cash payments of equivalent value. The rounding payments made to our NEOs are included in the “All Other Compensation” column in the Summary Compensation Table.
(4) Number of Shares – All Option/SAR Awards. The number of SARs shown above represents the number of Otis SARs received upon conversion of UTC SARs in connection with the Separation. For more information, see “Conversion of UTC LTI Awards” on page 48. SARs vest and become exercisable three years from the grant date, subject to the executive’s continued employment, except in the case of death, disability, a qualifying separation within two years following a change-in-control of Otis, retirement and certain involuntary terminations. When unvested UTC SARs were converted to unvested Otis SARs any resulting fractional shares were rounded down. To compensate award holders, including our NEOs, for these fractional shares, the Employee Matters Agreement provided for cash payments of equivalent value. The rounding payments made to our NEOs are included in the “All Other Compensation” column in the Summary Compensation Table.
(5) Exercise Price – All Option/SAR Awards. The per share exercise price of the Otis SAR award was determined by taking the exercise price of the original UTC SAR award ($153) and adjusting it in accordance with the equity award provisions described in the section “Conversion of UTC LTI Awards” on page 48.
(6) Grant Date Fair Value – Stock and Option Awards. Grant date fair value of RSUs and SARs calculated in accordance with the FASB ASC Topic 718, but excluding the effect of estimated forfeitures.
(7) Equity Conversion. The amount shown reflects the incremental fair value associated with the conversion of outstanding UTC PSUs into Otis RSUs at Separation. Mr. Ghai was not granted any UTC PSUs, so no amount is shown for him.

 

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Outstanding equity awards at fiscal year-end

 

   Option Awards  Stock Awards
Name(1)  Number of
Securities
Underlying
Unexercised
Options
(#) Exercisable
  Number of
Securities
Underlying
Unexercised
Options
(#) Unexercisable
  Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
  Option
Exercise Price
($)(2)
  Option
Expiration
Date
  Number of
Shares or
Units of Stock
That Have
Not Vested
(#)(3)
  Market
Value of
Shares or
Units of Stock
That Have
Not Vested
($)(4)
J. Marks                     
6/1/2020(5)                 59,583  4,024,832
2/4/2020(6)     171,958     80.97  2/3/2030    
2/4/2020(7)                 31,487  2,126,947
2/5/2019(8)     191,799     63.92  2/4/2029    
2/5/2019(9)                 42,188  2,849,799
1/2/2018(10)     101,096     67.83  1/1/2028    
1/2/2018(11)                 36,203  2,445,513
1/2/2018(12)                 13,042  880,987
11/1/2017(13)                 33,622  2,271,166
R. Ghai                     
6/1/2020(5)                 19,928  1,346,136
2/4/2020(6)     85,979     80.97  2/3/2030    
2/4/2020(7)                 15,743  1,063,440
8/1/2019(14)     69,350     69.77  7/31/2029    
8/1/2019(14)                 12,883  870,247
7/15/2019(13)                 14,571  984,271
P. Zheng                     
6/1/2020(5)                 19,928  1,346,136
2/4/2020(6)     43,461     80.97  2/3/2030    
2/4/2020(7)                 7,870  531,619
2/5/2019(8)     51,965     63.92  2/4/2029    
2/5/2019(9)                 11,042  745,887
1/2/2018(10)     23,620     67.83  1/1/2028    
1/2/2018(11)                 8,320  562,016
1/2/2018(12)                 3,008  203,190
12/15/2017(15)                 7,958  537,563
1/27/2017(13)                 18,548  1,252,917
1/3/2017  4,469        58.66  1/2/2027    
1/4/2016  7,874        50.58  1/3/2026    
1/2/2015  4,724        60.88  1/1/2025    
1/2/2014  13,197        59.53  1/1/2024    
1/2/2013  4,384        44.46  1/1/2023    
1/3/2012  3,788        39.51  1/2/2022    

 

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   Option Awards  Stock Awards
Name(1)  Number of
Securities
Underlying
Unexercised
Options
(#) Exercisable
  Number of
Securities
Underlying
Unexercised
Options
(#) Unexercisable
  Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
  Option
Exercise Price
($)(2)
  Option
Expiration
Date
  Number of
Shares or
Units of Stock
That Have
Not Vested
(#)(3)
  Market
Value of
Shares or
Units of Stock
That Have
Not Vested
($)(4)
S. de                    
Montlivault                     
6/1/2020(5)                19,928  1,346,136
2/4/2020(6)     34,958     80.97  2/3/2030    
2/4/2020(7)                 6,334  427,862
2/5/2019(8)     44,406     63.92  2/4/2029    
2/5/2019(9)                 9,913  669,623
1/2/2018(10)     19,841     67.83  1/1/2028    
1/2/2018(11)                 7,195  486,022
1/2/2018(12)                 2,608  176,170
12/14/2017(13)                 16,714  1,129,031
1/3/2017  5,362        58.66  1/2/2027    
1/4/2016  5,618        50.58  1/3/2026    
1/2/2015  3,319        60.88  1/1/2025    
1/2/2014  7,725        59.53  1/1/2024    
1/2/2013  3,873        44.46  1/1/2023    
N. LaFreniere                     
6/1/2020(5)                 19,928  1,346,136
2/4/2020(6)     47,241     80.97  2/3/2030    
2/4/2020(7)                 8,638  583,497
2/5/2019(8)     56,689     63.92  2/4/2029    
2/5/2019(9)                 12,449  840,930
1/2/2018(10)     25,510     67.83  1/1/2028    
1/2/2018(11)                 9,219  622,743
1/2/2018(12)                 3,409  230,278
1/3/2017  5,107        58.66  1/2/2027    
3/2/2016(13)                 21,912  1,480,156
1/4/2016  8,938        50.58  1/3/2026    
1/2/2015  5,873        60.88  1/1/2025    
1/2/2014  19,049        59.53  1/1/2024    
1/2/2013  5,362        44.46  1/1/2023    
R. Eubanks, Jr.                    
4/1/2019(16)                 6,570  443,804
4/1/2019(16)  29,762        70.49  9/30/2021    

