DEF 14A 1 d309135ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

(RULE 14a-101)

SCHEDULE 14A INFORMATION

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Exchange Act of 1934 (Amendment No.     )

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þ Definitive Proxy Statement

¨ Definitive Additional Materials

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INTEL CORPORATION

 

 

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INTEL CORPORATION

2200 Mission College Blvd.

Santa Clara, CA 95054-1549

(408) 765-8080

 

LOGO

April 4, 2012

Dear Stockholder:

We look forward to your attendance virtually via the Internet, in person, or by proxy at the 2012 Annual Stockholders’ Meeting. We will hold the meeting at 8:30 a.m. Pacific Time on Thursday, May 17, 2012. You may attend and participate in the annual meeting via the Internet at www.intc.com where you will be able to vote and submit questions during the meeting. Stockholders who use the control number that was furnished to them (either with the notice sent to them regarding the availability of these proxy materials or with their copy of these proxy materials) to log on to the meeting will be able to vote and submit questions during the meeting. Stockholders also may attend the meeting in person at Intel Corporation, Building SC-12, 3600 Juliette Lane, Santa Clara, California 95054. Only stockholders showing proof of ownership will be allowed to attend the meeting in person.

We also are pleased to furnish proxy materials to stockholders primarily over the Internet. On April 4, 2012, we mailed our stockholders a Notice of Internet Availability containing instructions on how to access our 2012 Proxy Statement and 2011 Annual Report and vote online. Internet distribution of our proxy materials is designed to expedite receipt by stockholders, lower the cost of the annual meeting, and conserve natural resources. However, if you would prefer to receive paper copies of our proxy materials, please follow the instructions included in the Notice of Internet Availability. If you received your annual meeting materials by mail, the notice of annual meeting, proxy statement, and proxy card from our Board of Directors were enclosed. If you received your annual meeting materials via e-mail, the e-mail contained voting instructions and links to the proxy statement and the annual report on the Internet, both of which are available at www.intc.com/annuals.cfm.

Please refer to the proxy statement for detailed information on each of the proposals and the annual meeting. Your vote is important, and we strongly urge you to cast your vote. For most items, including the election of directors, your shares will not be voted if you do not provide voting instructions via the Internet, by telephone, or by returning a proxy card or voting instruction card. We encourage you to vote promptly, even if you plan to attend the annual meeting.

Sincerely yours,

Jane E. Shaw

Chairman of the Board


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INTEL CORPORATION

NOTICE OF 2012 ANNUAL STOCKHOLDERS’ MEETING

 

Time and Date

8:30 a.m. Pacific Time on Thursday, May 17, 2012

 

Attend via Internet
or

Attend the annual meeting online, including voting and submitting questions, at www.intc.com

In Person

Intel Corporation, Building SC-12, 3600 Juliette Lane, Santa Clara, CA 95054

 

Record Date

March 19, 2012

ANNUAL MEETING AGENDA AND VOTING

 

Proposal

  

Voting Recommendation of the Board

Management proposals

  

1. Election of the 10 directors named in this proxy statement

   FOR EACH DIRECTOR NOMINEE

2. Ratification of selection of Ernst & Young LLP as our independent registered public accounting firm for the current year

   FOR
3. Advisory vote to approve executive compensation    FOR
Stockholder proposal   

4. Whether to hold an advisory vote on political contributions

   AGAINST

 

How to Vote:

Ÿ   Please act as soon as possible to vote your shares, even if you plan to attend the annual meeting via the Internet or in person.

 

  Ÿ  

Your broker will NOT be able to vote your shares with respect to the election of directors and most of the other matters presented at the meeting unless you have given your broker specific instructions to do so. We strongly encourage you to vote.

 

  Ÿ  

You may vote via the Internet, by telephone, or, if you have received a printed version of these proxy materials, by mail.

 

  Ÿ  

See “Additional Meeting Information” on page 61 of this proxy statement for further information.

ATTENDING THE ANNUAL MEETING

 

Attending and participating via the Internet

 

Ÿ  

www.intc.com; we encourage you to access the meeting online prior to its start time.

 

 

Ÿ  

Webcast starts at 8:30 a.m. Pacific Time.

 

 

Ÿ  

Instructions on how to attend and participate via the Internet, including how to demonstrate proof of stock ownership, are posted at www.intc.com.

 

 

Ÿ  

Stockholders may vote and submit questions while attending the meeting on the Internet.

 

 

Ÿ  

Webcast replay is available until December 29, 2012.

 

Attending in person

 

Ÿ  

Doors open at 8:00 a.m. Pacific Time.

 

Ÿ  

Meeting starts at 8:30 a.m. Pacific Time.

 

Ÿ  

Proof of Intel Corporation stock ownership and photo identification will be required to attend the annual meeting.

 

Ÿ  

You do not need to attend the annual meeting to vote if you submitted your proxy in advance of the annual meeting.

 

Ÿ  

Security measures may include bag search, metal detector, and hand-wand search. The use of cameras is not allowed.

 

 

Anyone can view the annual meeting live via the Internet at www.intc.com

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:

The Notice of 2012 Annual Stockholders’ Meeting and Proxy Statement, and the 2011 Annual Report and Form 10-K, are available at www.intc.com/annuals.cfm


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TABLE OF CONTENTS

 

     Page  

2012 Proxy Statement Highlights

     4   

Proxy Statement

     7   

Proposal 1: Election of Directors

     7   

Director Skills, Experience, and Background

     8   

Directors’ Principal Occupation, Business Experience, Qualifications, and Directorships

     9   

Corporate Governance

     12   

Board Responsibilities and Structure

     12   

The Board’s Role in Risk Oversight at Intel

     13   

The Board’s Role in Succession Planning

     14   

Director Independence and Transactions Considered in Independence Determinations

     14   

Director Attendance

     16   

Communications from Stockholders to Directors

     16   

Corporate Governance Guidelines

     16   

Board Committees and Charters

     17   

Director Compensation

     19   

Director Compensation for Fiscal Year 2011

     20   

Outstanding Equity Awards for Directors at Fiscal Year-End 2011

     22   

Certain Relationships and Related Transactions

     24   

Code of Conduct

     24   

Security Ownership of Certain Beneficial Owners and Management

     25   

Proposal 2: Ratification of Selection of Independent Registered Public Accounting Firm

     27   

Ernst & Young LLP’s Audit Fees for 2011 and 2010

     27   

Report of the Audit Committee

     28   

Proposal 3: Advisory Vote to Approve Executive Compensation

     30   

Compensation Discussion and Analysis

     31   

Executive Summary

     31   

Compensation Philosophy and Practices

     33   

Intel’s Compensation Framework

     33   

How Pay-for-Performance Works at Intel

     34   

2011 Compensation of Our Listed Officers

     37   

2011 Performance and Compensation Determinations

     40   

Other Aspects of Our Executive Compensation Programs

     42   

Report of the Compensation Committee

     45   

Executive Compensation

     46   

2011 Summary Compensation Table

     46   

Grants of Plan-Based Awards in Fiscal Year 2011

     49   

2011 Operational Goal Categories

     51   

Stock Option Exercises and Stock Vested in Fiscal Year 2011

     51   

Outstanding Equity Awards at Fiscal Year-End 2011

     51   

Pension Benefits for Fiscal Year 2011

     53   

Non-Qualified Deferred Compensation for Fiscal Year 2011

     55   

Employment Contracts and Change in Control Arrangements

     56   

Other Potential Post-Employment Payments

     56   

Voluntary Termination/Retirement

     56   

Death or Disability

     57   

Proposal 4: Stockholder Proposal on Whether to Hold an Advisory Vote on Political Contributions

     58   

Additional Meeting Information

     61   

Other Matters

     63   

Stockholders Sharing the Same Last Name and Address

     65   


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2012 PROXY STATEMENT HIGHLIGHTS

This summary highlights information contained elsewhere in our proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.

Board Nominees

 

Name

 

Age

 

Director

Since

 

Occupation

 

Indepen-

dent

  Committee Memberships
          AC   CC   GNC   CmC   EC   FC

Charlene Barshefsky  

  61   2004   Senior International Partner, Wilmer Cutler Pickering Hale and Dorr LLP   ü               ü       C

Andy D. Bryant

  61   2011   Vice Chairman of the Board of Directors, Intel Corporation                            

Susan L. Decker

  49   2006   Principal, Deck3 Ventures LLC   ü   C                   ü

John J. Donahoe

  51   2009   President and CEO, eBay Inc.   ü       ü   ü            

Reed E. Hundt

  64   2001   Principal, REH Advisors, LLC   ü   ü           ü       ü

Paul S. Otellini

  61   2002   President and CEO, Intel Corporation                       ü    

James D. Plummer

  67   2005   Professor, Stanford University   ü   ü                   ü

David S. Pottruck

  63   1998   Chairman and CEO, Red Eagle Ventures, Inc.   ü       C           ü    

Frank D. Yeary

  48   2009   Vice Chancellor, University of California, Berkeley   ü   ü           C       ü

David B. Yoffie

  57   1989   Professor, Harvard Business School   ü       ü   C            

 

C        Committee Chair

 

CmC   Compliance Committee

AC      Audit Committee

 

EC      Executive Committee

CC      Compensation Committee

 

FC       Finance Committee

GNC    Corporate Governance and Nominating Committee

 

Company Performance During 2011

2011 was our most profitable year, with record revenue, operating income, net income, and earnings per share. Revenue of $54.0 billion was up $10.4 billion, or 24%, from a year ago. 2011 was our second year in a row with revenue growing more than 20%. Our strong financial performance during 2011 has allowed us to make significant investments in our business, including our people, as well as increase the return of cash to our stockholders through common stock repurchases and dividends. During 2011, we repurchased $14.1 billion of common stock through our common stock repurchase program and increased the quarterly dividend per share by 16% in the third quarter, returning $4.1 billion to stockholders through dividends.

 

    

2011

($ in millions, except
per share amounts)

   

2010

($ in millions, except

per share amounts)

   

Change

(%)

 

Net Revenue

    53,999        43,623        24   

Net Income (GAAP)1

    12,942        11,464        13   

Net Income (non-GAAP)2

    13,692        11,518        19   

Stock Price (high and low)3

    25.66/19.19        24.22/17.67        n/a   

Stock Price per Share as of Fiscal Year-End

    24.25        20.84        16   

 

  1 

Net income (GAAP) results are based on U.S. generally accepted accounting principles (GAAP).

 

  2 

Net income (non-GAAP) results in the table above exclude certain acquisition accounting impacts and expenses related to acquisitions and the related income tax effects of these charges. In 2011, we completed the acquisitions of McAfee, Inc. and the Wireless Solutions business of Infineon Technologies AG (which operates as Intel Mobile Communications), contributing approximately $3.6 billion to our revenue growth. Net income (non-GAAP) for 2010 was presented in the 2011 proxy statement as $11,672 million, which only excluded certain charges recorded in the fourth quarter of 2010, primarily due to a design issue with the Intel® 6 Series Express Chipset family (formerly code named Cougar Point) and the related tax impacts of those charges.

 

 

  3 

For 2011, based on a 53-week closing-price high and low; and for 2010, based on a 52-week closing-price high and low.

 

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During 2011, we also achieved the following operational milestones, showcasing our innovation and manufacturing leadership:

 

Ÿ  

Inspired a new generation of PCs, based on our platforms for Ultrabook systems;

 

Ÿ  

Reinvented the transistor with the introduction of our three-dimensional Tri-Gate process technology;

 

Ÿ  

Realized 22-nanometer (nm) production yield and cost objectives for products formerly code named Ivy Bridge;

 

Ÿ  

Broke ground on the world’s first 14-nm fabrication facility in Arizona;

 

Ÿ  

Commenced volume shipments of our 2nd generation Intel® Core™ processor family products; and

 

Ÿ  

Closed two major acquisitions, McAfee and the Wireless Solutions business of Infineon, which added approximately $3.6 billion in revenue and extended our strategic capabilities into the areas of security and connectivity.

Corporate Governance Highlights

Our Board of Directors is committed to being a leader on corporate governance matters. The Board oversees, counsels, and directs management in the long-term interests of the company and our stockholders. Among the matters in which the Board is actively engaged are business strategy, risk oversight, succession planning, and corporate responsibility and environmental stewardship. The Board has maintained a general policy since the company began operations that the positions of Chairman of the Board and Chief Executive Officer (CEO) should be held by separate persons as an aid in the Board’s oversight of management. In recent years, an independent director has served as either Lead Director or Chairman of the Board. In addition:

 

Ÿ  

Only independent directors serve on the Audit Committee, the Compensation Committee, and the Corporate Governance and Nominating Committee;

 

Ÿ  

All directors attended at least 75% of the meetings of the Board and the committees on which they served in 2011; and

 

Ÿ  

All directors are in compliance with our director stock ownership guidelines.

Executive Compensation Highlights

Intel is committed to paying for performance. We provide a majority of compensation through programs in which the amounts ultimately received vary to reflect our performance. Our executive compensation programs evolve and are adjusted over time to support Intel’s business goals and to promote both near- and long-term profitable growth of the company.

 

Ÿ  

The majority of cash compensation is paid under our annual incentive cash plan based on relative and absolute financial performance, company performance relative to operational goals, and individual performance. Under this program, cash compensation reflects near-term (annual) business performance.

 

Ÿ  

Equity awards, consisting of variable performance-based outperformance stock units, restricted stock units, and stock options, are used to align compensation with the long-term interests of Intel’s stockholders by focusing our executive officers on total stockholder return (TSR). Equity awards generally become fully vested between three and five years after the grant date, so that compensation realized under them reflects the long-term performance of the company’s stock.

 

Ÿ  

In setting executive officer compensation, the Compensation Committee evaluates individual performance reviews of the executive officers and compensation of a “peer” group consisting of 15 technology companies and 10 other large companies.

 

Ÿ  

Total compensation for each executive officer varies with Intel’s performance in achieving financial and non-financial objectives, and with individual performance. Each executive officer’s compensation is designed to reward his or her contribution to Intel’s results.

For 2011, the Compensation Committee adjusted two aspects of Intel’s executive compensation program based on reviews of our executive compensation philosophy and programs that were conducted in 2010 by two external consultants.

 

Ÿ  

First, for executive officers other than the CEO, we reallocated cash compensation between base salary and annual incentive cash target amounts to ensure that both remain competitive with the external market while continuing to provide the proper performance incentives. To accomplish this goal, we increased base salaries and reduced

 

 

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annual incentive cash targets such that total annual cash compensation, based on representative payouts over the last two years, would remain approximately the same.

 

Ÿ  

Second, we simplified the equity-based compensation program, moving from two restricted

   

stock unit programs and two stock option programs, each with unique sets of terms and conditions, to one program for each.

Our executive officers’ 2011 compensation also reflects adjustments arising from our normal annual process of assessing pay competitiveness.

 

 

The following table shows the total direct compensation awarded by the Compensation Committee to our listed officers in 2011 and 2010.

 

Name and
Principal Position
  Year     Salary
($)
    Non-Equity
Incentive Plan
Compensation
($)
    Bonus
($)
    Stock
Awards
($)
    Option
Awards
($)
    Total Direct
Compensation
($)
 
Paul S. Otellini     2011        1,100,000        6,429,500        34,000        7,331,100        1,802,800        16,697,400   
President and CEO     2010        1,000,000        6,790,000        30,400        6,236,800        1,082,200        15,139,400   
Stacy J. Smith     2011        635,000        1,386,000        12,400        3,251,200        799,500        6,084,100   
Senior Vice President and Chief Financial Officer     2010        475,000        1,575,000        10,400        2,281,700        816,200        5,158,300   
Andy D. Bryant     2011        760,000        1,912,000        15,400        3,251,200        799,500        6,738,100   
Vice Chairman of the Board       2010        520,000        2,292,300        12,800        4,601,800        744,600        8,171,500   
David Perlmutter     2011        670,000        1,401,500        12,200        3,251,200        799,500        6,134,400   
Executive Vice President
and General Manager, Intel Architecture Group, and Chief Product Officer
    2010        506,200        1,837,000        11,200        3,002,300        1,182,900        6,539,600   
                                                       
A. Douglas Melamed     2011        645,000        1,540,700        13,300        2,486,200        611,400        5,296,600   
Senior Vice President and General Counsel     2010        600,000        1,887,500        12,600        2,342,200        496,400        5,338,700   

For 2011, our net income and operational performance resulted in an annual incentive cash payout at 117% of target. Year-over-year changes in salary, target annual incentive, and equity award levels reflect the reallocation, individual performance, and competitive market adjustments described above.

 

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LOGO

INTEL CORPORATION

2200 Mission College Blvd.

Santa Clara, CA 95054-1549

 

 

PROXY STATEMENT

 

 

Our Board of Directors solicits your proxy for the 2012 Annual Stockholders’ Meeting and any postponement or adjournment of the meeting for the matters set forth in “Annual Meeting Agenda and Voting.” We made this proxy statement available to stockholders beginning on April 4, 2012.

PROPOSAL 1: ELECTION OF DIRECTORS

 

Upon the recommendation of our Corporate Governance and Nominating Committee, our Board has nominated the 10 persons listed below to serve as directors. Our nominees include eight independent directors, as defined in the rules for companies traded on The NASDAQ Global Select Market* (NASDAQ), and two Intel officers: Paul S. Otellini, our CEO, and Andy D. Bryant, who currently serves as Vice Chairman of the Board and previously served as our Executive Vice President and Chief Administrative Officer. In July 2011, the Board appointed Mr. Bryant as a director and Vice Chairman of the Board, and increased the size of the Board to 11. Dr. Jane E. Shaw will retire from the Board as of the 2012 Annual Stockholders’ Meeting, at which time the size of the Board will be reduced to 10, and Mr. Bryant will become Chairman of the Board.

Each director’s term runs from the date of his or her election until our next annual stockholders’ meeting, or until his or her successor, if any, is elected or appointed. If any director nominee is unable or unwilling to serve as a nominee at the time of the annual meeting, the persons named as proxies may vote for a substitute nominee chosen by the present Board to fill the vacancy. In the alternative, the proxies may vote just for the remaining nominees, leaving a vacancy that may be filled at a later date

by the Board. Alternatively, the Board may reduce the size of the Board. We have no reason to believe that any of the nominees will be unwilling or unable to serve if elected as a director.

