General Motors Co DEF 14A 2007
Documents found in this filing:
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the
Filed by the Registrant ý
GENERAL MOTORS CORPORATION
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
o Fee paid previously with preliminary materials.
o Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
April 27, 2007
You are invited to attend the annual meeting of stockholders of General Motors Corporation (“GM” or “General Motors” or the “Corporation” or “we”). It will be held at 9 a.m. local time on Tuesday, June 5, 2007, at the Hotel du Pont, 11th and Market Streets, Wilmington, Delaware. At the meeting, stockholders will vote on the following matters:
• The election of directors for the next year;
• The ratification of the selection of independent public accountants for the next year;
• The approval of the 2007 Annual Incentive Plan;
• The approval of the 2007 Long-Term Incentive Plan; and
• Ten stockholder proposals, if they are properly presented at the meeting.
If you were a holder of record of GM Common Stock, $12/3 par value (“Common Stock”), at the close of business on April 9, 2007, the record date for the annual meeting, you will be entitled to vote at the meeting. Please read the “General Information” section beginning on page 1 for further details. A list of stockholders entitled to vote at the meeting will be available for examination, for a purpose that is germane to the meeting, at General Motors Corporation, Renaissance Center, Detroit, Michigan, for ten business days before the annual meeting between 9 a.m. and 5 p.m., and at the Hotel du Pont during the meeting.
The annual meeting will include a report on the state of the business, and then focus on electing directors and voting on the selection of independent public accountants, the 2007 Annual Incentive Plan, the 2007 Long-Term Incentive Plan, and stockholder proposals, and related discussion. After that, we will provide time for business-related questions and comments. If you plan to attend the meeting, please see the instructions on page 3. A map and directions are on the back cover of this proxy statement and on the admission ticket attached to your proxy card.
In addition to the annual meeting, GM holds regional stockholder forums. Forums provide an opportunity for you to learn about General Motors and discuss related issues with GM management. Invitations will be mailed to stockholders who live in the vicinity of these meetings.
Your vote is important. Please read the attached proxy statement carefully and submit your proxy as soon as possible. You have a choice of submitting your proxy via the Internet, by telephone, or by completing and mailing the enclosed proxy card.
Table of Contents
GENERAL MOTORS CORPORATION
This proxy statement is provided in connection with the solicitation of proxies, by order of the Board of Directors (the “Board” or the “Board of Directors”) of General Motors, to be used at the 2007 annual meeting of stockholders of the Corporation. The enclosed proxy card represents your holdings of Common Stock in the registered account name shown. We expect this proxy statement and the enclosed proxy card will be mailed, or will be available through the Internet for those stockholders receiving their proxy materials electronically, on or after Friday, April 27, 2007, to each stockholder entitled to vote at the annual meeting.
In addition to this proxy statement and the proxy card, the GM 2006 Annual Report is provided in this package.
Please refer to the Glossary of Terms on page 70 for definitions of capitalized or abbreviated terms used in this proxy statement.
Stockholders Entitled to Vote
The Board of Directors designated April 9, 2007, as the record date for determining stockholders entitled to vote at the annual meeting. On that date, the Corporation had 565,738,751 shares of Common Stock outstanding and entitled to vote. Each share of Common Stock entitles the holder to one vote.
When you timely submit your proxy in the proper form, your shares will be voted according to your instructions. You may give instructions to grant or withhold authority to vote for the election of all the Board of Directors’ nominees, or any individual nominee, and to vote for or against, or abstain from voting upon, each of the other matters submitted for voting.
If you are a stockholder of record (that is, you own shares in your name in an account with GM’s stock transfer agent, Computershare Trust Company, N.A. (“Computershare”)), you can vote in any one of the following three ways:
• By Internet: Go to the Web site, www.investorvote.com/gm, as shown on your proxy card, and follow the instructions. Internet voting is available 24 hours a day, seven days a week, through the end of the annual meeting on June 5, 2007.
• By Telephone: Call the toll-free number, 800-652-8683, as shown on your proxy card. If you are outside the United States, Canada, or Puerto Rico, call 781-575-2300. Please follow the instructions on your proxy card and the voice prompts on the telephone. Telephone voting is available 24 hours a day, seven days a week, through the end of the annual meeting on June 5, 2007.
• By Mail: Mark your vote, sign your name exactly as it appears on your proxy card, date your proxy card, and return it in the enclosed envelope so that it is received by the date of the annual meeting. If you receive more than one proxy card (which means you have shares in more than one account), you must mark, sign, and date each proxy card, or alternatively vote all these shares through the Internet or by telephone. If you sign and return your proxy card and do not specify a choice, your shares will be voted as the Board of Directors has recommended, as indicated in this proxy statement.
After you have signed and returned the enclosed proxy card or voted through the Internet or by telephone, you may revoke your proxy at any time until it is voted at the annual meeting. You may do this by voting subsequently by Internet, telephone, or proxy card, by sending a written notice of revocation to the Secretary of the Corporation, or by voting in person at the annual meeting.
By giving your proxy by Internet, telephone, or mail, you will authorize the Proxy Committee to vote your shares of Common Stock as you direct and as they determine on any proposals that General Motors does not know about now but that may be presented properly at the meeting. The Proxy Committee is composed of the
following executive officers of the Corporation: G. Richard Wagoner, Jr.; Frederick A. Henderson; and Robert A. Lutz, each of whom is authorized to act on behalf of the Committee.
If your shares are held by a broker, bank, or other nominee, please use the instructions they provide for voting your shares. If you want to vote those shares in person at the annual meeting, you must bring a signed proxy from the broker, bank, or other nominee giving you the right to vote the shares. Revocation of proxies for shares held through a broker, bank, or other nominee must be made through the appropriate nominee in accordance with its instructions.
As a matter of policy, GM believes your vote should be private. Therefore, we use an independent third party to receive, inspect, count, and tabulate proxies. Representatives of the independent third party also act as judges at the annual meeting.
The presence, in person or by proxy, of holders of one-third of the outstanding shares of Common Stock entitled to vote at the annual meeting is considered a quorum for the transaction of business. Under the Bylaws of General Motors as amended in 2006, directors are elected by a majority in uncontested elections and by plurality in contested elections. A contested election is one in which the number of nominees exceeds the number of directors to be elected.
In an uncontested election, nominees will be elected directors if they receive a majority of the votes cast (i.e., the number of shares voted “for” a director must exceed the number of votes cast “against” that director, without counting abstentions).
In a contested election, the nominees who receive a plurality of the votes cast (i.e., more votes in favor of their election than other nominees) will be elected directors. For example, GM stockholders will elect 13 directors at the annual meeting, so that under plurality voting the 13 nominees who receive the most votes would be elected.
For the election of directors at GM’s 2007 Annual Meeting, we believe, based on stockholder notices we have received, it is likely there will be more nominees than the number of directors to be elected, and therefore, plurality voting will govern.
Each proposal in this proxy statement aside from the election of directors will be approved if it receives a majority of the votes present, either in person or by proxy, and entitled to vote at the meeting. If you submit your proxy or attend the meeting but choose to abstain from voting on any proposal, you will be considered present at the meeting and not voting in favor of the proposal. Since Item Nos. 2-14 will pass only if they receive favorable votes from a majority of votes present and entitled to vote at the meeting, the fact that you abstain and do not vote in favor of a proposal will have the same effect as if you had voted against the proposal. In contrast, a “broker non-vote” is deemed not entitled to vote at the meeting with regard to that proposal so that it does not have any effect on the outcome of a vote. Under New York Stock Exchange (“NYSE”) rules, if your shares are held by a broker, bank, or other nominee, your shares may be voted by such nominee on Item Nos. 1 and 2, even if you do not provide voting instructions, because they involve matters that are considered routine. Your broker, bank, or other nominee may not vote on Item Nos. 3-14 if you do not provide instructions, because they involve matters that are considered non-routine.
Voting of Stock Plans for Employees
Your proxy card will serve to instruct the trustees, plan committees, or independent fiduciaries how to vote your shares in the following employee stock plans:
• General Motors Savings-Stock Purchase Program for Salaried Employees in the United States (the “S-SPP”)
• General Motors Personal Savings Plan for Hourly-Rate Employees in the United States (the “PSP”)
• General Motors Canadian Savings-Stock Program for Salaried Employees (the “Canadian Plan”)
• General Motors of Canada Limited Group RRSP and Savings Plan for Hourly Employees (the “RRSP”)
• Fidelity Investments Canada Limited Next StepTM — Personal Retirement Group (the “FICL-PRG”)
• GMAC Insurance Personal Lines — Retirement Savings Plan (the “GMAC Insurance Plan”)
If you do not provide instructions on how to vote your shares held in the S-SPP, those shares will be voted at the discretion of the plan’s trustee. If you do not provide instructions on how to vote your shares held in the PSP, the Canadian Plan, the RRSP, the FICL-PRG, or the GMAC Insurance Plan, your shares will not be voted. To allow sufficient time for the trustees, plan committees, or independent fiduciaries to vote your shares, they must receive your voting instructions by 6 p.m. Eastern time, May 31, 2007.
Submission of Stockholder Proposals
At the annual meeting each year, the Board of Directors asks stockholders to vote on its nominees for election as directors. In addition, at each annual meeting the stockholders ratify or reject the independent public accountants selected by the Audit Committee. The Board of Directors also may submit other matters for stockholder approval at the annual meeting. In addition to these matters presented by the Board of Directors, you will be asked to vote on one or more stockholder proposals, if they are properly presented at the meeting.
The deadline for stockholders to submit a proposal for inclusion in the Corporation’s proxy statement for the 2008 annual meeting is December 29, 2007. Any proposals intended to be included in the proxy statement for the 2008 annual meeting must be received by the Corporation on or before that date. Please send proposals to the Secretary of the Corporation at the address given in “Communicating with GM” on page 4.
Attending the Annual Meeting
If you plan to attend the annual meeting, please detach and retain the admission ticket attached to your proxy card. As space is limited, you may bring only one guest to the meeting. If you hold your stock through a broker, bank, or other nominee, please bring evidence to the meeting that you owned Common Stock as of the record date, and we will provide you with an admission ticket. If you receive your annual meeting materials electronically and wish to attend the meeting, please follow the instructions provided on-line for attendance. A form of government-issued photograph identification will be required to enter the meeting. To permit as many stockholders as possible to participate, only stockholders or their valid proxy holders may speak at the meeting. Large bags, packages, briefcases, cameras, recording equipment, and other electronic devices will not be permitted in the meeting, and attendees will be subject to security inspections. A map with driving directions appears on the back cover of this proxy statement and on the admission ticket.
Householding of Annual Meeting Materials
The U.S. Securities and Exchange Commission (the “SEC”) permits publicly held corporations to send a single copy of their annual report and proxy statement to any household at which two or more stockholders reside if it appears such stockholders are members of the same family. Each stockholder will continue to receive a separate proxy card. This procedure, referred to as householding, is intended to reduce the volume of duplicate information stockholders receive and also to reduce expenses for corporations. General Motors has instituted this procedure for all stockholders of record.
If one set of these documents was sent to your household for the use of all GM stockholders in your household, and one or more of you would prefer to receive your own set, please contact our stock transfer agent, Computershare, by telephone at 800-331-9922 (if calling from outside the United States, Canada, or Puerto Rico, call 781-575-3990), or by mail at P.O. Box 43078, Providence, RI 02940-3078.
If a broker, bank, or other nominee holds your GM shares, please contact your broker, bank, or other nominee directly if you have questions about delivery of materials, require additional copies of the proxy statement or annual report, or wish to receive multiple copies of reports by stating that you do not consent to householding.
Electronic Delivery of Annual Meeting Materials
You can save the Corporation postage and printing expenses by consenting to receive your GM annual report and proxy materials via the Internet. At your request, you will receive an e-mail notification when these documents are available electronically through the Internet. Stockholders of record (those who own shares in their own name in an account with Computershare) may sign up for this service at www.computershare.com/gm. Beneficial stockholders (those who own shares through a broker, bank, or other nominee) may sign up at www.icsdelivery.com/gm if their broker, bank, or other nominee is among the majority that participate in electronic delivery.
Materials for Beneficial Owners
Brokers, dealers, banks, voting trustees, and other nominees who want a supply of the Corporation’s proxy soliciting materials to send to beneficial owners should write to Morrow & Co., Inc., Attn: GM Fulfillment, 470 West Avenue, 3rd Floor, Stamford, CT 06902.
Expenses of Solicitation
The Corporation will pay its cost for soliciting proxies for the 2007 Annual Meeting. General Motors will distribute proxy materials and follow-up reminders by mail and electronic means, and some of the directors, officers, and employees of GM, and the outside proxy solicitor of GM, Morrow & Co., Inc. (“Morrow”), will also solicit proxies. Under the Corporation’s current plan for soliciting by GM personnel, a small number of regular salaried employees will make personal visits and telephonic contact with representatives of some institutional stockholders and stockholder advisory firms to solicit support for the Board’s position on all matters to be voted on at the Annual Meeting. The soliciting efforts of these people are not expected to take a significant portion of their time, and they will not receive any additional compensation for their services.
GM will pay Morrow an aggregate fee, including reasonable out-of-pocket expenses, of between $50,000 and $100,000, depending on the level of services actually provided. Morrow may use approximately 10-20 employees to contact stockholders to remind them of the importance of their vote. As usual, the Corporation will reimburse brokers, banks, and other nominees for their expenses in forwarding proxy materials to beneficial owners.
Communicating with GM
To obtain a copy of the following documents, write to the Secretary of the Corporation at General Motors Corporation, Mail Code 482-C38-B71, 300 Renaissance Center, P.O. Box 300, Detroit, MI 48265-3000, or consult GM’s Web site at http://investor.gm.com, under “Corporate Governance.”
• Restated Certificate of Incorporation
• Corporate Governance Guidelines
• Board Committee Charters
• Winning With Integrity: Our Values and Guidelines for Employee Conduct
• Executive Officer Severance Policy
• Insider Trading Policy
• Incentive Compensation Recoupment Policy
• Policy on Stockholder Rights Plan
• Policy on Corporate Political Contributions and Expenditures
• Other Board policies that may be adopted from time to time
To write the Secretary, the Board of Directors, or the Audit Committee, send your correspondence to the Secretary of the Corporation by mail to the address above or by fax to 313-667-3166.
GM Corporate Governance
Corporate Governance Guidelines
The Board believes that a strong commitment to maintaining best practices in GM’s corporate governance enhances the Board’s ability to optimize long-term stockholder value. To that end, the Board maintains corporate governance guidelines and related policies that it believes enable it to most effectively discharge its responsibility to provide oversight and direction to the conduct of the Corporation’s business.
These corporate governance guidelines and policies, which are adopted by the Board with periodic recommendations from the Directors and Corporate Governance Committee, cover, among other things:
• Board membership criteria and a process for the selection of new directors
• Requirement that each incumbent director submit a written irrevocable resignation when nominated for reelection, which would become effective if, in an uncontested election, the director fails to receive a majority of the votes cast, excluding abstentions, and the Board accepts that resignation
• Orientation for new directors and continuing education for all directors
• Requirement that a substantial majority of directors be independent
• Limitation on the number of outside board memberships that can be held by any director
• Mandatory retirement for directors at age 72
• Prohibition against personal loans from the Corporation and its subsidiaries to directors and executive officers that would violate the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”)
• Requirement that non-management directors own stock and/or deferred share units equal in value to five times their annual retainer
• Requirements for regular and special executive sessions of the Board
• Role and responsibilities of the presiding director
• Access by the Board and each of its Committees to independent advisors at the Corporation’s expense
• Participation by all the directors in annual self-evaluations of the Board and each of its Committees
• Directors’ obligations to comply with the Corporation’s policies regarding ethics and conflicts of interest
• Confidentiality of Board materials, deliberations, and actions
• Directors’ unrestricted access to GM management
• Annual evaluation of the Chairman and Chief Executive Officer (“CEO”) by the Board
• Board process for overseeing succession planning for management
The Directors and Corporate Governance Committee regularly reviews information concerning the corporate governance guidelines and related policies adopted by other major public corporations as well as the views of various groups active in the field of corporate governance regarding such guidelines and policies. This benchmark information is provided to assist in the review and updating of GM’s guidelines and policies. The Committee also oversees the Corporation’s ongoing compliance with the rules and regulations of corporate regulators and overseers such as the SEC and NYSE. To obtain a copy of GM’s Corporate Governance Guidelines, see “Communicating with GM” on page 4.
Selection of Nominees for Election to the Board
The Directors and Corporate Governance Committee is responsible for identifying potential candidates for Board membership and making its recommendations to the full Board. In assessing potential candidates, the Committee seeks to consider individuals with a broad range of business experience and diverse backgrounds. The selection of qualified directors is complex and crucial to our long-term success. Potential candidates for election to the Board are evaluated based upon criteria such as:
• The nature and depth of their experience in business, government, non-profit organizations, and whether they are likely to be able to make a meaningful and constructive contribution to the Board’s discussion and decision making concerning the broad array of complex issues facing the Corporation;
• Their demonstrated commitment to the highest ethical standards and the values of the Corporation;
• Their special skills, judgment, expertise, and experience that would complement or expand that of the existing directors in monitoring the strategic direction of the Corporation;
• Their ability to take into account and balance the legitimate interests and concerns of all our stockholders and other stakeholders effectively, consistently, and appropriately in reaching decisions; and
• Their global business and social perspective, personal integrity, and sound judgment.
In addition, directors must have time available to devote to Board activities and to enhance their knowledge of General Motors and the global automotive industry. To assist in the identification and evaluation of qualified director candidates, the Committee, on occasion, has engaged search firms that specialize in providing services for the identification and evaluation of candidates for election to corporate boards. The two most recent nominees were suggested by a variety of sources.
