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The following table includes
all GE stock-based holdings, as of February 14, 2003, of our directors and five
most highly paid executive officers. This table indicates the alignment of the
named individuals’ financial interests with the interests of our
shareowners because the value of their total GE holdings will increase or
decrease in line with the price of GE’s stock.
Notes:
| 1 |
This
column lists voting securities, including restricted stock held by the
executive officers over which they have voting power but no investment power.
Otherwise, each director or executive officer has sole voting and investment
power over the shares reported, except as noted. In accordance with SEC rules,
this column also includes shares that may be acquired pursuant to non-voting
stock options that are or will become exercisable within 60 days as follows:
63,000 shares for Dr. Cash, 27,000 shares for Ms. Fudge and Mr. Langone,
135,000 shares for Mr. Gonzalez and Mr. Warner, 45,000 shares for Ms. Jung,
13,500 shares for Ms. Lazarus, 81,000 shares for Mr. Nunn, 85,500 shares for
Mr. Penske, and 99,000 shares for Mr. Sigler, 1,632,499 shares for Mr.
Dammerman, 1,335,000 shares for Mr. Heineman, 1,168,500 shares for Mr. Immelt,
1,890,000 shares for Mr. Rogers and 2,182,500 shares for Mr. Wright. No
director or executive officer owns more than one-tenth of one percent of the
total outstanding shares, nor do all directors and executive officers as a
group own more than one percent of the total outstanding shares.
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| 2 |
This
column shows the individual’s total GE stock-based holdings, including
the voting securities shown in the “Stock” column (as described in
note 1), plus non-voting interests, including, as appropriate, the
individual’s holdings of stock appreciation rights, restricted stock
units, deferred compensation accounted for as units of GE stock, and stock
options which will not become exercisable within 60 days.
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| 3 |
Includes
the following numbers of shares over which the identified director or executive
officer has shared voting and investment power but as to which he or she
disclaims beneficial interest: Ms. Jung (975 shares); Mr. Larsen (7,500
shares); Ms. Lazarus (1,300 shares); and Mr. Warner (3,600 shares).
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Includes 1,540,264 shares over which there are shared
voting and investment powers.
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Board of Directors and Committees
Our board of directors currently consists of 17 directors, 11 of whom are independent directors under
the requirements set forth in the proposed New York Stock Exchange listing rules.
It is the board’s objective that at least two-thirds of the board should
consist of independent directors. Our board's governance principles, including
its policies for determining director independence, are enclosed with this
proxy statement in Appendix A at page 56 (Corporate Governance Principles). Any changes in these governance
principles, or in other governance documents, will be reflected on the
governance section of GE’s Web site at www.ge.com/governance.
The board held 13 meetings during 2002. The average attendance by directors at scheduled board
and committee meetings was over 92%. The four standing committees of the board
are a nominating and corporate governance committee, a management development
and compensation committee, an audit committee and a public responsibilities
committee. It is our board’s policy that every member of the governance,
compensation and audit committees should be an independent director. The
charters and key practices of each of these committees are also available on
the governance section of GE’s Web site at www.ge.com/governance.
Nominating and Corporate Governance Committee. Members of the nominating and corporate
governance committee are directors Warner, who chairs the committee, Gonzalez,
Jung, Lafley, Langone, Larsen, Lazarus and Sigler. This committee’s
responsibilities include the selection of potential candidates for the board
and the development and annual review of our governance principles. It will
also annually review director compensation and benefits, and oversee the annual
self-evaluations of the board and its committees. The committee also makes
recommendations to the board concerning the structure and membership of the
other board committees. This committee held three meetings during 2002. This
committee will consider shareowner recommendations for candidates for the board
sent to the Nominating and Corporate Governance Committee, c/o Benjamin W.
Heineman, Jr., Secretary, General Electric Company, Fairfield, CT 06828.
Management Development and Compensation Committee. Members of the management development
and compensation committee are directors Sigler, who is chairman of the
committee, Gonzalez, Jung, Langone and Warner. This committee has two primary
responsibilities: (1) to monitor our management resources, structure,
succession planning, development and selection process as well as the
performance of key executives; and (2) to review and approve executive
compensation. It also administers the GE 1990 Long-Term Incentive Plan and the
Incentive Compensation Plan. This committee met nine times during 2002. The
committee's responsibilities and policies are discussed more fully in its
charter and key practices which are enclosed with this proxy statement in
Appendix B at page 62 (Management Development and Compensation Committee Charter), and discussed in its report to shareowners which begins
on page 19 (Compensation Committee Report).