Our Bylaws require that a director nominee will be elected only if he or she receives a majority of the votes cast with respect to his or her election in an uncontested election (that is, the number of shares voted “for” a director nominee must exceed the number of votes cast “against” that nominee). Each of our director nominees is currently serving on the Board. If a nominee who is currently serving as a director is not re-elected, Delaware law provides that the director would continue to serve on the Board as a “holdover director.” Under our Bylaws and Corporate Governance Guidelines, each director submits an advance, contingent, irrevocable resignation that the Board may accept if stockholders do not re-elect the director. In that situation, our Corporate Governance and Nominating Committee would make a recommendation to the Board about whether to accept or reject the resignation, or whether to take other action. The Board would act on the Corporate Governance and Nominating Committee’s recommendation, and publicly disclose its decision and the rationale behind it within 90 days from the date that the election results were certified.

 

 

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The Board recommends that you vote “FOR” the election of each of the following nominees.

 

Name   Position with the Company  

Age as of the

Record Date

 

Intel Board

Member Since

Charlene Barshefsky   Director   61   2004

Andy D. Bryant

  Director, Vice Chairman of the Board (Chairman-designate)   61   2011

Susan L. Decker

  Director   49   2006

John J. Donahoe

  Director   51   2009

Reed E. Hundt

  Director   64   2001

Paul S. Otellini

  Director, President, and Chief Executive Officer   61   2002

James D. Plummer

  Director   67   2005

David S. Pottruck

  Director   63   1998

Frank D. Yeary

  Director   48   2009

David B. Yoffie

  Director   57   1989

 

Director Skills, Experience, and Background

Intel is a large technology company that operates on a global scale and includes research, manufacturing, and marketing functions. We operate in markets characterized by rapidly evolving technologies, exposure to business cycles, and significant competition. As we discuss below under “Board Committees and Charters,” the Corporate Governance and Nominating Committee is responsible for reviewing and assessing with the Board the appropriate skills, experience, and background that we seek in Board members in the context of our business and the existing composition of the Board. In addition to assessing nominees’ skills and experience, the Board annually evaluates factors including independence, gender and ethnic diversity, and age. The committee and the Board review and assess the effectiveness of their practices for consideration of diversity in nominating director candidates by periodically analyzing the diversity of skills, experience, and background of the Board as a whole and determining whether to add to the Board a director with a certain type of background, experience, personal characteristics, or skills to advance the Board’s goal of creating and sustaining a Board that can support and oversee the company’s activities.

We believe that our business accomplishments are a direct result of the efforts of our employees around the world, and that a diverse employee population results in a better understanding of our customers’ needs. Our success with a diverse workforce informs our views about the value of a board of directors that has persons of diverse skills, experiences, and backgrounds. Intel’s commitment to diversity is reflected on our Diversity web site at www.intel.com/content/www/us/en/company-overview/diversity-at-intel.html; in our Corporate Responsibility Report under “Social Factors,” found at www.intel.com/go/responsibility; and in our Corporate Governance Guidelines, found at www.intel.com/go/governance.

Listed below are the skills and experience that we consider important for our directors in light of our current business and structure. The directors’ biographies note each director’s relevant experience, qualifications, and skills relative to this list.

 

Ÿ  

Senior Leadership Experience. Directors who have served in senior leadership positions are important to us, as they bring experience and perspective in analyzing, shaping, and overseeing the execution of important operational and policy issues at a senior level. These directors’ insights and guidance, and their ability to assess and respond to situations encountered in serving on our Board, may be enhanced if their leadership experience was developed at businesses or organizations that operated on a global scale, faced significant competition, or involved technology or other rapidly evolving business models.

 

Ÿ  

Public Company Board Experience. Directors who have served on other public company boards can offer advice and insights with regard to the dynamics and operation of a board of directors; the relations of a board to the CEO and other management personnel; the importance of particular agenda and oversight matters; and oversight of a changing mix of strategic, operational, and compliance-related matters.

 

Ÿ  

Business Development and Mergers and Acquisitions (M&A) Experience. Directors who have a background in business development and in M&A transactions can provide insight into developing and implementing strategies for growing our business through combination with other organizations. Useful experience in this area includes consideration of “make versus buy,” analysis of the “fit” of a proposed acquisition with a company’s strategy, the valuation of transactions, and management’s plans for integration with existing operations.

 

 

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Ÿ  

Financial Expertise. Knowledge of financial markets, financing and funding operations, and accounting and financial reporting processes is important because it assists our directors in understanding, advising, and overseeing Intel’s capital structure, financing and investing activities, financial reporting, and internal control of such activities.

 

Ÿ  

Industry and Technical Expertise. Because we are a technology, hardware, and software provider, education or experience in relevant technology is useful in understanding our research and development efforts, competing technologies, the various products and processes that we develop, our manufacturing and assembly and test operations, and the market segments in which we compete.

 

Ÿ  

Brand Marketing Expertise. Directors who have brand marketing experience can provide expertise and guidance as we seek to maintain and expand brand and product awareness and a positive reputation.

 

Ÿ  

Government Expertise. Directors who have served in government positions can provide experience and insight into working constructively with governments around the world and addressing significant public policy issues, particularly in areas related to Intel’s business and operations, and support for science, technology, engineering, and mathematics education.

 

Ÿ  

Global / International Expertise. Because we are a global organization with research and development, manufacturing, assembly and test facilities, and sales and other offices in many countries, and with a majority of our revenue coming from sales outside the United States, directors with global expertise can provide a useful business and cultural perspective regarding many significant aspects of our business.

 

Ÿ  

Legal Expertise. Directors who have legal education and experience can assist the Board in fulfilling its responsibilities related to the oversight of Intel’s legal and regulatory compliance, and engagement with regulatory authorities.

Directors’ Principal Occupation, Business Experience, Qualifications, and Directorships

Ambassador Charlene Barshefsky has been a director of Intel since 2004 and a Senior International Partner at Wilmer Cutler Pickering Hale and Dorr LLP, a multinational law firm in Washington, D.C., since 2001. Prior to joining the law firm, Ambassador Barshefsky served as the United States Trade Representative, chief trade negotiator, and principal trade policy maker for the

United States and a member of the President’s cabinet from 1997 to 2001. Ambassador Barshefsky is also a director of American Express Company, Estée Lauder Companies, and Starwood Hotels & Resorts Worldwide.

Ambassador Barshefsky brings to the Board significant international experience acquired prior to, during, and after her tenure as a United States Trade Representative. As the chief trade negotiator for the United States, Ambassador Barshefsky headed an executive branch agency that operated on an international scale in matters affecting international trade and commerce. Ambassador Barshefsky’s position as Senior International Partner at a multinational law firm also brings to the Board continuing experience in dealing with foreign governments, focusing on market access and the regulation of business and investment. Through her government and private experience, Ambassador Barshefsky provides substantial expertise in doing business in China, where Intel has significant operations. As a director for other multinational companies, Ambassador Barshefsky also provides cross-board experience.

Andy D. Bryant has been a director and Vice Chairman of the Board of Directors of Intel since 2011. Mr. Bryant joined Intel in 1981 as Controller for the Commercial Memory Systems Operation and in 1983 became Systems Group Controller. In 1987, he was promoted to Director of Finance, and was appointed Vice President and Director of Finance of the Intel Products Group in 1990. Mr. Bryant became Chief Financial Officer (CFO) in February 1994, and was promoted to Senior Vice President in January 1999. In December 1999, he was promoted to Executive Vice President and his role expanded to Chief Financial and Enterprise Services Officer. In October 2007, Mr. Bryant was named Chief Administrative Officer (CAO), a position he held until January 2012. In 2009, Mr. Bryant’s responsibilities expanded to include the Technology and Manufacturing Group. Mr. Bryant serves on the board of directors of Columbia Sportswear and McKesson Corporation.

Mr. Bryant brings senior leadership, financial, strategic, and global expertise to the Board from his former service as CFO and CAO of Intel. Mr. Bryant has budgeting, accounting controls, and forecasting experience and expertise from his work in Intel Finance, as CFO and as CAO. Mr. Bryant has been responsible for manufacturing, human resources, information technology, and finance. Mr. Bryant has regularly attended Intel Board meetings for over 20 years as CFO and CAO and has direct experience as a board member through his service on other public company boards.

 

 

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Susan L. Decker has been a director of Intel since 2006. She has been a Principal of Deck3 Ventures LLC, a consulting and advisory firm in Menlo Park, California, since 2009, and was an Entrepreneur-in-Residence at Harvard Business School in Cambridge, Massachusetts from 2009 to 2010, where she was involved in case development activities and helped develop and teach the Silicon Valley Immersion Program for Harvard Business School. Ms. Decker served as President of Yahoo! Inc., a global Internet company in Sunnyvale, California, from 2007 to 2009; Executive Vice President of the Advertiser and Publisher Group of Yahoo! Inc. from 2006 to 2007; and Executive Vice President of Finance and Administration, and CFO of Yahoo! Inc. from 2000 to 2007. Prior to joining Yahoo!, Ms. Decker was with the Donaldson, Lufkin & Jenrette investment banking firm for 14 years, most recently as the global director of equity research. Ms. Decker is also a member of the Berkshire Hathaway Inc. and Costco Wholesale Corporation boards of directors, and a trustee of Save the Children.

Ms. Decker’s experience as president of a global Internet company provides expertise in corporate leadership, financial management, and Internet technology. In her role as a CFO, Ms. Decker was responsible for finance, human resources, legal, and investor relations functions, and she played a significant role in developing business strategy, which experience supports the Board’s efforts in overseeing and advising on strategy and financial matters. Ms. Decker also provides brand marketing experience from her role as senior executive of Yahoo!’s Advertiser and Publisher Group. In addition, Ms. Decker’s 14 years as a financial analyst, service on audit committees of other public companies, and past service on the Financial Accounting Standards Advisory Council for a four-year term from 2000 to 2004 enable her to offer valuable perspectives on Intel’s corporate planning, budgeting, and financial reporting. As a director for other multinational companies, Ms. Decker also provides cross-board experience.

John J. Donahoe has been a director of Intel since 2009 and President and CEO of eBay Inc., a global online marketplace in San Jose, California, since 2008. Mr. Donahoe joined eBay in 2005 as President of eBay Marketplaces, and was responsible for eBay’s global e-commerce businesses. In this role, he focused on expanding eBay’s core business, which accounts for a large percentage of the company’s revenue. Prior to joining eBay, Mr. Donahoe was the Worldwide Managing Director for Bain & Company, a global management consulting firm based in Boston,

Massachusetts, from 2000 to 2005, where he oversaw Bain’s 30 offices and 3,000 employees. In addition to serving on eBay’s board of directors, Mr. Donahoe is on the board of trustees of Dartmouth College.

Mr. Donahoe brings senior leadership, strategic, and global expertise to the Board from his current position as CEO of a major Internet company and his prior work as a management consultant and leader of a global business consulting firm. In his role at eBay, Mr. Donahoe oversaw a number of strategic acquisitions, bringing business development and M&A experience to the Board. Mr. Donahoe also provides technical and brand marketing expertise from his role as a leader of global e-commerce businesses.

Reed E. Hundt has been a director of Intel since 2001, a principal of REH Advisors LLC, a strategic advice firm in Washington, D.C., since 2009, and the CEO of the Coalition for Green Capital, a non-profit organization based in Washington, D.C., that designs, develops, and implements green banks at the state, federal, and international level, since 2010. Mr. Hundt was an independent advisor to McKinsey & Company, Inc., a worldwide management consulting firm in Washington, D.C., from 1998 to 2009, and Principal of Charles Ross Partners, LLC, a private investor and advisory service in Washington, D.C., from 1998 to 2009. Mr. Hundt served as Chairman of the U.S. Federal Communications Commission (FCC) from 1993 to 1997. From 1982 to 1993, Mr. Hundt was a partner with Latham & Watkins, an international law firm, in the firm’s Los Angeles, California and Washington, D.C. offices. Mr. Hundt is currently a senior advisor to Skadden, Arps, Slate, Meagher & Flom LLP, an international law firm. Within the past five years, Mr. Hundt has served as a member of the boards of directors of Infinera Corporation and Data Domain, Inc.

As an independent advisor to a worldwide management consulting firm and an investor in telecommunications companies on a worldwide basis, Mr. Hundt has significant global experience in communications technology and the communications business. Mr. Hundt also has significant government experience from his service as Chairman of the FCC, where he helped negotiate the World Trade Organization Telecommunications Agreement, opening markets in 69 countries to competition and reducing barriers to foreign investment. Mr. Hundt’s legal experience enables him to provide perspective and oversight with regard to the company’s legal and compliance matters, and his board service with numerous other companies,

 

 

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including on their audit committees, provides cross-board experience and financial expertise. His work with a number of ventures involved in the area of sustainable energy and the environment provides him with a unique perspective in overseeing Intel’s environmental and sustainability initiatives.

Paul S. Otellini has been a director of Intel since 2002 and President and CEO since 2005. Mr. Otellini has been with Intel since 1974 and also served as Intel’s Chief Operating Officer (COO) from 2002 to 2005; Executive Vice President and General Manager, Intel Architecture Group, from 1998 to 2002; and Executive Vice President and General Manager, Sales and Marketing Group, from 1996 to 1998. Mr. Otellini is a member of the board of directors of Google Inc.

As our CEO and a senior executive officer with over 35 years of service with Intel, Mr. Otellini brings to the Board significant senior leadership, sales and marketing, industry, technical, and global experience as well as a unique perspective of the company. As CEO, Mr. Otellini has direct responsibility for Intel’s strategy and operations. Mr. Otellini’s service on the board of Google enables him to offer cross-board and industry expertise related to governance of a major global Internet company.

James D. Plummer has been a director of Intel since 2005 and a Professor of Electrical Engineering at Stanford University in Stanford, California since 1978, and the Dean of the School of Engineering since 1999. Dr. Plummer received his PhD degree in Electrical Engineering from Stanford University. Dr. Plummer has published over 400 papers on silicon devices and technology, has won numerous awards for his research, and is a member of the U.S. National Academy of Engineering. Dr. Plummer also directed the Stanford Nanofabrication Facility from 1994 to 2000. Dr. Plummer is a member of the boards of directors of Cadence Design Systems, Inc. and International Rectifier Corporation. Within the past five years, Dr. Plummer has served as a member of the board of directors of Leadis Technology, Inc.

As a scholar and educator in the field of integrated circuits, Dr. Plummer brings to the Board industry and technical experience directly related to our company’s semiconductor research and development, and manufacturing. Dr. Plummer’s board service with other public companies, including on their audit committees, provides cross-board experience and financial expertise.

David S. Pottruck has been a director of Intel since 1998 and Chairman and CEO of Red Eagle Ventures, Inc., a private equity firm in San

Francisco, California, since 2005. Mr. Pottruck has also served as Co-Chairman of Hightower Advisors, a wealth management company in Chicago, Illinois, since 2009; advisory board member of the University of Pennsylvania Wharton School of Business in Philadelphia, Pennsylvania since 2005; and advisory board member of PwC—Diamond Advisory Services, a consulting firm, since 2004. Mr. Pottruck teaches in the MBA and Executive Education programs of the Wharton School of Business of the University of Pennsylvania, and has held adjunct faculty positions at five universities. In 2004, Mr. Pottruck resigned from the Charles Schwab Corporation after a 20-year career that included service as President, CEO, and a member of the board. Mr. Pottruck also serves on the boards of numerous private companies.

As the Chairman and CEO of a private equity firm, and as former CEO of a major brokerage firm with substantial Internet operations, Mr. Pottruck brings to the Board significant senior leadership, management, operational, financial, business development, and brand management expertise.

Frank D. Yeary has been a director of Intel since 2009 and Vice Chancellor of the University of California, Berkeley since 2008, where he led and implemented major strategic and financial changes to the university’s financial strategy, and from 2010 to 2011 served as interim Chief Administrative Officer, managing a complex portfolio of financial and operational responsibilities and departments. Prior to returning to his alma mater in 2008, Mr. Yeary spent nearly 25 years in the financial industry, most recently as Managing Director, Global Head of Mergers and Acquisitions and a member of the Management Committee at Citigroup Investment Banking, a financial services company. Mr. Yeary is a trustee of the boards of New York Public Radio, the Head-Royce School, and the University of California, Berkeley Foundation.

Having an extensive career in investment banking and finance, Mr. Yeary brings to the Board significant strategy, M&A, and financial experience related to the business and financial issues facing large corporations. Mr. Yeary also provides strategic and financial expertise from his role as Vice Chancellor of a large public research university.

David B. Yoffie has been a director of Intel since 1989 and a professor at Harvard University’s Graduate School of Business Administration in Boston, Massachusetts since 1981. Dr. Yoffie has also served as Harvard University’s Senior Associate Dean and Chair of Executive Education since 2006. He received a PhD from Stanford,

 

 

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where he has been a Visiting Scholar. Dr. Yoffie served as Chairman of the Harvard Business School Strategy department from 1997 to 2002, Chairman of the Advanced Management Program from 1999 to 2002, and chaired Harvard’s Young Presidents’ Organization program from 2004 to 2012. He has also lectured and consulted in more than 30 countries. Dr. Yoffie is a member of the board of directors of Financial Engines, Inc. and TiVo, Inc., and during the past five years he has served as a member of the board of directors of Charles Schwab Corporation. Dr. Yoffie is also on the board of the U.S. National Bureau of Economic Research.

As a scholar and educator in the field of international business administration, Dr. Yoffie brings to the Board significant global experience and knowledge of competitive strategy, technology, and international competition. Dr. Yoffie’s board service with other public companies also provides cross-board experience. As our longest serving director, Dr. Yoffie provides unique insights and perspectives on Intel’s development and strategic direction.