The Directors and Corporate Governance Committee will consider persons recommended by stockholders for election to the Board. To recommend an individual for Board membership, write to the Secretary of the Corporation at the address given on page 4 in “Communicating with GM.” The Committee uses the same criteria for evaluating candidates proposed by stockholders, members of the Board, and members of our senior management. In particular, the Committee will review the qualifications and background of each recommended candidate in light of the selection criteria listed above and will communicate its decision to the candidate or the person who makes the recommendation.
If you intend to nominate a candidate for director at the annual meeting or to introduce any other matter (aside from a stockholder proposal under Rule 14a-8 of the SEC’s proxy rules, which is discussed on page 3), you must give the Corporation written notice, as required in Section 1.11 of GM’s Bylaws. The Secretary must receive
such notice not more than 180 days and not less than 120 days before the date of the annual meeting. For the 2008 annual meeting, such notice must be received between December 6, 2007, and February 4, 2008.
If the number of candidates nominated is greater than the number of directors to be elected, GM’s Bylaws provide that the election will be determined by plurality voting rather than majority voting.
Each year, prior to the annual meeting of stockholders of the Corporation, the Directors and Corporate Governance Committee recommends the individuals it believes should be nominated to serve on the Board for the next year, consistent with the Corporation’s Bylaws, Corporate Governance Guidelines, and related policies. If the Board approves, information about these nominees is included in the proxy statement that GM distributes to its stockholders before the annual meeting to solicit their proxies. If all the Board’s nominees are elected at the 2007 annual meeting, the Board will be composed of a substantial majority of independent directors, because all directors would be independent, except for Mr. Wagoner, Chairman and CEO of the Corporation. To qualify as independent under the Bylaws, a director must satisfy all the independence standards established by the SEC and by the NYSE.
The Board of Directors is currently composed of 11 members. In 2006, the full Board held a total of 17 meetings and average attendance at Board and Committee meetings was 94 percent. Each director attended more than 75 percent of the aggregate of all meetings of the Board of Directors and the Committees on which he or she served during 2006. Directors are expected to attend our annual meeting of stockholders, which is held in conjunction with a regularly scheduled Board meeting. In 2006, 12 directors — all of the current members of the Board and a director who resigned in October 2006 — attended the annual meeting of stockholders.
Size of the Board
The Board of Directors currently has 11 members. The Bylaws state that the number of directors is determined by resolution of the Board, provided that the Board cannot establish a number of directors outside the range of 3 to 17 without first obtaining stockholder consent. The Board’s size is reassessed at least annually by the Directors and Corporate Governance Committee to determine if a different number would be more effective. If any nominee is unable to serve as a director or if any directors leave the Board between annual meetings of stockholders, the Board, by resolution, may reduce the number of directors or elect individuals to fill the vacancies.
Voting Standards for the Election of Directors
In October 2006, the Board amended GM’s Bylaws and corporate governance policies to provide that, in uncontested elections (i.e., those where the number of nominees is the same as the number of directors to be elected), directors are elected by a majority of the votes cast. The Bylaws further provide that before any incumbent director may be nominated by the Board for reelection to the Board, he or she must submit a written irrevocable resignation, which would become effective if (i) the director does not receive more than 50 percent of the votes cast, and (ii) the Board accepts that resignation in accordance with policies and procedures adopted by the Board for such purposes. In contested elections, the plurality voting standard governs the election of directors. Under the plurality standard, the number of persons equal to the number of vacancies to be filled who receive more votes than other nominees are elected to the Board, regardless of whether they receive a majority of votes cast.
Within 90 days after receipt of the certified final vote for the election of directors in which one or more incumbent directors did not receive a majority of the votes cast, the Directors and Corporate Governance Committee and the Board will consider his or her tendered resignation in light of the best interests of GM and its stockholders. In determining whether to accept or reject the resignation, or whether other action should be taken to select a substitute to serve as a director in place of an unsuccessful incumbent, the Committee and the Board may consider any factors they determine appropriate and relevant, but, in any event, will accept the resignation of an unsuccessful incumbent absent a compelling reason to reject the resignation. Compelling reasons for rejecting a resignation might include, among other things:
• Alternatives for addressing or resolving the stated or apparent reasons for the votes against the director;
• Whether the loss of the director would: 1) eliminate a financial expert from the Audit Committee; 2) cause the Board to have less than a majority of independent directors; 3) cause GM to fail to satisfy the listing requirements of the NYSE; 4) result in a default or breach under any loan covenants; or 5) trigger a significant payment under an executive employment contract or other contract.
While the Directors and Corporate Governance Committee is considering whether to recommend that the Board accept a director’s resignation under the circumstances described above, and while the Board itself is deliberating and acting upon the recommendation of that Committee, the Board expects an unsuccessful incumbent to voluntarily recuse himself or herself from participation in those discussions and decisions, except in limited circumstances.
Within four business days following acceptance or rejection of the resignation, following the process described above, the Corporation will file a report with the SEC on Form 8-K setting forth its decision and a reasonably detailed explanation of the rationale relied upon by the Board in making that decision.
If all incumbent directors who are Board nominees fail to receive a vote of at least 50 percent of the votes cast in an election of directors at an annual or special meeting of stockholders (or solicitation of written consent of stockholders) in which the majority voting standard applies, the incumbent Board will nominate a new slate of directors and call and hold a special meeting within 180 days after the certification of the stockholder vote for the purpose of electing a Board of Directors. In such circumstances, the incumbent Board will continue to serve until new directors are elected and qualified by the special election.
The Directors and Corporate Governance Committee assesses the independence of each director and individual nominated for election to the Board and makes recommendations to the Board as to his or her independence using the criteria in the Board’s Corporate Governance Guidelines. The Corporate Governance Guidelines (which incorporate by reference the criteria of the SEC and NYSE) provide that an independent director of the Corporation must satisfy all of the following criteria:
• During the past three years, the Corporation has not employed the director and has not employed any of his or her immediate family members (except in a non-executive capacity).
• During the past three years, neither the director nor any of his or her immediate family members has received any direct compensation from the Corporation other than director fees or deferred compensation.
• Neither the director nor any of his or her immediate family members is currently employed by (or affiliated with) the Corporation’s auditors; and during the past three years, neither the director nor any of his or her immediate family members has been employed by (or affiliated with) the Corporation’s auditors and personally worked on the Corporation’s audit.
• During the past three years, neither the director nor any of his or her immediate family members has been part of an “interlocking directorate” in which an executive officer of the Corporation serves on the compensation (or equivalent) committee of another company that employs the director.
• During the past three years, neither the director nor any of his or her immediate family members has been employed (except in a non-executive capacity) by a significant supplier or customer of the Corporation or any affiliate of such supplier or customer. For the purposes of this standard, a supplier or customer is considered significant if its sales to, or purchases from, the Corporation represent the greater of $1 million or 2 percent of the Corporation’s or the supplier’s or customer’s consolidated gross revenues.
In addition to satisfying all of the foregoing requirements, a director or nominee may not be considered independent if he or she has, in the judgment of the Board, any other “material” relationship with the Corporation, other than serving as a director.
Consistent with the standards described above, the Board has reviewed all relationships between the Corporation and the members of the Board and affirmatively has determined that all of the directors are independent other than Mr. Wagoner, according to GM’s Corporate Governance Guidelines based on the underlying standards of the SEC and the NYSE.
The following chart lists the relationships that exist between GM and organizations affiliated with each non-employee member of the Board during 2006. (Some of these relationships are not reflected in the directors’ biographies that follow.) It also describes the basis for the Board’s determination that the director is independent because the relationships are not material. Information about the nominees, Mr. Davis and Ms. Marinello, refers to 2006 only.
Key to Chart:
A — For the years 2004, 2005, and 2006, sales and purchases between the organization affiliated with the director and GM (i) did not exceed the greater of (a) $1 million or (b) 2 percent of the organization’s consolidated
annual gross revenues if the director is employed by the organization or 5 percent if the organization’s consolidated annual gross revenues if the director only serves on the organization’s board of directors; and (ii) were not otherwise of an amount or nature to impede the exercise of the director’s independent judgment.
B — For the years 2004, 2005, and 2006, contributions by GM (including the GM Foundation) to the charitable organization (i) did not exceed the greater of $1 million or 2 percent of the charitable annual total revenues including contributions; and (ii) were not otherwise of an amount or nature to impede the exercise of the director’s independent judgment.
In each case, GM business or contribution to the entity associated with each director is not of such a magnitude to classify any of them as significant suppliers or customers of GM.
The Board of Directors annually elects the presiding director of the full Board. The presiding director is currently George M.C. Fisher, who also serves as the Chair of the Directors and Corporate Governance Committee. In addition to serving as the Chair of the executive sessions of the non-management directors, the presiding director is also responsible for advising the Chairman and CEO of decisions reached, and suggestions made, at all such executive sessions. Agendas for Board meetings are established by the Chairman with input from the Board and are reviewed and approved by the presiding director. The presiding director also reviews and approves matters such as the agenda for executive sessions, the information sent to the Board, and meeting schedules, including frequency and allocation of time within the agenda. Additional functions include: calling meetings of the non-management directors; serving as liaison between the Chairman and CEO and the non-management directors (although all non-management directors are encouraged to freely communicate with the Chairman and CEO at any time); assisting the Chairman and CEO in the recruitment and orientation of new directors; presiding at meetings of the Board when the Chairman is not present; and assuming such additional responsibilities as may be determined by the non-management directors. Finally, if requested by major stockholders, the presiding director is available for consultation and direct communication.
The non-management directors meet in regularly scheduled executive sessions without management present at least three times each year and, in practice, much more frequently. In general, time is reserved following each regularly scheduled Board meeting should the non-management directors wish to meet in executive session. The non-management directors of the Board met in executive session nine times in 2006.
During the course of these sessions, the non-management directors review CEO performance, compensation, and succession planning; future Board agendas and the flow of information to directors; the Board’s corporate governance matters; and any matters of importance to the Corporation or other issues raised by the independent directors.
Stockholder Communication to the Presiding Director or Non-Management Directors
Stockholders wishing to communicate with the presiding director or with the non-management directors as a group may send a letter by regular or express mail addressed to the Secretary, General Motors Corporation, Mail Code 482-C38-B71, 300 Renaissance Center, P.O. Box 33118, Detroit, MI 48233-5118, Attention: Presiding Director or Non-Management Directors. All correspondence sent to that address will be delivered to those directors on a quarterly basis, unless management determines in an individual case that it should be sent more promptly. All correspondence to directors will be acknowledged by the Secretary and may also be forwarded within GM to the subject matter expert for review.
Ethics and Conflicts of Interest
The Board expects all directors, as well as officers and employees, to act ethically at all times and to adhere to our policies set forth in “Winning With Integrity: Our Values and Guidelines for Employee Conduct.” These guidelines are available on the Internet at http://investor.gm.com. Stockholders and all others wishing to obtain a copy should refer to “Communicating with GM” on page 4.
The Board will not grant or permit any waiver of GM’s ethics policy for any director or executive officer. If an actual or potential conflict of interest arises for a director, the director is expected to promptly inform the Chairman and CEO and the presiding director. If a significant conflict exists that cannot be resolved, the director is expected to resign. All directors must recuse themselves from any discussion or decision affecting their business or personal interests.
Directors, like all employees, are required to maintain the confidentiality of information entrusted to them by GM or any other confidential information about GM that they receive from any source in their capacity as a director, except when disclosure is legally required or specifically authorized by the Board of Directors. Directors are expected to take all appropriate steps to minimize the risk of disclosure of confidential communications coming to them from GM as well as confidential discussions and decisions by or among directors and by or among the directors and management. All discussions occurring at Board or Committee meetings are deemed confidential, except to the extent that disclosure may be legally required. Directors may not use confidential information for their own personal benefit or for the benefit of persons or entities outside the Corporation or in violation of any law or regulation including insider trading laws and regulations. These responsibilities with regard to confidential information apply to directors during and after their service on the Board. For purposes of this policy, “confidential information” is all non-public information relating to GM including, but not limited to, information that could be useful to competitors or otherwise harmful to GM’s interests or objectives if disclosed.
Director Orientation and Continuing Education
The Board and management, on the recommendation of the Directors and Corporate Governance Committee, are responsible for providing an orientation for new directors and for periodically advising all directors on subjects that would assist them in discharging their duties. Each new director goes through a comprehensive orientation process to become familiar with GM’s business plans, financial matters, strategies, challenges, vision, core values and ethics, corporate governance practices, and other key policies and practices through a review of background material and meetings with senior management. In addition, directors have the opportunity to visit GM’s facilities and auto shows. All directors are encouraged to attend, at GM’s expense, director continuing education programs sponsored by educational and other institutions.
Access to Outside Advisors
At its request, the Board as well as each Committee, can retain the services of outside advisors at the Corporation’s expense.
Committees of the Board of Directors
In addition to being members of the Board, non-employee directors serve on one or more of the following Committees: Audit, Directors and Corporate Governance, Executive Compensation, Investment Funds, and Public Policy. Each Committee of the Board has adopted a written charter in compliance with the NYSE rules. See “Communicating with GM” on page 4 for information about obtaining each charter. The table below indicates the membership of each Committee:
(a) Presiding director
(b) Appointed Chair of the Investment Funds Committee on February 6, 2006
The Audit Committee met 22 times in 2006 and is composed entirely of independent directors. The function of the Committee is to assist the Board of Directors in fulfilling its oversight responsibilities with respect to the financial reports and other financial information provided by GM to the stockholders and others; GM’s system of internal controls; GM’s compliance procedures for the employee code of ethics and standards of business conduct; and GM’s audit, accounting, and financial reporting processes. It is the judgment of the Board that all members of this Committee are financially literate, and that Philip A. Laskawy, the Audit Committee Chair, satisfies the standard for “audit committee financial expert” as defined by the SEC and has accounting or related financial management expertise as required by the NYSE. Currently, Mr. Laskawy serves on the audit committees of four public companies. The Board has determined, in light of Mr. Laskawy’s depth of knowledge and experience and time available as a retiree, that this simultaneous service does not impair his ability to function as a member and the Chair of the Audit Committee. On the contrary, the Board believes this experience on a number of audit committees enhances his contribution to GM’s Audit Committee. The Audit Committee Report appears on page 46.
The Directors and Corporate Governance Committee met six times in 2006 and is composed entirely of independent directors. The Committee gives direction and oversight to the identification and evaluation of potential Board candidates and ultimately recommends candidates to be nominated for election to the Board. It periodically conducts studies of the appropriate size, composition, and compensation of the Board. The Committee is also responsible for reviewing and proposing revisions to the Board’s Corporate Governance Guidelines, Bylaws, and Delegation of Authority; recommending memberships, rotation, and Chairs for all Committees of the Board; and contributing to the process of setting the agendas for the executive sessions of the Board of Directors.
The Executive Compensation Committee met seven times in 2006. The Committee is composed entirely of independent directors. Its role is to ensure that the Corporation’s compensation policies and practices support the successful recruitment, development, and retention of executive talent. The Committee reviews and approves corporate goals and objectives related to compensation for the CEO and senior executives, including the senior leadership group of the Corporation. It also approves benefit and incentive compensation plans of the Corporation and its major subsidiaries that affect employees subject to its review. The members of the Committee are not eligible to participate in any of the compensation plans or programs it administers. More information about the Executive Compensation Committee and related topics is provided in the “Compensation Discussion and Analysis” beginning on page 21. The Executive Compensation Committee Report also appears on page 21.
The Investment Funds Committee met three times in 2006 and is composed entirely of independent directors. The Committee is responsible for assisting the Board with its general oversight responsibility for certain benefit plan-related investment funds of the Corporation and its subsidiaries, and serves as the named fiduciary of certain benefit plans of GM and a number of its subsidiaries covered by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
The Public Policy Committee met three times in 2006 and is composed entirely of independent directors. The Committee fosters GM’s commitment to operate its business worldwide in a manner consistent with the rapidly changing demands of society. Topics reviewed by this Committee include GM’s strategies and plans in the areas of advanced technology, fuel economy, environmental and energy performance, research and development, automotive safety, diversity, health care, education, communications, employee health and safety, trade, and philanthropic activities. The Committee provides public policy guidance to management to support GM’s progress in growing the business globally within the framework of GM’s core values to ensure that GM is strongly positioned to compete today and into the future.
Compensation Plan for Non-Employee Directors
The purpose of the General Motors Corporation Compensation Plan for Non-Employee Directors (the “Compensation Plan for Non-Employee Directors”) is to provide directors with fair and competitive compensation, while ensuring that their compensation is closely aligned with stockholder interests and with the performance of the Corporation. Under the Compensation Plan, directors are entitled to receive an annual retainer of $200,000. In support of the GM North America Turnaround Plan (the “GMNA Turnaround Plan”), the Board has chosen to reduce this retainer. In March 2007, the Board agreed to forgo 25 percent of the retainer, resulting in a retainer of $150,000 for 2007. (The retainer was voluntarily reduced by 50 percent in March 2006.)
Payment of the retainer is structured to afford directors an opportunity to defer GM compensation while providing them a means to increase their stock ownership. Ordinarily, non-employee directors are required to defer at least 70 percent of their annual retainer (i.e., $140,000) into share units of Common Stock and can elect to defer the remaining compensation in cash, cash-based alternatives, or share units. (Any portion of the retainer that is deferred into share units of Common Stock may also earn dividend equivalents that will be credited to each director’s account and paid when the director leaves the Board.) The 2006 reduction of the retainer to $100,000 eliminated the $60,000 portion that could be paid in cash and reduced the deferred portion by $40,000. As a result of the 2007 reduction, directors will resume the mandatory deferral of $140,000 of the retainer and may choose to receive or defer the remaining $10,000 in accordance with each director’s deferral election for his or her 2007 compensation.
