GE 2012 Annual Report

Each year, I write on behalf of the Board and as Chair of the Management Development and Compensation Committee to share our perspective on governance, how we evaluate performance, and the strategy for creating shareowner value. This year, I will do that in the context of a belief that defines GE’s culture. An organization cannot sustain itself for more than 130 years, as GE has, unless it is always striving to improve.

GE works because the Company understands that organizations must continuously evolve and improve to stay relevant. That is the rationale for the GE Opinion Survey, or GEOS, conducted every two years. The survey provides an invaluable platform through which the people who know GE best—its employees—can candidly and confidentially share their perspectives on the work environment and key business issues that influence company success: innovation, strategy, execution, and customer alignment.

“An organization cannot
sustain itself for more
than 130 years, as GE
has, unless it is always
striving to improve.”

Shareowners can be proud that GE’s employees score the Company extremely highly when it comes to compliance and trusting executives to do the right thing. This is essential to building the reputation required to maintain a competitive advantage when pursuing opportunities around the globe. Employee engagement scores were also very high, signaling a GE team motivated by the Company’s mission and its ability to foster innovation, make smart investments and execute.

The GEOS results were not as strong in the areas of customer alignment and complexity. Addressing this is an imperative. GE leaders are committed to streamlining operations and processes to move faster, be smarter and get closer to the customer. The effort, known inside the Company as “Simplification,” is about increasing margins not only by cutting costs but also by working smarter and by removing unnecessary barriers that stand in the way of GE employees around the world. It is about creating an entrepreneurial environment that fosters innovation and allows us to move faster.

Simplification is already producing significant results. Last summer, for instance, GE replaced the headquarter layer of the Energy business with three stand-alone businesses, all now reporting directly to the Chairman: Oil & Gas, Power & Water, and Energy Management. The restructuring saved close to $300 million and removed administrative barriers, empowering employees. There are many other projects under way, and we have set bold but realistic goals.

The GEOS and the Simplification initiative are just two of the many tools GE leaders use to listen, learn, grow and get better year after year. This is critical at a company such as GE. Many of our top executives have spent most or all of their careers at GE and have unparalleled domain expertise, a hallmark of the Company. At the same time, we cannot allow longevity to mean becoming insular or stale; the ability to evolve and keep one’s thinking and perspectives fresh and relevant is imperative for success.

We believe that GE leaders understand this inherently. Today, GE’s senior management is a proven team of strategic thinkers who are always learning and always improving. In fact, we measure our leaders on how they adapt in real time to an ever-changing world, perform amidst ambiguity and execute to achieve long-term goals. We align compensation with strong company financial and strategic performance. Ours is a balanced approach that, we believe, enables us to attract and retain the best people for the Company’s long-term success.

Just as striving to be better is a cultural marker for GE and its executives, the same is true of its independent Board of Directors. We will continue to ensure that the Company never becomes stagnant. We also will always do our best to be transparent in explaining our approach to issues such as governance and compensation. When we see an area for improvement, we will take the appropriate steps. Simply put, we remain committed to working on behalf of the Company’s investors. GE works to deliver shareowner value by offering real and sustainable solutions to the world’s toughest problems. We’re proud to be part of that, and we take our role seriously.

Sincerely,

Ralph S. Larsen Presiding Director
February 26, 2013