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 2009’s Fortune 100 and using information found in their 2009 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’s (GE-NYSE) 2009 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	All Other Compensation ($)	Total ($)
James I. Cash, Jr.	110,000	161,583	28,945	300,528
William M. Castell	100,00	146,894	580	247,474
Ann M. Fudge	50,000	173,382	38,358	261,740
Claudio X. Gonzalez	0	293,788	2,438	296,226
Susan Hockfield	100,000	146,894	11,061	257,955
Andrea Jung	110,000	161,583	49,315	320,898
Alan G. Lafley	0	244,823	53,018	297,841
Robert W. Lane	0	269,306	3,864	273,170
Ralph S. Larsen	0	269,306	53,018	322,324
Rochelle B. Lazarus	0	244,823	56,201	301,024
James J. Mulva	12,500	137,933	1,854	152,287
Sam Nunn	0	269,306	44,529	313,835
Roger S. Penske	0	244,823	580	245,403
Robert J. Swieringa	44,000	176,273	43,320	313,447
Douglas A. Warner III	120,000	176,273	11,549	307,822

Director Compensation.  General Electric’s board met twenty-two times in 2008.  All directors attended the 2008 annual meeting, and at least 68% of the board and committee meetings.  All of the non-management directors received between $152,287 and $322,324 in cash compensation, with an average of $280,798 in total compensation for their services.  Directors were allowed to participate in the Executive Products and Lighting program, which, upon a director’s request, allows a director to receive GE appliances or other products.  Both Executives and Directors had the opportunity to participate in a matching gifts program, where the company would match any charitable contributions made up to $50,000 in any calendar year.  Non-employee directors’ participation in the Executive Products and Lighting Program and the matching gifts program cost GE a total of $365,361.

Director Tenure.  The average Director has sat on the Board of GE for nine years.  Mr. Warner has the longest tenure, serving on the board since 1992.  Mr. Mulva, the most recent addition to the Board, became a director in 2008.  Mr. Immelt has presided as Chairman of the Board since 2000.  Several directors also sit on other boards.  James Cash, a director since 1997, sits on the boards of the Chubb Corporation, Microsoft Corporation, Wal-Mart Stores, Inc. and Phase Forward, Inc.  Sam Nunn, also a director since 1997, serves as a director of Chevron Corporation, the Coca-Cola Company and Dell Inc. 

CEO Compensation.  Jeffrey R. Immelt, who serves as CEO and Chairman of GE’s Board, received $14,096,603 in total compensation for 2008.  Of his total compensation, Mr. Immelt received $3,300,000 as base cash salary.  Mr. Immelt’s base cash salary has not increased since 2005.  In response to the difficult economic environment, as well as the CEO’s failure to reach specified financial targets, Mr. Immelt proposed, and the Management Development and Compensation Committee agreed, that he receive no bonus for 2008.  In addition, Mr. Immelt declined the entire $11,700,000 earned under his long-term performance award.  These approved proposals resulted in a 64% reduction in the amount of cash compensation paid to Mr. Immelt.  Mr. Immelt still received $6,860,318 in stock awards. 

GE compensated Mr. Immelt with $212,293 worth of perquisites. Mr. Immelt’s compensation included $189,449 for use of the company airplane and a combined $22,844 in reimbursement for car service fees, home security, costs related to company-sponsored events at Board meetings for the executives‘ spouses, the purchase of GE appliances or other products and his annual physical examination.

Keith S. Sherin, who serves as CFO and Vice Chairman of GE’s Board, received $13,982,589 in total compensation for 2008.  Of his total compensation, Mr. Sherin received $1,500,000 as salary.  Unlike Mr. Immelt, Mr. Sherin did receive a bonus for 2008.  His bonus, however, decreased by 15% from 2007.  For 2008, Mr. Sherin’s stock awards totaled $2,987,239, while his option awards totaled $1,597,537.  Like Mr. Immelt, Mr. Sherin received perquisites which totaled $178,522.  This total included $116,673 for use of the company airplane, $31,170 for use of leased cars, $20,575 for financial counseling and tax preparation, and $10,104 in reimbursement for car service fees, home security, costs related to company-sponsored events at Board meetings for the executives‘ spouses, the purchase of GE appliances or other products and his annual physical examination.