Directors who serve as Chairs of Board Committees receive an additional annual retainer of $10,000, and members of the Audit Committee receive an additional $20,000 retainer. Finally, in recognition of the significant increase in the length and frequency of Audit Committee meetings, beginning October 1, 2006, members of the Audit Committee receive an additional special fee of $1,500 for any Audit Committee meeting (including telephonic) in excess of 12 meetings per year. After this additional fee was approved, each member of the Audit Committee received an additional payment of $4,500 for attending three subsequent meetings in 2006. This special fee is included in “Fees Earned or Paid in Cash” in the following table.
Only non-employee directors receive payment for serving on the Board. Since Mr. Wagoner is an employee of the Corporation, he is not compensated as a director. Non-employee directors are not eligible to participate in the executive incentive program, S-SPP, or any of the retirement programs for General Motors employees. Other than as described in this section, there are no separate benefit plans for directors.
As noted above, amounts deferred and credited as share units under this plan are not available until after the director retires or otherwise separates from the Board. After the director leaves the Board, payment under this plan is made in cash, based on the number of share units in the director’s account, valued at the average daily mean market price for the quarter immediately preceding payment. Directors are paid either in a lump sum or in annual installments for up to ten years based on their deferral elections. Directors who leave the Board with less than five years of service will be paid their deferred compensation in a lump sum in January following separation from the Board.
Directors are reimbursed for any travel expenses incurred in connection with their duties as directors. In addition, directors, like all active GM employees in the U.S., are eligible to participate in a matching contributions program to accredited four-year colleges, universities, and community colleges in which all eligible contributions are matched on a dollar-for-dollar basis up to $5,000 annually.
Compensation paid to the non-employee directors in 2006 is described in the following table:
2006 Non-Employee Director Compensation
(a) Includes annual retainer fees, as well as Chair and Audit Committee fees earned by the director. The totals in this column are inclusive of amounts required or elected to be deferred under the Non-Employee Director Compensation Plan and converted into share units at the average daily closing price of Common Stock for 2006 as disclosed in the table below:
(b) “All Other Compensation” includes incremental costs for the use of company vehicles and reimbursement of associated taxes; interest paid on deferred accounts and dividend equivalents that are re-invested in additional share units of Common Stock based on the market price of the stock on the date the dividends are paid; the costs associated with personal accident and liability insurances; and tax reimbursement for family members who accompany the director on GM aircraft when the director was traveling for business purposes. Incremental costs for company vehicles are calculated based on the average monthly cost of providing vehicles to all directors, including lost sales opportunity, if any; licensing and registration fees; and use taxes.
All Other Compensation
(1) “Other” amount total for Mr. Barnevik does not include a tax reimbursement for company vehicle costs as his company vehicle is located outside the U.S. and is not U.S. taxable income.
(c) Mr. O’Neal resigned from the Board on February 6, 2006.
(d) Mr. York joined the Board effective February 7, 2006, and resigned on October 6, 2006.
(e) Mr. O’Neal and Mr. York each received the accumulated balance of his account in the Compensation Plan for Non-Employee Directors in January 2007.
Director Stock Ownership Guidelines and Holding Requirement
The Board has established a stock ownership guideline for non-employee directors to enhance the link between interests of GM’s directors and stockholders. Each non-employee director is required to own stock, share units, or other equity equivalents equal in value to five times the value of his or her annual retainer within five years of joining the Board or the adoption of this ownership requirement in 2004. (Information about senior executive stock ownership guidelines is found on page 29.) The Directors and Corporate Governance Committee may exercise its discretion in enforcing the guideline when the value of accumulated Common Stock or share units or the size of the required holding is unduly affected by the price of Common Stock or changes in director compensation. Once a director satisfies the minimum ownership requirement (now $1 million), he or she will remain qualified if he or she continues to own at least the same number of shares or units, regardless of changes in the market value of the stock. Ownership guidelines are reviewed each year to ensure they continue to be effective in aligning directors’ and stockholders’ interests. Compliance is measured by reference to a three-year average stock price to take into consideration the volatility of the stock market and the long-term holding requirement. In addition, the non-employee directors are also prohibited during their term of service from selling any Common Stock or other securities issued by GM, except for cashless exercise of stock options granted prior to 2003, when options were eliminated from director compensation.
Item No. 1
If you sign and return the proxy card or vote by Internet or telephone, the Proxy Committee will vote your shares for all 13 nominees described in the following section, unless you vote for someone else or withhold authority to vote for one or more such nominees. Each director will serve until the next annual meeting of stockholders or until a successor is elected and qualified, or until earlier resignation, removal, or death. If any of the Board’s nominees for director become unavailable to serve before the annual meeting (which we do not anticipate), the Board may decrease the number of directors to be elected or designate substitute nominees for those vacancies.
Pursuant to Section 1.11 of the Bylaws, GM has received notice from stockholders who previously nominated candidates that they intend to nominate their own candidates for election to the Board at the 2007 Annual Meeting. In 2006 one of these stockholders filed preliminary proxy material with the SEC but did not commence a public proxy solicitation. We believe based on the notices we have received that it is likely that the election of directors at the 2007 Annual Meeting will be contested by stockholder nominees, so that all directors would be elected under a plurality voting standard. Under the plurality standard, the number of persons equal to the number of vacancies to be filled who receive more votes than other nominees are the persons elected to the Board for the following year. The Board recommends that you vote your shares for the candidates nominated by the Board.
Jerome B. York, Chief Executive Officer, Harwinton Capital Corporation and consultant to Tracinda Corporation, resigned from the Board effective October 6, 2006, and is not standing for reelection. He joined the Board in February 2006 and served on the Investment Funds and Public Policy Committees.
Of the nominees in the following section, Erroll B. Davis, Jr. and Kathryn V. Marinello have not previously been directors of the Corporation.
Information about Nominees for Director
The following information about the business background of each person nominated by the Board has been furnished to the Corporation by the nominees for director. Unless a different address is provided below in the biography of a director or nominee, his or her business address is General Motors Corporation, 300 Renaissance Center, P.O. Box 300, Detroit, MI 48265.
Percy N. Barnevik Age 66 Joined GM Board 1996
Retired Chairman, AstraZeneca PLC, United Kingdom, since 2005, held office of Chairman (1999-2004); Honorary Chairman, Sandvik AB, Sweden, since 2002, held office of Chairman (1983-2002); Chairman, Investor AB, Sweden (1997-2002)
COMMITTEES — Public Policy (Chair), Directors and Corporate Governance
AFFILIATIONS — Member of The Business Council, the International Investment Council advising the South African government, the International Advisory Council of the Federation of Korean Industries, the Advisory Council of Centre for European Reform-UK, Advisory Councils at the Wharton School of Business Administration and at Humboldt University in Berlin, and the Academies of Engineering Sciences in Sweden and Finland; Foreign Honorary Member of the American Academy of Arts & Sciences; Honorary Member of the Royal Academy of Engineering, UK
Erskine B. Bowles Age 61 Joined GM Board 2005
President, The University of North Carolina, 910 Raleigh Road, P.O. Box 2688, Chapel Hill, NC 27515, since January 2006; Chairman, Erskine Bowles & Co., LLC (2003-2005); Deputy Special Envoy for Tsunami Recovery, United Nations (2005); Senior Advisor, Carousel Capital, a private investment firm, since 2002
COMMITTEES — Directors and Corporate Governance, Public Policy
DIRECTORSHIPS — Cousins Properties Incorporated, Morgan Stanley, North Carolina Mutual Life Insurance Company
AFFILIATIONS — Member of the Boards of Chancellors of Columbia University Graduate School of Business and Juvenile Diabetes Research Foundation International
John H. Bryan Age 70 Joined GM Board 1993
Retired Chairman and Chief Executive Officer, Sara Lee Corporation, Chicago, Illinois, since 2001
COMMITTEES — Executive Compensation (Chair), Directors and Corporate Governance
DIRECTORSHIPS — The Goldman Sachs Group, Inc.
AFFILIATIONS — Member of The Business Council and the National Trust Council of the National Trust for Historic Preservation; Life Trustee of The Art Institute of Chicago, the University of Chicago, and Rush University Medical Center; Chairman of the Board of Millennium Park, Inc.
Armando M. Codina Age 60 Joined GM Board 2002
President and Chief Executive Officer, Flagler Development Group, 2855 So. LeJeune Road, 4th Floor, Coral Gables, FL 33134, the commercial real estate subsidiary of Florida East Coast Industries, Inc., a holding company engaged in real estate and railroad businesses in Florida, since April 2006; Chairman and Chief Executive Officer, Codina Group, Inc., a full-service commercial real estate firm based in Coral Gables, Florida (1979-2006)
COMMITTEES — Executive Compensation, Investment Funds
DIRECTORSHIPS — AMR Corporation, Florida East Coast Industries, Merrill Lynch & Co., Inc.
AFFILIATIONS — Chairman Emeritus of the Board of Trustees of Florida International University
Erroll B. Davis, Jr. Age 61
Chancellor, University System of Georgia, the governing and management authority of public higher education in Georgia, 270 Washington Street SW, Atlanta, GA 30334, since 2006; Chairman, Alliant Energy Corporation (2000-2006), held offices of President and Chief Executive Officer (1998-2005)
DIRECTORSHIPS — BP p.l.c., PPG Industries, Inc., Union Pacific Corporation
AFFILIATIONS — Member of the Boards of Trustees of the University of Chicago and Carnegie Mellon University, and the Board of Directors of the United States Olympic Committee
George M.C. Fisher Age 66 Joined GM Board 1996
Retired Chairman and Chief Executive Officer, Eastman Kodak Company, Rochester, New York, since 2001
COMMITTEES — Directors and Corporate Governance (Chair), Executive Compensation
DIRECTORSHIPS — Eli Lilly and Company
AFFILIATIONS — Member of the International Academy of Astronautics, the National Academy of Engineering, and the American Academy of Arts & Sciences; Senior Advisor for Kohlberg Kravis Roberts & Co.
Karen Katen Age 57 Joined GM Board 1997
Chairman, Pfizer Foundation, 235 East 42nd Street, New York, NY 10017, since 2006; Retired Vice Chairman, Pfizer Inc, New York, New York, and Retired President, Pfizer Human Health, since March 31, 2007; held offices of Vice Chairman, Pfizer Inc and President, Pfizer Human Health (2005-2007); President, Pfizer Global Pharmaceuticals and Executive Vice President, Pfizer Inc (2001-2005); President, Pfizer U.S. Pharmaceuticals Group (1995-2002)
COMMITTEES — Directors and Corporate Governance, Executive Compensation
DIRECTORSHIPS — Harris Corporation
AFFILIATIONS — Member of the Board of Directors of Catalyst, the Board of Directors of the National Alliance for Hispanic Health, the RAND Corporation’s Health Board of Advisors, and the Economic Club of New York’s Board of Trustees; Trustee of the University of Chicago and Council Member of the Graduate School of Business; Outgoing Chairman, U.S.-Japan Business Council
Kent Kresa Age 69 Joined GM Board 2003
Chairman Emeritus, Northrop Grumman Corporation, Los Angeles, California, since 2003; held offices of Chairman and Chief Executive Officer (1990-2003)
COMMITTEES — Investment Funds (Chair), Audit
DIRECTORSHIPS — Chairman, Avery Dennison Corporation; Fluor Corporation; MannKind Corporation
AFFILIATIONS — Chairman of the Board of Trustees of California Institute of Technology; Member of the Boards of Directors of the W.M. Keck Foundation, The Broad Foundation, and Performing Arts Center of Los Angeles County Foundation, the Board of Overseers of the Keck School of Medicine of the University of Southern California, the Board of Visitors of the UCLA Anderson School of Management, the Advisory Board of the Massachusetts Institute of Technology Lincoln Laboratory, and the Board of Trustees of the Haynes Foundation
Ellen J. Kullman Age 51 Joined GM Board 2004
Executive Vice President, DuPont Safety & Protection; DuPont Coatings & Color Technologies; Marketing & Sales; Safety and Sustainability, E.I. du Pont de Nemours and Company, 4417 Lancaster Pike, P.O. Box 80023, Wilmington, DE 19880, since June 2006; held offices of Group Vice President, Safety & Protection (2002-2006), and Group Vice President and General Manager (2000-2002)
COMMITTEES — Audit, Investment Funds
AFFILIATIONS — Member of the Board of Trustees of Tufts University, the Board of Overseers of the Tufts University School of Engineering, the Board of Directors of the National Safety Council, and The Committee of 200
Philip A. Laskawy Age 66 Joined GM Board 2003
Retired Chairman and Chief Executive Officer, Ernst & Young, New York, New York, since 2001
COMMITTEES — Audit (Chair), Investment Funds
DIRECTORSHIPS — Henry Schein, Inc., Loews Corporation, The Progressive Corporation
AFFILIATIONS — Chairman of the Trustees of the International Accounting Standards Committee Foundation
Kathryn V. Marinello Age 50
President and Chief Executive Officer, Ceridian Corporation, an information services company in the human resource, retail, and transportation markets, 3311 E. Old Shakopee Road, Minneapolis, MN 55425, since 2006; President and Chief Executive Officer of divisions of General Electric Company, GE Fleet Services (2002-2006) and GE Insurance Solutions (1999-2002)
DIRECTORSHIPS — Ceridian Corporation
AFFILIATIONS — Member of The Business Roundtable
Eckhard Pfeiffer Age 65 Joined GM Board 1996
Retired President and Chief Executive Officer, Compaq Computer Corporation, Houston, Texas, since 1999
COMMITTEES — Audit, Investment Funds
AFFILIATIONS — Member of the Advisory Board of Deutsche Bank
G. Richard Wagoner, Jr. Age 54 Joined GM Board 1998
Chairman and Chief Executive Officer, General Motors Corporation, since 2003; held offices of President and Chief Executive Officer (2000-2003); joined General Motors Corporation in 1977
DIRECTORSHIPS — GMAC LLC, a global financial services company
AFFILIATIONS — Member of The Business Council and The Business Roundtable, the Board of Directors of Catalyst, and the Boards of Trustees of Duke University and Detroit Country Day School
SECURITY OWNERSHIP OF DIRECTORS, NAMED EXECUTIVE OFFICERS,
The beneficial ownership as of February 28, 2007, of Common Stock for each director, each Named Executive Officer, and all directors and officers as a group is shown in the following tables. Each of the individuals listed in the tables below owns less than 1 percent of the outstanding shares of Common Stock; all directors and officers as a group own approximately 1.3 percent of the outstanding shares. This information has been furnished to the Corporation by the persons named. None of the shares shown in the following tables as beneficially owned by directors and executive officers has been hedged or pledged as security for any obligation.
(a) Deferred Share Units — Represents the unit equivalents of Common Stock for retainer fees deferred into the Compensation Plan for Non-Employee Directors. For more information about this plan, please refer to the section on Director Compensation on pages 12-14.
(b) Number of shares that may be acquired through the exercise of stock options within 60 days of February 28, 2007. Directors no longer receive stock options; the last grant was in 2002.
(c) Shares purchased after February 28, 2007.
Named Executive Officers and
(a) “Shares Beneficially Owned” may include shares credited under the S-SPP, a tax-qualified savings plan. This column excludes shares that are beneficially owned but are reflected under the “Deferred Share Units” column.
(b) “Deferred Share Units” include shares under the General Motors Benefit Equalization Plan for Salaried Employees (the “BEP”). The BEP is a non-qualified “excess benefits” plan that is exempt from ERISA and U.S. Internal Revenue Code (the “IRC”) limitations. Deferred units also include undelivered incentive awards and other awards that will vest upon the occurrence of certain events and that are subject to forfeiture under certain circumstances.
(c) Number of shares that may be acquired through the exercise of stock options within 60 days from February 28, 2007. Additional information regarding stock options is provided on page 26.
Certain Beneficial Owners
The following table gives information about each entity known to GM to be the beneficial owner of more than 5 percent of Common Stock as of February 28, 2007, based on information filed with the SEC.
(1) As investment advisor. As reported in the Schedule 13G dated February 14, 2007 filed by Brandes Investment Partners, L.P., 50,663,040 shares are deemed to be beneficially owned by Charles H. Brandes, Glenn R. Carlson, and Jeffrey A. Busby, control persons of the investment advisor. Mr. Brandes disclaims any direct ownership of the shares reported in the Schedule 13G, except for an amount that is substantially less than 1 percent of the number of shares.
(2) Brandes Investment Partners, L.P. reports shared voting power over 40,093,622 shares and shared dispositive power over 50,663,040 shares.
(3) Sole dispositive power as investment advisor.
(4) Includes 688,340 shares issuable upon the assumed conversion of 1,933,000 shares of the 4.5% Convertible Preferred Series A and 269,640 shares issuable upon the assumed conversion of 700,000 shares of the 5.25% Convertible Series B Debentures due March 6, 2032. Capital Research and Management Company reports sole voting power over 18,029,490 shares and sole dispositive power over 42,592,480 shares.
(5) As investment advisor. As reported in the Schedule 13G dated February 6, 2007 filed by Southeastern Asset Management, Inc., Mr. O. Mason Hawkins, Chairman of the Board and CEO of Southeastern Asset Management, Inc. could be deemed to be a controlling person of that firm as the result of his official positions with or ownership of its voting securities. The existence of such control is expressly disclaimed in the Schedule 13G.
(6) Southeastern Asset Management reports sole voting power over 22,115,600 shares, sole dispositive power over 26,015,300 shares, and shared voting and dispositive power over 14,240,000 shares.
(7) Acting in various fiduciary capacities for various employee benefit plans.