 

 

CORPORATE GOVERNANCE

 

Board Responsibilities and Structure

The Board oversees, counsels, and directs management in the long-term interests of the company and our stockholders. The Board’s responsibilities include:

 

Ÿ  

selecting, evaluating the performance of, and determining the compensation of the CEO and other executive officers;

 

Ÿ  

planning for succession with respect to the position of CEO and monitoring management’s succession planning for other executive officers;

 

Ÿ  

reviewing and approving our major financial objectives and strategic and operating plans, and other significant actions;

 

Ÿ  

overseeing the conduct of our business and the assessment of our business and other enterprise risks to evaluate whether the business is being properly managed; and

 

Ÿ  

overseeing the processes for maintaining our integrity with regard to our financial statements and other public disclosures, and compliance with law and ethics.

The Board and its committees met throughout the year on a set schedule, held special meetings, and acted by written consent from time to time as appropriate. At each of its Board meetings, the Board held sessions for the independent directors to meet without the CEO present. Officers regularly attend Board meetings to present information on our business and strategy, and Board members have access to our employees outside of Board meetings. Board members are encouraged and expected to make site visits on a worldwide basis to meet with local management; to attend Intel industry, analyst, and other major events; and to accept invitations to attend and speak at internal Intel meetings.

Board Leadership Structure. The Board has a general policy that the positions of Chairman of the Board and CEO should be held by separate persons as an aid in the Board’s oversight of management. This policy is in the Board’s published Guidelines on Significant Corporate Governance Issues, and has been in effect since the company began operations. Typically, the Chairman has served as a full-time executive officer. Dr. Craig R. Barrett, a former CEO, served as a full-time executive officer in his position as Chairman from 2005 until 2009, when he retired from Intel. Prior to that, Andy Grove served as Chairman from 1997 until 2005. In May 2009, the Board elected Dr. Jane Shaw, an independent director, as Chairman. As noted above, the Board determined to elect Mr. Andy Bryant to the Board and to serve as Chairman following Dr. Shaw’s retirement at the time of the 2012 Annual Stockholders’ Meeting.

The election of Mr. Bryant follows a long corporate practice of senior officer and Board succession planning in which the Board seeks to identify a person with the particular skills and experience considered most appropriate at the time. The Board determined that it and the company can benefit through Mr. Bryant’s extensive experience with Intel that includes 13 years of service as our CFO, and more recently as the senior executive responsible for the Technology and Manufacturing Group, Information Technology, Human Resources, and Finance.

The Board has selected Ms. Decker to serve as Lead Director following the retirement of the independent Chairman at the annual meeting. The duties and responsibilities of the Lead Director,

 

 

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which are set forth in our Bylaws and Corporate Governance Guidelines, will include:

 

Ÿ  

calling and presiding at meetings of the independent and non-employee directors of the Board of Directors and, in the absence of the Chairman, presiding at meetings of the Board;

 

Ÿ  

approving the information, agenda, and meeting schedules for the Board of Directors’ and Board committee meetings;

 

Ÿ  

serving as principal liaison between the non-employee directors and the Chairman; and

 

Ÿ  

approving the retention of advisors and consultants who report directly to the Board.

The Board will continue periodically to assess its leadership structure and the potential advantages of having an independent Chairman.

The Board’s Role in Risk Oversight at Intel

One of the Board’s functions is oversight of risk management at Intel. “Risk” is inherent in business, and the Board’s oversight, assessment, and decisions regarding risks occur in the context of and in conjunction with the other activities of the Board and the Board’s committees.

Defining Risk. The Board and management consider “risk” for these purposes to be the possibility that an undesired event could occur that might adversely affect the achievement of our objectives. Risks vary in many ways, including the ability of the company to anticipate and understand the risk, the types of adverse impacts that could occur if the undesired event occurs, the likelihood that an undesired event and a particular adverse impact would occur, and the ability of the company to control the risk and the potential adverse impacts. Examples of the types of risks faced by Intel include:

 

Ÿ  

macro-economic risks, such as inflation, reductions in economic growth, or recession;

 

Ÿ  

political risks, such as restrictions on access to markets, confiscatory taxation, or expropriation of assets;

 

Ÿ  

“event” risks, such as natural disasters; and

 

Ÿ  

business-specific risks related to strategic position, operational execution, financial structure, legal and regulatory compliance, and corporate governance.

Not all risks can be dealt with in the same way. Some risks may be easily perceived and controllable, and other risks are unknown; some risks can be avoided or mitigated by particular behavior, and some risks are unavoidable as a practical matter. In some cases, a higher degree of risk may be acceptable because of a greater

perceived potential for reward. Intel engages in numerous activities seeking to align its voluntary risk-taking with company strategy, and understands that its projects and processes may enhance the company’s business interests by encouraging innovation and appropriate levels of risk-taking.

Risk Assessment Processes. Management is responsible for identifying risk and risk controls related to significant business activities; mapping the risks to company strategy; and developing programs and recommendations to determine the sufficiency of risk identification, the balance of potential risk to potential reward, and the appropriate manner in which to control risk. The Board implements its risk oversight responsibilities by having management provide periodic briefing and informational sessions on the significant voluntary and involuntary risks that the company faces and how the company is seeking to control risk if and when appropriate. In some cases, as with risks of new technology and risks related to product acceptance, risk oversight is addressed as part of the full Board’s engagement with the CEO and management. In other cases, a Board committee is responsible for oversight of specific risk topics. For example, the Audit Committee oversees issues related to internal control over financial reporting, the Compliance Committee oversees issues related to significant pending and threatened litigation, the Finance Committee oversees issues related to the company’s risk tolerance in cash-management investments, and the Compensation Committee oversees risks related to compensation programs, as discussed in greater detail below. Presentations and other information for the Board and Board committees generally identify and discuss relevant risk and risk control; and the Board members assess and oversee the risks as a part of their review of the related business, financial, or other activity of the company. The full Board also receives specific reports on enterprise risk management in which the identification and control of risk are the primary topics of the discussion.

Risk Assessment in Compensation Programs. We annually assess the company’s compensation programs and have concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the company. Intel management assessed the company’s executive and broad-based compensation and benefits programs on a worldwide basis to determine if the programs’ provisions and operations create undesired or unintentional risk of a material nature. This risk assessment process included a review of program policies and practices; program analysis to identify

 

 

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risk and risk control related to the programs; and determinations as to the sufficiency of risk identification, the balance of potential risk to potential reward, risk control, and the support of the programs and their risks to company strategy. Although we reviewed all compensation programs, we focused on the programs with variability of payout, with the ability of a participant to directly affect payout and the controls on participant action and payout.

Based on the foregoing, we believe that our compensation policies and practices do not create inappropriate or unintended significant risk to the company as a whole. We also believe that our incentive compensation programs provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage significant risks; are compatible with effective internal controls and the risk management practices of Intel; and are supported by the oversight and administration of the Compensation Committee with regard to executive compensation programs.

The Board’s Role in Succession Planning

As reflected in our Corporate Governance Guidelines, the Board’s primary responsibilities include planning for succession with respect to the position of CEO and monitoring and advising on management’s succession planning for other executive officers. The Board’s goal is to have a long-term and continuing program for effective senior leadership development and succession. The Board also has short-term contingency plans in place for emergency and ordinary-course contingencies, such as the departure, death, or disability of the CEO or other executive officers.

As part of the CEO succession planning process, the CEO and the Board have created a statement of “core capabilities” that the Board seeks in a CEO succession candidate, addressing the areas of strategy, leadership, and execution. The CEO also oversees development of a similar statement of “core capabilities” for other executive officer positions. These statements are reviewed and revised on a periodic basis to take into account the evolution of Intel’s long-term business strategy. These lists of capabilities serve as a basis for identifying and conducting assessments of the skills and development of potential internal candidates for the CEO and other executive officer positions.

Periodically during the year, the CEO and the Director of Human Resources discuss with the full Board a variety of workforce and management succession topics, including, for example, worldwide workforce demographics, hiring programs, workforce retention, CEO succession candidates,

“next-generation” leadership development, non-U.S. leadership development, and external hiring initiatives for senior positions. The Board’s periodic reviews of the CEO succession planning process include a review of specific individuals identified as active CEO succession candidates, and each of those individuals is reviewed with respect to progress in current job position and progress toward meeting defined development goals in strategy, leadership, and execution. The company’s senior leaders are similarly responsible for working on “next generation” leadership development through the identification of personnel deemed important to Intel; identifying the skills and capabilities of future leaders; assessing the individuals against leadership capabilities; identifying skills and experience gaps and development needs; sponsoring internal candidate development; and identifying important external-hire needs.

Officers regularly attend Board meetings to present information on our business and strategy. The Board and individual directors meet with, advise, and assist CEO succession candidates and become familiar with other senior and “next generation” leaders through these meetings and other processes. Our officers work with a leadership consulting firm to receive input on personal, interpersonal, and organizational issues that contribute to leadership development. Our directors are expected to become sufficiently familiar with Intel’s executive officers to be able to provide perspective on the experience, capabilities, and performance of potential CEO candidates. Each of the CEO succession candidates has one or more designated Board mentors for advice and development purposes, and Board meetings are planned to specifically include presentations and attendance by active succession candidates and other senior leaders in the company.

Director Independence and Transactions Considered in Independence Determinations

Director Independence. The Board has determined that each of the following non-officer directors qualifies as “independent” in accordance with the published listing requirements of NASDAQ: Ambassador Barshefsky, Ms. Decker, Mr. Donahoe, Mr. Hundt, Dr. Plummer, Mr. Pottruck, Dr. Shaw, Mr. Yeary, and Dr. Yoffie. Because Mr. Otellini and Mr. Bryant are employed by Intel, they do not qualify as independent.

The NASDAQ rules have objective tests and a subjective test for determining who is an “independent director.” Under the objective tests, a director cannot be considered independent if:

 

Ÿ  

the director is, or at any time during the past three years was, an employee of the company;

 

 

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Ÿ  

the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for Board or Board committee service);

 

Ÿ  

a family member of the director is, or at any time during the past three years was, an executive officer of the company;

 

Ÿ  

the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceeded 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever was greater (subject to certain exclusions);

 

Ÿ  

the director or a family member of the director is employed as an executive officer of an entity for which at any time during the past three years, any of the executive officers of the company served on the compensation committee of such other entity; or

 

Ÿ  

the director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit.

The subjective test states that an independent director must be a person who lacks a relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board has not established categorical standards or guidelines to make these subjective determinations but considers all relevant facts and circumstances.

In addition to the Board-level standards for director independence, the directors who serve on the Audit Committee each satisfy standards established by the U.S. Securities and Exchange Commission (SEC) providing that to qualify as “independent” for the purposes of membership on that committee, members of audit committees may not accept directly or indirectly any consulting, advisory, or other compensatory fee from the company other than their director compensation, and may not be affiliates of the company.

Transactions Considered in Independence Determinations. In making its independence determinations, the Board considered transactions that occurred since the beginning of 2009 between Intel and entities associated with the independent directors or members of their immediate family. All identified transactions that appeared to relate to Intel and a family member of, or entity with a known connection to, a director were presented to the Board for consideration.

None of the non-employee directors was disqualified from “independent” status under the objective tests. In making its subjective determination that each non-employee director is independent, the Board reviewed and discussed additional information provided by the directors and the company with regard to each director’s business and personal activities as they may relate to Intel and Intel’s management. The Board considered the transactions in the context of the NASDAQ objective standards, the special standards established by the SEC for members of audit committees, and the SEC and U.S. Internal Revenue Service (IRS) standards for compensation committee members. Based on all of the foregoing, as required by the NASDAQ rules, the Board made a subjective determination that, because of the nature of the director’s relationship with the entity and/or the amount involved, no relationships exist that, in the opinion of the Board, would impair the directors’ independence. The Board’s independence determinations included reviewing the following transactions.

Ambassador Barshefsky is a partner at the law firm Wilmer Cutler Pickering Hale and Dorr LLP. Ambassador Barshefsky does not provide any legal services to Intel, and she does not receive any compensation related to our payments to this firm. Intel’s payments to this firm for professional services represented less than 3% of the firm’s revenue in 2011, less than 5% of the firm’s revenue in 2010, and less than 2.5% of the firm’s revenue in 2009. Ambassador Barshefsky’s husband is an officer of American Honda Motor Co., Inc. (which is wholly owned by Honda Motor Co., Ltd.). Intel and the Intel Foundation purchased commercial paper issued by Honda Finance Corp., a subsidiary of Honda Motor Co., Ltd., in routine open market transactions in 2011, 2010, and 2009.

Ms. Decker, Mr. Donahoe, Mr. Hundt, Dr. Plummer, Mr. Pottruck, Dr. Shaw, Mr. Yeary, Dr. Yoffie, or one of their immediate family members have each served as a trustee, director, employee, or advisory board member for one or more colleges or universities. Intel has a variety of dealings with these institutions in the ordinary course of business,

 

 

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including: sponsored research and technology licenses; charitable contributions (matching and discretionary); fellowships and scholarships; facility, engineering, and equipment fees; and payments for training, event hosting, and organizational participation or membership dues. Payments to each of these institutions (including discretionary contributions by Intel and the Intel Foundation) constituted less than the greater of $200,000 or 1% of that institution’s annual revenue in each of the last three years.

With the exception of Mr. Donahoe, Mr. Pottruck, Mr. Yeary, and Dr. Yoffie, each of our non-employee directors is, or was during the previous three fiscal years, a non-management director of another company that did business with Intel at some time during those years. These relationships were ordinary course dealings as a supplier or purchaser of goods or services, licensing or research arrangements, or commercial paper or similar financing arrangements in which Intel or the Intel Foundation participated as a creditor.

Director Attendance

The Board held seven meetings in 2011. We expect each director to attend every meeting of the Board and the committees on which he or she serves, as well as the annual stockholders’ meeting. All directors attended at least 75% of the meetings of the Board and the committees on which they served in 2011 (held during the period that the director served). Nine directors attended our 2011 Annual Stockholders’ Meeting.

Communications from Stockholders to Directors

The Board recommends that stockholders initiate communications with the Board, the Chairman, or any committee of the Board in writing to the attention of our Corporate Secretary at the address set forth in “Other Matters; Communicating with Us.” This process assists the Board in reviewing and responding to stockholder communications in an appropriate manner. The Board has instructed our Corporate Secretary to review correspondence directed to the Board and, at his discretion, not to forward items that he deems to be of a commercial or frivolous nature or otherwise inappropriate for the Board’s consideration.

Corporate Governance Guidelines

Intel has long maintained a set of Corporate Governance Guidelines. The Corporate Governance and Nominating Committee oversees and annually reviews the Guidelines and any recommendations for amendments. The Board oversees administration and interpretation of, and compliance with, the Guidelines, and may amend, waive, suspend, or repeal any of the Guidelines at any time, with or without public notice subject to legal requirements, as it determines necessary or appropriate in the exercise of the Board’s judgment or fiduciary duties.

We have posted the Guidelines on our web site at www.intel.com/go/governance. Among other matters, the Guidelines include the following items concerning the Board:

 

Ÿ  

Independent directors may not stand for re-election after age 72.

 

Ÿ  

Directors are limited to service on four public company boards, including Intel’s but excluding not-for-profit and mutual fund boards. If the director serves as an active CEO of a public company, the director is limited to service on three public company boards, including Intel’s.

 

Ÿ  

The CEO reports at least semiannually to the Board on succession planning and management development.

 

Ÿ  

The Chairman of the Board manages a process whereby the Board and its members are subject to annual evaluation and self-assessment.

 

Ÿ  

The Board will obtain stockholder approval before adopting any “poison pill.” If the Board later repeals this policy and adopts a poison pill without prior stockholder approval, the Board will submit the poison pill to an advisory vote by Intel’s stockholders within 12 months from the date that the Board adopts the poison pill. If Intel’s stockholders fail to approve the poison pill, the Board may elect to terminate, retain, or modify the poison pill in the exercise of its fiduciary responsibilities.

In addition, the Board has adopted a policy that the company will not issue shares of preferred stock to prevent an unsolicited merger or acquisition.

 

 

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Board Committees and Charters

The Board delegates various responsibilities and authority to different Board committees. Committees regularly report on their activities and actions to the full Board. The Board has, and appoints the members of, standing Audit, Compensation, Compliance, Corporate Governance and Nominating, Executive, and Finance Committees. The Board has determined that each member of the Audit, Compensation, Compliance, Corporate Governance and Nominating, and Finance Committees is an independent director in accordance with NASDAQ standards.

Each of the Board committees has a written charter approved by the Board, and we post each charter on our web site at www.intc.com/corp_docs.cfm. Each committee can engage outside experts, advisors, and counsel to assist the committee in its work. The following table identifies the current committee members.

 

Name   Audit       Compensation  

Corporate

Governance

and Nominating

  Compliance   Executive   Finance

Charlene Barshefsky

              ü       Chair

Andy D. Bryant1

                       

Susan L. Decker

  Chair                       ü

John J. Donahoe

      ü   ü            

Reed E. Hundt

  ü             ü       ü

Paul S. Otellini

                  ü    

James D. Plummer

  ü                     ü

David S. Pottruck

      Chair           ü    

Jane E. Shaw

          ü       Chair    

Frank D. Yeary

  ü             Chair       ü

David B. Yoffie

      ü   Chair            
Number of Committee Meetings Held in 2011   8     5   4   4   0   2

 

  1

Mr. Bryant joined the Board on July 26, 2011. Upon becoming Chairman of the Board, he will also become Chair of the Executive Committee.

 

Audit Committee. The Audit Committee assists the Board in its general oversight of our financial reporting, financial risk assessment, internal controls, and audit functions, and is responsible for the appointment, retention, compensation, and oversight of the work of our independent registered public accounting firm. The Board has determined that Ms. Decker and Mr. Yeary each qualifies as an “audit committee financial expert” under SEC rules and that each Audit Committee member has sufficient knowledge in reading and understanding the company’s financial statements to serve on the Audit Committee. The responsibilities and activities of the Audit Committee are described in detail in “Report of the Audit Committee” in this proxy statement and the Audit Committee’s charter.

Compensation Committee. The Compensation Committee has authority for reviewing and determining salaries, performance-based incentives, and other matters related to the compensation of our executive officers, and administering our equity plans, including reviewing and granting equity awards to our executive officers. The Compensation Committee also reviews and determines various other compensation policies and matters, including making recommendations to the Board and to

management related to employee compensation and benefit plans, making recommendations to the Board on stockholder proposals related to compensation matters, and administering the employee stock purchase plan.

