To Our Shareowners:
As Presiding Director and Chair of the Management Development and Compensation Committee of GE’s Board of Directors, I write each year to share our perspective on how GE measures performance, how we motivate and reward our executives, and how we work to align both performance measurement and compensation with the interests of our shareowners. This year, I will focus on three areas: first, how the theme of our annual report, GE Works, fits with our governing philosophy and why we believe it provides an important business-building advantage; second, our commitment to developing leaders; and finally, executive compensation.
At its heart, the Board believes GE Works is about GE’s most valuable asset: its people. It provides a valuable platform for the Company to talk about its defining culture and to tell the story of the impact our people make around the world. Furthermore, it serves as a powerful reminder that GE works to deliver shareholder value by offering real and sustainable solutions to the world’s toughest problems.
It is a fitting way to talk about the Company, because GE has always taken a long-term view. Through its more than 130-year history, the Company has successfully weathered many economic cycles. GE has done this over and over again by fostering innovation, making smart investments, and, of course, hiring and training disciplined leaders who focus on achieving our long-term strategies.
Developing leaders has always been a hallmark of the Company, reflecting a commitment to meritocracy and a belief that when one person grows and improves, all may grow and improve—that together, we all rise. The collaborative, evolutionary nature of GE’s leadership culture inspires many of our top executives to spend most or all of their careers here. This provides the Company with unparalleled domain expertise; it also creates an environment of loyalty where our leaders are deeply invested in and committed to the Company. Today, GE’s senior management, under the exceptional leadership of Jeff Immelt, is a proven team that we believe is among the best in the world.
Our compensation programs are designed and operate to support our leadership culture and long-term emphasis. They are not formula-driven, nor do we reward our executives for taking outsized risks that produce short-term gains. Instead, with a mix of cash and equity and long- and short-term incentives, we reward our executives’ discipline in consistently making smart decisions over the course of their careers at GE. We particularly value those individuals who have the good judgment and ability to balance risk and return and deliver long-term results for shareowners.
At the same time, we do not ignore annual performance, because we understand that if we don’t turn in good short-term performance, there won’t be a long term. We evaluate annual performance both in terms of executing on long-term strategies and in meeting specific annual objectives. What is critical to note, however, is that because we take the long view, good years do not result in outsized payouts.
Similarly, in off years, compensation appropriately considers the current year’s performance, but also aligns it in the context of long-term performance. Furthermore, we measure executives’ contributions to the Company’s overall performance rather than focusing only on their individual business or function. We reward sustained financial and operating performance and leadership excellence. In short, we use a balanced approach, one that enables us to attract and retain the best people for the Company’s long-term success.
All our investors should know that the directors of GE remain committed to working on your behalf. And we will continue to take seriously our role in ensuring that GE has the right strategies and the right people to help make the world work better.
Ralph S. Larsen
February 24, 2012