(8) State Street Bank reports sole voting power over 20,208,945 shares, shared voting power over 63,711,562 shares, and shared dispositive power over 83,920,507 shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
E. Stanley O’Neal, who resigned from the Board effective February 6, 2006, is the Chairman and Chief Executive Officer of Merrill Lynch & Co., Inc., which together with various subsidiaries (collectively, “Merrill Lynch”) provided services including underwriting and investment banking to GM in 2006. The Board of Directors considered the relevant facts and circumstances regarding the relationship between GM and Merrill Lynch and concluded that based on GM’s long-standing practice of maintaining relationships with several major investment banks, the amount of fees paid in 2006 and in recent years by GM to Merrill Lynch in proportion to the revenues and expenses of each company during those periods, and Mr. O’Neal’s recusal from any decisions by GM regarding GM business with Merrill Lynch, there was no material relationship between Mr. O’Neal and GM. He therefore qualified as independent under the requirements of the NYSE in the judgment of the Board. The amount of fees paid by
GM to Merrill Lynch in 2006 and in prior years was substantially less than 2 percent of either company’s expenses or revenues.
Douglas L. Henderson, brother of Vice Chairman and Chief Financial Officer Frederick A. Henderson, is employed by General Motors. Mr. D.L. Henderson earns less than $150,000 per year from the Corporation and his salary and benefits are comparable to those provided to other GM employees in similar positions.
Executive officers of General Motors have, from time to time, received mortgage loans from GMAC LLC (“GMAC”), the successor to General Motors Acceptance Corporation, or its subsidiaries or acted as co-signers for loans made to family members. Those loans were made in the ordinary course of business and on the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other employees, retirees, and dealers of General Motors, which are substantially the same as those offered to unaffiliated customers.
The Corporation’s policy on loans to directors and executive officers of the Corporation complies with Sarbanes-Oxley, which generally prohibits public companies from making personal loans to their directors and executive officers. This policy permitted GM’s former subsidiary, GMAC and its subsidiaries, to extend mortgage and auto loans to GM directors and executive officers on terms that are appropriate under Sarbanes-Oxley.
The Legal Staff annually reviews the transactions of each director and executive officer to determine if there are any circumstances that would require disclosure as a related person transaction in GM’s public filings. In addition, the Directors and Corporate Governance Committee is responsible for annually reviewing the independence of each director and the appropriateness of any potential related person transactions and related issues.
Compensation Committee Interlocks and Insider Participation
No executive officer of GM served on any board of directors or compensation committee of any other company for which any of our directors served as an executive officer at any time during fiscal year 2006.
Compensation Committee Report
The Executive Compensation Committee has reviewed and discussed with GM management the following Compensation Discussion and Analysis (the “CD&A”) and, based on that review and discussion, has recommended to the Board of Directors that the CD&A be included in GM’s 2006 Annual Report on Form 10-K and in this proxy statement.
Executive Compensation Committee
Compensation Discussion and Analysis
GM is primarily engaged in the design, development, manufacturing, and marketing of automotive products worldwide. We employ 280,000 people around the world, manufacture vehicles in 33 countries, and sell vehicles in 149 countries. In 2006, we sold more than 9 million vehicles. Our industry continues to experience significant change and increasing complexity driven by intense global competition in both mature and emerging markets. During 2006, we focused on continuing the successful implementation of the GMNA Turnaround Plan. At the same time, we were executing our strategy to grow our business globally, especially in major emerging markets such as China, Brazil, and Russia. Finally, progress was made in globalizing key business functions including product development, manufacturing, powertrain, and purchasing.
Despite our progress in making our business competitive globally, we continue to carry significant cost disadvantages for employee and retiree health care in the United States, a burden our foreign-owned competitors do not have as their governments cover a much greater amount of these costs. In our highly competitive business environment, we must ensure we are able to attract, retain, and motivate leaders who can successfully navigate the complexities of our industry and deliver business results for the benefit of our stockholders and other key stakeholders. Fair and competitive compensation programs are an important element in our ability to do this.
The Executive Compensation Committee
The Executive Compensation Committee of the Board of Directors (the “Committee”) oversees the compensation and benefit programs for GM’s executives. The Committee determines the compensation of the
Senior Leadership Group (GM’s officers and key operating executives) individually, and of all other executives as a group. The Committee is responsible for helping to ensure that the Corporation’s compensation policies and practices support the successful recruitment, development, and retention of the executive talent that we need to achieve GM’s business objectives.
Each year, the Committee reviews GM’s total executive compensation program with the help of its external compensation consultant. The review looks at evolving market practices and developments, external regulatory requirements, the competitive market for executive talent, and GM’s compensation philosophy. The corporate goals and objectives are a primary consideration in making compensation decisions for the CEO and the Senior Leadership Group. In addition, the Committee recognizes that historically, as is the case with most of our current Senior Leadership Group, GM’s senior executives have spent their careers at General Motors, as we generally promote executives from within the Corporation. The Committee makes changes to different elements of the compensation program if deemed appropriate to address evolving business objectives.
Since 1989, the Committee has been composed entirely of independent directors, consistent with the current listing requirements of the NYSE. In 2006, the Committee was composed of John H. Bryan, Chairman; Armando M. Codina; George M.C. Fisher; and Karen Katen. The Committee operates under a written charter adopted by the Board of Directors, a copy of which may be found on GM’s Web site at http://investor.gm.com, under “Corporate Governance.”
Committee meeting dates and times are set by the Corporate Secretary and coordinated with the meeting dates established for the Board. Future meeting agendas for the Committee are reviewed and agreed upon by the Committee in advance to make certain the right amount of time is allowed for all of the issues to be covered during the course of each year. Agendas are modified, if necessary, to include emerging executive compensation and benefit issues.
During 2006, the Committee met seven times. Our CEO, G. R. Wagoner, Jr., participated in a portion of all of the meetings. The Executive Director of our Global Compensation and Corporate Governance group attended all meetings in his capacity as Secretary to the Committee. External advisors to the Committee from Mercer Human Resource Consulting and Davis Polk & Wardwell also participated in all meetings. During executive sessions, only Committee members were in attendance.
External Advisors — The Committee has the authority under its charter to engage the services of outside advisors. In accordance with this authority, the Committee engages an outside executive compensation consulting firm, Mercer Human Resource Consulting, and independent outside counsel, Davis Polk & Wardwell, both of whom report directly to the Committee. All work performed by the external advisors is overseen by the Committee. In addition, GM’s Global Compensation group works with these external advisors to ensure that the information, analysis, and recommendations put forth to the Committee provide a thorough and objective basis for decision making and reflect internal equity considerations. Mercer Human Resource Consulting engages in discussions with Mr. Bryan, the Committee Chairman, and other Committee members without management present, as necessary throughout the year in order to further ensure there is an open dialogue between the consultants and the Committee.
In addition to the work Mercer Human Resource Consulting performs for the Committee, GM utilizes various other products and services of the firm whenever Mercer is deemed to provide the best product or service to meet GM’s needs. This includes participation in compensation surveys conducted by Mercer for the broader group of GM employees in many countries around the world and use of Mercer’s international job evaluation product. GM’s compensation governance process requires that all purchases of compensation consulting services or products be approved by GM’s Global Compensation group. The Committee annually reviews services provided to GM by Mercer.
Role of Management in Compensation Decisions
Our CEO, Mr. Wagoner, believes compensation plays an important role in aligning and motivating his executive team to achieve key corporate objectives, and so he plays an active role in ensuring our compensation plans are effectively designed. Mr. Wagoner relies extensively on the information and analysis provided for his consideration by the Vice President, Global Human Resources and the Executive Director of Global Compensation and Corporate Governance. In addition, Mr. Wagoner personally reviews the individual total compensation of his top 365 executives. He also provides input to the Committee regarding the compensation of the Named Executive Officers reporting to him. Beyond this, a broader group of GM executives participates in the administration of our compensation programs by developing individual pay recommendations for the executives reporting to them within
the funding approved by the Committee. The Vice President, Global Human Resources and the Executive Director of Global Compensation and Corporate Governance oversee the administration of all executive compensation matters within the framework established by the Committee.
GM’s overall executive compensation philosophy is to pay executives based on both the Corporation’s and the individual executive’s performance. This means that a large portion of each executive’s compensation is at risk and linked to accomplishing specific measurable results intended to create value for stockholders in both the short and long term. Our incentive pay plans are designed to reward executives based on overall business performance and profitability, stock price performance, and GM’s performance relative to peer companies and significant competitors. In this context, we provide a mix of short- and long-term cash and stock-based compensation opportunities to attract, retain, and motivate executives over time, while remaining sensitive to our business environment. We do not target a specific competitive position but rather consider the compensation that is earned by executives in similar positions, our business performance, and the challenges we are currently facing as we establish the target compensation for our executives each year. The Committee reviews our compensation philosophy as part of the review of the compensation strategy for the upcoming year. This was most recently done in August 2006 and no changes were made.
Assessing Compensation Competitiveness
Part of the Committee’s responsibility is to ensure that a market analysis is performed each year. This is an important input to developing our executive compensation structures and understanding the competitiveness of the opportunities we provide. To support this, Mercer Human Resource Consulting prepares an executive compensation review that provides a comparison of the compensation levels of GM’s Named Executive Officers to the actual pay data of the Named Executive Officers in our 26-company peer group (discussed below). All elements of pay and their respective values, along with the relative proportion that each element comprises of total compensation are evaluated and summarized. The review also provides pay and performance validations based on key performance metrics compared to those of our peer group.
We selected peer companies based on their size, scope, and complexity of operations, although GM is significantly larger and more complex than many of them. While we include Ford Motor Company (currently the only other domestic automotive manufacturer) in our peer group, we do not limit the group to our industry because compensation information is not available from many of our other major competitors. In addition, we believe it is important for us to understand the compensation practices for Named Executive Officers at other U.S.-based multinationals as the competitiveness of our compensation can impact our overall ability to attract and retain talent. Our peer companies remain relatively stable over time, and changes are made only when comparison to a company is no longer appropriate (e.g., bankruptcy filing, merger, etc.). The companies in our peer group for 2006 are listed below:
The 2006 Mercer review indicated that the 2005 total target compensation for GM’s Named Executive Officers as a group was about 15 percent below median. This shortfall was due to long-term incentive grants that are approximately 36 percent below median.
Components of Compensation
Overall Mix and Structure — In keeping with our compensation philosophy, we use a mix of base salary, short-term incentives, and long-term incentives in our executive compensation program. The allocation across the different elements is also consistent with our compensation philosophy in that Named Executive Officers have a large portion of their compensation opportunity at risk. Our CEO has the largest amount at risk. Employee benefits are also an important part of our compensation package and are discussed beginning on page 27. The target compensation mix for the Named Executive Officers at the beginning of 2006 was as follows:
*Mr. Devine did not receive an LTIP grant due to his planned retirement.
Base Salary — Each year, the Committee reviews the base salaries of the Named Executive Officers and determines whether adjustments are needed based upon market pay levels, the large scope and complexity of our positions, individual performance, and our leadership succession plans. In general, we believe that paying base salaries that are at the high end of market pay levels is the most appropriate approach to help retain executives throughout the business cycle as actual total compensation received can be much lower than competitive levels. Base salary adjustments are generally not made every year.
The base salary of our CEO, G. R. Wagoner, Jr., was $2.2 million at the beginning of 2006. Mr. Wagoner has not received a base salary increase for over four years.
The Vice Chairmen, F. A. Henderson, R. A. Lutz, and J. M. Devine, had base salaries of $1.55 million at the beginning of 2006. This salary was established for Messrs. Lutz and Devine in January 2003 and for Mr. Henderson at the time he was promoted to the position of Vice Chairman and Chief Financial Officer on January 1, 2006. The base salary for the Executive Vice President, Law & Public Policy, T. A. Gottschalk, was $1.0 million at the beginning of 2006. The base salary for the Group Vice President, Global Manufacturing and Labor Relations, G. L. Cowger, was increased to $900,000 on November 1, 2006; it had been 33 months since his last base salary increase.
Effective March 1, 2006, Messrs. Wagoner, Henderson, Lutz, Gottschalk, and Devine voluntarily reduced their salaries in support of the GMNA Turnaround Plan. The Committee considered that salary reductions among top leaders are unusual and the magnitude of the reductions for GM’s Named Executive Officers would substantially exceed the few reductions that had taken place at other companies. However, the Committee supported their voluntary actions. Mr. Wagoner reduced his salary by 50 percent to $1,100,000; Messrs. Henderson, Lutz, and Devine by 30 percent to $1,085,000; and Mr. Gottschalk by 10 percent to $900,000.
Messrs. Wagoner, Henderson, and Lutz recently reviewed this matter and, in support of the continued GMNA Turnaround Plan, again decided that beginning March 1, 2007, they will continue voluntary salary reductions. The Committee agreed with this approach. Mr. Wagoner’s salary will be $1.65 million, 25 percent less than his January 1, 2006 base salary of $2.2 million. The salaries of Messrs. Henderson and Lutz will be $1.318 million, 15 percent less than their January 1, 2006 base salaries of $1.55 million.
Annual Incentive Plan — The General Motors 2002 Annual Incentive Plan (the “AIP”) is a cash-based, pay-for-performance annual incentive plan designed to focus our executives on the most critical shorter-term metrics each year. The Committee reviews the AIP metrics annually to ensure that those that will most improve the value of our company in the short term are used. In addition, the Committee establishes the target performance level for each metric as well as the minimum performance level that must be achieved before any award is paid for performance on that metric. When establishing the performance and payout ranges for each metric, the Committee assesses the degree of performance necessary to achieve them. The Committee reviews both past and projected performance levels, and external marketplace conditions such as the economic outlook and projected industry volumes. The
Committee may determine that it is appropriate to adjust performance targets during the performance period to reflect the impact of unplanned or extraordinary events in order to preserve the “incentive” integrity of the plan, ensuring that executives are rewarded for the business performance they helped to achieve.
The Committee believes that setting aggressive performance targets is important to drive improved business performance and ensure AIP payouts continue to be at-risk compensation. Since adopting the current AIP design in 1999, aggressive target setting has resulted in two zero payout years, three below-target payout years, one at-target payout year, and two above-target payout years.
For 2006, the Committee determined that a combination of both global and regional metrics was most appropriate to emphasize the importance and impact of the collective efforts of all GM executives as well as the importance of regional performance. We used adjusted net income and operating cash flow as our global metrics because we believe all executives need to focus on our performance in these areas in order to implement the GMNA Turnaround Plan and continue to grow our business around the globe. We used market share, external quality measures, and warranty as our regional automotive metrics because we believe our progress in these areas is critical for our long-term success. We used return on economic capital, penetration of GM global retail sales, and global insurance product penetration for the GMAC portion of our business.
Overall funding for performance on the corporate financial measures may also be adjusted upward or downward based on GM’s absolute and relative performance against six of our most significant automotive competitors in areas such as global and regional measures of market share, quality, and productivity.
The Committee develops an individual AIP award target for each Named Executive Officer. We believe that award targets should provide annual cash compensation opportunities between the median and top of the third quartile of the compensation paid at peer companies for executives in similar positions. The target annual incentive award can only be realized if target levels of performance are achieved. In years when business performance falls below targeted levels, executives receive compensation below competitive annual incentive levels. In years when corporate performance meets or exceeds targets, executives can receive awards at targeted levels or above. As noted above, this approach has resulted in two zero-payout years and three below-target payout years since 1999. We believe this approach encourages executives to strive for superior results every year for both the Corporation and its stockholders.
GM’s overall performance for 2006 generated an annual incentive fund that was above threshold but below target. Following discussions with management, the Committee decided that no 2006 annual incentive awards would be paid to Messrs. Wagoner, Henderson, Lutz, Gottschalk, and Cowger. In line with the terms of Mr. Devine’s retirement agreement previously disclosed, he received a cash payment prorated for time worked.
The Named Executive Officers, except for Mr. Devine, received Restricted Stock Unit (“RSU”) grants instead of any cash incentive payment in recognition of the significant progress made in 2006 and the importance of continuing this progress going forward. The grants will support both of these objectives, as the ultimate value of the RSUs will depend on continued progress in our business performance over the next few years. The grants will vest ratably over five years for Messrs. Wagoner, Henderson, and Lutz and over three years for Messrs. Gottschalk and Cowger. The size of each Named Executive Officer’s grant considered factors such as the cash incentive award not paid, the length of the vesting schedule and the variability and risk inherent in the nature of the award, and competitive compensation factors. Because of limitations on the number of shares of Common Stock available in our 2002 Stock Incentive Plan, Messrs. Gottschalk and Cowger received grants of restricted stock units which will be settled in cash (“CRSUs”). The grant levels for the Named Executive Officers were as follows: Mr. Wagoner — 95,000 RSUs; Messrs. Henderson and Lutz — 60,000 RSUs; Mr. Gottschalk — 27,000 CRSUs; Mr. Cowger — 24,700 CRSUs.
Long-Term Incentives — The Named Executive Officers are eligible to participate in GM’s three long-term incentive programs: the 2002 Stock Incentive Plan (the “SIP”) under which stock options and RSUs may be granted, the General Motors 2002 Long-Term Incentive Plan (the “LTIP”), and the 2006 Cash-Based Restricted Stock Unit Plan. All long-term incentives are based on Common Stock, creating a direct link with stockholders’ interests.
Each year, the Committee considers both the overall target compensation opportunity to be provided by long-term incentives and how that opportunity should be allocated across the different types of incentives. As part of this review, the Committee considers market practices, individual performance, retention considerations,
succession plans, and any other significant factors such as the business environment, employee relations concerns, and public perception.
The Committee has taken several actions with regard to GM’s long-term incentives to help manage our dilution (the number of stock options granted and outstanding as a percentage of common shares outstanding). Our dilution level is largely due to our stock price performance which has resulted in a majority of outstanding options being underwater and thus, not economic to exercise. So, while the Committee prefers to have any long-term incentives settled in stock, beginning in 2005, we determined that any final awards under the LTIP should be paid in cash until GM’s dilution is reduced. In addition, in 2006 the Committee approved the use of CRSUs to further manage GM’s dilution. The Committee also eliminated stock options for the broader executive population and replaced them with CRSUs to retain the link to stockholders’ interests. We also reduced the size of the grants for those executives continuing to receive them. For additional discussion of our dilution, please refer to the management proposal for the approval of our 2007 Long-Term Incentive Plan on page 50.