The Compensation Committee is responsible for determining executive compensation, and the Corporate Governance and Nominating Committee recommends to the full Board the compensation for non-employee directors. The Compensation Committee can designate one or more of its members to perform duties on its behalf, subject to reporting to or ratification by the Compensation Committee, and can delegate to one or more members of the Board the authority to review and grant stock-based compensation to employees other than executive officers.

The Compensation Committee retains an independent executive compensation consultant, Farient Advisors LLC. Farient Advisors provides input, analysis, and advice to the Compensation Committee with respect to Intel’s executive compensation philosophy, peer groups, pay positioning (by pay component and in total), design of compensation elements, overall equity

 

 

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usage and allocation, and risk assessment under Intel’s compensation programs. Farient Advisors reports directly to the Compensation Committee and interacts with management at the direction of the Compensation Committee. Farient Advisors did not perform work for Intel other than that which was pursuant to its engagement by the Compensation Committee.

The CEO makes recommendations to the Compensation Committee on the base salary, annual incentive cash targets, and equity awards for each executive officer other than himself, based on his assessment of each executive officer’s performance during the year and his review of compensation data gathered from compensation surveys. For more information on the responsibilities and activities of the Compensation Committee, including the processes for determining executive compensation, see “Compensation Discussion and Analysis,” “Report of the Compensation Committee,” and “Executive Compensation” in this proxy statement, and the Compensation Committee’s charter.

Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee reviews and reports to the Board on a periodic basis with regard to matters of corporate governance and corporate responsibility, such as environmental, sustainability, workplace, and stakeholder issues. The committee also annually reviews and assesses the effectiveness of the Board’s Corporate Governance Guidelines, makes recommendations to the Board regarding proposed revisions to the Guidelines and committee charters, reviews the policy related to the implementation of a poison pill, and makes recommendations to the Board regarding the size and composition of the Board and its committees. In addition, the committee reviews all stockholder proposals, makes recommendations to the Board for action on such proposals, and reviews and makes recommendations to the Board concerning compensation for our non-employee directors.

The Corporate Governance and Nominating Committee establishes procedures for the nomination process and recommends candidates for election to the Board. Consideration of new Board candidates typically involves a series of internal discussions, review of information concerning candidates, and interviews with selected candidates.

In seeking and evaluating director candidates, the committee considers the diversity of skills, experience, and background of the Board as a whole and, based on that analysis, determines whether it may be desirable to add to the Board a director with a certain type of background, experience, personal characteristics, or skills. In connection with this process, the committee seeks input from Intel’s head of Global Diversity and Inclusion. Board members typically suggest candidates for nomination to the Board. The committee also considers candidates proposed by stockholders and evaluates them using the same criteria as for other candidates. A stockholder seeking to suggest a prospective nominee for the committee’s consideration should submit the candidate’s name and qualifications to our Corporate Secretary. The Corporate Secretary’s contact information can be found in “Other Matters; Communicating with Us.”

Compliance Committee. The Compliance Committee, as directed by the Board, oversees Intel’s policies, programs, and procedures with regard to significant pending and threatened litigation, and reviews our implementation of legal obligations arising from judgments, settlement agreements, and other similar obligations that bear upon the company’s effective conduct of business in a legal and ethical manner.

Executive Committee. The Executive Committee may exercise the authority of the Board between Board meetings, except to the extent that the Board has delegated authority to another committee or to other persons, and except as limited by applicable law.

Finance Committee. The Finance Committee reviews and recommends matters related to our capital structure, including the issuance of debt and equity securities; banking arrangements, including the investment of corporate cash; and management of the corporate debt structure. In addition, the Finance Committee reviews and approves finance and other cash management transactions. The Finance Committee appoints the members of, and oversees, the Retirement Plans Investment Policy Committee, which sets the investment policy and chooses investment managers for our U.S. retirement plans. Mr. Pottruck is chairman of the Retirement Plans Investment Policy Committee, whose other members are Intel employees.

 

 

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DIRECTOR COMPENSATION

 

The general policy of the Board is that compensation for independent directors should be a mix of cash and equity-based compensation, with the majority of compensation being provided in the form of equity-based compensation. The Corporate Governance and Nominating Committee, consisting solely of independent directors, has the primary responsibility for reviewing and considering any revisions to director compensation. The Board reviews the committee’s recommendations and determines the amount of director compensation.

Intel’s Legal department, Corporate Secretary, and Compensation and Benefits Group in the Human Resources department support the committee in recommending director compensation and creating director compensation programs. In addition, the committee can engage the services of outside advisors, experts, and others to assist the committee. During 2011, the committee did not use an outside advisor to aid in setting director compensation.

To assist the committee in its annual review of director compensation, Intel’s Compensation and Benefits Group provides director compensation data compiled from the annual reports and proxy statements of companies that the Board uses as its peer group for determining director compensation. The director peer group is the same as the peer group used to set executive compensation and consists of 15 technology companies and 10 companies within the Standard & Poor’s S&P 100* Index (S&P 100), described in detail below under “Compensation Discussion and Analysis; 2011 External Competitive Considerations.” The committee targets cash and equity compensation at the average of the peer group.

For 2011, non-employee director annual compensation remained at the levels established during 2010. Compensation for the non-executive Chairman of the Board consists of the following elements:

 

Ÿ  

cash retainer of $275,000;

 

Ÿ  

performance-based stock units referred to as outperformance stock units (OSUs) with a targeted grant date fair value of approximately $187,500; and

 

Ÿ  

restricted stock units (RSUs) with a targeted grant date fair value of approximately $187,500.

Compensation for all other non-employee directors consists of the following elements:

 

Ÿ  

cash retainer of $75,000;

 

Ÿ  

OSUs with a targeted grant date fair value of approximately $102,500;

 

Ÿ  

RSUs with a targeted grant date fair value of approximately $102,500;

 

Ÿ  

Audit Committee chair fee of $20,000;

 

Ÿ  

all other committee chair fees of $10,000 per committee; and

 

Ÿ  

non-chair Audit Committee member fee of $10,000.

Intel does not pay its management directors for Board service in addition to their regular employee compensation. After Mr. Bryant becomes Chairman of the Board, he will continue to participate in the compensation programs utilized for other full-time executive officers, and his compensation will be determined by the Board’s Compensation Committee.

 

 

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The following table details the compensation of Intel’s non-employee directors for the year ended December 31, 2011.

Director Compensation for Fiscal Year 2011

 

Name  

Fees Earned

or Paid

in Cash

($)

   

Stock

Awards1

($)

   

Change in Pension Value

and Non-Qualified

Deferred Compensation

Earnings

($)

   

All

Other

Compensation2

($)

   

Total

($)

 

Charlene Barshefsky3

    85,000        197,200                      282,200   

Susan L. Decker

    95,000        197,200               5,100        297,300   

John J. Donahoe4

           308,600                      308,600   

Reed E. Hundt

    85,000        197,200                      282,200   

James D. Plummer

    85,000        197,200               5,000        287,200   

David S. Pottruck

    95,000        197,200                      292,200   

Jane E. Shaw

    285,000        360,700        5,000               650,700   

Frank D. Yeary

    95,000        197,200                      292,200   

David B. Yoffie

    85,000        197,200        47,000        5,000        334,200   

Total

    910,000        2,049,700        52,000        15,100        3,026,800   

 

  1

Consists of OSUs and RSUs valued at grant date fair values. Assumptions used in determining the grant date fair value of RSUs included an assumed risk-free rate of return of 0.4% and a dividend yield of 3.6%. Assumptions used in determining the grant date fair value of OSUs were volatility of 26.15%, risk-free rate of return of 0.6%, and a dividend yield of 3.6%. For additional information, see “Equity Awards” below.

 

 

  2

Intel Foundation made matching charitable contributions on behalf of Ms. Decker ($5,100), Dr. Plummer ($5,000), and Dr. Yoffie ($5,000).

 

 

  3

Ambassador Barshefsky elected to participate in the Cash Deferral Election, whereby she elected to defer her cash compensation until her retirement from the Board.

 

 

  4

Includes 3,475 RSUs granted to Mr. Donahoe in lieu of his annual cash retainer and Audit Committee member fees for the second half of 2010, and his annual cash retainer for the first half of 2011. This also includes 1,735 RSUs granted as part of a special grant to ensure that Mr. Donahoe received a total of 20,000 RSUs granted to the other non-employee members of the Board (excluding Dr. Shaw) in 2010. Mr. Donahoe received only 18,265 of the total 20,000 RSUs granted in 2010 because the terms of the 2006 Equity Incentive Plan then in effect limited equity grants to non-employee directors to 30,000 shares per director per year.

 

Fees Earned or Paid in Cash. The following table provides a breakdown of cash fees earned, without taking into account any election to defer or receive equity in lieu of cash. As noted above, for 2011 Mr. Donahoe elected to receive his fees earned in the form of RSUs.

 

Name  

Annual

Retainers

($)

   

Committee Chair

Fees

($)

   

Audit Committee

Member Fees

($)

   

Total

($)

 

Charlene Barshefsky

    75,000        10,000               85,000   

Susan L. Decker

    75,000        20,000               95,000   

John J. Donahoe

    75,000                      75,000   

Reed E. Hundt

    75,000               10,000        85,000   

James D. Plummer

    75,000               10,000        85,000   

David S. Pottruck

    75,000        20,000 (1)             95,000   

Jane E. Shaw

    275,000        10,000               285,000   

Frank D. Yeary

    75,000        10,000        10,000        95,000   

David B. Yoffie

    75,000        10,000               85,000   

 

  1

Includes a $10,000 committee chair fee for Mr. Pottruck’s service as chairman of the Retirement Plans Investment Policy Committee.

 

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Under the “RSU in Lieu of Cash Election” program, directors can elect annually to receive all of their cash compensation in the form of RSUs. This election must be either 100% or 0%, and must be made in the tax year prior to earning compensation. The Board grants RSUs elected in lieu of cash in two installments: one in the year in which the cash fees otherwise would be paid, and the second in the following year. RSUs elected in lieu of cash have the same vesting terms as the annual RSU grant to directors. Under this program, Mr. Donahoe was granted 3,475 RSUs in 2011 resulting from his elections under this program with respect to his 2010 and 2011 fees.

Equity Awards. In accordance with Intel’s 2006 Equity Incentive Plan, equity awards granted to non-employee directors may not exceed 100,000 shares per director per year. The current practice is to grant each non-employee director OSUs and RSUs each July with a market value on the grant date of approximately $205,000. Grant date fair value reported in the “Stock Awards” column in the Director Compensation for Fiscal Year 2011 table above differs from this amount due to changes in the fair value of such awards between the approval date and the grant date of the awards.

Outperformance stock units (OSUs): OSUs granted to directors in 2011 (2011 Director OSUs) have a three-year cliff-vesting schedule, meaning that 100% of the grant vests on the 36th-month anniversary of the date the award is granted. On July 22, 2011, Intel granted each independent director 3,104 of 2011 Director OSUs. The Board awarded Dr. Shaw an additional 2,574 of 2011 Director OSUs for her service as Chairman of the Board. The grant date fair value of each OSU was $32.87. If a director retires from the Board and is 72 years of age or has at least seven years of service on Intel’s Board before the end of the performance period, he or she will not forfeit granted but unvested awards. The

2011 Director OSUs convert to shares on the regular settlement dates (no accelerated payout). The number of shares of Intel common stock that a director receives from this grant will range from 50% to 200% of the target amount. As part of the OSU program, directors receive dividend equivalents on the final shares earned and vested; the dividend equivalents will pay out in the form of additional shares. For more information on OSUs, see “Compensation Discussion and Analysis; OSU Awards” below.

Restricted stock units (RSUs): RSUs vest in equal annual installments over a three-year period from the grant date. On July 22, 2011, Intel granted each independent director 4,455 RSUs. The Board awarded Dr. Shaw an additional 3,690 RSUs for her service as Chairman of the Board. The grant date fair value of each RSU was $21.37. Vesting of all shares accelerates upon retirement from the Board if a director is 72 years of age or has at least seven years of service on Intel’s Board. Directors do not receive dividend equivalents on unvested RSUs.

The following table provides information on the outstanding equity awards held by the non-employee directors at fiscal year-end 2011, with OSUs shown at their target amount. Market value for stock units (OSUs and RSUs) is determined by multiplying the number of shares by the closing price of Intel common stock on NASDAQ on the last trading day of the fiscal year ($24.25 on December 30, 2011). In 2006, Intel began granting RSUs instead of stock options to non-employee directors. In 2009, Intel began granting OSUs to non-employee directors in addition to RSUs. All of the stock options in the following table are fully vested. Market value for stock options is calculated by taking the difference between the closing price of Intel common stock on NASDAQ on the last trading day of the fiscal year and the option exercise price, and multiplying it by the number of stock options.

 

 

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Outstanding Equity Awards for Directors at Fiscal Year-End 2011

 

     Stock Options     Stock Units  
Name  

Number of
Securities
Underlying
Unexercised
Options
Exercisable

(#)

   

Market
Value of
Unexercised
Options

($)

   

Number of
Restricted
Stock Units
That Have
Not Vested1

(#)

   

Market Value
of Restricted
Stock Units
That Have Not
Vested2

($)

   

Number of
Outperformance Stock
Units That Have Not
Vested3

(#)

   

Market Value of
Unconverted
Outperformance
Stock Units That
Have Not Vested

($)

 

Charlene Barshefsky  

    24,000               23,225        563,200        9,684        234,800   

Susan L. Decker

                  22,540        546,600        9,684        234,800   

John J. Donahoe

                  30,625        742,700        9,684        234,800   

Reed E. Hundt

    49,000        82,800        22,540        546,600        9,684        234,800   

James D. Plummer

    15,000               22,540        546,600        9,684        234,800   

David S. Pottruck

    49,000        82,800        22,540        546,600        9,684        234,800   

Jane E. Shaw

    49,000        82,800        15,853        384,400        15,558        377,300   

Frank D. Yeary

                  23,569        571,500        9,684        234,800   

David B. Yoffie

    34,000               22,540        546,600        9,684        234,800   

 

1 

Vested RSUs that would have settled if they had not been part of the deferral election program are excluded from this column.

 

2 

The market value of vested RSUs that would have settled if they had not been part of the deferral election program is excluded from this column.

 

3 

OSUs are shown at their target amount. The actual conversion of OSUs into Intel shares following the conclusion of the performance period will range between 33% and 200% of that target amount for OSUs granted prior to 2011; and between 50% and 200% for the OSUs granted in 2011, depending on Intel’s TSR performance versus the TSR performance of a group of companies over the applicable three-year performance period. In addition, dividend equivalents will be paid out on the final shares earned and vested in the form of additional shares.

 

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Director Stock Ownership Guidelines. The Board’s stock ownership guidelines for non-employee directors require that each director must acquire and hold at least 15,000 shares of Intel common stock within five years of joining the Board. After each succeeding five years of Board service, non-employee directors must own an additional 5,000 shares (for example, 20,000 shares after 10 years of service). Unvested OSUs, unvested RSUs, and unexercised stock options do not count toward this requirement. As of December 31, 2011, each director nominated for election at the annual meeting had satisfied these ownership guidelines.

Deferred Compensation. Intel has a deferred compensation plan that allows non-employee directors to defer their cash and equity compensation. The Cash Deferral Election allows participants to defer up to 100% of their cash compensation and receive an investment return on the deferred funds as if the funds were invested in Intel common stock. Participants receive credit for reinvestment of dividends under this option. Plan participants must elect irrevocably to receive the deferred funds either in a lump sum or in equal annual installments over five or 10 years, and to begin receiving distributions either at retirement or at a future date not less than 24 months from the election date. This deferred cash compensation is an unsecured obligation for Intel. Ambassador Barshefsky chose the Cash Deferral Election with respect to her 2011 fees. The RSU Deferral Election allows directors to defer the settlement of their vested RSUs until termination of service. This election must be either 100% or 0% and applies to all RSUs granted during the year. Deferred RSUs count toward Intel’s stock ownership guidelines once they vest. Directors do not receive dividends on deferred RSUs. Mr. Donahoe and Dr. Shaw participated in the RSU Deferral Election program for the awards granted in 2011.

Retirement. In 1998, the Board ended its retirement program for independent directors. Dr. Shaw and Dr. Yoffie, who were serving at that time, were vested with the number of years served. They will receive an annual benefit equal to the annual retainer fee in effect at the time of payment, to be paid beginning upon the director’s departure from the Board. The payments will continue for the lesser of the number of years served as a non-employee director through 1998 or the life of the director. The amounts in the “Change in Pension Value and Non-Qualified Deferred Compensation Earnings” column in the Director Compensation for Fiscal Year 2011 table represent the actuarial increase in pension value accrued under this program. Dr. Shaw is credited with five years of service, and Dr. Yoffie is credited with nine years of service. Assumptions used in determining these increases include a discount rate of 5.1%, a retirement age of 65 or current age if older, the RP2000 Mortality table projected to 2011, and an annual benefit amount of $75,000.

Equipment. Intel gives each director a notebook computer for his or her personal use and offers each director the use of other equipment employing Intel technology.

Travel Expenses. Intel does not pay meeting fees. We reimburse the directors for their travel and related expenses in connection with attending Board meetings and Board-related activities, such as Intel site visits and sponsored events, as well as continuing education programs.

Charitable Matching. Directors’ charitable contributions to schools and universities that meet the guidelines of Intel’s employee charitable matching gift program are eligible for 50% matching of funds of up to $10,000 per director per year, which is the same limit for employees generally.

 

 

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

The Board’s Audit Committee is responsible for review, approval, or ratification of “related-person transactions” involving Intel or its subsidiaries and related persons. Under SEC rules, a related person is a director, officer, nominee for director, or 5% stockholder of the company since the beginning of the previous fiscal year, and their immediate family members. Intel has adopted written policies and procedures that apply to any transaction or series of transactions in which the company or a subsidiary is a participant, the amount involved exceeds $120,000, and a related person has a direct or indirect material interest.

