Compensation Policies for Executive Officers
The Management Development and Compensation Committee of the Board of Directors (the Committee), consisting entirely of non-employee directors, approves all of the policies under which compensation is paid or awarded to the Company's executive officers. The Company's basic compensation program for executive officers currently consists of the following elements: annual payments of salary and bonuses; annual grants of stock options; and periodic grants of restricted stock units (RSUs) and other contingent long-term financial performance awards. As described below, each element of the Company's executive compensation program has a somewhat different purpose. All stock option, RSU and contingent long-term financial performance awards are made under the share owner-approved GE 1990 Long-Term Incentive Plan (the Plan), which limits total average annual awards to less than 1% of issued shares. In 1997, the share owners approved for five years the material terms of performance goals to be set by the Committee for the maximum level of payments of bonuses, RSUs and long-term performance awards to the Company's executive officers, and approved an amendment to the Plan to establish a limit on the number of stock options that may be awarded to any individual, so the Company could continue to obtain tax deductions for the full amount of such payments and awards under pertinent tax law. As described in pages 28-33 (Proposal to Approve Material Terms of Executive Officer Performance Goals) of this Proxy Statement, management is requesting share owners to approve the material terms of performance goals for another five years to enable the Company to continue to obtain these tax deductions.

The Committee believes that its principal responsibility is to incentivize and reward executive performance that will lead to long-term enhancement of share owner value. Therefore, as in prior years, and subject to the performance goals approved by the share owners, all of the Committee's judgments regarding executive compensation last year were primarily based upon the Committee's assessment of each executive officer's leadership performance and potential to enhance long-term share owner value rather than upon rigid guidelines or formulas, or short term changes in GE's stock price.

Key factors affecting the Committee's judgments included the nature and scope of the executive officers' responsibilities, and their effectiveness in leading the Company's initiatives to increase customer value, productivity and growth, and creating a culture of unyielding integrity and compliance with applicable law and Company ethics policies. The Committee also considered the compensation practices and performances of other major corporations that are most likely to compete with the Company for the services of executive officers. Based upon all factors which it considered relevant, and in light of the Company's superior overall long-term performance and enormous opportunities, the Committee considered it appropriate, and in the best interest of the share owners, to set the overall level of the Company's salary, bonus and other incentive compensation awards above the average of companies in the comparison group in order to enable the Company to continue to attract, retain and motivate the highest level of executive leadership possible.

Salary payments in 2001 were made to compensate ongoing performance throughout the year. Bonuses for 2001 were based upon the Committee's determination that the Company's 2001 financial results had exceeded performance goals previously established by the Committee and upon its judgment regarding the significance of each executive officer's contributions during 2001. The number of stock options granted to the Company's six most highly compensated executive officers, and the hypothetical potential value of the awards, are shown in the table on page 24 (Stock Options Granted in 2001). Each stock option permits the holder, generally for a period of ten years, to purchase one share of GE stock from the Company at the market price of GE stock on the date of grant. Stock options for executive officers normally become exercisable in two installments, the first half after three years and the other half after five years from the date of grant. The number of RSUs awarded in the last three years to the six most highly compensated executive officers, and their market value on the date granted, are shown in the table on page 21 (Long-Term Compensation). In most cases, the restrictions on 25% of RSUs lapse three years after grant, an additional 25% lapse in seven years and the remaining 50% lapse at retirement. Stock options and RSUs provide strong incentives for continued superior performance because, under the terms of these awards, unexercised stock options and RSUs for which restrictions have not lapsed are forfeited if the executive officer is terminated by the Company for performance or voluntarily leaves the Company before retirement.

The Committee’s decisions concerning the specific 2001 compensation elements for individual executive officers, including the Chief Executive Officer, were made within this broad framework and in light of each executive officer’s level of responsibility, performance, current salary, prior-year bonus and other compensation awards. As noted above, in all cases the Committee’s specific decisions involving 2001 executive officer compensation were ultimately based upon the Committee’s judgment about the individual executive officer’s performance and potential future contributions, and about whether each particular payment or award would provide an appropriate incentive and reward for performance that sustains and enhances long-term share owner value.

