The Director Compensation Project: General Electric

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2010’s Fortune 500 and using information found in their 2010 proxy statements.  In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence.  While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting. 

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards.  Directors are not independent if they received over $120,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii).  This is a looser restriction than the equivalent NASDAQ Rule, 5605(a)(2), which includes all compensation.  Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.  One can see some of the effects of these rules when looking at the director compensation table from General Electric Company (NYSE: GE) 2010 proxy statement.  The proxy statement shows the directors were compensated accordingly:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
W. Goeffrey Beattie	12,500	155,643	0	0	168,143
James I. Cash, Jr.	115,000	176,858	0	61,225	353,083
William M. Castell	100,000	150,760	0	0	250,760
Ann M. Fudge	100,000	150,760	0	41,514	292,274
Claudio Gonzalez*	0	115,902	0	1,050,000	1,165,902
Susan Hockfield	100,000	150,760	0	0	250,760
Andrea Jung	110,000	165,836	0	61,945	337,781
Alan G. Lafley	0	251,267	0	50,000	301,267
Robert W. Lane	0	294,764	0	25	294,789
Ralph S. Larsen	0	276,394	0	50,105	326,499
Rochelle B. Lazarus	0	251,267	0	65,662	316,929
James J. Mulva	0	269,637	0	100,000	369,637
Sam Nunn	0	276,394	0	46,697	323,091
Roger S. Penske	0	251,267	0	50,048	301,315
Robert J. Swieringa	44,000	232,171	0	67,500	343,671
Douglas A. Warner III	120,000	180,912	0	2,333	303,245

*This represents a $1,000,000 payment by the company to the director according to the Charitable Award Program (see below).

Director Compensation.  During fiscal year 2009, General Electric held 15 Board of Directors meetings. Each director attended at least 75% of the aggregate number of meetings of the Board of Directors and meetings of the Board Committees on which he or she served.  All of the current directors attended the 2009 Annual Meeting of Shareowners, other than Mr. Beattie who was elected to the Board after the 2009 Meeting.  The current director compensation program has been in effect since 2003.  Additionally, General Electric maintains a Charitable Award Program, where upon termination of a director’s service the company makes a $1 million contribution to charitable organizations designated by the director.

Director Tenure.  In 2009, Mr. Warner held the longest tenure having been a director since 1992.  Mr. Gonzalez served as a director until April 2009 and was replaced at the Annual Meeting of Shareowners by Mr. Beattie.  Several directors also sit on other boards and hold executive positions in other companies.  Mr. Penske serves as Chairman of the Board and Chief Executive Officer of Penske Automotive Group.  Mr. Nunn is also a director of Chevron Corporation, The Coca-Cola Company, and Dell Inc.  Additionally, he is a distinguished professor at the Sam Nunn School of International Affairs at Georgia Tech.

CEO Compensation.  Jeffrey R. Immelt served as General Electric’s Chief Executive Officer during the 2009 fiscal year and earned $9,885,240 in total compensation.  Mr. Immelt’s base salary of $3,300,000 has remained the same since fiscal year 2005.  Mr. Immelt declined to be paid an annual cash bonus for 2009.  The remaining majority of Mr. Immelt’s compensation package is derived from the $4,398,085 increase in his pension value. Keith S. Sherin, Vice Chairman and Chief Financial Officer of General Electric, received $13,955,956 in total compensation in 2009.  This represents a $2,675,000 bonus and $6,876,000 in option awards.  Additionally, the remaining Vice Chairmen, Messrs. John Krenicki, Michael A. Neal, and John G. Rice were compensated $13,102,851, $15,195,888, and $15,385,754 respectively.  A majority of this compensation was derived from large Option Awards.