The Audit Committee has determined that, barring additional facts or circumstances, a related person does not have a direct or indirect material interest in the following categories of transactions:

 

Ÿ  

any transaction with another company for which a related person’s only relationship is as an employee (other than an executive officer), director, or beneficial owner of less than 10% of that company’s shares, if the amount involved does not exceed the greater of $1 million or 2% of that company’s total annual revenue;

 

Ÿ  

any charitable contribution, grant, or endowment by Intel or the Intel Foundation to a charitable organization, foundation, or university for which a related person’s only relationship is as an employee (other than an executive officer) or a director, if the amount involved does not exceed the lesser of $1 million or 2% of the charitable organization’s total annual receipts, or any matching contribution, grant, or endowment by the Intel Foundation;

 

Ÿ  

compensation to executive officers determined by the Compensation Committee;

 

Ÿ  

compensation to directors determined by the Board;

 

Ÿ  

transactions in which all security holders receive proportional benefits; and

 

Ÿ  

banking-related services involving a bank depository of funds, transfer agent, registrar, trustee under a trust indenture, or similar service.

Intel personnel in the Legal and Finance departments review transactions involving related

persons who are not included in one of the above categories. If they determine that a related person could have a significant interest in such a transaction, the transaction is forwarded to the Audit Committee for review. The Audit Committee determines whether the related person has a material interest in a transaction and may approve, ratify, rescind, or take other action with respect to the transaction in its discretion. The Audit Committee reviews all material facts related to the transaction and takes into account, among other factors it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances; the extent of the related person’s interest in the transaction; and, if applicable, the availability of other sources of comparable products or services.

Since the beginning of 2011, there were no related-person transactions under the relevant standards.

Code of Conduct

It is our policy that all employees must avoid any activity that is or has the appearance of being hostile, adverse, or competitive with Intel, or that interferes with the proper performance of their duties, responsibilities, or loyalty to Intel. Our Code of Conduct contains these policies and applies to our directors (with respect to their Intel-related activities), executive officers, and other employees.

Each director and executive officer must inform our Board when confronted with any situation that may be perceived as a conflict of interest with Intel, even if the person does not believe that the situation would violate our Code of Conduct. If the Board concludes that there is or may be a perceived conflict of interest, the Board will instruct our Legal department to work with our relevant business units to determine if there is a conflict of interest and how the conflict should be resolved.

Any waivers of these conflict rules with regard to a director or an executive officer require the prior approval of the Board. Our Code of Conduct is our code-of-ethics document. We have posted our Code of Conduct on our web site at www.intel.com/go/governance.

 

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table presents the beneficial ownership of our common stock by one holder of more than 5% of our common stock, each of our directors and listed officers, and all of our directors and executive officers as a group. This information is as of February 24, 2012, except for information on the greater than 5% stockholder. Amounts reported under “Number of Shares of Common Stock Beneficially Owned as of February 24, 2012” include the number of shares subject to RSUs and stock options that become exercisable or vest within 60 days of February 24, 2012 (which are shown in the columns to the right). Our listed officers are the CEO, CFO, and three other most highly compensated executive officers in a particular year. Except as otherwise indicated and subject to applicable community property laws, each owner has sole voting and investment power with respect to the securities listed.

 

Stockholder  

Number of Shares of

Common Stock

Beneficially Owned as of

February 24, 2012

   

Percent

of Class

   

Number of Shares

Subject to Options

Exercisable as of

February 24, 2012 or

Which Become

Exercisable Within 60

Days of This Date

   

Number of RSUs That

Vest Within 60 Days

of February 24, 2012

 
BlackRock, Inc.     267,873,158 (1)      5.337                 
Paul S. Otellini, Director, President, and Chief Executive Officer     6,390,717 (2)      **        5,433,252        75,237   
Andy D. Bryant, Director and Vice Chairman of the Board     2,293,858 (3)      **        1,975,759        23,952   
David Perlmutter, Executive Vice President and General Manager, Intel Architecture Group,
and Chief Product Officer
    1,302,820        **        1,138,559        19,786   
Stacy J. Smith, Senior Vice President and Chief Financial Officer     227,068        **        162,762        17,411   
A. Douglas Melamed, Senior Vice President and General Counsel     144,945        **        96,935        6,889   
Jane E. Shaw, Director and Chairman of the Board     247,071 (4)(5)      **        49,000          
David B. Yoffie, Director     210,240 (6)      **        34,000          
David S. Pottruck, Director     104,323 (7)      **        49,000          
Reed E. Hundt, Director     86,335        **        34,000          
Charlene Barshefsky, Director     74,822 (8)(9)      **        24,000          
James D. Plummer, Director     42,835 (10)      **        15,000          
Frank D. Yeary, Director     29,520        **               1,029   
Susan L. Decker, Director     27,370        **                 
John J. Donahoe, Director     16,027 (11)      **               1,029   
All directors and executive officers as a group (18 individuals)     12,914,131        **        10,276,382        202,789   

 

** Less than 1%.

 

1 

As of December 30, 2011, based on information set forth in a Schedule 13G/A filed with the SEC on February 13, 2012 by BlackRock, Inc. BlackRock, Inc.’s business address is 40 East 52nd St., New York, NY 10022.

 

2 

Includes 1,550 shares held by Mr. Otellini’s spouse, and Mr. Otellini disclaims beneficial ownership of these shares, and 470,866 shares held by a trust for which Mr. Otellini shares voting and investment power.

 

3 

Includes 1,600 shares held by Mr. Bryant’s son and 1,000 shares held by Mr. Bryant’s daughter, and Mr. Bryant disclaims beneficial ownership of these shares.

 

4 

Includes 33,030 shares held by a family trust for which Dr. Shaw shares voting and investment power.

 

5 

Includes 20,571 deferred but vested RSUs held by Dr. Shaw.

 

6 

Includes 164,176 shares held jointly with Dr. Yoffie’s spouse for which Dr. Yoffie shares voting and investment power.

 

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7 

Includes 800 shares held by Mr. Pottruck’s daughter. Also includes a total of 13,400 shares held in two separate annuity trusts for the benefit of Mr. Pottruck’s brother for which Mr. Pottruck shares voting and investment power.

 

8 

Includes 6,800 shares held jointly with Ambassador Barshefsky’s spouse for which Ambassador Barshefsky shares voting and investment power.

 

9 

Includes 17,370 deferred but vested RSUs held by Ambassador Barshefsky.

 

10 

Includes 27,835 shares held by a family trust for which Dr. Plummer shares voting and investment power.

 

11 

Includes 14,998 deferred but vested RSUs held by Mr. Donahoe. Also includes 1,029 RSUs vesting within 60 days of February 24, 2012 under the RSU Deferral Election program.

 

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PROPOSAL 2: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee evaluates the selection of independent auditors each year and has selected Ernst & Young LLP as our independent registered public accounting firm for the current year. Ernst & Young has served in this role since Intel was incorporated in 1968. The Audit Committee concluded that many factors contribute to the continued support of Ernst & Young’s independence, such as the oversight of the Public Company Accounting Oversight Board (PCAOB) through the establishment of audit, quality, ethics, and independence standards in addition to conducting audit inspections; the mandating of reports on internal control over financial reporting; PCAOB requirements for audit partner rotation; and limitations imposed by regulation and by the Audit Committee on non-audit services provided by Ernst & Young.

In accordance with applicable rules on partner rotation, Ernst & Young’s primary engagement partner for our audit was changed for 2010, and the concurring/reviewing partner for our audit was changed in 2009. Under the auditor independence rules, Ernst & Young reviews its independence each year and delivers to the Audit Committee a letter addressing matters prescribed under those rules. The Audit Committee also considers that Intel, its business partners, and affiliated entities require global, standardized, and well-coordinated services, not only for audit purposes, but for various other non-audit services that could not be provided by an independent auditor, such as valuation support, IT consulting, and payroll services. A change in our independent auditor would force the replacement of one or more of the multinational service providers that perform non-audit services for Intel and could be significantly disruptive to our business due to loss of cumulative knowledge in the service providers’ areas of expertise.

As a matter of good corporate governance, the Board submits the selection of the independent audit firm to our stockholders for ratification. If the selection of Ernst & Young is not ratified by a majority of the shares of common stock present or represented at the annual meeting and entitled to vote on the matter, the Audit Committee will review its future selection of an independent registered public accounting firm in light of that vote result.

Representatives of Ernst & Young attended all meetings of the Audit Committee in 2011. The Audit Committee pre-approves and reviews audit and non-audit services performed by Ernst & Young as

well as the fees charged by Ernst & Young for such services. In its pre-approval and review of non-audit service fees, the Audit Committee considers, among other factors, the possible effect of the performance of such services on the auditors’ independence. For additional information concerning the Audit Committee and its activities with Ernst & Young, see “Corporate Governance” and “Report of the Audit Committee” in this proxy statement. We expect that a representative of Ernst & Young will attend the annual meeting, and the representative will have an opportunity to make a statement if he or she so chooses. The representative will also be available to respond to appropriate questions from stockholders.

Ernst & Young LLP’s Audit Fees for 2011 and 2010

The following table shows the fees billed by Ernst & Young for audit and other services provided for fiscal years 2011 and 2010. All figures are net of Value Added Tax and other similar taxes assessed by non-U.S. jurisdictions on the amount billed by Ernst & Young. All of the services described in the following fee table were approved in conformity with the Audit Committee’s pre-approval process.

 

    

2011 Fees

($)

   

2010
Fees

($)

 

Audit Services

    18,259,000        13,666,000   

Audit-Related Services

    903,000        771,000   

Tax Services

    2,341,000        162,000   

All Other Services

             

Total

    21,503,000        14,599,000   

Audit Services. This category includes Ernst & Young’s audit of our annual financial statements and internal control over financial reporting, review of financial statements included in our Form 10-Q quarterly reports, and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements for those fiscal years. This category also includes statutory audits required by non-U.S. jurisdictions; consultation and advice on new accounting pronouncements, and technical advice on various accounting matters related to the consolidated financial statements or statutory financial statements that are required to be filed by non-U.S. jurisdictions; comfort letters; and consents issued in connection with SEC filings or private placement documents. This category also includes fees for an Ernst & Young online

 

 

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accounting research service. The increase in audit fees from 2010 to 2011 is primarily due to the post-acquisition inclusion of McAfee and the Wireless Solutions business of Infineon.

Audit-Related Services. This category consists of assurance and related services provided by Ernst & Young that are reasonably related to the performance of the audit or review of our financial statements, and are not included in the fees reported in the table above under “Audit Services.” The services for the fees disclosed under this category include audits of Intel employee benefit plans, agreed-upon procedures for a research and development grant program, a third-party vendor audit related to relocation services, and consulting on internal controls.

Tax Services. This category consists of tax services provided with respect to tax consulting, tax

compliance, tax audit assistance, tax planning, expatriate tax services, and transfer pricing. The increase in fees for tax services from 2010 to 2011 is primarily due to the acquisition of McAfee; this was a general continuation of tax services provided by Ernst & Young to McAfee since before McAfee’s acquisition by Intel.

All Other Services. This category consists of services provided by Ernst & Young that are not included in the category descriptions defined above under “Audit Services,” “Audit-Related Services,” or “Tax Services.”

Recommendation of the Board

The Board of Directors recommends that you vote “FOR” the ratification of the selection of Ernst & Young as our independent registered public accounting firm for the current year.

 

 

REPORT OF THE AUDIT COMMITTEE

 

As described more fully in its charter, the purpose of the Audit Committee is to assist the Board in its general oversight of Intel’s financial reporting, internal controls, and audit functions. Management is responsible for the preparation, presentation, and integrity of Intel’s financial statements; accounting and financial reporting principles; internal controls; and procedures designed to reasonably assure compliance with accounting standards, applicable laws, and regulations. Intel has a full-time Internal Audit department that reports to the Audit Committee and to management. This department is responsible for objectively reviewing and evaluating the adequacy, effectiveness, and quality of Intel’s system of internal controls related, for example, to the reliability and integrity of Intel’s financial information and the safeguarding of Intel’s assets.

Ernst & Young LLP, Intel’s independent registered public accounting firm, is responsible for performing an independent audit of Intel’s consolidated financial statements in accordance with generally accepted auditing standards and expressing an opinion on the effectiveness of Intel’s internal control over financial reporting. In accordance with law, the Audit Committee has ultimate authority and responsibility for selecting, compensating, evaluating, and, when appropriate, replacing Intel’s independent audit firm. The Audit Committee has the authority to engage its own outside advisors, including experts in particular areas of accounting, as it determines appropriate, apart from counsel or advisors hired by management.

Audit Committee members are not professional accountants or auditors, and their functions are not intended to duplicate or to certify the activities of management and the independent audit firm; nor can the Audit Committee certify that the independent audit firm is “independent” under applicable rules. The Audit Committee serves a Board-level oversight role in which it provides advice, counsel, and direction to management and to the auditors on the basis of the information it receives, discussions with management and the auditors, and the experience of the Audit Committee’s members in business, financial, and accounting matters.

The Audit Committee has an agenda for the year that includes reviewing Intel’s financial statements, internal control over financial reporting, and audit matters. The Audit Committee meets each quarter with Ernst & Young, Intel’s Chief Audit Executive, and management to review Intel’s interim financial results before the publication of Intel’s quarterly earnings press releases. Management’s and the independent audit firm’s presentations to, and discussions with, the Audit Committee cover various topics and events that may have significant financial impact or are the subject of discussions between management and the independent audit firm. The Audit Committee reviews and discusses with management and the Chief Audit Executive Intel’s major financial risk exposures and the steps that management has taken to monitor and control such exposures. In accordance with law, the Audit Committee is responsible for establishing

 

 

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procedures for the receipt, retention, and treatment of complaints received by Intel regarding accounting, internal accounting controls, or auditing matters, including the confidential, anonymous submission by Intel’s employees, received through established procedures, of any concerns regarding questionable accounting or auditing matters.

Among other matters, the Audit Committee monitors the activities and performance of Intel’s internal auditors and independent registered public accounting firm, including the audit scope, external audit fees, auditor independence matters, and the extent to which the independent audit firm can be retained to perform non-audit services. Intel’s independent audit firm has provided the Audit Committee with the written disclosures and the letter required by the Public Company Accounting Oversight Board (PCAOB) regarding the independent accountant’s communications with the Audit Committee concerning independence, and the Audit Committee has discussed with the independent audit firm and management that firm’s independence.

In accordance with Audit Committee policy and the requirements of law, the Audit Committee pre-approves all services to be provided by Ernst & Young. Pre-approval includes audit services, audit-related services, tax services, and other services. In some cases, the full Audit Committee provides pre-approval for up to a year related to a particular category of service, or a particular defined scope of work subject to a specific budget. In other cases, the chair of the Audit Committee has the delegated authority from the Audit Committee to pre-approve additional services, and the chair then communicates such pre-approvals to the full Audit Committee.

The Audit Committee has reviewed and discussed with management its assessment and report on the effectiveness of Intel’s internal control over financial reporting as of December 31, 2011, which it made

using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control—Integrated

Framework.” The Audit Committee also has reviewed and discussed with Ernst & Young its review and report on Intel’s internal control over financial reporting. Intel published these reports in its Annual Report on Form 10-K for the year ended December 31, 2011, which Intel filed with the SEC on February 23, 2012.

The Audit Committee has reviewed and discussed the audited financial statements for fiscal year 2011 with management and Ernst & Young, management represented to the Audit Committee that Intel’s audited financial statements were prepared in accordance with U.S. generally accepted accounting principles, and Ernst & Young represented that its presentations to the Audit Committee included the matters required to be discussed with the independent registered public accounting firm by applicable PCAOB rules regarding “Communication with Audit Committees.” This review included a

discussion with management of the quality, not merely the acceptability, of Intel’s accounting principles, the reasonableness of significant estimates and judgments, and the clarity of disclosure in Intel’s financial statements, including the disclosures related to critical accounting estimates.

In reliance on these reviews and discussions, and the reports of Ernst & Young, the Audit Committee has recommended to the Board, and the Board has approved, the inclusion of the audited financial statements in Intel’s Annual Report on Form 10-K for the year ended December 31, 2011.

Audit Committee

Susan L. Decker, Chairman

Reed E. Hundt

James D. Plummer

Frank D. Yeary

 

 

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PROPOSAL 3: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

 

Intel has provided stockholders with an advisory vote on executive compensation since 2009, and beginning in 2011, a “say on pay” advisory vote to approve executive compensation has been required for U.S. public companies under federal law. In addition, at Intel’s 2011 Annual Stockholders’ Meeting, a majority of our stockholders voted in favor of holding an advisory vote to approve executive compensation every year. The Board considered the voting results on that proposal and determined to adopt a policy providing for an annual advisory stockholder vote to approve our executive compensation. Therefore, in accordance with that policy and pursuant to Section 14A of the Securities Exchange Act of 1934, as amended, we are asking stockholders to approve, on an advisory basis, the compensation of Intel’s listed officers disclosed in “Compensation Discussion and Analysis,” the Summary Compensation table and the related compensation tables, notes, and narrative in this proxy statement for Intel’s 2012 Annual Stockholders’ Meeting.

As described below in the “Compensation Discussion and Analysis” section of this proxy statement, Intel’s compensation programs are designed to support its business goals and promote short- and long-term profitable growth of the company. Intel’s equity plans are intended to align compensation with the long-term interests of Intel’s stockholders.

We urge stockholders to read the “Compensation Discussion and Analysis” section of this proxy statement, which describes in more detail how our executive compensation policies and procedures operate and are designed to achieve our compensation objectives, as well as the Summary Compensation table and other related compensation tables and narratives, which provide detailed information on the compensation of our listed officers. The Board and the Compensation Committee believe that the policies and procedures articulated in “Compensation Discussion and Analysis” are effective in achieving our goals and that the compensation of our listed officers reported in this proxy statement has supported and contributed to the company’s recent and long-term success.

While this advisory vote to approve our executive compensation is non-binding, the Compensation Committee will carefully assess the voting results, and if those results reflect any broadly held issues or concerns, we will consult directly with stockholders to better understand their views.

