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From Securities Regulation Daily, February 4, 2014

Intel trumpets executive pay shift

By Mark S. Nelson, J.D.

Intel Corporation’s latest Form 8-K heralded the company’s new outlook on executive and employee pay. Intel made the filing late yesterday afternoon to disclose a letter telling selected shareholders of the company’s new pay policy. According to Intel, the filing was needed to comply with Regulation FD. Intel also posted the letter on its investor relations website.

New culture. Intel’s letter to shareholders said that new CEO Brian M. Krzanich and President Renée J. James seek to achieve a “cultural shift” in how the company pays its executives. For one, the company will not award new retention grants on top of those made on a one-time basis during the company’s most recent CEO transition.

Moreover, the Intel board’s compensation committee set Mr. Krzanich’s pay at the 25th percentile versus Intel’s peers to reflect that he is new to the CEO role and to give him an incentive to raise Intel’s future value. Mr. Krzanich’s pay, Intel said, is “well below” that of retired CEO Paul Otellini.

Fewer stock options. Intel’s named executive officers (NEOs) will bear more of the downside risk associated with equity grants, but the company plans a long-term move away from stock options in favor of performance-based “outperformance stock units” (OSUs). Equity awards will lose their floor value (previously 50 percent) and will yield no payout if three-year total shareholder return fails to reach stated goals. In 2014, Intel will not increase these awards for at-target performance. Likewise, the maximum payout will remain at 200 percent.

Intel said it would also change the mix of stock included in equity grants. Future awards to Intel’s top 350 executives will consist of OSUs (60 percent), and restricted stock units (40 percent). Intel said it will impose the new mix on its top 20 executives in 2014. Other senior leaders will be phased-in over a three-year period.

Moreover, Intel will impose new company stock ownership guidelines for its top 350 executives. Generally, Intel executives must own more shares as they rise up the chain of command. Intel’s lower-level VPs, fellows, and other senior leaders, for example, would need to own 5,000 to 10,000 shares. Three high-level VPs, the CFO, the executive chairman and president, and the CEO each would have to own between 35,000 and 250,000 shares. Shares for this highest-level group, assuming the $24 per share price cited by Intel, would be valued at between $120,000 and $6 million.

Cash bonuses and profit sharing. Intel said it will re-align some aspects of its cash bonus plan in 2014. The purpose of the revisions is to promote accountability for the company’s most important strategic goals. As a result, business unit goals will account for 50 percent (previously 33 percent) of cash bonuses and will result from a comparison of performance against stated growth goals. Intel said it had culled the number of goals to between 30 and 40 from 150. The remaining 50 percent of cash bonuses will be set based on twin corporate goals (25 percent each) for absolute net income performance and net income performance relative to peers.

Lastly, Intel said its profit sharing plan will use one formula instead of two. The plan also will make quarterly instead of semi-annual payouts. The company said this would simplify plan administration duties, help employees to better grasp how the plan works, and provide stronger incentives via more frequent payouts. According to Intel, the plan is calibrated to let top executives participate alongside all employees without spurring its executives to focus too much on quarterly results.

Companies: Intel Corporation

MainStory: TopStory CorporateGovernance DirectorsOfficers ExecutiveCompensation FormsFilings PublicCompanyReportingDisclosure

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