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The management
development and compensation committee of the board of directors of General
Electric Company shall consist of a minimum of three directors. Members of the
committee shall be appointed by the board of directors upon the recommendation
of the nominating and corporate governance committee and may be removed by the
board of directors in its discretion. All members of the committee shall be
independent directors, and shall satisfy the proposed New York Stock Exchange
standard for independence for members of the audit committee.
The purpose of the
committee shall be to carry out the board of directors’ overall
responsibility relating to executive compensation.
In furtherance of this
purpose, the committee shall have the following authority and responsibilities:
| 1. | To assist the board in developing and evaluating potential
candidates for executive positions, including the chief executive officer, and
to oversee the development of executive succession plans.
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| 2. | To review and approve on an annual basis the corporate goals and
objectives with respect to compensation for the chief executive officer. The
committee shall evaluate at least once a year the chief executive
officer’s performance in light of these established goals and objectives
and based upon these evaluations shall set the chief executive officer’s
annual compensation, including salary, bonus, incentive and equity
compensation.
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| 3. | To review and approve on an annual basis the evaluation process and
compensation structure for the company’s officers. The committee shall
evaluate the performance of the company’s senior executive officers and
shall approve the annual compensation, including salary, bonus, incentive and
equity compensation, for such senior executive officers. The committee shall
also provide oversight of management’s decisions concerning the
performance and compensation of other company officers.
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| 4. | To review the company’s incentive compensation and other
stock-based plans and recommend changes in such plans to the board as needed.
The committee shall have and shall exercise all the authority of the board of
directors with respect to the administration of such plans.
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| 5. | To maintain regular contact with the leadership of the company. This
should include interaction with the company's leadership development institute,
review of data from the employee survey and regular review of the results of
the annual leadership evaluation process.
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| 6. | To prepare and publish an annual executive compensation report in
the company’s proxy statement.
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The committee shall
have the authority to delegate any of its responsibilities to subcommittees as
the committee may deem appropriate in its sole discretion.
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The committee shall
have authority to retain such compensation consultants, outside counsel and
other advisors as the committee may deem appropriate in its sole discretion.
The committee shall have sole authority to approve related fees and retention terms.
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Management Development
and Compensation Committee Key Practices
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The Management
Development and Compensation Committee has adopted the following key practices
to assist it in undertaking the functions and responsibilities set forth in its
charter:
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| 1. | Meetings. The committee will meet at least 8
times a year.
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| 2. | Compensation Principles. The committee
believes that its principal responsibility in compensating executives is to
incentivize and reward officer and employee performance that will lead to
long-term enhancement of shareowner value. The committee regularly evaluates
the effectiveness of the different elements of the company's basic executive
compensation program, which currently consists of: annual payments of salary
and bonuses; annual grants of stock options; and periodic grants of restricted
stock units and other contingent long-term performance awards. Each year, the
company reports the compensation paid to its five most highly compensated
executives in the proxy statement, and the committee explains the reasons for
it's key compensation actions in a report included in the proxy statement.
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| | Each element of the
company's executive compensation program serves a somewhat different purpose,
and the committee endeavors to provide a combination of compensation elements
that enable the company to attract, retain, incentivize and reward executives
of superior ability who are dedicated to the long-term interests of the shareowners.
- Salary. Salary payments are made to
compensate on-going performance throughout the year.
- Annual Bonus. Annual bonuses for executive
officers are based upon the committee's evaluation of the significance of
each executive's contribution in the prior year to the long-term interests
of the shareowners.
- Stock Options. The committee considers
stock options, when used with an appropriate holding period, to be an
extremely effective form of compensation for officers and other key
employees because they provide incentives for superior performance leading
to enhanced shareowner value. Stock options also encourage retention
because they vest over a period of years. Over 45,000 employees have been granted stock options since the committee began awarding options to a broader group of employees in 1989.
- Restricted Stock Units. RSUs are granted
periodically by the committee, principally to the company's officers, and
generally vest over a longer period of time than stock options. RSUs also
provide strong incentives for superior performance and continued service
because unvested RSUs are forfeited if the executive leaves the company
prior to the lapse of restrictions.
- Contingent Long-Term Performance Awards.
The committee also periodically grants contingent long-term performance
incentive awards to senior operating managers and key executives to
provide additional emphasis on the attainment of specific financial
measurements designed to enhance long-term shareowner value. The committee
made such grants in 1994, 1997, 2000 and 2003.
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All stock options,
RSUs and contingent long-term performance incentive awards are granted in
accordance with the terms of the company's 1990 Long-Term Incentive Plan which
was last approved by the shareowners in 1997.
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| 3. | Stock Ownership
Guidelines. To help demonstrate the alignment of the personal interest of
senior management with the interests of shareowners, in September 2002, the
committee established the following guidelines for the amount of GE stock, as a
multiple of the executive's base salary, that should be held by senior
management:
Key Executive Compensation Actions Last Year
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Position |
Multiple
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Time to
Attain
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CEO
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6X
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3 years
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Vice Chairman
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5X
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4 years
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Senior VPs
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4X
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5 years
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| 4. | Stock Option
Holding Period. In September 2002, in order to minimize any possible
appearance of an incentive for senior managers to seek to cause short-term
increases in the price of GE shares in order to exercise stock options and sell
the stock for unwarranted personal gains, the committee determined that senior
managers should be required to hold for at least one year the net shares of GE
stock that they receive by exercising stock options. For this purpose,
“net shares” means the number of shares obtained by exercising the
option, less the number of shares the executive sells to: (a) cover the exercise
price of the options; and (b) to pay the company withholding taxes. This
requirement applies to the CEO, the vice chairmen, and the senior vice
presidents of the company.
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| 5. | Expensing Stock
Options. In July 2002, the committee recommended, and the board approved,
the policy of expensing stock options to respond to investor views that this
would improve the transparency of the company's financial statements.
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| 6. | Prohibit Stock
Option Repricing. The committee reaffirms the board's long-standing policy
prohibiting repricing of stock options including by amendments to outstanding
options to lower their exercise price, or by canceling outstanding options and
replacing them with new options.
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| 7. | Shares Available For Awards
Under the 1990 Long-Term Incentive Plan. The committee has determined that
the number of shares which the plan makes available for granting awards to
employees, including stock options and restricted stock units, is greater than
the committee has awarded in the past and expects to award in the future.
Therefore, the committee recommended, and the board approved, an amendment to
the plan which: (a) eliminated the current provision which carries over for
possible future use any unused shares; and (b) reduced the number of available
shares by eliminating the number of unused shares that were carried over from
prior years. Therefore, until the plan terminates in 2007, the total number of
shares that will be available for grants in any year will be limited to 0.95%
of the shares issued as of the first day of such year.
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