Audit Committee. The audit committee is comprised of
directors Gonzalez, who chairs the committee, Cash, Fudge, Langone, Sigler,
Swieringa and Warner. This committee is primarily concerned with the accuracy
and effectiveness of the audits of our financial statements by our internal
audit staff and by our independent auditors. It's duties include: (1) the
selection of independent auditors; (2) reviewing the scope of the audit to be
conducted by them, as well as the results of their audit; (3) approving
non-audit services provided to the company by the independent auditor; (4)
reviewing the organization and scope of our internal system of audit, financial
and disclosure controls; (5) appraising our financial reporting activities,
including our annual report, and the accounting standards and principles
followed; and (6) conducting other reviews relating to compliance by employees
with GE policies and applicable laws. There were seven meetings of the audit
committee during 2002. The committee’s responsibilities are stated more
fully in its charter and key practices which are enclosed with this proxy
statement in Appendix C at page 66 (Audit Committee Charter). The committee’s report required by
SEC rules appears on page 32 (Audit Committee Report).
Public Responsibilities Committee. The members of the public responsibilities
committee are directors Nunn, who chairs the committee, Cash, Dammerman, Fudge,
Immelt, Lazarus, Penske, Rogers and Wright. The purpose of the committee is to
review and oversee our positions on corporate social responsibilities and
public issues of significance which affect investors and other key GE
stakeholders. The committee met once last year to review environmental
compliance. Other issues within the jurisdiction of the committee, including
the company’s position on legislative and regulatory matters, were
discussed at meetings of the full board.
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Non-employee Directors Compensation and Benefit Program in 2002
This section describes the compensation and benefit program in effect last year. Director compensation in
2002 consisted of an annual retainer of $75,000, meeting fees of $2,000 per
meeting and 18,000 stock options which had an estimated value in December 2002
of about $168,000. As discussed in the next section, the board significantly
restructured and simplified this program, effective January 1, 2003. It
replaced the retainer payment, meeting fees and stock option grants with a
combination of cash and deferred stock units having a value of $250,000, which
is comparable to the director compensation in 2002.
Compensation. In 2002, non-employee directors were paid an annual retainer of $75,000 plus a
fee of $2,000 for each board meeting and for each board committee meeting
attended. Half of any portion of the annual retainer that a director had not
elected to defer was paid in GE stock. Directors could elect to defer all or a
portion of the annual retainer and fees. At the director’s option, his or
her account was credited with units accounted for as GE stock or the dollar
amount of the deferral. Accounts were also credited with common stock dividend
equivalents or interest equivalents based on the yield for long-term U.S.
government bonds. Participants will receive payments from their account in
cash, in either a lump sum or annual installments, after termination of board
service. Non-employee directors were also paid a travel allowance for
attendance at board meetings.
To further align the non-employee directors’ interests with the interests of the shareowners,
the shareowners approved the 1996 Stock Option Plan for Non-Employee Directors
in that year. The plan automatically provided yearly grants of options from
1997 through 2003 (with each grant becoming exercisable in four equal annual
installments) to each non-employee director who was serving on the board at the
time of such grant. Each annual grant was priced on the last trading day of
January and permits the holder to purchase from GE up to 18,000 shares of
GE’s common stock at the fair market value of such shares on the date the
option was granted. Under the terms of the plan, a grant was made on January
31, 2002, at an exercise price of $37.15 per share. The options expire ten
years after the date they were granted or at such earlier date as may be
provided by the plan upon retirement, disability, death or other termination of
service. In December 2002, each annual option grant from 1997 through 2002 had
an estimated Black-Scholes value of about $168,000.
Retirement. In 2001, the board of directors replaced the non-employee directors’
retirement program with a contingent stock unit award for directors who joined
the board after the 2001 Annual Meeting. All non-employee directors elected to
the board at the 2001 Annual Meeting were grandfathered under the old program
so that, if they retired directly from the board at age 65 or older after at
least five years of service, they could elect to receive either: (1) an annual
retirement benefit for the lives of the director and eligible surviving spouse
in the amount of the retainer fee in effect at retirement; or (2) a life
insurance benefit in the amount of $450,000. All non-employee directors who
were initially elected to the board after the 2001 Annual Meeting received a
one-time contingent award of 5,000 GE restricted stock units, to be accounted
for as GE stock including dividends, payable only if the director retires from
the board at age 65 or older and after at least five years of service on the
board.
