Invest & Deliver Every Day
GE 2007 Annual Report

I am writing to you as chairman of GE’s Management Development and Compensation Committee, whose primary job is to ensure that GE recruits, develops, and retains outstanding leaders. I would like to give you a sense of how GE develops and pays its leaders, and why we believe well-constructed executive compensation programs are essential to being a premier global company — and to creating long-term value for our shareowners.

A great company requires great people

For more than 100 years, GE has developed a system of disciplined oversight that has produced many successful leaders. We recruit hard-working, self-motivated people, and support their growth in an environment that allows them to reach their full potentials. We do this by operating as a meritocracy, making significant investment in training, providing challenging assignments to develop breadth and depth, giving frequent feedback, and rigorously measuring performance from the very beginning of a career.

More importantly, we invest the time of our most-senior executives, who have primary responsibility for cultivating our people. In fact, our CEO Jeff Immelt typically spends about 30% of his time developing, coaching, and evaluating executives.

As executives grow within GE, they become more valuable to us: they become better leaders, they gain broad experiences across businesses and geographies, they learn how to drive results in a broad range of market conditions, and they build domain expertise and skill. Perhaps most importantly, they learn how to identify and develop the next generation of GE leaders.

You want the best people running your Company. You want leaders with great vision, global experience, and an unrelenting commitment to performance with integrity. GE’s leaders have thrived in a demanding culture and in highly competitive business environments. They create value for the Company, for customers, and for the owners of the Company.

Our approach to compensation

GE’s culture of long-term performance and our strong track record of executive retention are directly connected to how we compensate our people. Our approach is aligned with shareowner interests because it rewards consistent, strong performance.

Being paid well at GE is not an entitlement — it’s the result of performing at a high level and delivering reliable, sustained results over many years. We expect our executives to build careers here, to work hard, and to grow their businesses and themselves over multi-year periods. Those who succeed can do well financially over the course of their careers at GE — provided they meet our ambitious strategic, financial, and operational goals, year in and year out.

We use different types of compensation to create an overall mix that balances rewards for recent and long-term performance. The program includes salary and annual cash incentives, longer-term equity and performance awards, deferred compensation, and pension benefits. We balance these elements in a way that recognizes executives’ responsibilities and their abilities to contribute to the short- and long-term growth of the Company. Importantly, as executives rise within GE, an increasing percentage of their total compensation is “at risk” — meaning it is contingent on reaching targets based on things like solid increases in revenues, returns, earnings per share, and cash flow.

Annual incentive compensation — or “bonus” — is tied to clear performance objectives and is the primary way we reward current performance. However, we don’t want to encourage our people to chase short-term trends or take excessive risks to create a single period of good results. That’s why these bonuses are linked to previous years, taking into account not just what an executive did this year, but also their performance and bonus in prior years.

Another example of this balance is that we compensate executives with long-term equity awards that vest over time and therefore require performance over an extended period before they can be earned. These tools enable us to align executive interests with shareowner interests because their value depends on the performance of GE’s stock. In making equity awards, we emphasize long-term contributions to GE’s overall performance rather than focusing narrowly on individual businesses or functions.

Because our objective is sustained long-term performance, we don’t believe it is either wise or fair to follow rigid mathematical formulas in setting executive compensation. In fact, looking solely at the numbers can create the wrong incentives. That’s why we evaluate a broad range of subjective factors in determining appropriate levels of compensation. This committee personally knows each senior GE leader, which lets us consider how executives have achieved their results, whether they inspire trust and confidence in their people, if they exercise sound judgment, and whether they have track records of acting with integrity and treating others with respect. We want to motivate and retain leaders who bring out the best in everyone around them.

Retaining top talent

Like all leading companies, GE engages in an increasingly fierce global competition for top talent. While GE executives are frequently courted by high-paying investment banks, private equity firms, and other leading corporations and institutions, we are pleased that we continue to fare well in the battle for executive talent.

GE’s voluntary attrition rate is less than 4% among our most-senior leaders. Today, all five of our most-highly compensated officers have spent their entire careers at GE and have an average tenure of more than 28 years with the Company. This continuity is typical throughout our top 189 officers.

Unlike many public companies, we normally do not offer employment contracts or unusual severance agreements for our senior executives. Candidly (except where unique local or industry practice may require them) we don’t feel we need them. We retain our best and brightest executives by enabling positive and fulfilling experiences throughout their careers at GE, not through golden handcuffs or parachutes.

Our system of training, rewarding, and retaining top talent has been developed and refined over many years, and it is a key element to delivering reliable earnings growth that creates long-term value for our shareowners. But we are always striving to do better for our shareowners and that will not change.

Sincerely,

Ralph S. Larsen
Chairman, Management Development
and Compensation Committee
February 20, 2008