 

(1) In addition to these Otis outstanding awards, Messrs. Zheng and de Montlivault and Ms. LaFreniere also received vested UTC and Carrier SARs as described under “Conversion of UTC LTI Awards” on page 48. Both the number of outstanding SARs and the exercise prices were adjusted at Separation to reflect the post- Separation stock prices of the three companies. The table below lists the RTX and Carrier SARs held by Messrs. Zheng and de Montlivault and Ms. LaFreniere as of December 31, 2020.

 

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   RTX SARs  Carrier SARs
Name  Number of
Securities
Underlying
Unexercised
Options
(#) Exercisable
  Option
Exercise
Price
($)
  Option
Expiration
Date
  Number of
Securities
Underlying
Unexercised
Options
(#) Exercisable
  Option
Exercise
Price
($)
  Option
Expiration
Date
P. Zheng                  
1/3/2017  8,938  82.35  1/2/2027  8,938  18.53  1/2/2027
1/4/2016  15,748  71.01  1/3/2026  15,748  15.98  1/3/2026
1/2/2015  9,449  85.47  1/1/2025  9,449  19.24  1/1/2025
1/2/2014  26,394  83.58  1/1/2024  26,394  18.81  1/1/2024
1/2/2013  8,768  62.41  1/1/2023  8,768  14.05  1/1/2023
1/3/2012  7,576  55.47  1/2/2022     
S. de Montlivault               
1/3/2017  10,725  82.35  1/2/2027     
1/4/2016  11,236  71.01  1/3/2026     
1/2/2015  6,639  85.47  1/1/2025     
1/2/2014  15,450  83.58  1/1/2024     
1/2/2013  7,746  62.41  1/1/2023     
N. LaFreniere               
1/3/2017  10,215  82.35  1/2/2027  10,215  18.53  1/2/2027
1/4/2016  17,876  71.01  1/3/2026  17,876  15.98  1/3/2026
1/2/2015  11,747  85.47  1/1/2025  11,747  19.24  1/1/2025
1/2/2014  38,101  83.58  1/1/2024  17,128  18.81  1/1/2024
1/2/2013  10,725  62.41  1/1/2023     

 

(2) Each Otis SAR was originally granted as a UTC SAR and the exercise price of each UTC SAR was equal to the closing price of UTC’s common stock on the grant date. For more information, including on how the exercise prices were adjusted, see “Conversion of UTC LTI Awards” on page 48.
(3) All RSUs, except for those which were originally granted as PSUs (see footnotes 9 and 11), earn dividend equivalents, which are reinvested as additional Otis RSUs each time Otis pays a dividend. The reinvested Otis RSUs vest on the same date as the underlying Otis RSUs and are included in this number. All RSUs, except for the Founders Grants, were originally granted by UTC.
(4) Calculated by multiplying the number of unvested Otis RSUs by $67.55, the closing price of Otis common stock on December 31, 2020.
(5) These Founders Grants are scheduled to vest on June 1, 2023, subject to the executive’s continued employment, except in the case of death, disability or a qualifying separation within two years following a change-in-control of Otis.
(6) These SARs are scheduled to vest on February 4, 2023, subject to the executive’s continued employment except in the case of death, disability, a qualifying separation within two years following a change-in-control of Otis, retirement and certain involuntary terminations.
(7) These RSUs are scheduled to vest on February 4, 2023, subject to the executive’s continued employment, except in the case of death, disability, a qualifying separation within two years following a change-in-control of Otis, retirement and certain involuntary terminations.
(8) These SARs are scheduled to vest on February 5, 2022, subject to the executive’s continued employment, except in the case of death, disability, a qualifying separation within two years following a change-in-control of Otis, retirement and certain involuntary terminations.
(9) These RSUs are scheduled to vest on February 5, 2022, and where originally granted as UTC PSUs.
(10) These SARs vested on January 2, 2021.
(11) These RSUs vested on January 2, 2021, and where originally granted as UTC PSUs.
(12) These RSUs vested on January 2, 2021.
(13) RSUs received in respect of UTC RSUs granted upon appointment to UTC’s ELG. Awards vest in the event of a qualifying separation following three years of ELG service: upon a “mutually agreeable termination,” a qualifying separation within two years following a change-in-control of Otis, or retirement, each subject to vesting acceleration upon death.
(14) These awards are scheduled to vest on August 1, 2022, subject to the executive’s continued employment, except in the case of death, disability or a qualifying separation within two years following a change-in-control of Otis.
(15) These RSUs were granted to Mr. Zheng as part of a retention program. These are scheduled to vest on December 15, 2021, subject to the executive’s continued employment, except in the case of death, disability or a qualifying separation within two years following a change-in-control of Otis.
(16) Under the Separation Agreement, Mr. Eubanks received partial vesting of these awards. The RSUs, which were originally granted as PSUs, will vest on February 5, 2022, so long as Mr. Eubanks complies with his obligations under the Separation Agreement.