Charitable Award. As part of our overall support for charitable institutions, and in order to
preserve our ability to attract directors with outstanding experience and
ability, GE maintains a plan that permits each director to recommend up to five
charitable organizations that would share in a $1 million contribution to be
made by the company upon the director’s retirement or death. The directors
do not receive any financial benefit from this program since the charitable
deductions accrue solely to the company. The overall program does not result in
a material cost to the company.
Matching Gifts. To further GE’s support for charities, non-employee directors are able to
participate in GE’s educational and more gifts-more givers programs on
the same terms as GE’s senior officers. Under those programs, GE will
match up to $100,000 a year in contributions by the director to an institution
of higher education or other charity approved by the GE Fund.
Insurance. GE has provided liability insurance for its directors and officers since 1968. ACE
Insurance, XL Insurance and Berkshire Hathaway are the principal underwriters
of the current coverage, which extends until June 11, 2003. The annual cost of
this coverage is approximately $22.1 million. GE also provided each
non-employee director with group life and accidental death insurance in the
aggregate amount of $150,000.
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Non-employee Directors Compensation and Benefit Program in 2003
In December 2002, the
nominating and corporate governance committee recommended, and the board
approved, an entirely new compensation and benefit program for non-employee
directors, which became effective January 1, 2003. In developing its
recommendations, the committee was guided by the following goals: compensation
should fairly pay directors for work required in a company of GE’s size
and scope; compensation should align directors’ interests with the long-term
interests of shareowners; and the structure of the compensation should be
simple, transparent and easy for shareowners to understand.
Compensation.
Under the new program, annual compensation of $250,000 will be paid to each
non-employee director in four installments following the end of each quarter of
service, 40% (or $100,000) in cash and 60% (or $150,000) in deferred stock
units (DSUs). This will replace, and be comparable in value to, the old program
of a $75,000 annual retainer, $2,000 fee for each board and committee meeting
attended, and an annual grant of 18,000 stock options, which had an estimated
value of about $168,000 when the board approved the new program. The board
abolished meeting fees because attendance is expected at all scheduled board
and committee meetings, absent exceptional cause. Each DSU will be equal in
value to a share of GE stock, but will not have voting rights. DSUs will
accumulate regular quarterly dividends which shall be reinvested in additional
DSUs. The DSUs will be paid out in cash to non-employee directors beginning one
year after they leave the board. Directors may elect to take their DSU payments
as a lump sum or in equal payments spread out for up to ten years.
Additional compensation, equal to 10% of the $250,000 annual compensation, will be paid to
directors serving on the audit committee or the management development and
compensation committee. Directors serving on both committees will receive
additional compensation equal to 20% of annual compensation. These additional payments
of $25,000 for service on each committee are due to the workload and
broad-based responsibilities of these two committees. These additional payments
will be made in the same 40%-60% proportion between cash and DSUs, and will be
payable in the same manner as the annual compensation. If they wish,
non-employee directors may defer some or all of their cash payments in DSUs.
Stock Options.
Although the board considers stock options to be one extremely important
element of incentive and retention compensation for senior executives and other
key employees as part of a multi-faceted, multi-purpose approach to employee
compensation, the board has determined not to recommend renewal of a stock
option plan for non-employee directors to simplify directors’ compensation
and because DSUs more closely align the directors’ interests with the
long-term interests of shareowners. Also, in view of the new compensation
program discussed above, the non-employee directors waived their right to
receive a final grant under the old plan that would otherwise have been made on
January 31, 2003. The board also determined that options that were previously granted to non-employee directors and that
are still outstanding will be subject to the same holding period requirements
as options held by senior executives. Specifically, like the employee directors
and other senior executives, the non-employee directors will be required to
hold for at least one year the net shares obtained from exercising stock
options after selling sufficient shares to cover the exercise price and taxes.
Retirement Program.
As previously noted, the non-employee directors’ retirement program was
terminated prospectively by the board in 2001. Effective January 1, 2003, the
board also terminated the plan retroactively by replacing the grandfathered
actuarial values that directors have under the program with DSUs having an
equivalent value. The board did this to remove any possibility that a
director’s conduct could appear to be influenced by a personal interest in
remaining a director until retirement in order to qualify for retirement
payments. Like the DSUs the directors receive as part of their annual
compensation, these DSUs precisely track performance of GE stock, will
accumulate dividends and will be payable beginning one year after the director
leaves the board. The actuarial value of the grandfathered pension rights, as
determined by an independent actuary, that were replaced with DSUs for the
directors who had such rights, were: Cash ($167,955); Fudge ($147,095);
Gonzalez ($506,341); Jung ($71,859); Langone ($424,331); Lazarus ($177,498);
Nunn ($313,769); Penske ($446,817); Sigler ($578,360); and Warner ($178,056).