The Committee believes the allocation across the different long-term incentive vehicles needs to be determined each year based on relevant considerations at the time. As such, the Committee prefers not to adhere to a fixed allocation as that can result in grants that do not appear to be consistent with overall business performance or conditions.
For 2006, the Committee decided the long-term incentive compensation opportunity for the Named Executive Officers would continue to be provided through stock options and the LTIP (described below). The total target 2006 long-term incentive compensation opportunity ranges from approximately 50 percent stock options and 50 percent LTIP for the CEO to a mix of about 40 percent stock options and 60 percent LTIP for the other Named Executive Officers.
Stock Options — Stock options are granted to encourage executives’ continued focus on the importance of improving stock price performance and increasing stockholder value over the long term. This long-term focus is especially important in our industry where the impacts of many of our business decisions are not realized until many years later, for example in the areas of energy diversity or alternative propulsion solutions. For this reason, our options have a ten-year term. We also grant stock options because they are generally considered to be part of a competitive compensation package for senior executives.
The Committee approves an annual option grant each year. The grant date is either the same date as the Committee approves the grant or a specific date after the date the Committee acts. The Committee does not grant equity compensation awards or options in anticipation of the release of material non-public information and does not time the release of such information based on equity award grant dates. The Committee also allows up to three more quarterly grants each year for any new hires, if needed. Quarterly grant dates are the first business day following the fiscal quarter-end. The Committee may approve additional grant dates for executive new hires, if needed. The Committee has never approved a stock option grant with a grant date prior to that of their approval.
The grant price for all option grants, as provided by the current plan, is the average of the high and low stock price on the date of the grant. The Committee has never approved an option grant price with a price different from that of the average of the high and low stock price on the date of the grant, consistent with the SIP provisions. We have a clawback provision for our stock options which generally requires that an executive who exercises an option remain employed by GM for 12 months following the date of exercise (unless employment is terminated by death or retirement) or the gain from the option exercise must be repaid to the Corporation. The required period of employment following exercise is six months for outstanding options granted prior to 2002.
For 2006, the Committee determined that stock option grant levels would not be adjusted for Messrs. Wagoner, Lutz, and Cowger to compensate for the decline in stock price. Mr. Henderson’s grant was increased from the 2005 grant level in recognition of his promotion on January 1, 2006. The Committee believes this approach balances the upside potential of stock options with the Named Executive Officers’ personal financial participation in the GMNA Turnaround Plan.
Long-Term Incentive Plan — Beginning in 1999, the LTIP has focused on the Total Shareholder Return (“TSR”) performance ranking of Common Stock compared to that of other stocks in the S&P 500 Composite Stock Price Index (the “S&P 500 Index”) over a three-year period. This is called the Stock Performance Program (the “SPP”). The three-year period covers three consecutive calendar years. As there is no automotive index, per se, we use the S&P 500 Index as the point of comparison because it has a broad representation of companies, and provides a representation of general economic and market conditions.
Payouts under the LTIP are based on GM’s TSR ranking compared to other companies. If GM ranks in the lowest 25 percent of the companies in the S&P 500 Index, there is no payout. If our ranking is between 25 percent and 49 percent of companies, the payout level would be 50 percent of target. A ranking within the top 10 percent of companies would yield the maximum payout of 200 percent of target. Between the target and maximum, payout percentages are related to the ranking position. Payouts since the LTIP’s inception have been mixed, with one grant paid at target, one grant paid below target, and four grants with no payouts.
LTIP grants are made annually to the Named Executive Officers and all other senior executives. Grants are expressed as shares of stock so the value of the grant is impacted by the change in GM’s stock price over the performance period.
If GM’s TSR performance compared to the S&P 500 Index is sufficient to generate a payout, individual awards are based on the percentile TSR achieved and the original grant level. Any payouts include dividend equivalents for the performance period paid on the number of shares ultimately earned. No dividends are paid during the performance period. Beginning with grants made in 2005, any final awards are paid in cash.
For the 2006-2008 performance period, the Committee determined that LTIP grants continue to be an effective long-term incentive for the Named Executive Officers and retained the current plan design because it rewards executives for GM’s sustained positive stock price performance, an important metric to our stockholders. In addition, the Committee decided that the target value of individual grants for the Named Executive Officers would not be increased (except for Mr. Henderson who was promoted after the 2005 grant).
GM’s TSR ranking for the 2004-2006 period was below the minimum threshold and generated no payouts for the plan covering that period.
As noted above, the Committee supports the overall design of the LTIP but believes some changes are needed to increase the retentive value of the Plan. Beginning with the 2007-2009 Plan, each LTIP grant may be earned in four discrete installments based on the results of three one-year TSR rankings and one three-year TSR ranking. Each installment, if earned, will be “banked” as share equivalents and, at the end of the three-year performance period, the value of the number of share equivalents banked (plus dividend equivalents) will be paid in cash.
Deferred Compensation Plan — We implemented the General Motors Deferred Compensation Plan for Executive Employees (the “DCP”) in 1998 after a review of competitive market practices indicated that the use of this type of plan was increasing among our peer companies. The study showed that having a deferral plan was needed to provide competitive compensation. GM’s plan allows for the deferral of AIP payouts or LTIP payouts. Our plan does not provide for the payment of interest based on above-market rates. There were no deferrals in 2006.
Summary — We believe our compensation approach is balanced and in line with our business performance and the business environment in which we operate. In recognition of our highly competitive environment, and the status of GM’s turnaround activities, Messrs. Wagoner, Henderson, Lutz, Gottschalk, and Devine voluntarily reduced their salaries in 2006, and salary reductions will continue for Messrs. Wagoner, Henderson, and Lutz in 2007. Annual incentive performance goals for 2006 were achieved at above threshold levels. However, we did not pay annual incentive awards to the Named Executive Officers, except for Mr. Devine whose award was paid in accordance with the terms of his retirement agreement. The other Named Executive Officers received stock or stock-based grants whose ultimate value depends on our continued success. Finally, the Named Executive Officers did not receive any payouts from any long-term incentive plans and no stock options were exercised.
As part of our overall compensation package, GM offers benefits to all employees. These benefits are comparable to those offered by other similar employers, and include medical and disability benefits, life insurance, retirement benefits, and matching contributions to a qualified savings plan. GM also provides competitive vacation, leaves of absence, and other customary employee policies which are available to the Named Executive Officers on the same basis as for other employees. A limited number of additional benefits are provided for executives as part of the total compensation package because we believe that it is customary to provide these benefits or otherwise in our interest to do so. The compensation associated with these programs is included in “All Other Compensation” on page 32.
Employee Savings Plans — The Corporation maintains two savings plans for executive employees. The S-SPP is a tax-qualified plan that is generally available to all salaried employees in the U.S. and provides that participants may
contribute up to 50 percent of eligible salary, subject to maximum limits established by the IRC. The Corporation has in the past provided a matching contribution up to a certain percent of the employees’ pay. In February 2006, this matching contribution was suspended through the remainder of the 2006 fiscal year and reinstated on January 1, 2007. Shares of Common Stock held under the S-SPP by Named Executive Officers are discussed in the “Security Ownership of Directors, Named Executive Officers, and Certain Others” section on page 19 and any corporate matching contributions are reported as “All Other Compensation” on page 32.
The BEP is a non-qualified “excess benefits” plan that is exempt from ERISA and IRC limitations and provides executives with the full GM matching contribution to cover amounts in excess of IRC limitations. Since matching contributions to the S-SPP were suspended during 2006, no corporate contributions were made to BEP accounts except for contributions related to post-retirement health care for executives hired on or after January 1, 1993. Amounts credited under the BEP are maintained in share units of Common Stock. Shares of Common Stock held by Named Executive Officers in the BEP are also disclosed on page 19 and any corporate matching contributions are reported as “All Other Compensation.” Account balances for the Named Executive Officers are discussed in the “2006 Non-Qualified Deferred Compensation” table on page 41.
U.S. Retirement Plans — In keeping with our strategy to retain key talent, the Corporation provides retirement plans whose value is based on both compensation and continued service. In 2006, all of the Named Executive Officers participated in both a tax-qualified defined benefit pension plan, the General Motors Retirement Program for Salaried Employees (the “SRP”), and in a non-tax-qualified plan, the General Motors Supplemental Executive Retirement Plan (the “SERP”). In early 2006, as part of an intense effort to reduce costs and support the GMNA Turnaround Plan, the Corporation announced that the benefits accumulated under U.S. pension plans in place at that time would be frozen effective December 31, 2006, and new lower-cost pension plan formulas for U.S. executive and salaried employees would become effective for service on or after January 1, 2007. These plans and resulting benefit amounts for the Named Executive Officers are described in “Retirement Programs Applicable to Executive Officers” and the associated pension benefits table beginning on page 37.
Corporate Aircraft — With the approval of the Chairman and CEO, the Corporation’s aircraft may be used by members of the Senior Leadership Group for business purposes. This provides for a more efficient use of their time given the greater possibility of direct flights and improved flight times than are available commercially. It also provides a more secure traveling environment where sensitive GM business issues may be discussed and enhances personal safety. A spouse may accompany the executive on the aircraft when the executive is traveling for business purposes and imputed income is assessed to the executive with taxes thereon reimbursed by the Corporation if the spouse’s participation is required for business purposes. The Executive Compensation Committee annually reviews all corporate aircraft usage by the Named Executive Officers. As part of a comprehensive security study, certain Named Executive Officers are encouraged to use the corporate aircraft for personal travel. Personal use of company aircraft is discussed on page 33.
Security Systems and Services — As part of the Corporation’s comprehensive security study, residential security systems and services have been implemented for Messrs. Wagoner, Henderson, Lutz, Gottschalk, and Devine.
Executive Company Vehicle Program — The Corporation maintains a program that provides all executives, including the Named Executive Officers, with a GM vehicle of their choice. This program is not mandatory. Executives electing to participate in the program are asked to evaluate the vehicles they drive, thus providing feedback about our products. Participants are required to pay a monthly administration fee of $150 and are charged with imputed income based on the value of the vehicle they choose to drive. Executives are reimbursed for taxes on this income, subject to a maximum vehicle value. Beyond this maximum amount, taxes assessed on imputed income are the responsibility of the executive. In addition, participants are also required to purchase or lease at least one GM vehicle every four years.
Supplemental Life Benefits Program — The Corporation provides a supplemental life benefit for actively employed and retired executives. This cash benefit is paid upon the death of an active executive and provides three times annual base salary for executives appointed prior to January 1, 1989, and two times annual base salary for executives appointed on January 1, 1989, or later. Coverage continues in retirement if salaried retirement program benefits are payable on an unreduced-for-age basis, at three times annual base salary for executives appointed prior to January 1, 1989, and one times annual base salary for executives appointed on January 1, 1989, or later. No income is imputed to the executive; however, the benefit is taxable as ordinary income to survivors when paid. We have computed the incremental cost to the Corporation for this program by reference to the Internal Revenue
Service (the “IRS”) Table 1 for insurance premiums at comparable coverage limits based on each executive’s age. In addition, the Corporation maintains split-dollar insurance benefits for Messrs. Wagoner and Devine.
Executive Health Evaluation — The Corporation provides a routine medical exam for all U.S. executives which we believe is in the best interests of the organization in that executives are able to contribute to their maximum potential, and unanticipated medical concerns are minimized by early detection and prevention.
Financial Counseling — The Corporation provides a taxable allowance to all senior U.S. executives for financial counseling and estate planning services. This program does not include tax preparation services.
GM Matching Contributions Program — All active GM employees in the U.S. may participate in a matching contributions program to accredited four-year colleges, universities, and community colleges in which all eligible contributions are matched on a dollar-for-dollar basis up to $5,000 annually. Any matching contributions made by the Corporation on behalf of the Named Executive Officers are included in “All Other Compensation” on page 32.
We believe that continuity in our Senior Leadership Group is in the best interests of the Corporation and our stockholders. However, we do not enter into employment agreements with executives except as required, for example, in the cases of a mid- or-late career external executive hire or a specific retention concern. Consistent with this philosophy, we do not have any employment agreements with Messrs. Wagoner, Henderson, or Cowger that provide them with special compensation arrangements. Employment arrangements with Messrs. Gottschalk, Lutz, and Devine are discussed on page 44.
We also require each Named Executive Officer to sign a GM standard non-competition agreement whenever he receives a base salary increase. The agreement contains a promise to refrain from working for a competitor for two years after leaving the Corporation.
Other Compensation Policies
Executive Officer Severance Policy — General Motors executive officers are generally at-will employees who serve at the discretion of the Board. GM does not generally enter into severance agreements, and any such existing arrangements for Named Executive Officers are limited to those disclosed in this proxy statement. In early 2005, GM adopted a policy applicable to executive officers requiring stockholder approval of any severance benefits if: (i) the executive’s employment was terminated prior to retirement; and (ii) the present value of the proposed severance benefits would exceed 2.99 times the sum of the executive’s base salary and target bonus. Certain types of compensation, including payments based on accrued qualified and non-qualified deferred compensation, retirement, or savings plans; payments of accrued salary, bonus, or performance award amounts; or benefits paid under plans in which other employees participate, are not deemed severance benefits under the policy. If the Board determines because of time constraints or other reasons that it would be in the best interests of stockholders, the Corporation may enter into a severance agreement with an executive officer that exceeds these limits before stockholder approval can be obtained. Under those circumstances, however, no benefits in excess of this limit may be paid unless and until GM stockholders approve the severance agreement. For information about obtaining a more detailed description of the policy see “Communicating with GM” on page 4.
Recoupment Policy on Unearned Incentive Compensation — In October 2006, the GM Board adopted and announced a policy regarding the recoupment of unearned compensation, applicable to incentive compensation paid to executive officers after January 1, 2007 and unvested portions of awards previously granted, in situations involving financial restatement due to employee fraud, negligence, or intentional misconduct. In line with this, the Committee charter was modified to reflect the new policy and the revised charter and policy were published on GM’s Web site. In addition, we added provisions to all executive incentive and deferred compensation plans to reference Board policies impacting compensation and will require the compensation of all executives covered by this policy to be subject to this recoupment clause.
Stock Ownership Guidelines — The Corporation has established stock ownership guidelines for the Named Executive Officers. The guidelines require senior executives to own significant amounts of Common Stock so that their financial interests are linked to those of GM stockholders. Compliance is measured by reference to a three-year average stock price in order to take into consideration the volatility of the stock market and the long-term holding requirement. Executives are provided an appropriate amount of time to meet the guidelines following
appointment. In addition, the Corporation exercises some discretion in enforcing the guideline when the accumulation of Common Stock is affected by the price of Common Stock, the lack of compensation plan payouts, or modifications to benefit plans.
Securities Trading — Named Executive Officers are covered by GM’s insider securities trading policy which, in some cases, goes beyond the minimum requirements of the law to avoid any appearance of impropriety to protect both the Corporation’s reputation and that of its employees. Under this policy, Named Executive Officers not in possession of material non-public information may generally buy or sell GM securities only during specified “window” periods, but even during such windows, specific approval is required by GM’s Legal Staff. Named Executive Officers in possession of material non-public information that becomes known to the investing public, may buy or sell GM securities beginning two days after the date such information has been publicly released.
The GM securities trading policy allows previously established regularly scheduled purchases to continue within the S-SPP, the GM Dividend and Cash Investment Plan, or any DCP, even if a Named Executive Officer is in possession of material non-public information, since the timing of the purchases is not controlled by the executive. However, with these company-sponsored investment plans, executives may not initiate or increase purchases of a relevant GM security or make transfers into or from the relevant GM security while in possession of material non-public information relating to that security. Executives may exercise a stock option for cash or stock while in possession of material non-public information, since no public sale of stock is involved and the option exercise price was pre-established. However, “cashless” stock option exercises are not allowed while an executive is in possession of material non-public information since this type of exercise involves a sale of Common Stock. The Insider Trading Policy, available on the Corporation’s Web site at http://investor.gm.com, under “Corporate Governance,” further outlines restrictions on trading.
GM’s securities trading policy for executive officers prohibits any pledging or hedging of Common Stock. No Named Executive Officers pledged or hedged any of their Common Stock during 2006.
Compensation Deductibility Policy
In 2002, GM stockholders approved an incentive compensation program effective until May 31, 2007, which includes provisions allowing the Corporation to comply with regulations under Section 162(m) of the IRC. As a result, the Corporation is able to take a tax deduction for performance-based compensation in excess of $1 million per taxable year paid to the CEO and each of the next four most highly compensated officers of the Corporation. The IRC does not permit companies to take a tax deduction for compensation paid in excess of $1 million unless it is performance based. While we make every effort to ensure we will be able to deduct the compensation we pay, if compliance with Section 162(m) conflicts with the Corporation’s compensation philosophy, or what we believe to be in the best interests of the Corporation and our stockholders, we may conclude that paying non-deductible compensation is appropriate in certain circumstances. In reaching such a conclusion in any specific situation, we would carefully factor into our decision making the estimated cost to the Corporation of any forgone deduction. For 2006, any incentive payments made were qualified under Section 162(m).
2006 SUMMARY COMPENSATION TABLE
(1) As discussed on page 24, Messrs. Wagoner, Henderson, Lutz, Gottschalk, and Devine voluntarily reduced their base salaries on March 1, 2006, as part of a significant cost reduction strategy in support of the GMNA Turnaround Plan announced in February 2006. These salaries remained at the reduced amounts throughout the remainder of 2006. Beginning March 1, 2007, salaries continue to be reduced from 2006 levels as follows: Mr. Wagoner, $1,650,000, 25 percent less than his January 1, 2006 salary; Mr. Henderson, $1,318,000, 15 percent less than his January 1, 2006 salary; and Mr. Lutz, $1,318,000, 15 percent less than his January 1, 2006 salary. Mr. Gottschalk elected to retire from the Corporation on April 1, 2007.
