UPS 2007 Annual Report Download - page 94

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Deferred Compensation Obligations and Treasury Stock
We maintain a deferred compensation plan whereby certain employees were previously able to elect to defer
the gains on stock option exercises by deferring the shares received upon exercise into a rabbi trust. The shares
held in this trust are classified as treasury stock, and the liability to participating employees is classified as
“deferred compensation obligations” in the shareowners’ equity section of the balance sheet. The number of
shares needed to settle the liability for deferred compensation obligations is included in the denominator in both
the basic and diluted earnings per share calculations. Employees are generally no longer able to defer the gains
from stock options exercised subsequent to December 31, 2004. Activity in the deferred compensation program
for the years ended December 31, 2007, 2006, and 2005 is as follows (in millions):
2007 2006 2005
Shares Dollars Shares Dollars Shares Dollars
Deferred Compensation Obligations
Balance at beginning of year ....................... $147 $161 $169
Reinvested dividends ............................. 4 4 4
Option exercise deferrals .......................... — — —
Benefit payments ................................ (14) (18) (12)
Balance at end of year ............................ $137 $147 $161
Treasury Stock
Balance at beginning of year ....................... (3) $(147) (3) $(161) (3) $(169)
Reinvested dividends ............................. — (4) — (4) — (4)
Option exercise deferrals .......................... — — — — — —
Benefit payments ................................ 1 14 — 18 — 12
Balance at end of year ............................ (2) $(137) (3) $(147) (3) $(161)
NOTE 11. STOCK-BASED COMPENSATION
Incentive Compensation Plan
The UPS Incentive Compensation Plan permits the grant of nonqualified stock options, incentive stock
options, stock appreciation rights, restricted stock, performance shares, performance units, and management
incentive awards to eligible employees. The number of shares reserved for issuance under the Plan is
112 million, with the number of shares reserved for issuance as restricted stock limited to 34 million. As of
December 31, 2007, management incentive awards, stock options, restricted performance units, and restricted
stock units had been granted under the Incentive Compensation Plan.
Management Incentive Awards & Restricted Stock Units
Persons earning the right to receive management incentive awards are determined annually by the
Compensation Committee of the UPS Board of Directors. Our management incentive awards program provides
that half of the annual management incentive award, with certain exceptions, be made in restricted stock units
(“RSUs”), which generally vest over a five-year period. The other half of the award is in the form of cash or
unrestricted shares of class A common stock and is fully vested at the time of grant. These management incentive
awards are generally granted in the fourth quarter of each year.
Upon vesting, RSUs result in the issuance of the equivalent number of UPS class A common shares after
required tax withholdings. Except in the case of death, disability, or retirement, RSUs granted for our
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