For the same reason, the 5,000 restricted stock units granted to Messrs.
Lafley, Larsen and Swieringa when they joined the board in 2002 have been
converted to DSUs payable beginning one year after they leave the board.
Matching Gift and Charitable Award Programs. The non-employee directors will continue to be
eligible to participate in the matching gift and charitable award programs
described above. However, to avoid any appearance that a director might be
influenced by the prospect of receiving this benefit at retirement, the
charitable award program was modified so that the award vests upon the
commencement of board service and is no longer payable only upon a
director’s retirement or death, but rather upon termination of service.
Insurance. GE continues to provide liability insurance for its
directors, as described above, but no longer offers life and accidental death
insurance to them.
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Certain Relationships and Related Transactions
This section discusses
certain direct and indirect relationships and transactions involving the
company and any director or executive officer. Given our size and diversity,
the company has business relationships with many leading business and
professional entities, and many of the most qualified candidates for the board
often are associated with such entities. GE had established relationships with
most of the entities noted below before the related director joined the board.
Last year, the board adopted governance principles for determining whether a
director would qualify as an independent director under the new, more
restrictive rules proposed by the New York Stock Exchange. In accordance with
those principles, which are set forth in section 4 of Appendix A at page 56 (Corporate Governance Principles),
the board has determined that 11 of the 13 non-employee directors are
independent directors. The board also determined that, in view of the relationships
described below, Messrs. Nunn and Penske do not qualify as independent
directors, but make extremely valuable contributions to the board and to the
company by reason of their experience and wisdom.
Mr. Penske has an
indirect financial interest in Penske Truck Leasing Co., L.P., a limited
partnership formed in 1988 between a subsidiary of Penske Corporation and a
subsidiary of GE Capital Corporation (GE Capital) in order to operate a truck
leasing and rental business. In connection with a 1996 restructuring that
increased GE Capital’s interest in the partnership from 50% to 79%, the
Penske Corporation subsidiary will receive annual payments, declining from
$11.3 million to $9.3 million over a ten-year period, with the majority of such
payments contingent upon the partnership achieving certain revenue thresholds.
GE Capital also extends acquisition and working capital loans and guarantees to
the partnership, which totaled about $4.4 billion at the end of 2002. GE
Capital provides this funding on the same terms as those extended to its
operating subsidiaries.
Mr. Penske also has a
direct financial interest in and controls Penske Capital Partners, LLC, which
in 1997 entered into an investment agreement with GE Capital’s equity
business and other investors. The agreement permitted GE Capital to invest up
to $100 million of equity in transactions involving selected
transportation-related companies in return for its agreement to pay Penske
Capital Partners an annual fee of up to $1.5 million for evaluating and, as
appropriate, managing such investments. GE Capital also agreed that, after it
recovered its investments and received a preferred return on any such
investments, Penske Capital Partners would then receive a 20% interest in the
remaining profits from the GE Capital investments. During the term of this
agreement, which expired in 2000, GE Capital invested a total of about $18
million in three transactions. The agreement was replaced by a revised
investment agreement among the same investors which permits GE Capital to
invest up to $67 million in return for its agreement to pay Penske Capital
Partners an annual fee of up to $1 million. The term of the revised agreement
was originally three years with annual termination options. All other
significant terms remained the same. The revised agreement was terminated by
the parties in June 2002. GE Capital invested $15 million in one equity
transaction pursuant to the revised agreement prior to its termination.
GE’s commercial finance business anticipates entering into a similar
investment agreement with Penske Capital Partners, LLC.
GE has, for a number
of years, used the services of the law firm of King & Spalding, in which
Mr. Nunn is a partner, for a variety of matters. In the past, GE obtained
brokerage services from Invemed Associates, LLC, of which Mr. Langone is
chairman, president and chief executive officer and in which he holds a
controlling ownership interest. GE and Invemed terminated this relationship in
2002 so that Mr. Langone would qualify as an independent director under the
more restrictive rules proposed by the New York Stock Exchange. GE and its
subsidiaries also have purchase, lease, finance, insurance and other
transactions and relationships in the normal course of business with companies
and organizations with which our directors are associated, but which are not
sufficiently significant to be reportable. Mr. Wright’s son-in-law is
employed by a GE subsidiary, where his compensation exceeds $60,000 annually.
The company believes that all of these transactions and relationships during
2002 were on terms that were reasonable and in the best interest of the
Company.
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