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Despite a good year in the equity markets, investor trust has been slow to return. Each new event that creates cynicism means that good companies must raise the bar even higher to set standards that rebuild trust. In 2002, under the leadership of Ben Heineman, our board took major steps to lead in governance, and we continued to build on those actions in 2003.
Our approach begins with the bedrock principle of performance with integrity. Keith Sherin, our CFO, leads a world-class financial team who ensure that we honor our financial commitments, adhere to high standards of controllership, and lead in disclosure and transparency. We have significantly increased our communication to all investors—shareowners and bondholders, institutional and retail—with the goal of talking about GE externally the way we run it internally.
We have built a strong and independent Board of Directors that is working harder than ever. We are in our second year with a presiding director helping to set the board’s agenda and guiding the board’s independent activity. Based on the board’s input, we have changed our meetings to cover fewer topics with deeper interaction.
Our directors have access to the company at all levels, and I insist that they use it. I want our board to experience the culture. They do this by visiting our businesses on their own, in informal settings with our managers; by reviewing in detail employee issues brought to them by our ombudsperson’s office; and by teaching at the Welch Center in Crotonville, New York.
Our board can also rely on a 370-person Corporate Audit Staff, which reports jointly to the Audit Committee and our CFO. Every Audit Committee meeting ends with Katy McCarthy, the leader of the Audit Staff, giving our independent directors her assessment without management present.
One of the areas where I asked for the board’s help last year was executive compensation, particularly my own. Like most CEOs, I love my job because I love my company. I hate the controversy around CEO pay, because it takes attention away from the more important elements of strategy and teamwork.
Working with the board, we established a few principles about my pay. Namely, it should be transparent, performance-based and aligned with investors. To reinforce this alignment, I will no longer receive stock options or restricted stock. Instead, I will receive “performance share units.” These units vest in five years based on two metrics: I receive half if GE’s total shareowner return meets or exceeds that of the S&P 500, and the other half if our average annual operating cash flow growth over the vesting period exceeds 10%. If these metrics are not achieved, the performance share units are cancelled. Success will require sustained excellent performance in the long-term interests of GE investors.
I trust the board. I work without a contract and plan to do so as long as I am chairman. There are no targets or commitments for my total compensation. I leave that to the board’s judgment of my performance and the value I create by leading GE.
I work for you. You set my pay, through the judgment of your board.
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