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 GE.com - 2003 Annual Report |
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  Related ContentDownload Adobe® Reader®  Downloads2004 Proxy Statement (714K PDF) |
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 Introduction. United States tax laws generally do not allow public companies to obtain tax deductions for compensation greater than $1 million paid in any year to any of their five most highly paid executive officers unless such payments are “performance-based” and the material terms of the performance goals have been approved by the shareowners every five years. In 2002, in order to allow GE to obtain tax deductions for bonuses, restricted stock units and long-term performance awards granted to executive officers, the shareowners approved a framework within which the management development and compensation committee (“committee”) could establish performance goals for those awards. At that time, the framework permitted the committee to develop performance goals using one or more of the following measurements: earnings per share, return on total capital, cash flow and operating margin rate. Last year, the committee determined that revenue growth rate would also be an important measurement to use in establishing performance goals for long-term performance awards. Accordingly, this proposal requests shareowner approval to add revenue growth rate to the measurements that may be used by the committee in setting financial performance goals for long-term performance awards made to the company’s executive officers under the 1990 GE Long-Term Incentive Plan (“1990 Plan”), which would apply to awards made in 2003 and to any other long-term performance awards granted before the 2007 Annual Meeting. To place this proposal in context, we describe the overall framework for shareowner-approved performance goals and their application to long-term performance awards under the 1990 Plan. We also summarize the key terms of these awards and the material features of the 1990 Plan under which these awards are granted. Material Terms of the Performance Goals. The material terms of the performance goals which shareowners must approve in order to permit the company to obtain tax deductions for performance-based compensation are: (1) the group of employees whose compensation would be subject to the performance goals, which is described in the next paragraph; (2) the business measurements on which each of the performance goals is based, which are described in the second paragraph below; (3) the maximum amounts payable to any executive officer under each performance goal, which are described in the third paragraph below. The group of employees whose compensation is subject to the performance goals approved by the shareowners in 2002 is all of the company’s “executive officers,” as defined in SEC rules. Currently, the company has 30 executive officers, who are listed annually in our Form 10-K filed with the SEC. Although the tax laws limit deductibility only for compensation paid to the five most highly paid executive officers, the performance goals will be applied to all executive officers in the event that one or more of them should become one of these five officers during the five-year period covered by this proposal. The performance goals approved by the shareowners in 2002 for executive officers in corporate headquarters positions are based upon one or more of the following business measurements: earnings per share, return on total capital, cash flow and operating margin rate. The shareowner-approved performance goals for executive officers assigned to specific business units other than GE Capital Services are based on the earnings growth, operating margin rate, working capital turnover, and inventory or receivable turnover of that unit for the performance period, or a combination of those measurements. The shareowner-approved performance goals for executive officers assigned to GE Capital Services are based upon that unit’s return on equity and net earnings growth during the period. If approved by the shareowners, this proposal would add revenue growth rate as a business measurement upon which performance goals could be established for long-term performance awards made to all executive officers. Also, all of the measurements described above would be subject to adjustment by the committee to remove the effect of unusual events. The maximum fair market value of payments to any executive officer under long-term performance awards granted under the 1990 Plan cannot exceed one-tenth of one percent of the company’s aggregate adjusted net earnings during the performance period. This proposal does not limit the company’s right to award or pay other forms of compensation (including, but not limited to, salary or other stock-based awards under the 1990 Plan) to the company’s executive officers, regardless of whether or not the performance goals for annual bonuses, RSUs or long-term performance awards are achieved in any future year, and whether or not payment of such other forms of compensation would be tax deductible. Long-Term Performance Awards Under the 1990 Plan. Long-term performance awards under the 1990 Plan are determined by the committee and payable to the executive officer upon achievement of specified performance goals during a specified performance period of greater than one year. After the end of a performance period, the committee will determine whether the executive officer is entitled to payment of his or her performance award and if so, whether that payment will be paid in cash, shares of stock or stock units, and whether such stock units would be payable in cash or stock. The committee may also permit the executive officer to elect the form of payment for all or a portion of the award. The amount payable for long-term performance awards that may be granted under the 1990 Plan if this proposal is approved cannot presently