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PROXY STATEMENT
COMPENSATION COMMITTEE REPORT |
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| Effective January 1, 2003, each member of our management development and compensation committee is
an independent director as defined by proposed New York Stock Exchange rules.
The board also requires members of this committee to meet the more stringent
NYSE and SEC independence requirements for audit committee members. This
committee adopted a new charter and key practices last year which are set forth
in Appendix B of this proxy statement at page 62 (Management Development and Compensation Committee Charter), and published on the
governance section of the GE Web site at www.ge.com/governance. We discuss below our policies for compensating our
executives and a number of other steps we took last year to strengthen the
alignment of their interests with the long-term interests of investors and
other stakeholders. |
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| Compensation Policies for Executive Officers Our main compensation responsibility is to incentivize and reward superior executive performance that will create long-term investor value—and to encourage executives who deliver that performance to remain with GE and to continue that level of performance. We approve all of the policies under which compensation is paid or awarded to our executive officers—the chief executive officer, the vice chairmen and the senior vice presidents. We individually review the performance of these top executives. We review every compensation action relating to them, and we regularly oversee and evaluate the effectiveness of our executive compensation program in hiring, motivating and retaining other key employees. Each element of the
program serves a somewhat different purpose. We provide a combination of
compensation elements that enables us to attract, incentivize, reward and
retain executives of superior ability who are dedicated to the long-term
interests of our investors. The basic elements of our executive compensation
program are: Salary and bonus.
Salary is paid for ongoing performance throughout the year. Bonuses are paid in
February for prior year performance and are based upon our evaluation of each
executive officer’s individual performance in the prior year, in the
context of our assessment of the overall performance of the company and the
executive’s business unit. This includes an assessment of the
executive’s contribution to the achievement of financial performance and
other key goals we established for the company during the performance year. The
salaries and bonuses we paid to our five most highly paid executive officers
for the past three years are shown in the table on page 26 (Summary Compensation Table).Stock options.
We consider stock options, when used with an appropriate holding period, to be
an extremely effective incentive for executive officers and other key employees. Stock options also encourage
executives to remain with GE because they vest over a period of years. The
executive receives gains only when the stock rises for all shareowners. The
number of stock options granted to our five most highly paid executive
officers, and the value of the awards, are shown in the table on page 25 (Stock Options and SARs).Each stock option
permits the executive, generally for a period of ten years, to purchase one
share of GE stock from the company at the market price of GE stock on the date
of grant. Stock options granted last year will become exercisable in five equal
annual installments. Stock options granted before last year generally become
exercisable in two equal installments, three and five years after they were
granted.Restricted stock
units (RSUs). We generally grant RSUs to our executive officers every three
years, but more frequently on occasion. Each RSU entitles the executive to
receive regular quarterly payments from the company equal to the quarterly
dividend on GE stock. Also, provided the executive is still employed by GE when
the restrictions expire, the executive will receive one share of GE stock from
the company in exchange for each RSU. RSUs vest for executives who remain with
the company over a longer time horizon than stock options. In the past, the
restrictions on 25% of most RSUs lapsed three years after grant, an additional
25% lapsed in seven years and the remaining 50% lapsed at retirement. We
changed that schedule for most of the RSUs we granted in 2002 so that 25% of
the restrictions lapse after three, five and ten years, with the final 25%
lapsing at retirement. RSUs provide strong incentives for superior performance
and continued service because unvested RSUs are forfeited if the executive leaves
GE prior to the lapse of restrictions. The market value on the date granted of
RSUs awarded in the last three years to the five most highly paid executive
officers is shown in the table on page 27 (Long-Term Compensation and All Other Compensation).Contingent long-term performance awards. We also periodically
grant contingent long-term performance awards to select operating managers and
executives. These awards are based on the attainment of specific financial
measurements over a three-year period which are designed to enhance long-term
share-owner value. We granted such awards in 1994, 1997, 2000, and again this
year. The table on page 27 (Long-Term Compensation and All Other Compensation) shows the amounts paid this year under the 2000
award to our five most highly paid executive officers, and we discuss that
award and the new award we made this year on page 28 (Contingent Long-Term Performance Incentive Awards). |
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| Key Executive Compensation Actions Last Year All stock option, RSU and contingent long-term performance awards are made under the GE 1990 Long-Term Incentive Plan, which shareowners approved in 1990 and again in 1997. The plan limits total annual awards to less than 1% of issued shares. Historically, the committee has only awarded about half of the authorized amount. Last September, in
order to help demonstrate the alignment of the personal interest of senior
executives with your interests, we established the following stock ownership
requirements, as a multiple of the executive’s base salary, that must be
held by senior executives:Chart of Key Executive Compensation Actions Last Year
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| Factors We Considered in Making Specific Compensation Decisions As in prior years, all of our judgments regarding executive compensation last year were primarily based upon our assessment of each executive officer’s leadership performance and potential to enhance long-term shareowner value. We rely upon judgment, not upon rigid guidelines or formulas, or short term changes in our stock price, in determining the amount and mix of compensation elements for each executive officer. Key factors affecting