(2) The Named Executive Officers are not entitled to receive payments which would be characterized as “Bonus” payments for the fiscal year ended December 31, 2006. Amounts described in prior years as “Bonus” under the AIP that are based on annual performance measured against pre-established targets are now reported under the column entitled “Non-Equity Incentive Plan Compensation.”
(3) These amounts reflect target long-term incentive awards granted to Named Executive Officers for the performance periods 2005-2007 and 2006-2008 under the LTIP. The dollar amounts reported here reflect the expense recognized for financial reporting purposes for the fiscal year ended December 31, 2006, in accordance with FAS 123(R) for all outstanding stock awards and thus include amounts relating to awards granted in and prior to 2006. We describe the valuation assumptions used in measuring the expense in Note 24, the “Stock Incentive Plans” to the Corporation’s audited financial statements for the fiscal year ended December 31, 2006, included in the 2006 GM Annual Report on Form 10-K filed with the SEC on March 15, 2007. The number of target shares for the 2006-2008 SPP is also shown in the “2006 Grants of Plan-Based Awards” table on page 34 at the fair value of $24.81 on the date of grant, February 23, 2006. If the minimum or threshold performance level is met or exceeded the percentage of the target award that will eventually be paid to participants will depend on the Corporation’s TSR ranking relative to other companies in the S&P 500 Index over the three-year period as described in the CD&A beginning on page 21. It is important to note that if the minimum performance level is not met, no awards will be paid.
(4) Amounts shown here reflect the expense recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006, in accordance with FAS 123(R) in respect of outstanding awards under the SIP including expenses relating to awards granted in and prior to 2006. We describe the valuation assumptions used in measuring the expense in Note 24 “Stock Incentive Plans” to the Corporation’s audited financial statements for the fiscal year ended December 31, 2006, of the 2006 GM Annual Report filed on Form 10-K
with the SEC on March 15, 2007. We describe the grant date fair value of option awards granted in 2006 to the Named Executive Officers in the “2006 Grants of Plan-Based Awards” table on page 34 and in Note 24 of the 2006 GM Annual Report on Form 10-K filed with the SEC on March 15, 2007.
(5) Amounts reported are payments under the AIP based on annual performance measured against pre-established targets whose outcome is uncertain at the time the awards are communicated to the Named Executive Officers. Following discussions with management, it was mutually determined that, while AIP targets had been met at above threshold levels, no 2006 cash incentive awards would be paid to the Named Executive Officers who are employees of the Corporation. Since Mr. Devine terminated employment with the Corporation during the fiscal year, he received a payout representing the pro rata portion of his AIP, which was earned under the Plan consistent with the terms of his retirement agreement.
(6) These amounts represent the actuarial increase in the present value of the executive’s accrued pension benefit resulting from additional amounts of credited service and executive and Corporation contributions to the plan as of December 31, 2006, as described in the pension benefits table on page 39. Values are based on discount and mortality rate assumptions used in FAS 87 disclosures contained in GM financial statements for the fiscal year ended December 31, 2006. Since the Corporation does not credit interest at above-market rates to DCP accounts, no interest amounts are included in these totals.
(7) These amounts include dividend equivalents paid quarterly in cash on undelivered restricted stock units, foreign service premiums and allowances, and the cost to the Corporation of providing welfare benefits and personal benefits to the Named Executive Officers as described in the supplemental table below. In support of the GMNA Turnaround Plan discussed above, the Corporation suspended all matching contributions to employee savings plans in February 2006. Matching contributions were reinstated effective January 1, 2007.
(8) This “Total” includes incentive grants of potential stock and option awards made to the executive during the year which may not yield a future payout if performance criteria are not achieved and the incremental increase in the annual value of future pension benefits based on additional years of compensation and service, which may not be realized.
2006 All Other Compensation Table
Totals for amounts reported as “All Other Compensation” in the preceding “Summary Compensation Table” are described below:
(1) See the following “Personal Benefits” table for additional information.
(2) Includes Supplemental Life Benefits Program which provides a cash benefit paid upon the death of an active executive at three times annual salary for executives appointed prior to January 1, 1989, and two times annual salary for executives appointed on January 1, 1989 or later. Coverage may be continued in retirement at three times annual salary and one times annual base salary, respectively. No income is imputed to the executive, and the benefit is taxable as ordinary income to survivors when paid. The associated incremental cost reflects amounts contained in IRS Table 1 for insurance premiums at comparable coverage limits based on the executive’s age. Also includes costs to the Corporation in providing split-dollar life insurance policies for Messrs. Wagoner and Devine. The benefit includes only the stated face amount of the insurance coverage; however, policy assets are used after specified times to support the premium cost of continued coverage, and the Corporation receives a refund of its premiums from the proceeds of the policy upon the executive’s death.
(3) Includes (A) employer contributions to tax-qualified and non-qualified defined contribution and excess benefit plans; (B) cost of premiums for providing Personal Umbrella Liability Insurance; (C) corporate matching contributions to colleges, universities, and community colleges; and (D) payments made on the executives’ behalf by the Corporation for the payment of taxes related to executive program vehicles, foreign service
income, and spousal accompaniment on business travel. Amounts for each of these items did not exceed $10,000 for fiscal year 2006 and are therefore aggregated and reported here.
Amounts shown below for personal benefits include the incremental costs for personal use of company aircraft, executive security services and systems, the executive company vehicle program, executive health evaluations, and financial counseling. Where these amounts exceed the reporting threshold of the greater of $25,000 or 10 percent of total personal benefits, they are further quantified below. Mr. Henderson’s executive vehicle program costs include personal vehicles in both Michigan and Florida. Items that did not exceed the reporting guideline are aggregated and reported as “Other.”
(1) As a result of the recommendations by an independent third-party security study, the Board of Directors encourages Messrs. Wagoner, Henderson, Lutz, and Gottschalk to use corporate aircraft for personal as well as business travel. A spouse may accompany the executive on company business, and imputed income is assessed to the executive with taxes thereon reimbursed by the Corporation if the spouse’s attendance is also required for business purposes. Personal use of the Corporation aircraft reported here is valued using an incremental cost method that takes into account variable cost per flight hour, as well as other direct out of pocket expenses; landing, parking, and hangar storage expenses; crew travel expenses; flight expenses associated with portions of a flight with no passengers; catering expenses; any customs, foreign permit, and similar fees; and security costs to secure the aircraft while on the ground. The Executive Compensation Committee annually reviews all corporate aircraft usage by the Named Executive Officers.
(2) As part of the comprehensive security study noted above, residential security systems and services are maintained for Messrs. Wagoner, Henderson, Lutz, Gottschalk, and Devine, and chauffeured vehicles are available for business-related functions. The associated cost includes the actual costs of installation and monitoring of security systems and allocation of staffing expenses for personal protection.
(3) Includes the incremental cost to maintain the executive company vehicle program fleet which is allocated to each executive and includes lost sales opportunity, if any; fuel, maintenance, and repair costs; licensing and registration fees; and use taxes. Also included are the cost of medical services incurred by the Corporation in providing executive health evaluations; and costs for financial counseling and estate planning services with one of several approved providers.
2006 GRANTS OF PLAN-BASED AWARDS
As described beginning on page 24, GM provides several incentive award opportunities to executives, designed to reward both short-term and long-term business performance, and create a close alignment between incentive compensation and stockholders’ interests. The following table provides information on non-equity incentive plan awards, stock performance units, and stock options granted in 2006 to each of our Named Executive Officers. Although grant date fair value is shown in the table for these stock and option awards, there can be no assurance that these values will actually be realized during the terms of these grants. The amounts expensed for these awards during fiscal year 2006 are included in the amount shown in the “2006 Summary Compensation Table” on page 31.
2006 GRANTS OF PLAN-BASED AWARDS
(1) On February 21, 2006 the Executive Compensation Committee approved stock option and equity award grants to be made on February 23, 2006 consistent with the practice described in the CD&A on page 21.
(2) Target awards were established for 2006, consistent with past practice, for possible delivery in early 2007 under the AIP. Any payout at the end of the period is determined based on the achievement of established performance targets as described on pages 24-25. It should be noted that there were no payouts under this plan for 2005.
(3) The 2006-2008 SPP target awards were granted to the Corporation’s senior executives, including Named Executive Officers. These grants are made annually; however, any payout is determined based on the TSR performance ranking of Common Stock compared to that of other stocks in the S&P 500 Index over a three-year period. The awards will be denominated in nominal shares of Common Stock during the performance period, but then paid in cash in one installment if threshold performance is achieved. The expense accrued in 2006 for these target shares reported here and included in the amount shown in the “Stock Awards” column of the “2006 Summary Compensation Table” on page 31 and is calculated pursuant to assumptions set forth in Note 24 of the 2006 GM Annual Report on Form 10-K filed with the SEC on March 15, 2007. The final award value to be delivered at the end of the three-year performance period, if any, will depend on GM’s TSR ranking (based on market price appreciation as determined under GAAP, plus the compounding effect of reinvested dividends) relative to other companies in the S&P 500 Index. There were no payouts under this plan for performance periods ending in 2005 or 2006.
(4) In anticipation of his retirement on June 1, 2006, Mr. Devine was not awarded an SPP grant for the 2006-2008 performance period.
(5) Stock options are granted annually, and periodically to executive new hires as discussed on page 26. All stock options contain a clawback provision requiring any executive who terminates employment with GM for any reason other than retirement or death within 12 months after the date of exercise of any stock option to repay to the Corporation an amount equal to any gain from the exercise.
(6) The Exercise or Base Price is established as the mean of the high and low price for the date of grant. The Common Stock closing price for February 23, 2006, was $20.59.
(7) Calculated pursuant to assumptions set forth in Note 24 of the 2006 GM Annual Report on Form 10-K filed with the SEC on March 15, 2007. The grant date fair value of Equity Incentive Plan Awards was $24.81 and the fair value of Stock Options granted on February 23, 2006 was $7.06.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2006
(1) Stock options were granted to the Named Executive Officers in a combination of non-qualified and Incentive Stock Options (“ISO”), up to the IRC maximum limit on ISOs. Options become exercisable in three equal annual installments commencing on the first anniversary of the date of grant. The ISOs expire ten years from the date of grant, and the non-qualified options expire two days later.
(2) Dividend equivalents are paid quarterly on these RSUs and undelivered performance shares and are disclosed as “All Other Compensation” in the “2006 Summary Compensation Table.”
(3) Amounts reflect long term incentive awards granted to Named Executive Officers. Award opportunities cover the 2006-2008 and 2005-2007 performance periods and were granted under the LTIP as described beginning on page 26. Each unit in the table refers to a share of Common Stock. The awards are valued based on the price of Common Stock on December 29, 2006 ($30.72). Share amounts for the 2006-2008 awards are based on a forecast of maximum performance as of December 29, 2006. Given this forecast is based on one year’s performance, and this is a three-year plan there can be no assurance that final performance will be at this level. Share amounts for the 2005-2007 awards are based on a forecast of threshold performance.
(4) Mr. Wagoner’s shares reflect the outstanding fourth installment of Performance Achievement Plan awards for the performance periods 1995-1997, 1994-1996, 1993-1995, and 1992-1994 that will vest and be delivered at retirement or other mutual separation ($666,931) and 125,000 outstanding RSUs to be delivered at retirement or earlier, under award terms ($3,840,000). Mr. Wagoner’s unvested awards also include 378,610 shares valued at $11,630,899 under the 2006-2008 SPP; and 51,112 shares valued at $1,570,161 under the 2005-2007 SPP.
(5) For Mr. Henderson, unvested awards include 50,317 outstanding RSUs which will vest and be delivered in 2010 ($1,545,738), and 41,667 RSUs which will vest and be delivered in 2015 ($1,280,010). Mr. Henderson’s shares also reflect 189,306 shares valued at $5,815,480 under the 2006-2008 SPP; and 12,778 shares valued at $392,540 under the 2005-2007 SPP.
(6) For Mr. Lutz, unvested awards include 75,000 outstanding RSUs to be delivered at retirement ($2,304,000). Mr. Lutz’s shares also reflect 189,306 shares valued at $5,815,480 under the 2006-2008 SPP; and 25,556 shares valued at $785,080 under the 2005-2007 SPP.
(7) For Mr. Gottschalk, unvested awards include 40,000 outstanding RSUs to be delivered six months following retirement ($1,228,800). Mr. Gottschalk’s shares also reflect 94,654 shares valued at $2,907,771 under the 2006-2008 SPP; and 12,778 shares valued at $392,540 under the 2005-2007 SPP.
(8) For Mr. Cowger, unvested awards include 9,730 outstanding RSUs to be delivered in 2010 ($298,906). Mr. Cowger’s shares also reflect 94,654 shares valued at $2,907,771 under the 2006-2008 SPP; and 12,778 shares valued at $392,540 under the 2005-2007 SPP.
(9) For Mr. Devine, unvested awards include 95,200 outstanding RSUs to be delivered on December 1, 2007 ($2,924,544). Mr. Devine’s shares also reflect 12,069 shares valued at $370,760 under the 2005-2007 SPP.
We discuss additional information regarding deferred vested RSUs and associated earnings in the 2006 Non-Qualified Deferred Compensation table found on page 41.
Reflecting the performance-oriented nature of our incentive compensation programs for executives, as described on page 24, and the programs’ close alignment with stockholders’ interests, the following table shows the number of “in-the-money” options at the December 29, 2006, Common Stock closing price of $30.72 currently held by the Named Executive Officers.
2006 Option Exercises and Stock Vested Table
As reflected in the following tables, no stock options were exercised by the Named Executive Officers during 2006 and no outstanding stock awards vested during the period, except for Mr. Devine’s RSUs which vested and were paid in accordance with their established vesting schedule on December 1, 2006.
Retirement Programs Applicable To Executive Officers
U.S. Retirement Programs — In early 2006, as part of an intense effort to reduce costs and implement the GMNA Turnaround Plan, the Corporation announced that benefit accruals under the U.S. pension plans in place at that time would be frozen effective December 31, 2006, and new pension plan formulas for U.S. executive and salaried employees would become effective for service on and after January 1, 2007.
The accrued benefit for U.S. executive employees on the active rolls as of December 31, 2006, was frozen based on executive retirement plan formulas, credited service, and compensation history as of December 31, 2006. Eligibility for receipt of such frozen accrued benefits on and after January 1, 2007, will be based on an executive
meeting the vesting requirements established in the executive retirement program. Effective January 1, 2007, executives must be at least age 55 with a minimum of ten years of credited service to be vested in the executive retirement program.
Frozen accrued benefits for General Motors executives in the United States may be from both a tax-qualified plan that is subject to the requirements of ERISA and from a non-qualified plan that provides supplemental benefits under one of two formulas described below. The Board of Directors has delegated to the Executive Compensation Committee discretionary authority to grant additional eligible years of credited service to selected key executives under such terms and conditions as the Executive Compensation Committee determines for purposes of computing the frozen accrued non-qualified benefits for such executives. Retired executives’ tax-qualified benefits are pre-funded and paid out of the trust assets of the SRP. Non-qualified benefits are not pre-funded and are paid out of the Corporation’s general assets.
Two formulas (Regular and Alternative) are used to calculate the total of the frozen accrued tax-qualified and the frozen accrued non-qualified retirement benefit available to eligible U.S. executives. The Regular Formula determines frozen accrued benefits that are calculated based upon the average of the highest five years of base salary during the ten years preceding January 1, 2007, and also takes into account the executive’s eligible contributory and non-contributory service at GM as of December 31, 2006, as defined in the tax-qualified SRP. These frozen accrued benefits are subject to an offset of a portion of the maximum 2007 Social Security benefit.
The Alternative Formula determines frozen accrued benefits based upon average annual total direct compensation, calculated as the sum of (i) the average of the highest five years of base salary during the ten years preceding January 1, 2007, plus (ii) the average of the highest five years of bonus received that is attributable to the ten years preceding January 1, 2007 — each average calculated independently. For 2002 and 2006 an amount equal to the hypothetical cash value of a payout under the AIP was used to calculate the average of the highest five years of bonus received in the ten years before retirement for purposes of calculating Alternative SERP Formula. For retirement benefit calculation purposes, the original salaries for 2006 for Messrs. Wagoner, Henderson, Lutz, Gottschalk, and Devine were used.
The Alternative Formula also takes into account the executive’s eligible contributory (and non-contributory) service at GM as of December 31, 2006, as defined in the tax-qualified SRP, subject to a maximum of 35 years and provides for an offset of 100 percent of the maximum 2007 Social Security benefit. Only those executives who satisfy certain criteria, including not working for a competitor or otherwise acting in any manner that is not in the best interests of the Corporation, are eligible to receive frozen accrued benefits calculated under the Alternative Formula in lieu of frozen accrued benefits calculated under the Regular Formula. If the executive is eligible for the Alternative Formula, total tax-qualified and non-qualified retirement benefits calculated under both formulas are compared, and the executive receives whichever retirement benefit is greater. Benefits calculated under both the Regular and Alternative formulas are payable under a program that is non-qualified for tax purposes and not pre-funded. Non-qualified benefits under either the Regular or Alternative formulas can be reduced or eliminated for both retirees and active employees by the Executive Compensation Committee and/or the Board of Directors.
Executives who retired prior to January 1, 2007, were eligible to elect to receive retirement benefits in the form of a 65 percent joint and survivor annuity. For those who did so, single life annuity amounts were generally reduced by 5 percent to 12 percent, depending upon the age differential between spouses. In addition, certain executives grandfathered under the American Jobs Creation Act of 2004 may elect to receive a portion of their non-qualified retirement benefit paid in a lump sum, calculated using mortality tables and a 7 percent discount rate, with the remainder paid as either a single life or 65 percent joint and survivor annuity.