Unless the Board modifies its policy on the frequency of holding “say on pay” advisory votes, the next “say on pay” advisory vote will occur in 2013.

Recommendation of the Board

The Board of Directors recommends that you vote “FOR” approval of our executive compensation on an advisory basis.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

This section of the proxy statement explains how the Compensation Committee of the Board of Directors oversees our executive compensation programs, and discusses the compensation earned by Intel’s listed officers (the CEO, CFO, and three other most highly compensated executive officers in a particular year) as presented in the tables below under “Executive Compensation.” For 2011, our listed officers were:

 

Ÿ  

Paul S. Otellini, President and CEO

 

Ÿ  

Stacy J. Smith, Senior Vice President and CFO

 

Ÿ  

Andy D. Bryant, Vice Chairman of the Board of Directors

 

Ÿ  

David Perlmutter, Executive Vice President and General Manager, Intel Architecture Group, and Chief Product Officer

 

Ÿ  

A. Douglas Melamed, Senior Vice President and General Counsel

Executive Summary

Intel has a long-standing commitment to pay for performance that we implement by providing a majority of compensation through programs in which the amounts ultimately received vary to reflect our performance. Our executive compensation programs evolve and are adjusted over time to support Intel’s business goals and to promote both the near- and long-term profitable growth of the company. Total compensation for each executive officer varies with Intel’s performance in achieving financial and non-financial objectives and with individual performance. The majority of cash compensation consists of payments under our annual incentive cash plan which are based on absolute and relative financial performance, company performance relative to operational goals, and individual performance. Equity-based compensation, consisting of variable performance-based outperformance stock units (OSUs), restricted stock units (RSUs), and stock options, is used to align

compensation with the long-term interests of Intel’s stockholders by focusing our executive officers on total stockholder return (TSR). In setting executive officer compensation, the Compensation Committee reviews compensation of a peer group consisting of 15 technology companies (the technology peer group) and 10 other companies in the S&P 100. In evaluating Intel’s financial performance and TSR for the company’s performance-based executive compensation programs, those programs compare Intel’s performance to that of either the technology peer group or a market comparator group consisting of the technology peer group and the companies other than Intel that are included in the S&P 100.

For 2011, the Compensation Committee adjusted two aspects of Intel’s executive compensation program based on reviews of our executive compensation philosophy and programs that were conducted in 2010 by two external consultants. First, we reallocated cash compensation between base salary and annual incentive cash target amounts to ensure that both remain competitive with the external market while continuing to provide the proper performance incentives. Second, we simplified the equity-based compensation program, moving from two RSU programs and two stock option programs, each with unique sets of terms and conditions, to one program for each. In addition, we granted performance-based OSUs designed to reward TSR that outperforms that of Intel’s technology peer group. These adjustments were intended to simplify the design and increase the effectiveness of our compensation programs while maintaining the total levels of compensation in the aggregate. In addition to making these adjustments, the Compensation Committee adjusted the amounts of compensation to reflect our normal annual process of assessing pay competitiveness and maintaining the listed officers’ target total direct compensation, on average, around the 65th percentile of our peer group.

 

 

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As shown in the table below, 2011 was the most profitable year in Intel’s history, with record revenue, operating income, net income, and earnings per share, and it was the second year in a row with revenue growing over 20%. Intel’s strong financial performance during 2011 has allowed the company to make significant investments in its business, including its people, as well as increase the return of cash to Intel’s stockholders through common stock repurchases and dividends. During 2011, Intel repurchased $14.1 billion of common stock through its common stock repurchase program and increased the quarterly dividend per share by 16% in the third quarter, returning $4.1 billion to stockholders through dividends.

 

    

2011

($ in millions,
except per share
amounts)

    2010
($ in millions,
except per  share
amounts)
   

Change
(%)

 

Net Revenue

    53,999        43,623        24   

Net Income (GAAP)1

    12,942        11,464        13   

Net Income (non-GAAP)2

    13,692        11,518        19   

Stock Price (high and low)3

    25.66/19.19        24.22/17.67        n/a   

Stock Price per Share as of Fiscal Year-End

    24.25        20.84        16   

 

  1 

Net income (GAAP) results are based on U.S. generally accepted accounting principles (GAAP).

 

  2 

Net income (non-GAAP) results in the table above exclude certain acquisition accounting impacts and expenses related to acquisitions and the related income tax effects of these charges. In 2011, we completed the acquisitions of McAfee and the Wireless Solutions business of Infineon (which operates as Intel Mobile Communications), contributing approximately $3.6 billion to our revenue growth. Net income (non-GAAP) for 2010 was presented in the 2011 proxy statement as $11,672 million, which only excluded certain charges recorded in the fourth quarter of 2010, primarily due to a design issue with the Intel® 6 Series Express Chipset family (formerly code named Cougar Point) and the related tax impacts of those charges.

 

 

  3 

For 2011, based on a 53-week closing-price high and low, and for 2010, based on a 52-week closing-price high and low.

 

The payout percentage under the annual incentive cash plan was 117% of an employee’s annual incentive cash target, reflecting Intel’s strong financial and operational results. This payout percentage was down from 2010, however, when it was 141%, because the annual incentive cash plan takes into account both absolute and relative financial performance. For example, for 2011, Intel’s net income was 65% higher than the trailing three-year average, whereas for 2010 adjusted net income was 85% higher than the trailing three-year average, and both our year-over-year net income growth compared to the market comparator group and our achievement of operational goals were down.

For annual time periods, the link between our financial performance and our annual incentive cash plan in which our listed officers participate is illustrated in the following graph, which shows how the average annual and semiannual incentive cash payments to the listed officers have varied compared to Intel’s net income.

 

LOGO

 

  1 

Non-GAAP net income was used for 2009 and 2010.

 

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Compensation Philosophy and Practices

The Compensation Committee and Intel’s management believe that compensation is an important tool that should help recruit, retain, and motivate the employees the company depends on for current and future success. The committee and Intel’s management also believe that the proportion of at-risk, performance-based compensation should rise as an employee’s level of responsibility increases.

Intel’s compensation philosophy is reflected in the following key design priorities that govern compensation decisions:

 

Ÿ  

align with stockholders’ interests;

 

Ÿ  

motivate employees to achieve business goals;

 

Ÿ  

balance performance objectives and time horizons;

 

Ÿ  

recruit and retain the highest caliber of employees;

 

Ÿ  

encourage employee stock ownership;

 

Ÿ  

manage cost and share dilution; and

 

Ÿ  

maintain consistency in the way that executive officers and the broader employee population are compensated.

Intel has long employed a number of practices that reflect the company’s compensation philosophy:

 

Ÿ  

No Employment or Severance Arrangements. Executive officers are employed at will without employment agreements or severance payment arrangements, except as required by local law.

 

Ÿ  

No Change in Control Benefits. Intel does not maintain any payment arrangements that would be triggered by a “change in control” of Intel.

 

Ÿ  

No Perquisites. Intel does not provide “perquisites” or other benefits based solely on rank.

 

Ÿ  

Claw-back Provisions. Intel has claw-back provisions applicable to both its annual incentive cash plan and its equity incentive plan.

 

Ÿ  

Objective Performance Criteria. Intel’s performance-based compensation programs for executive officers use a variety of objective performance measures, including measuring Intel’s relative TSR performance against the technology peer group and the market comparator group.

2011 “Say on Pay” Advisory Vote on Executive Compensation

Intel has provided stockholders with an advisory vote on executive compensation in each of the last three years. Consistent with Intel’s experience in prior years, at our 2011 Annual Stockholders’ Meeting, approximately 95% of the votes cast in the “say on pay” advisory vote were “FOR” approval of our executive compensation. The Compensation

Committee evaluated the results of the 2011 advisory vote together with the other factors and data discussed in this Compensation Discussion and Analysis in determining executive compensation policies and decisions. The committee considered the vote results and did not make any changes to our executive compensation policies and decisions as a result of the 2011 advisory vote.

Intel’s Compensation Framework

The Compensation Committee determines the compensation for our executive officers. The committee considers, adopts, reviews, and revises executive officer compensation plans, programs, and guidelines, and reviews and determines all components of each executive officer’s compensation. As discussed above under “Corporate Governance; Compensation Committee,” Farient Advisors served as the committee’s independent advisor for 2011. During 2011, Farient Advisors’ work with the Compensation Committee included advice and recommendations on:

 

Ÿ  

total compensation philosophy;

 

Ÿ  

program design, including program goals, components, and metrics;

 

Ÿ  

compensation trends in the technology sector and general market for senior executives;

 

Ÿ  

regulatory trends; and

 

Ÿ  

the compensation of the CEO and the other executive officers.

The committee also consults with management and Intel’s Compensation and Benefits Group regarding executive and non-executive employee compensation plans and programs, including administering our equity incentive plans.

Executive officers do not propose or seek approval for their own compensation. The CEO makes a recommendation to the Compensation Committee on the base salary, annual incentive cash targets, and equity awards for each executive officer other than himself, based on his assessment of each executive officer’s performance during the year and the CEO’s review of compensation data gathered from compensation surveys. The CEO documents each executive officer’s performance during the year, detailing accomplishments, areas of strength, and areas for development. The CEO bases his evaluation on his knowledge of each executive officer’s performance, an individual self-assessment completed by each executive officer, and feedback provided by each executive officer’s direct reports. When developing his recommendations for each executive officer other than himself, the CEO also reviews the compensation data gathered from

 

 

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compensation surveys. Intel’s Director of Human Resources and the Compensation and Benefits Group assist the CEO in developing the executive officers’ performance reviews and reviewing the market compensation data to determine the compensation recommendations.

The CEO’s annual performance review is developed by the independent directors acting as a committee of the whole Board. For the CEO’s review, formal input is received from the independent directors, including the Chairman, and senior management. The CEO also submits a self-assessment focused on pre-established objectives agreed upon with the Board. The independent directors meet as a group in executive sessions to prepare the review, which is completed and presented to the CEO. This evaluation is used by the Compensation Committee to determine the CEO’s base salary, annual incentive cash target, and equity awards.

Performance reviews for the CEO and other executive officers consider these and other relevant topics that may vary depending on the role of the individual officer:

 

Ÿ  

Strategic Capability. How well does the executive officer identify and develop relevant business strategies and plans?

 

Ÿ  

Execution. How well did the executive officer execute strategies and plans?

 

Ÿ  

Leadership Capability. How well does the executive officer lead and develop the organization and people?

Elements of Compensation

Executive compensation at Intel consists of the following elements:

 

Ÿ  

Base salary refers to the annual fixed (non-variable) pay rate, which we use to provide a minimum, fixed level of cash compensation for executive officers.

 

Ÿ  

Performance-based cash compensation, which includes payments under our annual incentive cash plan and our semiannual incentive cash plan, is used to encourage and reward executive officers’ contributions in producing strong financial and operational results.

 

Ÿ  

Total cash compensation refers to base salary plus performance-based cash compensation.

 

Ÿ  

Equity awards consist of outperformance stock units (OSUs), restricted stock units (RSUs), and stock options, which we use to retain executive officers and to align their interests with those of stockholders through equity ownership.

Ÿ  

Performance-based compensation refers to performance-based cash compensation and equity awards.

 

Ÿ  

Total direct compensation refers to the aggregate value of base salary, performance-based cash compensation, and equity awards.

 

Ÿ  

Total compensation, as reported in the Summary Compensation table, includes total direct compensation and compensation provided through other benefit programs such as our retirement contribution plan and non-qualified deferred compensation plan, which are designed to provide for retirement income and tax-efficient retirement savings for executive officers.

How Pay-for-Performance Works at Intel

Intel’s pay-for-performance programs include performance-based cash compensation that rewards strong financial and operational performance, and equity awards that reward stock price and TSR performance. Annual and semiannual incentive cash payments are determined primarily by Intel’s annual financial results and are not directly linked to Intel’s stock price performance. Equity compensation is tied to Intel’s stock price performance and TSR performance relative to the technology peer group or the market comparator group over a long-term time horizon. The Compensation Committee evaluates total direct compensation against the 65th percentile of our peer group. The committee believes that this approach was appropriate because of the high proportion of compensation that is variable, at risk, and tied to Intel’s financial, operational, and stock performance. Actual pay positions vary by individual and take into account factors such as recruitment and retention, the size of previous-year awards, and individual performance.

In 2011, performance-based compensation accounted for 91% of the total direct compensation on average for listed officers. A lower percentage of total direct compensation was performance-based cash (31% on average in 2011), with the majority of total direct compensation in the form of equity awards (60% on average in 2011) for which the ultimate economic value to the recipients will depend upon future stock price performance.

2011 Annual Incentive Cash Payments

Annual incentive cash payments to the listed officers are made under the Intel Executive Officer Incentive Plan. This plan mirrors the broad-based annual incentive plan for employees, with the added feature of an individual performance adjustment.

 

 

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At the beginning of the year, the Compensation Committee sets an annual incentive cash target for each executive officer, and following the end of the year the annual incentive cash target amount is multiplied by an annual incentive cash multiplier, which is the average of three performance ratios. The resulting payout may then be adjusted upward or downward by up to 10% based upon an individual performance adjustment. The committee may further adjust a payout downward (but not upward) on a discretionary basis. The three performance ratios are based on:

 

Ÿ  

Intel’s current-year net income (GAAP) or adjusted net income (non-GAAP) relative to Intel’s average net income used in the calculation over the previous three years;

 

Ÿ  

Intel’s net income growth or adjusted net income growth relative to that of the market comparator group; and

 

Ÿ  

satisfaction of Intel operational performance goals.

We expect the annual incentive cash multiplier calculated under the plan to typically range between 67% and 133% of the annual incentive cash target (100%), but the annual incentive cash multiplier may be higher or lower depending on the output of the formula. The 2010 multiplier was above this range, primarily due to strong absolute earnings growth. The annual incentive cash payment in any event cannot exceed $10 million for any individual.

While the 2011 annual incentive cash multiplier exceeded target, at 117%, reflecting Intel’s strong 2011 performance, it was down from the 2010 multiplier of 141%. All three performance components were lower on a year-over-year basis:

 

Ÿ  

The absolute financial component declined from 185.3% to 164.6% due to 2011 earnings growth compared to the prior three-year average earnings growth being lower than the 2010 earnings growth comparison (11% in 2011 compared to 76% in 2010).

 

Ÿ  

The relative financial component declined from 135.8% to 93.1%, due to Intel’s lower year-over-year earnings growth compared to the market comparator group.

 

Ÿ  

The operational component declined from 103.1% to 92.3%. Strong performance in the PC and data center growth and manufacturing/technology sub-components was offset by the low performance in the adjacent markets’ operational sub-component.

For more information on the three performance components, see the Grants of Plan-Based Awards table in “Executive Compensation.”

Semiannual Incentive Cash Payments

Intel’s executive officers participate in a company-wide, semiannual incentive cash plan that calculates payouts based on Intel’s corporate profitability, which links compensation to financial performance. Payouts are communicated as a number of extra days of compensation, with executive officers normally receiving the same number of extra days as other employees. Plan payments earned in 2011 totaled 23.4 days of compensation per employee, including executive officers, down from 26.4 days in 2010 for eligible employees and for executive officers. This total includes two days of compensation resulting from Intel’s achievement of its customer satisfaction goals in 2011. In 2011, semiannual incentive cash payments represented approximately 5% of the listed officers’ total performance-based cash compensation.

Equity Awards

The Compensation Committee and management believe that equity compensation is a critical component of a total direct compensation package that helps Intel recruit, retain, and motivate the employees needed for the present and future success of the company. Most equity awards are granted in connection with the annual performance review and compensation adjustment cycle at the beginning of the fiscal year. For any other equity awards granted during the year, Intel uses pre-established quarterly grant dates. With limited exceptions, these dates typically occur shortly after publication of Intel’s quarterly earnings releases.

The committee determines the amount of equity grants based on its subjective consideration of factors such as relative job scope, individual performance, expected future contributions to the growth and development of the company, and the competitiveness of grants relative to the peer group. When evaluating future contributions, the committee projects the value of the executive officer’s future performance based on the executive officer’s expected career development. The difference in grant value from year to year for any individual will reflect a number of factors, including changes in market competitive grant values, promotions, and individual performance considerations.

OSU Awards. In 2011, the listed officers continued to receive the largest portion of their equity award value in the form of OSUs. OSUs are performance-based RSUs under which the number of shares of Intel common stock received following vesting is based on the TSR performance of Intel common stock measured against the TSR of a group of companies over a three-year period. TSR is a measure of stock

 

 

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price appreciation plus any dividends payable during the performance or vesting period for the OSUs. The committee determined to use OSUs as the primary equity vehicle for listed officers because they reflect a balance between stock options and RSUs: they are performance-based and present significant upside potential for superior stock price performance comparable to that of stock options, but share some attributes of traditional RSUs by offering some value to the recipient even if the stock price declines over the three-year measurement period. For more information on how OSUs are earned, see the Grants of Plan-Based Awards table in “Executive Compensation.”

We revised OSU terms for grants beginning in 2011 based on our experience since we first granted OSUs in 2009. With these modifications, we believe that the program is better designed to motivate behavior consistent with long-term value creation without creating undue incentive to take unnecessary risk or focus on unsustainable short-term performance.

First, beginning with OSUs granted in 2011, in order to more directly focus participants on Intel’s performance relative to other companies in the technology industry, TSR performance will be measured against our technology peer group (as discussed below under “2011 External Competitive Considerations”). For OSUs granted in prior years, TSR was measured against the market comparator group (consisting of the technology peer group and the companies in the S&P 100, other than Intel).

