United Technologies’ CEO Leaves With $172 Million Pay Package

By Richard Clough, Laura Marcinek and Brandon Kochkodin  

Photographer: Munshi Ahmed/Bloomberg

Louis Chenevert, retired chief executive officer of United Technologies Corp.

Louis Chenevert, who retired as chief executive officer of United Technologies Corp. (UTX) in a surprise move three days ago, will leave with a nest egg of about $172 million.
That sum includes $109 million of vesting option awards and $32 million of vesting performance-based restricted-stock awards, based on the Nov. 25 closing price, and a pension worth $31 million as of Dec. 31, according to data from the company’s proxy filing released earlier this year.
The reasons behind Chenevert’s abrupt departure remain unknown and it came as a surprise to the investment community, which had been anticipating his appearance at an investor meeting on Dec. 11. A company spokesman said Chenevert’s leaving wasn’t related to financial performance. His corporate bio was already expunged from United Technologies’ website on
Nov. 24, just hours after the company announced the management change, and the list of board members also disappeared.
“To say this was unexpected would be a mild understatement,” Nigel Coe, an analyst at Morgan Stanley, wrote in a note to investors yesterday. Though it’s conceivable that he left for personal reasons, “we cannot rule out the possibility of an internal rupture over UTC’s weak relative performance during 2014 and since Chenevert took the reins,” Coe wrote.
United Technologies’ share price climbed 54 percent during Chenevert’s tenure that began in April 2008, though it fell 1.8 percent this year, trailing the 12 percent rise in the Standard & Poor’s 500 Index. Shares rose 2.7 percent to $111.71 at the close in New York yesterday.

Path Forward

Chenevert’s compensation package is in line with other executives from big companies, said Alan Johnson, a managing director of compensation-consulting firm Johnson Associates.
John Moran, a spokesman for United Technologies, declined to comment on Chenevert’s compensation.
“While seemingly the number is large, the share value from the date of grant to now has actually increased significantly,” said Frank Glassner, CEO of Veritas Executive Compensation Consultants, in an interview. “He’s been key in a lot of the product and technology that they have put out.”
United Technologies has a provision that restricts retiring executives from engaging in behavior that would be detrimental to the company, Glassner said, citing the company’s proxy. That includes disclosing information and soliciting employees. Violations could result in a clawback of long-term awards, according to proxy filing.

Chenevert’s Shares

Chenevert also owns 572,480 United Technologies shares directly and indirectly, according to data compiled by Bloomberg, worth about $64 million as of yesterday’s price.
Gregory Hayes, chief financial officer for the past six years, assumes the top post as United Technologies prepares a major new engine program in its Pratt & Whitney division and faces challenges to expand its Otis elevator business in China.
Chenevert, 57, retired after a six-year tenure as CEO during which he led the $16.5 billion acquisition of Goodrich Corp. and reshaped United Technologies’ business lines around aerospace and building services. After joining Pratt in 1993, Chenevert was considered a leading driver of the unit’s development of a new geared turbofan engine, which has cost more than $1 billion to produce.
Pratt suffered a pair of high-profile setbacks this year involving its engines. A fire broke out in a prototype of the geared turbofan power plant on a Bombardier Inc. (BBD/B) CSeries commercial test plane in May. A month later, an engine blowout in Lockheed Martin Corp.’s F-35 Joint Strike Fighter grounded the aircraft.

Strategic Direction

The executive changes raised questions among analysts about the strategic direction of the company. United Technologies has become more focused on its aerospace business in recent years and the company may now focus on its building services side, Julian Mitchell, a New York-based analyst with Credit Suisse, said in a note earlier this week.
“We would expect an increased discussion now in the investment community of potential large strategic moves by UTX –- our view remains that a large acquisition is far more likely than a split-up of the company,” he said. Mitchell, who rates the stock outperform, said the company may consider selling its Sikorsky helicopter unit.