GE 2008 Annual Report Download - page 16

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To Our Shareowners:
The Management Development and Compensation Committee of GE’s
Board of Directors is responsible for designing and implementing
compensation programs that reward executives for leadership excellence
and sustained financial and operating performance, align their interests
with those of our shareowners, and encourage them to remain at GE
for long, productive careers. As Chairman of this Committee, I would like
to share my perspective on how GE works to ensure that its executive
compensation program properly measures and rewards the preservation
of value in this time of economic stress.
Measuring Success in Severe Economic Conditions
At GE, we believe in developing and retaining market-tested
leaders with the skills and experience needed to perform in
a broad range of economic conditions. We invest substantial time
and resources in training at all levels of the Company. We see
the greatest return on this investment in tough economic times
like these. We have a core team of leaders that is prepared to
handle the difficult conditions we face — and to protect and grow
shareowner value over the long term.
A guiding principle of our compensation program is to
ensure that we have in place the right metrics and incentives,
applied over the appropriate performance periods. We reward
consistent performance and discourage short-term-oriented
behavior that may yield a single period of good results without
regard for proper risk management or the long-term health
of the business.
The Committee uses a mix of compensation that balances
rewards for current and long-term performance. Performance
metrics include growth in earnings per share, revenue, and cash
flow. We believe this is the best way to stimulate innovation
and ensure solid execution, while guaranteeing that risks are
recognized and managed appropriately over the long term.
Although we fine-tune our compensation programs as
conditions change, we believe it is important to maintain
consistency in our compensation philosophy and approach.
We recognize that value-creating performance by an executive
or group of executives does not always translate immediately
into appreciation in GE’s stock price, particularly in periods of
severe economic stress. However, we will continue to reward
such performance based on our firm belief that, over time, true
value creation does translate into stock price appreciation.
Rewarding Effective Risk Management
A root cause of the global economic crisis was the failure of
many executives and businesses to understand and adequately
manage and price risk. At GE, we have strategies and management
processes that effectively manage risk and maximize opportunities
across our businesses. Our process includes long-term strategic
planning, executive development and evaluation, regulatory and
litigation compliance reviews, environmental compliance reviews,
GE Capital’s corporate risk function, and GE’s senior level
Corporate Risk Committee.
When the current financial crisis recedes, we expect that
managing risk will be even more important to competitive
advantage and long-term success. Our executive compensation
program is designed to reward those executives who demonstrate
an ability to assess and manage risk effectively.
Over the past year, our leaders have demonstrated the ability
to identify risks and adapt our strategies to protect the Company.
GE acted quickly to improve liquidity, raise capital, and transform
our financial businesses. We have also exited businesses with
unacceptable rates of risk-adjusted return.
We believe it is important to continue to reward those who
demonstrate this disciplined ability to protect our businesses, but
it’s only appropriate that certain components of compensation will
decline during periods of economic stress and reduced earnings.
It is in this context that we have determined 2008 incentive
compensation awards. In one of the most difficult operating
environments in memory, GE’s leadership delivered more than
$18 billion in earnings in 2008, and our industrial and financial
earnings compared very favorably to the S&P 500. This was
14 ge 2008 annual report