Second, we changed the method for determining the number of shares that will be issued when OSUs vest. For OSUs granted in 2011, the number of shares of Intel common stock that the executive officer receives when OSUs convert to shares and vest will range from 50% to 200% (as opposed to a range of 33% to 200% for OSUs granted before 2011) of the number of OSUs granted to the executive officer. We also modified the percentage rates at which OSUs convert into shares in order to enhance both the downside and upside potential of OSUs. If Intel under-performs the technology peer group, the percentage at which the OSUs convert into shares will be reduced from 100%, at a rate of 2.5-to-1 (a 2.5-percentage-point reduction in units for each percentage point of under-performance), with a minimum percentage of 50%. If Intel outperforms the technology peer group, the percentage at which the OSUs convert into shares will be increased from 100%, at a rate of 5-to-1 (a 5-percentage-point increase in units for each percentage point of over-performance), with a maximum percentage of 200%. The percentage rates at which OSUs granted before 2011 convert into shares based on under- or over-

performance against the market comparator group was 2-to-1 and 3-to-1, respectively. The OSUs continue to cliff vest in three years and one month from the grant date, which is one month after the end of the performance period. At the end of the vesting period, the earned units will convert into Intel common stock, and dividend equivalents will be paid on the shares that are earned and vested in the form of additional shares of Intel common stock at a rate equal to the dividends that were payable over the vesting period on the number of shares issued.

RSU Awards. RSUs are intended to retain executive officers and reward them for absolute long-term stock price appreciation while providing some value to the recipient even if the stock price declines. RSUs granted to the executive officers in 2011 will vest in substantially equal quarterly increments over three years from the grant date. Quarterly vesting helps offset the three-year cliff vesting of the OSUs.

Stock Options. Stock options are intended to reward executive officers for absolute long-term stock price appreciation and to align their interests with the interests of stockholders. Stock options granted to executive officers in 2011 will vest in 25% increments annually over four years and have a term of seven years. The grant price of the stock options continues to be set on a regularly scheduled grant date with no discount or premium.

Past Equity Programs. In 2011, we simplified the equity-based compensation program in order to further enhance the effectiveness of aligning our executive officers’ interests with stockholders, moving from two RSU programs and two stock option programs, each with unique sets of terms and conditions, to one program for each. Previously, RSUs and stock options were designated as either annual grants, which vested on a pro-rata basis over a number of years following the grant date, or executive long-term stock option and RSU plan (ELTSOP) awards, which vested only on the fifth anniversary of the grant date and had other terms that differed from the annual equity award program. Historically, once every four years the Compensation Committee considered whether to grant ELTSOP awards to an executive officer and, commencing in 2006, any ELTSOP awards were granted in four equal annual installments, each with a five-year cliff-vesting schedule (meaning that 100% of each of the installments vests on the fifth anniversary of the grant date). This approach resulted in variability in equity awards among our listed officers in any one year, as well as a variety of formulas being applied to determine the size of different types of equity awards granted to any one listed officer. We decided that this program was not meeting its goals, and so in 2011 we stopped granting new ELTSOP awards.

 

 

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2011 Compensation of Our Listed Officers

In the first quarter of 2011, the Compensation Committee established base salaries, annual incentive cash target amounts, and operational goals under the annual incentive cash plan, and determined the equity awards for executive officers.

Following the end of the year, the committee approved the performance-based calculation used in making annual incentive cash payments, determined any individual performance adjustments under the plan, approved a special bonus payment, and approved contributions to the retirement contribution plan.

 

 

The chart below shows the allocation of the listed officers’ actual total direct compensation for 2011, reflecting the extent to which their compensation varies to reflect our performance.

Total Direct Compensation

 

LOGO

 

Total Cash Compensation for 2011

Prior to 2010, the base pay of our executive officers was generally below the median of our peer group on average. Annual incentive cash targets typically were set at a higher competitive position so that total cash compensation would be in the competitive range of the 50th to 65th percentile of the peer group on average across the executive group, assuming a 100% annual incentive cash multiplier. In 2010, the Compensation Committee engaged two external consultants, Farient Advisors and Compensia, Inc., to conduct a comprehensive review of our executive compensation philosophy and programs. These reviews concluded that our base salaries were not

competitive and unnecessarily exposed Intel to retention and recruitment risks and that the annual incentive cash plan would be equally effective if target amounts were set at a lower, yet competitive, level. Accordingly, the Compensation Committee reallocated some cash compensation from the annual incentive to base salary in order to make Intel’s programs more competitive and effective in attracting and retaining key talent. In reallocating total cash compensation, base salary increases were offset by decreases in annual incentive cash target amounts such that the listed officers’ total cash compensation, based on representative payouts over the last two years, would remain approximately the same.

 

 

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For 2011, based on the factors discussed above, the Compensation Committee increased the listed officers’ base salaries as shown in the table below. Following the increase, the listed officers’ average base salary was at the 50th percentile of our peer group.

 

Name   2011 Base Salary
($)
    2010 Base Salary
($)
   

2010 to 2011

Increase (%)

 

Paul S. Otellini

    1,100,000        1,000,000        10   

Stacy J. Smith

    635,000        475,000        34   

Andy D. Bryant

    760,000        520,000        46   

David Perlmutter1

    670,000        506,200        32   

A. Douglas Melamed

    645,000        600,000        8   

 

  1 

Mr. Perlmutter receives his cash compensation in Israeli shekels. The amount reported above in “2011 Base Salary” is based on the rate approved by the Compensation Committee in U.S. dollars and therefore does not take into account increases or decreases that could result from the amount being converted into and paid in shekels. The amount reported above in “2010 Base Salary” was converted to U.S. dollars at a rate of 3.59 shekels per dollar, calculated as of December 25, 2010.

Once the reallocation was completed, additional adjustments to annual incentive cash targets were made based on current market data, internal equity considerations, and the individual performance of each listed officer. As shown in the table below, for Mr. Melamed, the combination of reallocation and market adjustments resulted in a net increase in his annual incentive cash target; whereas for Messrs. Bryant and Perlmutter, these compensation actions resulted in a net decrease in their annual incentive cash targets. For Mr. Smith, the reallocation and market adjustment offset one another, resulting in no change to his annual incentive cash target. The Compensation Committee did not reallocate Mr. Otellini’s cash compensation, but instead adjusted both his salary and annual incentive cash target to more closely reflect competitive levels among the peer group.

 

Name

  2011 Annual
Incentive Cash
Target Amount ($)
    2010 Annual
Incentive Cash
Target Amount ($)
    2010 to 2011
Change (%)
 

Paul S. Otellini

    4,800,000        4,200,000        14   

Stacy J. Smith

    1,050,000        1,050,000          

Andy D. Bryant

    1,395,000        1,470,000        (5

David Perlmutter

    1,065,000        1,125,000        (5

A. Douglas Melamed

    1,230,000        1,200,000        3   

The following table illustrates the net effect on total target cash compensation of the reallocation and other adjustments discussed above.

 

Name  

2010 to 2011

Base Salary

Change (%)

    2010 to 2011 Annual
Incentive Cash Target
Amount Change (%)
   

2010 to 2011

Total Target
Cash Change (%)

 

Paul S. Otellini

    10        14        13   

Stacy J. Smith

    34               10   

Andy D. Bryant

    46        (5     8   

David Perlmutter

    32        (5     6   

A. Douglas Melamed

    8        3        4   

This combination of the cash reallocation and annual compensation adjustment allowed for the increases to base salaries necessary to bring them in line with the competitive market, while simultaneously keeping the increases to total cash compensation comparatively small.

 

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Following the end of 2011, the committee approved the annual incentive cash multiplier pursuant to the plan’s formula, which yielded an annual incentive cash multiplier of 117%, calculated as follows:

 

Absolute Financial
Component

($ in millions)

 

Relative
Financial

Component

  Operational Component     Scoring     Multiplier

$12,942

$7,864

  (1% + (.109%)) (1% + (.191%))    

 

 

 

 

 

Growth of PC and Data Center

Manufacturing/Technology

Extension into Adjacent Markets

Compute Continuum

People, Customers, Stockholders, Planet

TOTAL

  

  

  

  

  

  

   
 

 

 

 

 

34.0
25.6

15.2

7.5

10.0

92.3

  
  

  

  

  

  

   
164.6%   93.1%             92.3   350%÷3 = 117%

The committee, using its discretion, elected to make positive individual performance adjustments for the majority of the listed officers. The following table details the annual incentive cash payments for each listed officer, reflecting the year-over-year declines as a result of a lower annual incentive cash multiplier and the change in target amounts discussed above.

 

Name

 

2011 Annual

Incentive Cash

Payment ($)

   

2010 Annual

Incentive Cash

Payment ($)

   

2010 to 2011

Increase
(Decrease) (%)

 

Paul S. Otellini

    6,160,000        6,524,000        (6

Stacy J. Smith

    1,288,000        1,484,000        (13

Andy D. Bryant

    1,790,200        2,180,500        (18

David Perlmutter1

    1,306,400        1,738,700        (25

A. Douglas Melamed

    1,435,000        1,780,000        (19

 

  1 

Mr. Perlmutter receives his cash compensation in Israeli shekels. The amount reported above in “2011 Annual Incentive Cash Payment” is based on the amount approved by the Compensation Committee in U.S. dollars and therefore does not take into account increases or decreases that could result from the amount being converted into and paid in shekels. The amount reported in “2010 Annual Incentive Cash Payment” was converted to U.S. dollars at a rate of 3.59 shekels per dollar, calculated as of December 25, 2010.

 

2011 Special Bonus

In 2011, all eligible employees received a special bonus, which totaled an extra three days of compensation, for their contributions to achieving Intel’s most profitable year, with record revenue, operating income, net income, and earnings per share. The Compensation Committee also granted the listed officers the same special bonus, calculated as the equivalent of three days of compensation.

Equity Awards for 2011

For 2011, the annual awards to listed officers were approximately 50% OSUs, 30% RSUs, and 20% stock options, based upon grant date fair value. This portfolio approach to long-term equity incentives balances the incentive for pursuing growth (created by stock options) with more stable value delivery (through RSUs) while focusing on both relative stock price performance (OSUs) and absolute stock price performance (OSUs, RSUs, and stock options). In addition, we standardized equity awards on one set of terms and conditions and adopted more competitive vesting schedules in order to improve the benefits of the program. As a result of numerous types of equity award programs that were in effect in 2010, a year-over-year comparison of the listed officers’ 2011 equity awards is not meaningful.

 

 

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Award sizes for 2011 were determined through a combination of an annual review of the level of grant value appropriate to remain competitive with the peer group’s equity grant values, along with an annual assessment of the individual’s performance over the previous year and expected future contributions. A matrix of competitive grant values was set by grade level other than CEO (Executive Vice President, Senior Vice President, etc.) and individual performance. The value of the award to each listed officer is consistent with his grade level and individual performance.

 

Name

 

2011 Grant Date Fair
Value of Equity Awards

($)

 

Paul S. Otellini

    9,133,900   

Stacy J. Smith

    4,050,700   

Andy D. Bryant

    4,050,700   

David Perlmutter

    4,050,700   

A. Douglas Melamed

    3,097,600   

 

2011 Performance and Compensation Determinations

Mr. Otellini’s 2011 Compensation

In January 2011, the Compensation Committee increased Mr. Otellini’s base salary and increased his annual incentive cash target compared to 2010. The increase in his base salary reflects the Compensation Committee’s desire to keep the aggregate level of cash compensation competitive with CEO pay at other technology companies. In January 2012, the committee used its discretion to increase Mr. Otellini’s 2011 annual incentive cash payment by 10% in recognition of his contribution to Intel’s financial and operational achievements in 2011, such as achieving both record revenue and profit for 2011, as well as completing major acquisitions, increasing internal organizational health scores, and continuing Intel’s leadership positions in manufacturing, technology, and environmental sustainability. Mr. Otellini’s actual total cash compensation decreased by 3% in 2011, reflecting the annual incentive cash multiplier having decreased from 141% in 2010 to 117% in 2011.

In January 2011, Mr. Otellini was granted 180,250 OSUs, 130,900 RSUs, and 467,010 stock options. The total grant date fair value of Mr. Otellini’s equity awards was set based on the competitive benchmarks for equity among the peer group. Based on grant date fair value, the value of Mr. Otellini’s 2011 equity awards increased 25% compared to 2010. Because of Mr. Otellini’s years of service, any unvested stock options would vest in full upon his retirement from Intel at age 60 or older, which is consistent with the standard retirement vesting term for stock options granted under the 2006 Equity Incentive Plan. However, in recognition of his service to Intel, the stock options granted to Mr. Otellini have a post-retirement exercise period

that extends through the seven-year term of the award. The committee included the extended exercise window in his 2011 stock options because it believed that the provision would better ensure that his stock options will provide the appropriate long-term alignment with stockholders, reflecting the potential impact that decisions made while CEO can affect the company’s performance for many years. The net effect of these changes was that Mr. Otellini’s total direct compensation increased 10% in 2011 compared to 2010.

Other Listed Officers’ 2011 Compensation

In January 2011, as part of the reallocation of total cash compensation discussed above, the Compensation Committee increased the other listed officers’ base salaries. Mr. Bryant’s and Mr. Perlmutter’s annual incentive cash targets were reduced as part of the reallocation process. Based on market data, the committee increased Mr. Melamed’s annual incentive cash target, and did not change Mr. Smith’s annual incentive cash target. In January 2012, when determining 2011 annual incentive cash payments, the committee exercised its discretion to provide individual performance adjustments increasing the payments of the following listed officers by up to 10%, taking into account the following individual contributions.

For Mr. Smith, who during 2011 continued to serve as our Chief Financial Officer:

 

Ÿ  

work on Intel’s acquisition strategy leading to two major acquisitions;

 

Ÿ  

completion of a $5 billion debt offering; and

 

Ÿ  

recognition of his positive contributions as a representative of Intel within the stockholder community.

 

 

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For Mr. Bryant, who during 2011 served as Executive Vice President, Technology, Manufacturing, and Enterprise Services, and Chief Administrative Officer:

 

Ÿ  

success with leading the Technology and Manufacturing Group;

 

Ÿ  

work on setting Intel’s long-term strategic direction; and

 

Ÿ  

mentoring and developing key employees at Intel.

For Mr. Perlmutter, who during 2011 took on sole leadership of the Intel Architecture Group:

 

Ÿ  

increases in client and server revenue; and

 

Ÿ  

acquisition of key talent for emerging markets.

Total cash compensation to the listed officers as a group declined by 6% from 2010, primarily due to lower annual incentive cash payments.

In January 2011, the Compensation Committee approved equity award values for 2011 that generally were higher than for 2010, representing an increase in the competitive market. In addition, equity awards granted to Messrs. Smith, Bryant, and Perlmutter in February 2011 reflect adjustments for pay level, internal pay equity, individual performance, and expected future contributions, including:

For Mr. Smith:

 

Ÿ  

recognition of his positive contributions as a representative of Intel within the stockholder community;

 

Ÿ  

driving strong performance against cost and performance benchmarks; and

 

Ÿ  

demonstrating strong strategic and leadership ability.

For Mr. Bryant:

 

Ÿ  

work on definition and implementation of the strategy for the acquisition and integration of McAfee;

 

Ÿ  

development of strong and successful business organizations within Intel; and

 

Ÿ  

contributions to setting Intel’s long-term strategic direction.

For Mr. Perlmutter:

 

Ÿ  

strong execution on development of core products;

 

Ÿ  

promoting growth in PC and data center revenue and unit volumes; and

 

Ÿ  

enhancing Intel’s world-class research and development organization.

 

 

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Table of Contents

Other Aspects of Our Executive Compensation Programs

2011 External Competitive Considerations

To assist the Compensation Committee in its review of executive compensation for 2011, Intel’s Compensation and Benefits Group provided compensation data compiled from executive compensation surveys, as well as data gathered from annual reports and proxy statements from companies that the committee has selected as a “peer group” for executive compensation analysis purposes. This historical compensation data was then adjusted in order to arrive at current-year estimates for the peer group. The committee used this data to compare the compensation of our listed officers to that of the peer group.

The peer group for 2011 included 15 technology companies (the technology peer group) and 10 companies outside the technology industry from the S&P 100. When the peer group was created in 2007, the committee chose companies that resembled Intel in various respects, such as those that made significant investments in research and development and/or had substantial manufacturing and global operations. In addition, the committee selected companies whose three-year averages for revenue, net income, and market capitalization approximated Intel’s. The peer group includes companies with which Intel competes for talent and includes the companies that Intel uses for measuring relative financial performance for annual incentive cash payments. The peer group was the same for both 2011 and 2010, consisting of the companies listed in the table below. For 2012, the committee reviewed the peer group based on the criteria noted above, and removed Advanced Micro Devices, NVIDIA, and Yahoo! from the technology peer group, primarily due to their small size relative to Intel, and added Amazon.com, Inc.

 

Company  

Reported

Fiscal Year

   

Revenue

($ in billions)

   

Net Income

(Loss)

($ in billions)

   

Market Capitalization

on February 23, 2012

($ in billions)

 

Advanced Micro Devices, Inc.1

    12/31/11        6.6        0.5        5.34   

Apple Inc.1

    9/24/11        108.2        25.9        481.47   

Applied Materials, Inc.1

    10/30/11        10.5        1.9        16.63   

AT&T Inc.

    12/31/11        126.7        3.9        180.54   

Cisco Systems, Inc.1

    7/30/11        43.2        6.5        108.59   

Dell Inc.1

    2/3/12        62.1        3.5        31.26   

The Dow Chemical Company

    12/31/11        60.0        2.4        40.14   

EMC Corporation1

    12/31/11        20.0        2.5        55.83   

General Electric Company

    12/31/11        147.3        13.1        204.03   

Google Inc.1

    12/31/11        37.9        9.7        197.07   

Hewlett-Packard Company1

    10/31/11        127.2        7.1        53.67   

International Business Machines Corporation1

    12/31/11        106.9        15.9        229.23   

Johnson & Johnson

    1/1/12        65.0        9.7        177.87   

Merck & Co., Inc.

    12/31/11        48.0        6.3        117.38   

Microsoft Corporation1

    6/30/11        69.9        23.2        263.22   

NVIDIA Corporation1

    1/29/12        4.0        0.6        9.73   

Oracle Corporation1

    5/31/11        35.6        8.5        144.79   

Pfizer Inc.

    12/31/11        67.4        10.0        161.66   

Qualcomm Incorporated1

    9/25/11        15.0        4.3        107.42   

Schlumberger Limited

    12/31/11        39.5        5.0        106.16   

Texas Instruments Incorporated1

    12/31/11        13.7        2.2        37.97   

United Parcel Service, Inc.