be determined. In February 2003, the committee granted long-term performance awards to select executives for the 2003-2005 period. These awards will be payable only if the company achieves, on an overall basis for the 2003-2005 period, specified goals based on one or more of the following four measurements: (1) average earnings per share growth rate; (2) average revenue growth rate; (3) average return on total capital; and (4) cumulative cash generated. These measurements can be adjusted by the committee to remove the effects of unusual events and the effect of pensions on income. The awards will be subject to forfeiture if the executive’s employment terminates for any reason other than disability, death or retirement before December 31, 2005. As stated in last year’s proxy statement, the use of average revenue growth rate as one of the measurements is contingent on the shareowners’ approval of this proposal. Material Features of the 1990 Plan. The 1990 Plan authorizes the granting of various awards until May 1, 2007 to the approximately 191,000 salaried employees of the company and its subsidiaries and any affiliates in which the company has a significant equity interest. The 1990 Plan permits the granting of: (1) stock options, including incentive stock options entitling the optionee to favorable tax treatment under Sections 421 and 422 of the Internal Revenue Code of 1986 (ISOs), (2) stock appreciation rights (SARs), (3) RSUs, (4) performance awards, (5) dividend equivalents (6) other awards valued in whole or in part by reference to or otherwise based on company common stock, which are called “other stock-based awards.” The general terms of stock options and SARs are described on page 21. RSUs and performance awards are generally described on pages 21 and 22. Dividend equivalents granted to participants represent a right to receive payments equivalent to dividends or interest with respect to a specified number of shares. “Other stock-based awards” are awards for which the committee establishes virtually all terms and conditions. The committee has not granted any “other stock-based awards” under the 1990 Plan. Nothing contained in the 1990 Plan prevents the company or any affiliate from adopting or continuing in effect other or additional compensation arrangements. The 1990 Plan is administered by the committee, which may select eligible employees to whom awards are granted; determine the types of awards to be granted and the number of shares covered by such awards; set the terms and conditions of such awards; and cancel, suspend and amend awards. Awards may provide that upon exercise the participant will receive cash, stock, other securities, other awards, other property or any combination thereof, as the committee shall determine. The committee’s determinations and interpretations under the 1990 Plan will be binding on all interested parties. Awards generally are granted for no cash consideration, and are generally non-transferable except upon the death of a participant. Awards, primarily stock options, have been granted to a total of approximately 36,000 current employees under the 1990 Plan. The committee has no current plan to significantly change the number of employees receiving grants under the 1990 Plan. The exercise price per share of stock purchasable under any stock option, the grant price of any SAR and the purchase price of any security which may be purchased under any other stock-based award shall not be less than 100% of the fair market value of the stock or other security on the date of the grant. However, if the committee so determines, in the case of certain awards retroactively granted in tandem with, or in substitution for, other awards under the 1990 Plan or for any outstanding awards granted under any other company plan, the exercise, grant or purchase price may be the price on the date of grant of such other awards. The board may amend, alter or discontinue the 1990 Plan at any time, including amending it in ways that might increase the cost to the company, provided that shareowner approval must generally be obtained for any amendment that would increase the number of shares available for awards or that would permit the granting of options, SARs or other stock-based awards encompassing rights to purchase shares at prices below fair market value at the time of the award. Subject to adjustment as described below, ninety-five one hundredths of one percent (0.95%) of the issued shares of the company’s common stock including treasury shares as of the first day of each calendar year (including any partial year) during which the 1990 Plan is in effect will be available for granting awards in such year. Based on the number of such shares issued on January 1, 2004, an additional 105,879,512 shares became available for awards in 2004. In the event of a stock split, stock dividend or other change in corporate structure, the committee may adjust the number and type of shares which may be made the subject of new awards or are then subject to outstanding awards and other award terms. The committee is also authorized to make adjustments in performance award criteria or in the terms and conditions of other awards in recognition of unusual or nonrecurring events affecting the company or its financial statements or of changes in applicable laws, regulations or accounting principles. The awards that may be granted under the 1990 Plan following the 2004 Annual Meeting cannot presently be determined. Amount of Securities Authorized for Issuance Under Equity Compensation Plans. The table below summarizes our equity compensation plan information as of December 31, 2003. Under a plan approved by our Board of Directors in 1997, which has not been approved by our shareowners, we grant options and RSUs in limited circumstances to consultants, advisors and independent contractors (primarily non-employee talent at NBC).
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