For service rendered on and after January 1, 2007, non-qualified retirement benefits for executive employees will be determined under one of two methods, depending on an executive’s length of service date. Benefits calculated under either method will become vested upon an executive attaining at least age 55 with a minimum of ten years of eligible credited service. With the exception of executives grandfathered under the American Jobs Creation Act of 2004, executives retiring on and after January 1, 2007, will have all vested non-qualified retirement benefits (benefits accrued both before and after January 1, 2007) paid as a five-year annuity. Should the executive die within the five-year period, payments will continue unabated to the executive’s surviving spouse for the remainder of the five-year period. If there is no surviving spouse, any remaining benefits will be converted to a lump sum and be paid to the executive’s estate.
For executives with a length of service date prior to January 1, 2001, retirement benefits will be calculated using a 1.25 percent Career Average Pay formula. Tax-qualified benefits will accrue for such executives with respect
to actual base salary received while employed as an executive for service on and after January 1, 2007, equal to 1.25 percent of base salary up to the IRC 401(a)(17) compensation limit. Non-qualified benefits will accrue for such executives with respect to actual base salary received in excess of the IRC 401(a)(17) compensation limit. In addition, such eligible executives will accrue annual non-qualified benefits equal to 1.25 percent of any AIP final awards paid with respect to annual incentive compensation performance periods commencing on and after January 1, 2007.
For executives with a length of service date on or after January 1, 2001, retirement benefits will be accumulated using a 4 percent defined contribution formula. Tax-qualified benefits will accrue for such executives with respect to actual base salary received while employed as an executive for service on and after January 1, 2007, consisting of company contributions equal to 4 percent of base salary up to the IRC 401(a)(17) compensation limit. Non-qualified benefits will accrue for executive service on or after January 1, 2007 consisting of notional contributions equal to 4 percent of base salary in excess of the IRC 401(a)(17) compensation limit. In addition, such eligible executives will accrue annual non-qualified benefits consisting of notional contributions equal to 4 percent of any AIP final awards paid with respect to annual incentive compensation performance periods commencing on and after January 1, 2007. These notional contributions shall be credited into an unfunded individual defined contribution account for each executive. These individual accounts will be credited with earnings based on investment options selected by the executive from a list approved by the Executive Compensation Committee.
The implementation of these changes to the retirement plans effective January 1, 2007, will have a significant impact on expected retirement benefit levels for executives. For example, assuming target bonus and 3.5 percent salary growth until age 62, Mr. Wagoner’s expected retirement benefit (total of frozen benefit for service through December 31, 2006, plus new formula benefit for service on and after January 1, 2007) will be reduced by 18 percent compared to the expected benefit at age 62 using the same bonus and salary growth assumptions under the prior formula. Using the same target bonus and salary growth assumptions, Mr. Henderson’s expected retirement benefit (total of frozen benefit for service through December 31, 2006, plus new formula benefit for service on and after January 1, 2007) will be reduced by nearly 52 percent compared to the expected benefit at age 62 using the same bonus and salary growth assumptions under the prior formula. The steeper reduction for Mr. Henderson is primarily due to the fact that (1) he has fewer years of service in the frozen benefit; (2) his five-year average salary for the frozen benefit is a lower percentage of his current salary; and (3) he has more years to age 62 under the new reduced formula.
Pension Benefits as of December 31, 2006
(1) All benefit amounts (except the SRP benefit shown for Mr. Lutz) are shown as the present value of a joint and 65 percent survivor annuity form of payment. Mr. Lutz is in the Account Balance Plan feature of the SRP and the SRP amount shown is his account balance as of the valuation date. Where a benefit amount is in payment status, the benefit and present value reflect the actual benefit amount and form of payment. For SRP and SERP benefits, the present value represents the value of the benefit commencing at age 62 (or immediately if over age 62). Benefits and present values reflect the provisions of the SRP and SERP as of December 31, 2006 and do not reflect changes that became effective on January 1, 2007. Present values shown here are based on the mortality and discount rate assumptions used in the December 31, 2006 FAS 87 disclosures contained in footnotes to GM’s financial statements.
(2) As of December 31, 2006, Messrs. Wagoner and Henderson are not eligible to retire under any qualified or non-qualified GM retirement plan. Amounts shown in Column D for Messrs. Wagoner and Henderson represent the present value of benefits accrued through December 31, 2006 payable at age 62 as a joint and 65 percent survivor annuity form of payment. Upon Termination of employment prior to retirement eligibility they are only eligible for a deferred vested benefit from the SRP, reduced for age if received prior to age 65. The amount shown in Column F represents the annual deferred vested SRP benefit that would be payable commencing age 65. The present value benefit shown in Column G represents the amount that would be payable per SRP plan rules if taken at year-end 2006 as a lump sum. Neither Mr. Wagoner nor Mr. Henderson would be eligible for SERP benefits if service terminated on December 31, 2006.
(3) On December 4, 2006, the Executive Compensation Committee approved the award of nine additional years of service credits for purposes of calculating benefits under the SERP for Mr. Robert A. Lutz, Vice Chairman, Global Product Development. This action recognizes Mr. Lutz’s ongoing contribution to the Corporation subsequent to the lapse of his employment agreement, and permits the accumulation of all years of service rendered to the Corporation by Mr. Lutz by including a prior period of General Motors employment from 1963-1972 for the purpose of determining his SERP benefits. The change in Mr. Lutz’s estimated accrued SERP benefit reflected as a present value at December 31, 2006 is $3.6 million.
(4) On June 27, 1994, the Executive Compensation Committee approved the award of one additional year of service credit for each year of actual service rendered for purposes of calculating benefits under the SERP for Mr. Thomas A. Gottschalk. This action was taken pursuant to the terms of his employment agreement and permits the accumulation of additional service, commencing in mid-career, for the purpose of determining his SERP benefits and increased the present value of his non-qualified pension benefit shown above by $4.0 million.
(5) As of December 31, 2006, Mr. Cowger is eligible to retire under the qualified GM retirement plan but is not eligible to retire under GM’s non-qualified SERP. The amount shown in Column D represents the present value of benefits accrued through December 31, 2006 payable at age 62 as a joint and 65 percent survivor annuity form of payment. SERP service shown in Column C reflects the 35 year cap on SERP service. The amount shown in Column F is the SRP benefit payable as of December 31, 2006 for immediate retirement. The amount shown in Column G is the present value of the SRP benefit shown in column F. Mr. Cowger is not eligible for SERP benefits if service terminated on December 31, 2006.
(6) Mr. Devine retired from the Corporation on June 1, 2006, and commenced receipt of retirement benefits pursuant to plan provisions.
2006 Non-Qualified Deferred Compensation
As described on pages 27 and 28, General Motors maintains two deferred compensation programs for executives, including the Named Executive Officers. The BEP is a non-qualified savings plan designed to allow for the equalization of benefits for highly compensated salaried employees under the SRP and the S-SPP when such employees’ contribution and benefit levels exceed the maximum limitations on contributions and benefits imposed by Section 2004 of ERISA and Sections 401(a)(17) and 415 of the IRC. Since matching contributions to the S-SPP were suspended in February 2006, no corporate contributions were made to the BEP accounts other than contributions related to post-retirement health care coverage for executives hired on or after January 1, 1993. For BEP benefit calculation purposes, the original salaries for 2006 for Messrs. Lutz, Gottschalk, and Devine were used.
The BEP is maintained as an unfunded plan and all expenses for administration of the BEP and payment of amounts to participants are borne by the Corporation. Registrant contributions to employee accounts are denominated in shares of Common Stock, and dividend equivalents are credited on accumulated share balances. On January 1, 2007, the BEP was amended to provide greater flexibility for employee investment options consistent with the investment options elected in the employees’ executive retirement program defined contribution accounts.
The General Motors Deferred Compensation Plan for Executive Employees permits senior level executives to make deferrals to the Plan. Deferrals of AIP and SPP awards may be made into the plan in amounts from 5 percent to 100 percent of the award amount. Available investment options include Common Stock, U.S. Treasury Notes, and the Promark Large Cap Index Fund. Dividend equivalents are credited and accrued on Common Stock units. The Plan does not provide for interest or earnings to be paid at above-market rates.
2006 Non-Qualified Deferred Compensation
The table above reflects year-end balances and executive contributions, company contributions, earnings, and any withdrawals during the year for the BEP and DCP for the Named Executive Officers. Vested and deferred RSUs and dividend-equivalent earnings thereon are also included.
(1) Contributions reported here are for post-retirement health care accounts only and are included in “All Other Compensation” in the “2006 Summary Compensation Table” on page 31.
(2) Mr. Henderson received a distribution from the DCP plan based on a pre-determined asset distribution and withdrawal schedule. Assets liquidated included U.S. Treasury Notes and Promark Large Cap Index Fund assets. Mr. Henderson’s remaining holdings include 45,619 share units of Common Stock valued at $1,401,421.
(3) Included in Mr. Lutz’s DCP balance are 126,200 share units of Common Stock valued at $3,874,413.
(4) Of the totals in this column, the following amounts have been reported in the Summary Compensation Tables for fiscal year ended 2006 and in prior years:
Potential Payments Upon Termination or Change In Control
The Corporation maintains compensation and benefit plans that will provide payment of compensation to Named Executive Officers in the event of termination of employment or change in control of the Corporation. These provisions are generally applicable to all plan participants and are not reserved only for Named Executive Officers. The amount of compensation payable to each Named Executive Officer in these situations is described in the tables that follow.
The Corporation does not provide either a severance or a change in control severance plan for executives, and utilizes employment or severance agreements on an infrequent basis. Any employment agreements with Named Executive Officers are described below and on page 44. In the event of a termination of a Named Executive Officer, the Executive Compensation Committee would review all the surrounding facts, including the executive’s length of service and contributions to the Corporation, as well as the reason for the termination, and determine the amount of severance, if any, that would be paid to the executive upon termination.
Retirement and Pension Benefits. As described on pages 37-38, retirement benefits were frozen on December 31, 2006, and eligibility to receive benefits under the non-qualified executive plan will be based on the vesting requirements established under the new plan (age 55 with ten years of service) for terminations on and after January 1, 2007. In addition, the SRP provides for the payment of a deferred vested benefit to all salaried employees who terminate employment prior to retirement eligibility based on their compensation and years of service at the time of separation. Normal retirement is defined under the plan as age 65. No other individualized arrangements exist with Named Executive Officers except those disclosed on pages 37-40 and in the Employment Agreements section on page 44.
As of December 31, 2006, Messrs. Wagoner and Henderson are not eligible to retire under any qualified or non-qualified GM retirement plan. Upon termination of employment, they could receive a deferred vested benefit from the qualified GM Salaried Retirement Program, reduced for age if received prior to age 65. This benefit is available to any participant in the plan. Their non-qualified benefits would be forfeited.
As of December 31, 2006, Mr. Gottschalk is eligible for retirement pursuant to the provisions of both the qualified SRP and the non-qualified SERP plans applicable to executive employees generally. As of December 31, 2006, Mr. Cowger is eligible to retire pursuant to the provisions of the qualified SRP, applicable to salaried employees generally, but is not eligible to retire pursuant to provisions of the non-qualified SERP. As of December 31, 2006, Mr. Lutz is eligible to retire pursuant to the provisions of the qualified SRP applicable to all salaried employees. He is also eligible to receive non-qualified SERP benefits pursuant to the Executive Compensation Committee’s action in 2004 to grant full vesting rights with five years of service.
Mr. Devine retired from the Corporation on June 1, 2006, and is receiving pension benefits as disclosed in the “2006 Summary Compensation Table” on page 31 and in the pension benefits table on page 39.
Benefits Payable at Death. Upon death, GM provides one month salary to certain dependents including surviving spouses, members of employee’s family, or other individuals who are to be responsible for payment of funeral expenses. This benefit is provided generally for all salaried employees. In addition, the Corporation provides survivors a monthly pension benefit at a rate of 65 percent of the monthly retirement benefit payable to the employee where the survivor option has been elected. Supplemental Life Benefits are provided for all executives and individual split-dollar life insurance policies were maintained for Messrs. Wagoner and Devine. Benefits payable thereunder at December 31, 2006, for Mr. Wagoner totaled $11,000,000; and, for Mr. Devine totaled $7,750,000. For Supplemental Life Benefit Plan and split-dollar benefit calculation purposes, the original salaries for 2006 for Messrs. Wagoner, Henderson, Lutz, Gottschalk, and Devine were used.
Incentive Plans. Annual incentive awards will be paid out pursuant to plan provisions on a pro rata basis based on actual performance and time worked during the performance period for executives retiring under retirement plan provisions and mutually satisfactory separations.
Outstanding SPP performance awards are paid pursuant to plan provisions as follows: terminations resulting from mutually satisfactory separation will be prorated for time worked and paid out at the end of the performance period. Terminations resulting from death will be prorated for time worked, will vest immediately, and will be paid out at forecasted performance as soon as practicable. Outstanding equity awards for the Named Executive Officers are shown in the “Outstanding Equity Awards at Fiscal Year-End 2006” table on pages 35 and 36.
Mr. Wagoner’s outstanding fourth installment of Performance Achievement Plan awards for the performance periods 1995-1997, 1994-1996, 1993-1995, and 1992-1994 (21,710 shares) will vest and be delivered at retirement, mutually satisfactory separation, or death.
Outstanding stock option awards and RSUs for the Named Executive Officers are shown in the “Outstanding Equity Awards at Fiscal Year-End 2006” table on pages 35 and 36. Stock Options continue their original vesting schedule and remain exercisable for the full remaining term under retirement plan provisions. Outstanding options vest immediately upon death and remain exercisable for three years from the date of death or the original term, whichever comes first. Vested options remain exercisable for the shorter of three years or the full remaining term for mutually satisfactory terminations. Vesting and payout provisions for RSUs are described in footnote (4) in the following table. Options and RSUs are forfeited for all other types of separations.
GM executive incentive plans also provide for vesting upon certain change in control events. In particular, pursuant to the AIP and the LTIP, upon a change in control, outstanding awards would vest and be paid on a pro rata basis at the greater of target award level or actual performance. Pursuant to the SIP, upon a change in control, outstanding stock options would vest and become immediately exercisable and RSUs would vest and be paid on a pro rata basis. Like other senior executives of the Corporation, the Named Executive Officers are eligible to participate in these plans.
Effective January 1, 2007, these incentive plans were amended to require both a change in control and a termination of employment within three years following the event to trigger the accelerated payments discussed above. The plans were modified because we believe that the real risk in a change in control situation is the loss of employment, not simply the change in control itself. We believe that the plan modifications are more consistent with best market practices and represent a more balanced approach to change in control protections and those benefits amounts are quantified in the following table.
Estimated Separation Payments Upon Termination
(1) There is no general severance plan for executives. At the discretion of the Executive Compensation Committee, Named Executive Officers could receive severance pay up to 2.99 times base salary and annual bonus. Other salaried employees may receive up to 15 months salary upon involuntary separation.
(2) Stock Options — No intrinsic value; exercise price for all vested options was higher than the stock price on December 31, 2006. Vested options remain exercisable for original vesting schedule or three years, whichever is sooner, pursuant to non-compete and other plan provisions. All unvested options are forfeited.
(3) SPP awards paid at the end of the performance period on a pro rata basis for time worked within the performance period prior to December 31, 2006. Awards are forfeited as a voluntary resignation and in for cause terminations.
(4) RSUs for Messrs. Wagoner, Lutz, and Gottschalk are paid immediately. RSUs for Messrs. Henderson and Cowger vest and are paid on a pro rata basis for time worked. Awards are forfeited as a voluntary resignation and in for cause terminations.
(5) See pension table on page 39; additional benefits are provided only at the sole discretion of the Executive Compensation Committee.
(6) Under provisions of the General Motors Salaried Health Care Program, Messrs. Wagoner, Henderson, and Lutz could continue health care coverage as provided under applicable federal laws (i.e., COBRA). Based on his ability to retire and his length of service, Mr. Gottschalk would be eligible to continue GM health care coverage in retirement on a 100 percent self-paid basis only. Based on his ability to retire, Mr. Cowger would be eligible to receive GM financial contributions toward health care coverage in retirement.
(7) Salaried employees may receive pay in lieu of unused vacation in the calendar year of termination of employment. Totals assume all vacation entitlement has been used as of December 31, 2006.
The following table describes the potential payments upon a change in control of the Corporation assuming the triggering event and separation occurred on December 31, 2006. It should also be noted that these amounts do not include stock options that have already vested and are reported on pages 35 and 36 in the “Outstanding Equity Awards at Fiscal Year-End 2006” table, qualified pension plan benefits and SERPs disclosed in the pension benefits table, or deferred compensation reported in the “2006 Non-Qualified Deferred Compensation” table.
(1) SPP awards for 2005-2007: amount shown assumes target performance, and for 2006-2008: amount shown assumes maximum performance; the closing price of Common Stock on December 29, 2006 ($30.72), has been used to value the awards and payouts have been prorated for time worked during performance period. Resulting payments are calculated based on the following equity holdings: Mr. Wagoner, 2005-2007: 68,150 shares; 2006-2008: 63,102 shares; Mr. Henderson, 2005-2007: 17,038 shares; 2006-2008: 31,551 shares; Mr. Lutz, 2005-2007: 34,075 shares; 2006-2008: 31,551 shares; Mr. Gottschalk, 2005-2007: 17,038 shares; 2006-2008: 15,776 shares; and Mr. Cowger, 2005-2007: 17,038 shares; 2006-2008: 15,776 shares.
(2) Amount reflects an exercise spread of $9.82 per option to calculate stock option value (i.e., the spread between the option grant price and the stock price on December 31, 2006); Mr. Wagoner, 400,000 unvested stock options; Mr. Henderson, 160,000 unvested stock options; Mr. Lutz, 160,000 unvested stock options; Mr. Gottschalk, 72,000 unvested stock options; and Mr. Cowger, 50,000 unvested stock options. All other unvested options held by the Named Executive Officers have exercise prices in excess of the closing price on December 31, 2006.