our judgments included the nature and scope of the executive officers’
responsibilities, their effectiveness in leading our initiatives to increase
customer value, productivity and growth, and their success in creating a
culture of unyielding integrity and compliance with applicable law and our
ethics policies. We also considered the compensation levels and performances of
a comparison group of major companies that are most likely to compete with us
for the services of executive officers.Based upon all the
factors we considered relevant, and in light of our strong financial and
operating performance in an extraordinarily challenging global economic
environment, we believe it was in your best long-term interest to set the
overall level of our salary, bonus and other incentive compensation awards
above the average of companies in the comparison group. Quite simply, we
continue to believe that the quality and dedication of our executive leaders is
a critical factor affecting the long-term value of our company. Therefore, we
continue to try to maintain an executive compensation program that will
attract, motivate and retain the highest level of executive leadership
possible.Our decisions concerning the specific 2002 compensation elements for
individual executive officers, including the chief executive officer, were made
within this framework. We also considered each executive officer’s level
of responsibility, performance, current salary, prior-year bonus and other compensation
awards. As noted above, in all cases our specific decisions involving 2002
executive officer compensation were ultimately based upon our judgment about
the individual executive officer’s performance and potential future
contributions –and about whether each particular payment or award would
provide an appropriate incentive and reward for performance that sustains and
enhances long-term shareowner value. |
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| Basis for Chief Executive Officer Compensation For 2002, we paid Mr. Immelt $3,000,000 in salary, which is the annual salary rate that has been in effect for him since April 2001. Mr. Immelt has agreed to forego any consideration of an increase in his base salary rate at least until he has satisfied the stock ownership requirement described on page 21 (Key Executive Compensation Actions Last Year). We also paid him a cash bonus of $3,900,000 for 2002, an 11.4% increase over his bonus for 2001. We considered this level of
pay and bonus appropriate for the following reasons: his role in leading us to
solid financial results in an extremely challenging global economic
environment; his commitment for the company to be a leader in integrity,
transparency and corporate governance at a time of convulsive change in
business regulation and investor expectations; and his commitment to shaping an agenda to enhance long-term investor value
by accelerating profitable growth, by increasing our use of technology to
create value for our customers, by ensuring the company has a strong capital
structure, by reorganizing our financial services businesses to increase
transparency and effective management for growth in key financial sectors, and
by focusing our quality and digitization initiatives on strengthening customer
relationships.We are also taking
steps to link his pay more closely to company performance and align his
interest more directly with the longer-term interests of shareowners. Last
year, we granted Mr. Immelt 20,000 RSUs, which will vest in five equal annual
installments, in lieu of an increase in his base salary rate. We also granted
Mr. Immelt 1,000,000 stock options, 200,000 less than in 2001, which vest in
equal installments over five years. We believe that stock options, when used
judiciously and coupled with our requirement that any net gains be held in GE
stock for at least a year after exercise, can be an extremely effective
incentive for superior performance leading to long-term shareowner value.In addition, in March 2003, Mr. Immelt will receive a payment of
$6,698,900 under the 2000-2002 contingent long-term performance incentive award
described on page 28 (Contingent Long-Term Performance Incentive Awards) below. He has elected to receive the net payment, after
tax withholding, in GE stock, which he will hold as long as he continues to be
CEO. Given his current stock holdings, Mr. Immelt will have reached about 75%
of his stock ownership requirement described on page 21 (Key Executive Compensation Actions Last Year) following this
long-term award payment in GE stock. |
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| Broad-Based Employee Stock Option Program Over 45,000 employees below the executive officer level have been awarded one or more stock option grants under a broad-based stock option program initiated in 1989. Last year we granted nearly 25,000,000 options under this program to over 20,000 employees. This program is an increasingly vital element of our drive to identify, develop and motivate the high-potential leaders who will sustain our outstanding performance far into the 21st century. It also reinforces in the company the entrepreneurial environment and spirit of a small company by providing real incentives for these employees to sustain and enhance GE’s long-term performance. The committee believes that the superior performance of these individuals will contribute significantly to GE’s future success. |
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| Compensation Committee Interlocks and Insider Participation During 2002, the following directors served on the management development and compensation committee: Andrew C. Sigler (chairman), Claudio X. Gonzalez, Silas S. Cathcart, Kenneth G. Langone, Gertrude G. Michelson, Sam Nunn, Roger S. Penske and Frank H. T. Rhodes. Mr. Cathcart served as a member of the committee from 1977 to 1987 and from 1992 until his retirement last year, except for the period during 1987 to 1989 when he served as Chairman and CEO of Kidder, Peabody Group Inc., a former operating subsidiary of the company. During 2002, Dr. Rhodes and Ms. Michelson also retired from the board. Effective January 1, 2003, Andrea Jung and Douglas A. Warner III, who are independent directors, joined the committee. On the same date, Messrs. Nunn and Penske stepped down from the committee due to a new board requirement, which they strongly endorsed, that members of the committee should not be associated with entities which have material business relationships with, or provide services to, GE. The foregoing report
on executive compensation for 2002 is provided by the following directors, who
constituted the management development and compensation committee at the end of
2002:
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