Basis for Chief Executive Officer Compensation
For 2001, Mr. Immelt earned $6,250,000 in salary and bonus, as shown in the Summary Compensation Table on page 20 (Annual Compensation). The Committee considered this level of payment appropriate in view of Mr. Immelt's effectiveness in assuming leadership of one of the world's most respected and successful companies in an unusually challenging global economic environment. In 2001, the Committee also granted Mr. Immelt 1,200,000 stock options, half of which will become exercisable in three years and half in five years. The primary basis for the Committee's determinations to grant such stock options was to provide a significant incentive for him to enhance long-term share owner value. The specific bases for the Committee's determinations regarding Mr. Immelt's compensation in 2001 included his role in leading the Company to record financial results during his first year of Company-wide leadership, and his commitment to shaping an agenda to enhance long-term share owner value by accelerating profitable growth, by increasing the Company's use of technology to create value for our customers, and by focusing the Company's quality and digitization initiatives on deepening customer relationships.

Prior to his retirement in September 2001, Mr. Welch earned $16,075,000 in salary and bonus, as shown in the Summary Compensation Table on page 20 (Annual Compensation). The Committee considered these payments warranted by Mr. Welch's unswerving commitment to transitioning responsibility for the Company to the next generation of leadership, and his passionate determination to position the Company for future growth. As reported in the last five Proxy Statements, the Board of Directors entered into an employment contract with Mr. Welch in 1996, which required him to serve as the Chairman and Chief Executive Officer of the Company until at least December 31, 2000, at the pleasure of the Board of Directors on terms no less favorable than his then current conditions of employment. In addition, after his retirement, the contract requires Mr. Welch, when requested by the Company's then current Chief Executive Officer, to be available for up to 30 days a year for the remainder of his lifetime to provide consulting services or to participate in external events or activities on behalf of the Company. In return for these commitments by Mr. Welch, the Board agreed to pay him, during the term of the consulting agreement, a daily consulting fee for the days he renders services based on his daily salary rate in the year prior to his retirement, the first five days of which will be paid in advance through an annual retainer, and to provide him continued lifetime access to Company facilities and services comparable to those which were made available to him by the Company just prior to his retirement.

Broad-Based Employee Stock Option Program
Nearly 40,000 employees below the executive officer level have been awarded one or more stock option grants under a broad-based stock option program initiated in 1989. This program is an increasingly vital element of the Company's drive to identify, develop and motivate the high-potential leaders who will sustain GE's outstanding performance far into the 21st century. It also reinforces in the Company the entrepreneurial environment and spirit of a small company by providing real incentives for these employees to sustain and enhance GE's long-term performance. The Committee believes that the superior performance of these individuals will contribute significantly to the Company's future success.

Compensation Committee Interlocks and Insider Participation
The Management Development and Compensation Committee is composed of the following non-employee directors: Andrew C. Sigler (Chairman), Silas S. Cathcart, Claudio X. Gonzalez, Kenneth G. Langone, Gertrude G. Michelson, Sam Nunn, Roger S. Penske and Frank H. T. Rhodes. Mr. Cathcart served as a member of the Committee from 1977 to 1987 and since 1992, and served as a director of GE since 1972, except for the period during 1987 to 1989 when he served as Chairman and CEO of Kidder, Peabody Group Inc., a former operating subsidiary of the Company.

The foregoing report on executive compensation is provided by the following non-employee directors, who constituted the Management Development and Compensation Committee during 2001:

Andrew C. Sigler (Chairman) Silas S. Cathcart Claudio X. Gonzalez Kenneth G. Langone

Gertrude G. Michelson Sam Nunn Roger S. Penske Frank H. T. Rhodes