(3) Includes vested stock-based RSUs for Messrs. Wagoner, Lutz, and Gottschalk which would be paid immediately. RSUs for Messrs. Henderson and Cowger vest and are paid on a pro rata basis for time worked. Valued at December 29, 2006 closing stock price ($30.72); Mr. Wagoner, 125,000 units; Mr. Henderson, 91,984 units; Mr. Lutz, 75,000 units; Mr. Gottschalk, 40,000 units; and Mr. Cowger, 9,730 units.
General Motors believes that continuity in its Senior Leadership Group is in the best interests of the Corporation and its stockholders. In this regard, each Named Executive Officer has agreed that if he leaves the Corporation he will not work for a competitor for two years.
As part of Mr. Gottschalk’s hiring arrangement in 1994, he was provided a supplemental year of service for each year he worked for GM under our non-qualified retirement plan, as reflected in the pension amounts disclosed on page 39.
In August 2001 the Corporation entered into an employment agreement with Robert A. Lutz for a term of three years which was extended in December 2002. In addition, the Executive Compensation Committee agreed in June 2004 to permit Mr. Lutz to become eligible for a SERP benefit after a minimum of five years of eligible service. Mr. Lutz’s contract expired in December 2005. On December 4, 2006, the Executive Compensation Committee approved the recognition of nine additional years of service credits for purposes of calculating benefits under the SERP for Mr. Lutz. This action, taken in recognition of Mr. Lutz’s ongoing contribution to the Corporation, permits the accumulation of all service rendered to the Corporation by Mr. Lutz by including a prior period of his General Motors employment from 1963 to 1972 for the purpose of determining his SERP as disclosed on pages 31 and 39.
In December 2000 the Corporation entered into a five-year employment agreement ending December 13, 2005, with John M. Devine for his service in the capacity as Vice Chairman of the Corporation and Chief Financial Officer. Under the terms of the agreement, the Corporation agreed to replace certain supplemental pension obligations to compensate Mr. Devine for benefits from a previous employer, which were forfeited when his employment with General Motors commenced, and agreed to permit his eligibility for a SERP benefit after a minimum of five years of eligible service. In December 2005, Mr. Devine agreed to remain for up to one additional year as a Vice Chairman of the Corporation beyond his original agreement. Mr. Devine’s base salary and other components of incentive pay were continued at their current levels until March 1, 2006, when Mr. Devine voluntarily reduced his salary as discussed on page 24. Mr. Devine retired from the Corporation on June 1, 2006. In accordance with the provisions of his previous contract, Mr. Devine continues to receive compensation for the loss of non-qualified pension benefits from a prior employer and on December 1, 2007, will receive the balance of the special RSU grant awarded to him at the time of his hire.
The following Audit Committee Report shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement or any portion hereof into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and shall not otherwise be deemed filed thereunder.
Audit Committee Report
The Audit Committee of the General Motors Board of Directors is a standing committee composed of four directors who meet the independence, financial experience, and other qualification requirements of the NYSE and applicable securities laws. It operates under a written charter adopted by the Committee and approved by the Board of Directors, which is attached to this proxy statement as Exhibit A. The members of the Committee are Philip A. Laskawy (Chair), Kent Kresa, Ellen J. Kullman, and Eckhard Pfeiffer. The Board has determined that Philip A. Laskawy is an audit committee financial expert as defined by the SEC. The Committee annually selects the Corporation’s independent accountants.
Management is responsible for the Corporation’s internal control and the financial reporting process and has delivered its opinion on the strength of controls. The independent accountants are responsible for performing an independent audit of the Corporation’s consolidated financial statements and opining on management’s internal control assessment and on the effectiveness of those controls in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) and issuing their reports thereon. As provided in its charter, the Audit Committee’s responsibilities include monitoring and overseeing these processes.
Consistent with its charter responsibilities, the Committee has met and held discussions with management and Deloitte & Touche LLP (Deloitte & Touche), the Corporation’s independent accountants for 2006, regarding the Corporation’s audited financial statements as of December 31, 2006, and for the year then ended. In this context, management represented to the Committee that the Corporation’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. The Committee has reviewed and discussed the consolidated financial statements with management and the independent accountants and discussed with the independent accountants matters required to be discussed by PCAOB AU 380 (Communication with Audit Committees). The Committee also discussed with Deloitte & Touche those matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees).
The Corporation’s independent accountants have also provided to the Audit Committee the written disclosures required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the Committee discussed with the independent accountants that firm’s independence. The Audit Committee has also considered whether the provision of non-audit services is compatible with maintaining the independent accountants’ independence. The Audit Committee concluded that Deloitte & Touche is independent from the Corporation and its management.
Based upon the Committee’s discussions with management and the independent accountants as described in this report and the Committee’s review of the representation of management and the report of the independent accountants to the Committee, the Committee recommended to the Board of Directors and the Board of Directors approved, the inclusion of the audited consolidated financial statements in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the SEC.
Philip A. Laskawy (Chair)
Fees Paid to Auditor
The Audit Committee retained Deloitte & Touche to audit the Corporation’s consolidated financial statements, management’s internal control assessment, and the effectiveness of those controls, as of and for the year ended December 31, 2006. The Corporation and its subsidiaries also retained Deloitte & Touche and certain of its affiliates, as well as other accounting and consulting firms, to provide various other services in 2006.
The services performed by Deloitte & Touche in 2006 were pre-approved in accordance with the pre-approval policy and procedures first adopted by the Audit Committee at its August 5, 2002 meeting and revised more recently. This policy requires that during its first meeting of the year, the Audit Committee will be presented, for consideration, a description of the Audit-Related, Tax, and All Other Services expected to be performed by Deloitte & Touche during the fiscal year. Any requests for such services in excess of $1 million not contemplated and approved during the first meeting must thereafter be submitted to the Audit Committee (or the Chairman of the Audit Committee in an urgent case) for specific pre-approval. Requests for services less than $1 million individually must be pre-approved by the Audit Committee Chair and reported to the full Audit Committee at its next regularly scheduled meeting. The independent auditors selected for the following year present the proposed annual Audit services and their related fees to the Audit Committee generally in May, for approval on an audit-year basis.
The Audit Committee determined that all services provided by Deloitte & Touche in 2006 were compatible with maintaining the independence of the principal accountants.
The following table summarizes Deloitte & Touche fees billed or expected to be billed in connection with 2006 services. For comparison purposes, actual billings for 2005 services are also displayed.
Audit Fees: $50 million for the audit of the Corporation’s annual consolidated financial statements, including reviews of the interim financial statements contained in the Corporation’s Quarterly Reports on Form 10-Q and preparation of statutory reports. In addition, included in this category are fees for services that generally only Deloitte & Touche reasonably can provide, for example, comfort letters, statutory audits, attestation services, consents, and assistance with and review of documents filed with the SEC.
Audit-Related Fees: $12 million for assurance and related services that are traditionally performed by the independent auditor. More specifically, these services include employee benefit plan audits, due diligence related to mergers and acquisitions, accounting consultations and audits in connection with proposed acquisitions, internal control consultations, attestation services that are not required by statute or regulation, and consultation concerning financial accounting and reporting standards.
Tax Fees: $7 million for services performed by the professional staff in Deloitte & Touche Tax LLP. This includes fees for tax compliance, tax planning, and tax advice. Tax compliance involves preparation of original and amended tax returns and claims for refund, and tax payment-planning services. Tax planning and tax advice encompass a diverse range of services, including assistance with tax audits and appeals, tax advice related to mergers and acquisitions and employee benefit plans, and requests for rulings or technical advice from taxing authorities.
All Other Fees: $4 million for services related to project management, process improvements, and assistance with information technology system projects for systems not associated with the financial statements.
Item No. 2
Ratification of the Selection of Deloitte & Touche for the Year 2007
Sarbanes-Oxley requires that each corporation’s audit committee be directly responsible for appointing the independent auditors. The Audit Committee has selected Deloitte & Touche as GM’s independent accountants for 2007, the Board of Directors has concurred in an advisory capacity with that selection, and the selection is now being submitted to the stockholders at the annual meeting for their ratification or rejection. If the stockholders do not ratify the selection of Deloitte & Touche as the independent auditors, the Audit Committee will reconsider whether to engage Deloitte & Touche but may ultimately determine to engage that firm or another audit firm without re-submitting the matter to stockholders. Among the factors the Audit Committee may consider in making this determination are the difficulty and expense of changing independent auditors in the middle of a fiscal year. Even if the stockholders ratify the selection of Deloitte & Touche, the Audit Committee may in its sole discretion terminate the engagement of Deloitte & Touche and direct the appointment of another independent auditor at any time during the year, although it has no current intention to do so.
The Audit Committee considers Deloitte & Touche well qualified, with offices or affiliates in or near most locations in the U.S. and other countries where General Motors operates. Deloitte & Touche rotates its audit partners assigned to audit General Motors at least once every five years.
Representatives of Deloitte & Touche will attend the annual meeting and will have the opportunity to make any statement they wish. They will also be available to answer questions that you may have.
The Board of Directors recommends a vote FOR the proposal to ratify the selection of Deloitte & Touche as independent public accountants to audit the books, records, and accounts of the Corporation and its subsidiaries for the year 2007.
Item No. 3
Approval of the 2007 Annual Incentive Plan
The General Motors 2002 Annual Incentive Plan, which is administered by the Executive Compensation Committee (the “Committee”), is scheduled to terminate on May 31, 2007.
The Board of Directors believes that the Corporation’s continued ability to attract, motivate, and retain highly qualified employees will have a direct impact on the future success and profitability of the Corporation. To that end, the incentive plans provide the Corporation with the ability to maintain competitive pay practices. The Corporation’s executive compensation program is designed so that a meaningful portion of each executive’s total compensation opportunity is placed at-risk through awards made under the incentive plans. The final value of such awards is tied to the achievement of specific financial, operational, and individual goals, and the degree to which value is created for stockholders.
As discussed in “Compensation Discussion and Analysis” on page 21, the 2007 Plan has been designed to meet the requirements of Section 162(m) of the IRC for “qualified performance-based” compensation. Consistent with the Committee’s compensation deductibility policy, in the future, the Corporation plans to seek stockholder approval where necessary to comply with appropriate rules and/or regulations.
The Plan document is attached as Exhibit B, and the Plan description set forth below is qualified in its entirety by the complete Plan documents.
2007 Annual Incentive Plan
Under the 2007 Annual Incentive Plan, the Committee may grant awards at any time from June 5, 2007, through May 31, 2012.
Amount of Grants. The Plan permits the Committee to make annual incentive awards in such amounts and at such times as it may determine. All such awards, if earned, will be paid in cash. The Committee may delegate to the CEO determination of individual awards to employees who are not officers of the Corporation. Any such determinations by the CEO shall be subject to a maximum funding amount, which shall be approved by the Committee. No individual shall be granted an award in excess of $7.5 million in any calendar year.
Target Awards. Under the Plan, early each year the Committee will establish a targeted performance level at which a target performance award may be earned. The Committee will also identify threshold or minimum performance levels for payment of awards below which no award will be paid, and will establish the corresponding minimum awards.
Performance Criteria. In determining the performance criteria applicable to any grant of awards, the Committee may use one or more of the following business criteria: asset turnover, cash flow, contribution margin, cost objectives, cost reduction, earnings per share, economic value added, increase in customer base, inventory turnover, market price appreciation of the Corporation’s Common Stock, market share, net income, net income margin, operating profit margin, pre-tax income, productivity, profit margin, quality, return on assets, return on net assets, return on capital, return on equity, revenue, revenue growth, TSR, and/or warranty. The business criteria may be expressed in absolute terms or relative to the performance of other companies or to an index. If any event occurs during a performance period that requires changes to preserve the incentive features of this Plan, the Committee may make appropriate adjustments. The percentage of each target award that will become a final award will be determined by the Committee on the basis of the performance goals established and the performance achieved, as well as the quality of the employee’s individual performance during the period, which for covered officers, whose compensation is subject to Section 162(m), will only involve negative discretion. Final awards may be less than or greater than 100 percent of the target award.
Eligibility. To be eligible to receive an award under the Plan, a person must be an employee of the Corporation or a subsidiary as defined in the Plan or an individual who has been requested by the Corporation to accept employment with an entity in which the Corporation has a substantial ownership interest. It is anticipated that approximately 2,300 employees annually will be eligible to participate in the Plan, including approximately 20 executive officers of the Corporation.
Conditions Precedent. The Committee is authorized to provide for payment of earned awards in installments. The Plan sets forth conditions which must be satisfied if a participant is to receive delivery of award installments following termination of employment. These conditions are that the participant must (1) continue to render services to the Corporation (unless this condition is waived by the Committee); (2) refrain from competitive activity and conduct that is inimical or in any way contrary to the best interests of the Corporation; and (3) furnish reasonable information with respect to the satisfaction of (1) and (2). The Committee has flexibility in interpreting and applying these provisions to ensure that the objectives of the Plan are realized in accordance with corporate goals.
Change In Control Provisions. The 2007 Plan contains a “double-trigger” Change in Control provision, versus a “single-trigger” in the 2002 Plan. A “Change in Control” generally will be found to occur in one or more of the following events: a replacement of a majority of the members of the Board of Directors at one time or during any two-year period; acquisition by any person, other than GM or a subsidiary, of 20 percent or more of the voting power of Common Stock; certain mergers, consolidations, or other reorganizations in which General Motors is not the surviving company, disposition of all or substantially all of the Corporation’s assets, or the stockholders of the Corporation approve a plan of complete liquidation of GM. If the employment of a plan participant is terminated (other than voluntarily by the participant or by the Corporation for cause) within three years following a Change in Control:
All outstanding awards granted under the Plan shall vest and be paid at the threshold award level, or, if greater, at the level resulting from the Corporation’s actual performance based on the most recent forecast approved by the Committee.
New Plan Benefits. The benefits or amounts that will be received by or allocated to the CEO, the Named Executive Officers, all current executive officers as a group, and all employees who are not executive officers are not presently determinable. The awards actually received by the Corporation’s Named Executive Officers under the 2002 Annual Incentive Plan, which is substantially similar to the Plan, are set forth in the “2006 Summary Compensation Table” on page 31 and the “2006 Grants of Plan-Based Awards” table on page 34.
The Plan is being presented for stockholder approval in order to qualify amounts received under the Plan as “qualified performance-based compensation” under Section 162(m). If the Plan is not approved by stockholders, it will not be adopted.
The Board of Directors favors a vote FOR the proposal to approve the 2007 Annual Incentive Plan.
Item No. 4
Approval of the 2007 Long-Term Incentive Plan
The General Motors executive incentive compensation program currently consists of three plans: the General Motors 2002 Annual Incentive Plan, the General Motors 2002 Long-Term Incentive Plan, and the General Motors 2002 Stock Incentive Plan. We propose retaining the Annual Incentive Plan as a separate Plan and combining the Long-Term Incentive Plan and the Stock Incentive Plan into a single plan, the 2007 Long-Term Incentive Plan, and simultaneously cancelling the shares that remain available to grant under the Stock Incentive Plan. We believe the single-plan approach will help increase the clarity of the long-term compensation opportunities we provide our executives. Based on the recommendation of the Executive Compensation Committee (the “Committee”), which has administered our incentive compensation program since 1937, the Board has approved the 2007 Long-Term Incentive Plan described below, subject to the approval of stockholders of the Corporation.
• New authorized share pool of 16 million shares is approximately 2.82 percent of common shares outstanding
• No more than 1.5 million of the 16 million shares requested will be granted as RSUs
• Performance awards, generally linked to three-year performance measures, to be settled in cash only
• Plan term of five years
• Commitment to limit aggregate annual grants of stock options and RSUs (“Annual Burn Rate”) to less than 1 percent
• No repricing of options without stockholder approval
• Three-year, ratable vesting on stock option awards, subject to the Committee’s review
• Three-year vesting on time-based RSU awards
• Plan is administered by the Committee, composed of only Independent Directors
• No discounted options
• “Double-trigger” Change in Control benefits
• Shares surrendered, expired, or returned to the Corporation to satisfy the exercise price or tax withholding obligations for stock options cannot be reissued, i.e., no liberal share accounting provisions
Background. We believe that providing a portion of target compensation opportunity in the form of equity-based awards helps to reinforce the link between what the Plan participants receive and the financial returns obtained by stockholders. Historically, we have relied primarily on stock options because their real value lies solely in the improved performance of our stock price. Approximately 45,000 U.S. and Canadian salaried employees received a portion of their variable pay awards in stock options in lieu of cash from 1998 through 2004. In 2005, 2,700 executives were eligible to receive stock options and in 2006 that number was reduced to less than 500.
Our challenging business environment in recent years and the impact it has had on our stock price performance have contributed to a higher than optimal dilution level, as outstanding options became “underwater” and were not exercised at the rate we historically have experienced. This has led us to make a number of changes in our approach to equity-based incentive compensation, including reducing the number of plan participants, reducing the grant levels for those continuing to receive stock options and partially replacing the lost opportunity with performance awards that are denominated in stock during the performance period, but delivered in cash.
The following table provides a summary of our previously approved plans as background.
We have not cancelled or repriced any of our underwater options to help us manage our dilution because we believe that repricing is contrary to the best interest of our stockholders. Rather, we have started and will continue to manage our dilution by maintaining an annual burn rate of less than 1 percent of common shares outstanding, which will continue to improve our total dilution level over time.
The following table provides an overview of outstanding stock option grants that were granted under the 1997 Stock Incentive Plan and the 2002 Stock Incentive Plan and the Board-approved 1998 Stock Option Plan (Broad Based plan). The table shows how we have reduced the number of options granted through discontinuing the broad based option plan, reducing the number of options granted each year at the individual level and reducing the number of eligible executives to lower our burn rate and thus our dilution.