To us "governance" is the guiding principle for "how we run the business." Integrity, reliability and trust have been cornerstones of UPS since we were founded in 1907. We have run our business in a manner that creates and sustains a financially strong organization which takes its social and environmental responsibilities seriously.

Today, "governance" has come to be defined by others as identifying specific structures, controls and processes to ensure the interests of shareowners are protected.

Our governance practices are explained in detail on the UPS Investor Relations Web site (www.ups.com/investors). It includes information about the composition, committees and compensation of our Board of Directors. Detailed information about our structure and management philosophy is also available on the Web site.

Employee Ownership

For 92 years, UPS was a privately held company with employees owning a significant portion of shares. We believe that when employees' interests are aligned with the best interests of the company, better decisions are made with long-term success rather than short-term gains in mind.

In the 1950s, we began awarding a percentage of profits to our managers to foster the company's partnership culture. UPS recently updated our Managers Incentive Plan from a profit-sharing plan to one tied directly to performance on key company goals. Each year, approximately 36,000 management employees receive a reward based on performance. The award consists of restricted stock units (50 percent) and the choice to receive the rest in either cash, additional shares or deferred retirement savings. The restricted stock vests over five years at 20 percent per year. Additionally, management employees are offered incentives to hold and accumulate UPS stock. We also award stock option and restricted stock awards to approximately 10 percent of the management team.

We provide additional ways for employees to own UPS stock, including the Discounted Employee Stock Purchase Plan (available in the U.S., Canada, Mexico, Puerto Rico, Germany, Hong Kong, Taiwan and Singapore), the UPS Savings Advantage, which offers a company match in stock (available in the U.S.), and the Direct Stock Purchase Plan (available worldwide).

Since we believe aligning employees' interests with company goals is a high priority, we will continue to encourage and pursue ways for employees to increase their ownership stake in the company.

Ethics and Compliance

UPS Corporate Compliance Mission Statement

Promote an organizational atmosphere that protects our legacy of ethical conduct and supports full compliance with all legal and regulatory requirements and UPS policies throughout all UPS business units globally.

Our legacy of ethics and integrity is fundamental to our ability to attract and retain the best employees, gain and keep the trust of our customers, create shareholder value, support the communities in which we operate and protect our reputation.

This value system is coupled with the UPS Policy Book and the UPS Code of Business Conduct. These two elements - the philosophical and the practical - work together to create an environment where good people can make good decisions.

Our commitment to ethical operations begins with top management. Our Chief Operating Officer serves as the Corporate Compliance Officer and has a reporting responsibility to the Board of Directors' Audit Committee.

The UPS Code of Business Conduct provides employees with worldwide Business Conduct guidelines, which apply to all UPS business units. The Code of Business Conduct is available to employees in 12 languages on our intranet.

Several tools are in place to monitor the effectiveness of our compliance initiatives globally, including the UPS Business Ethics Questionnaire (BEQ), an Annual Compliance Report and Certification Process, and Regulatory Compliance Reviews. Employees around the globe have access to the UPS Help Line, a toll-free number they can call to ask advice or report concerns.

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