 

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Option exercises and stock vested

 

   Option Awards(1)  Stock Awards(3)
Name  Number of Shares
 Acquired on Exercise
 (#)
  Value Realized
 on Exercise(2)
 ($)
  Number of Shares
 Acquired on Vesting
 (#)
  Value Realized
 on Vesting
 
($)
 
J. Marks         16,757   1,041,280 
R. Ghai             
P. Zheng   9,448   205,872   8,438   547,261 
S. de Montlivault             
N. LaFreniere             
R. Eubanks, Jr.         27,270   1,702,193 

 

(1) Vested UTC SARs were converted into vested Otis, Carrier and UTC SARs in connection with the Separation. For more information, see “Conversion of UTC LTI Awards” on page 48.
   
(2) The value realized was calculated by multiplying the number of shares acquired upon exercise of Otis SARs by the difference between the closing price of Otis common stock on the exercise date and the exercise price of the award. During 2020, Messrs. Zheng and de Montlivault and Ms. LaFreniere also received $538,960, $1,205,086 and $688,866, respectively, upon exercise of Carrier and UTC SARs. These values are not included in the table.
   
(3) RSUs that vested in 2020, including shares vested to cover FICA taxes for awards with retirement provisions. The value is calculated by multiplying the number of vested Otis RSUs by the market price of Otis common stock on the vesting date. In addition, during 2020 and prior to the Separation, UTC PSU and RSU awards vested for each of Messrs. Mr. Zheng ($854,199) and de Montlivault ($435,999) and Ms. LaFreniere ($958,403).

 

Pension benefits

 

For information on Otis’ nonqualified pension plans offered to our employees and our internationally mobile employees, please refer to the description under “Retirement and deferred compensation benefits” on pages 52-53. In 2020, Ms. LaFreniere participated in the PPP and Mr. de Montlivault participated in the TCN. None of the other NEOs were eligible to participate in these plans.

 

Plan Name   Number of Years
 Credited Service (#)
  Present Value of
 Accumulated Benefit(1)
  Payments During
 Last Fiscal Year ($)
 
N. LaFreniere   21   888,871    
Otis Pension Preservation Plan              
S. de Montlivault   37   3,912,291    
Otis Third Country National Plan              

 

(1) The amounts shown are the actuarial present values of the benefits accumulated through December 31, 2020. The present value of the accumulated pension benefits for Ms. LaFreniere under the Otis PPP and for Mr. de Montlivault under the Otis TCN Plan were computed using the 2020 year-end ASC 715-20-50 assumptions, including Pri-2012 mortality table with generational mortality improvement based on MP-2020, except that Ms. LaFreniere and Mr. de Montlivault were assumed to retire at the earliest date they could retire without a reduction of benefits due to their age, meaning at age 65. These amounts differ from the amounts described in the “Potential payments on termination or change-in-control” table as Mr. de Montlivault has reached early retirement age and as such would be eligible for reduced early retirement benefits under the TCN Plan if he were to retire early with an annuity form of payment, while Ms. LaFreniere would be entitled to a reduced early retirement benefit only after reaching early retirement age.

 

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Nonqualified deferred compensation

 

Otis offers the Savings Restoration Plan, the Company Automatic Excess Contribution Plan, the Deferred Compensation Plan and the LTIP PSU Deferral Plan. For more information on each of these plans, please refer to the description under “Retirement and deferred compensation benefits” on pages 52-53. In 2020, each of our U.S.-based NEOs participated in the Savings Restoration and Company Automatic Excess Contribution Plan.

 

Plan(1)   Executive
 Contributions
 in Last FY(2)
 ($)
  Registrant
 Contributions
 in Last FY(3)
 ($)
  Aggregate
 Earnings in
 Last FY(4)
 ($)
  Aggregate
 Withdrawals/
 Distributions(5)
 ($)
  Aggregate
 Balance at
 Last FYE $(6)
 
J. Marks                      
Otis SRP   133,650   80,190   45,903     487,824  
Otis CACEP     122,513   3,761     266,823  
R. Ghai                      
Otis SRP   33,731   20,239   9,142     63,112  
Otis CACEP     38,234   3,978     43,619