    12/31/11        53.1        3.8        73.96   

United Technologies Corporation  

    12/31/11        58.2        5.0        75.88   

Verizon Communications Inc.

    12/31/11        110.9        2.4        108.06   

Yahoo! Inc.1

    12/31/11        5.0        1.0        18.34   

Intel 2011

    12/31/11        54.0        12.9        135.14   

Intel 2011 Percentile

            50     87     65

 

1

Indicates a company that we included as one of the 15 technology companies in the technology peer group for 2011.

 

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Post-Employment Compensation Arrangements

Intel does not provide employment agreements, severance payment arrangements, or change in control benefits to executive officers. Intel provides limited post-employment compensation arrangements to executive officers, including the listed officers, consisting of an employee-funded 401(k) savings plan, a discretionary company-funded retirement contribution plan, and a company-funded pension plan, each of which is tax-qualified and available to most U.S. employees, and a non-tax-qualified supplemental deferred compensation plan for highly compensated employees.

The Compensation Committee allows the listed officers to participate in these plans to encourage the officers to save for retirement and to assist the company in retaining the listed officers. The deferred compensation plan is intended to promote retention by giving employees an opportunity to save in a tax-efficient manner. The terms governing the retirement benefits under these plans for the executive officers are the same as those available for other eligible employees in the United States. Each plan other than the pension plan results in individual participant balances that reflect a combination of amounts contributed by the company or deferred by the employee, amounts invested at the direction of either the company or the employee, and the continuing reinvestment of returns until the accounts are distributed.

Intel does not make matching contributions based on the amount of employee contributions under any of these plans. The retirement contribution plan consists of a discretionary cash contribution determined annually by the committee for executive officers, and by the CEO for other employees. These contribution percentages have historically been the same for executive officers and other employees. For 2011, Intel’s discretionary contribution (including allocable forfeitures) to the retirement contribution plan for eligible U.S. employees, including executive officers, and to the similar account for new employees in the 401(k) savings plan, equaled 6% of eligible salary (which included annual and semiannual incentive cash payments as applicable). To the extent that the amount of the contribution is limited by the Internal Revenue Code of 1986, as amended (tax code), Intel credits the additional amount to the non-qualified deferred compensation plan. Intel invests all of its contributions to the retirement contribution plan in a diversified portfolio.

Because the listed officers do not receive preferential or above-market rates of return under the deferred compensation plan, earnings under the

plan are not included in the Summary Compensation table, but are included in the Non-Qualified Deferred Compensation table (see “Executive Compensation”). The notional investment options available under the non-qualified plan are the same investment options that were available in the 401(k) savings plan prior to October 2011 when the 401(k) savings plan investment options were reduced in conjunction with the addition of a brokerage window.

The basic benefit provided by the pension plan for all eligible U.S. employees, including executive officers, is based on a formula that takes into account the employee’s final average pay and years of service. The resulting benefit is reduced by the value of the employee’s account in the retirement contribution plan. The pension plan pays a benefit only to the extent that it is not fully offset by the retirement contribution plan account value. The benefit provided to some listed officers who participate in the pension plan also includes a tax-qualified arrangement that offsets amounts that otherwise would be paid under the non-qualified deferred compensation plan described above. Each participant’s tax-qualified amount in this arrangement was established based on a number of elements, including the participant’s non-qualified deferred compensation plan balance as of December 31, 2003, IRS pension rules that take into consideration age and other factors, and limits set by Intel for equitable administration.

Personal Benefits

The Compensation Committee supports the goal of management to maintain an egalitarian culture in its facilities and operations. Intel does not have programs for providing personal benefit perquisites to executive officers, such as permanent lodging or defraying the cost of personal entertainment or family travel. The company provides air and other travel for Intel’s executive officers for business purposes only. Intel’s company-operated aircraft hold approximately 40 passengers and are used in regularly scheduled routes between Intel’s major U.S. facility locations, and Intel’s use of non-commercial aircraft on a time-share or rental basis is limited to appropriate business-only travel. Intel’s health care, insurance, and other welfare and employee benefit programs are essentially the same for all eligible employees, including executive officers, although the details of the programs, eligibility, and cost sharing may vary by country or local market practice. Intel shares the cost of health and welfare benefits with its employees, a cost that is dependent on the level of benefits coverage that each employee elects. Intel’s employee loan programs are not available to its executive officers. Intel has no outstanding loans of any kind to any of its executive officers.

 

 

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Corporate Officer Stock Ownership Guidelines

Because the committee believes in linking the interests of management and stockholders, the Board has set stock ownership guidelines for Intel’s executive officers. The ownership guidelines specify the number of shares that Intel’s executive officers

must accumulate and hold within five years of appointment or promotion as an executive officer. The following table lists the specific share requirements. Unvested OSUs and RSUs and stock options do not count toward satisfying these ownership guidelines.

 

 

Each of Intel’s listed officers had either satisfied these ownership guidelines or had time remaining to do so as of December 31, 2011.

 

     CEO     CFO    

Executive Vice

President

   

Senior Vice

President

    Vice President  

Minimum Number of Shares

    250,000        125,000        100,000        65,000        35,000   

 

Intel Policies Regarding Derivatives or “Short Sales”

Intel prohibits directors, listed officers, and other senior employees from investing in derivative securities of Intel common stock and engaging in short sales or other short-position transactions in Intel common stock. This policy does not restrict ownership of company-granted awards, such as OSUs, RSUs, employee stock options, and publicly traded convertible securities issued by Intel.

Intel Policies Regarding Claw-backs

Intel’s 2007 Executive Officer Incentive Plan and 2006 Equity Incentive Plan include provisions for seeking the return (claw-back) from executive officers of incentive cash payments and stock sale proceeds in the event that they had been inflated due to financial results that later had to be restated. The 2007 Executive Officer Incentive Plan and 2006 Equity Incentive Plan, as amended, were approved

by stockholders and were included in the proxy statements for the 2007 and 2011 annual meetings, respectively.

Tax Deductibility

Section 162(m) of the tax code places a limit of $1 million on the amount of compensation that Intel may deduct in any one year with respect to its CEO and each of the next three most highly compensated executive officers (excluding the CFO). Certain performance-based compensation approved by stockholders is not subject to this deduction limit. Intel structured its 2006 Equity Incentive Plan with the intention that stock options awarded under the plan would qualify for tax deductibility. In addition, in order to maintain flexibility and promote simplicity in the administration of these arrangements, other compensation, such as OSUs, RSUs, and annual and semiannual incentive cash payments, are not designed to qualify for tax deductibility above the tax code Section 162(m) $1 million limitation.

 

 

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REPORT OF THE COMPENSATION COMMITTEE

The Compensation Committee, which is composed solely of independent directors of the Board of Directors, assists the Board in fulfilling its responsibilities with regard to compensation matters, and is responsible under its charter for determining the compensation of Intel’s executive officers. The Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis” section of this proxy statement with management, including our Chief Executive Officer, Paul S. Otellini, and our Chief Financial Officer, Stacy J. Smith. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the “Compensation Discussion and Analysis” section be included in Intel’s 2011 Annual Report on Form 10-K (incorporated by reference) and in this proxy statement.

Compensation Committee

David S. Pottruck, Chairman

John J. Donahoe

David B. Yoffie

 

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EXECUTIVE COMPENSATION

The following table lists the annual compensation for fiscal years 2011, 2010, and 2009 of our CEO, CFO, and our three other most highly compensated executive officers in 2011 (referred to as listed officers).

2011 Summary Compensation Table

 

Name and

Principal Position

  Year     Salary
($)
    Bonus1
($)
    Stock
Awards
($)
    Option
Awards
($)
    Non-Equity
Incentive
Plan
Compensation
($)
    Change in
Pension
Value and
Non-Qualified
Deferred
Compensation
Earnings
($)
    All
Other
Compensation
($)
    Total
($)
 
Paul S. Otellini     2011        1,100,000        34,000        7,331,100        1,802,800        6,429,500        319,000        475,500        17,491,900   
President and     2010        1,000,000        30,400        6,236,800        1,082,200        6,790,000        131,000        382,100        15,652,500   
Chief Executive Officer     2009        1,000,000               6,684,000        1,182,000        5,251,500        174,000        290,400        14,581,900   
Stacy J. Smith     2011        635,000        12,400        3,251,200        799,500        1,386,000        170,000        133,500        6,387,600   
Senior Vice President and     2010        475,000        10,400        2,281,700        816,200        1,575,000        55,000        100,600        5,313,900   
Chief Financial Officer     2009        425,000               2,391,700        789,900        1,174,800        74,000        82,100        4,937,500   
Andy D. Bryant     2011        760,000        15,400        3,251,200        799,500        1,912,000        319,000        189,200        7,246,300   

Vice Chairman of the Board

    2010        520,000        12,800        4,601,800        744,600        2,292,300        135,000        144,600        8,451,100   
      2009        500,000               3,000,000        750,000        1,857,300        178,000        107,800        6,393,100   
David Perlmutter2     2011        670,000        12,200        3,251,200        799,500        1,401,500        543,300        404,700        7,082,400   
Executive Vice President and     2010        506,200        11,200        3,002,300        1,182,900        1,837,000        221,600        398,100        7,159,300   
General Manager,     2009        453,900               3,051,400        993,500        1,376,600        145,600        389,700        6,410,700   
Intel Architecture Group, and Chief Product Officer                                                                        
A. Douglas Melamed3     2011        645,000        13,300        2,486,200        611,400        1,540,700        68,000        152,800        5,517,400   
Senior Vice President and     2010        600,000        12,600        2,342,200        496,400        1,887,500               21,500        5,360,200   
General Counsel                                                                        

Total

    2011        3,810,000        87,300        19,570,900        4,812,700        12,669,700        1,419,300        1,355,700        43,725,600   
      2010        3,101,200        77,400        18,464,800        4,322,300        14,381,800        542,600        1,046,900        41,937,000   
      2009        2,378,900               15,127,100        3,715,400        9,660,200        571,600        870,000        32,323,200   

 

1

These were special bonuses paid to all eligible employees, including the listed officers, for their contribution in achieving Intel milestones: Intel’s first year when revenue exceeded $50 billion (2011) and Intel’s first year when revenue exceeded $40 billion (2010). These special bonuses were equivalent to three days of compensation for each year.

 

2

Mr. Perlmutter receives his cash compensation in Israeli shekels. The amounts reported above in the “Salary” column and the annual incentive cash payment included in the “Non-Equity Incentive Plan Compensation” column for 2011 are based on the amount approved by the Compensation Committee in U.S. dollars and therefore do not take into account increases or decreases that could result from the amount being converted into and paid in shekels. The amounts reported above in the “Bonus” column, certain amounts included in the “Non-Equity Incentive Plan Compensation” column, and certain amounts included in the “All Other Compensation” column for 2011 were converted to U.S. dollars using a rate of 3.78 shekels per dollar, calculated as of December 31, 2011 for 2011. The amounts reported above in the “Salary,” “Bonus,” and “Non-Equity Incentive Plan Compensation” columns and certain amounts in the “All Other Compensation” column were converted to U.S. dollars using 3.59 shekels per dollar, calculated as of December 25, 2010 for 2010; and 3.80 shekels per dollar, calculated as of December 24, 2009 for 2009. In 2009, Mr. Perlmutter received an additional $10,800 for relocation that was not previously reported due to the late receipt of a supplier invoice; this amount has been added to the table above.

 

3

Mr. Melamed was hired in November 2009 and was not a listed officer in fiscal year 2009.

Total Compensation. Total compensation as reported in the Summary Compensation table increased 4% from 2010 to 2011 for listed officers, as decreases in payouts under our performance-based cash compensation were offset by increases in base salary and change in pension value.

 

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Equity Awards. Under SEC rules, the values reported in the “Stock Awards” and “Option Awards” columns of the Summary Compensation table reflect the aggregate grant date fair value of grants of stock options and stock awards to each of the listed officers in the years shown.

The grant date fair values of OSUs are provided to us by Radford, an AonHewitt consulting company, using the Monte Carlo simulation valuation method. We calculate the grant date fair value of an RSU by taking the value of Intel common stock on the date of grant and reducing it by the present value of dividends expected to be paid on Intel common stock before the RSU vests, because we do not pay or accrue dividends or dividend-equivalent amounts on unvested RSUs. We calculate the grant date fair value of stock options using the Black-Scholes option pricing model.

The following table includes the assumptions used to calculate the aggregate grant date fair value of awards reported for 2011, 2010, and 2009 on a grant-date by grant-date basis.

 

     Assumptions
Grant Date  

Volatility

(%)

 

Expected

Life

(Years)

 

Risk-Free

Interest

Rate

(%)

 

Dividend

Yield

(%)

1/23/09

  51   7.5   2.7   4.2

4/16/09

  46   4.8   1.6   3.5

1/22/10

  30   5.1   2.0   3.1

4/15/10(1)

  n/a   n/a   0.8   2.6

1/24/11

  27   5.2   1.6   3.4

 

  1

RSUs were the only awards granted on this date; therefore, the “volatility” and “expected life (years)” assumptions were not applicable.

Non-Equity Incentive Plan Compensation. The amounts in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation table include annual incentive cash payments made under the annual incentive cash plan and semiannual incentive cash payments. The allocation of payments was as follows:

 

Name   Year    

Annual Incentive

Cash Payments

($)

   

Semiannual

Incentive Cash

Payments

($)

   

Total Incentive

Cash Payments

($)

 

Paul S. Otellini

    2011        6,160,000        269,500        6,429,500   
      2010        6,524,000        266,000        6,790,000   
      2009        5,110,000        141,500        5,251,500   

Stacy J. Smith

    2011        1,288,000        98,000        1,386,000   
      2010        1,484,000        91,000        1,575,000   
      2009        1,131,500        43,300        1,174,800   

Andy D. Bryant

    2011        1,790,200        121,800        1,912,000   
      2010        2,180,500        111,800        2,292,300   
      2009        1,800,100        57,200        1,857,300   

David Perlmutter

    2011        1,306,400        95,100        1,401,500   
      2010        1,738,700        98,300        1,837,000   
      2009        1,327,200        49,400        1,376,600   

A. Douglas Melamed

   

 

2011

2010

  

  

   

 

1,435,000

1,780,000

  

  

   

 

105,700

107,500

  

  

   

 

1,540,700

1,887,500

  

  

 

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Table of Contents

Change in Pension Value and Non-Qualified Deferred Compensation Earnings. Amounts reported represent the actuarial increase of the benefit that executive officers have in the tax-qualified pension plan arrangement, which offsets the non-qualified pension plan benefit (other than for Mr. Perlmutter and Mr. Melamed). Since that benefit is a fixed dollar amount payable at age 65, year-to-year differences in the present value of the accumulated benefit arise solely from changes in the interest rate used to calculate present value and the participant’s age becoming closer to age 65. The listed officers (other than Mr. Perlmutter and Mr. Melamed) had an overall increase in 2011 because the interest rate used to calculate present value decreased from 5.8% for 2010 to 4.7% for 2011. They had an overall increase in 2010 because the interest rate used to calculate present value decreased from 6.1% for 2009 to 5.8% for 2010, and they had an overall increase in 2009 because the interest rate decreased from 6.7% for 2008 to 6.1% for 2009. Mr. Perlmutter participates in a pension savings plan and a severance plan for Israeli employees, which are explained further in “Retirement Plans for Mr. Perlmutter” following the Pension Benefits for Fiscal Year 2011 table. The changes in pension value reported above in the Summary Compensation table are the increases in the balance of the pension savings plan (less Mr. Perlmutter’s contributions) and the increase in the actuarial value for the severance plan. Mr. Melamed became newly eligible to participate in the pension plan on January 1, 2011. Mr. Melamed is not covered by the arrangement offsetting the non-qualified plan benefit. The amount shown for Mr. Melamed reflects the basic formula benefit in the pension plan.

All Other Compensation. The amounts in the “All Other Compensation” column of the Summary Compensation table include tax-qualified discretionary company contributions to the retirement contribution plan, discretionary company contributions credited under the retirement contribution component of the non-qualified deferred compensation plan, matching charitable contributions from the Intel Foundation, and payments in connection with listed officer relocations, as detailed in the table below. Amounts included in the “Retirement Plan Contributions” column will be paid to the listed officers only upon the earliest to occur of retirement, termination (receipt may be deferred but not later than reaching age 70 1/2), disability, or death. Amounts included in the “Deferred Compensation Plan Contributions” column will be paid to the listed officers after a fixed period of years or upon termination of employment, in accordance with irrevocable elections made at the time that compensation is deferred.

 

Name   Year    

Retirement Plan

Contributions

($)

   

Deferred

Compensation

Plan Contributions

($)

   

Matching

Charitable

Contributions

($)

   

Relocation

Payments

($)

   

Total All Other

Compensation

($)

 

Paul S. Otellini

    2011        14,700        460,800                      475,500   
      2010        14,700        364,900        2,500               382,100   
      2009        14,700        275,700                      290,400   

Stacy J. Smith

    2011        14,700        118,800                      133,500   
      2010        14,700        85,900                      100,600   
      2009        14,700        62,400        5,000               82,100   

Andy D. Bryant

    2011        14,700        169,500        5,000               189,200   
      2010        14,700        129,900                      144,600   
      2009        14,700        93,100                      107,800   

David Perlmutter1

    2011                             404,700        404,700   
      2010                             398,100        398,100   
      2009                             389,700 (2)      389,700   

A. Douglas Melamed  

   

 

2011

2010

  

  

   

 

14,700

  

  

   

 

138,100

  

  

   

 


  

  

   

 


21,500

  

  

   

 

152,800

21,500

  

  

 

1

In 2006, Mr. Perlmutter relocated to the United States from Israel with an original assignment for a two-year period, which has been extended until August 2012. Since this is a temporary assignment, Mr. Perlmutter is receiving a two-way relocation package. This package contains the same elements as a standard Intel employee relocation package. Intel’s relocation packages include monetary allowances and moving services to help employees relocate. The packages are designed to meet the business needs of Intel and the personal needs of Intel employees and their families. Relocation packages apply to all employees based on set criteria, such as duration of the assignment, destination for the assignment, family size, and other needs as applicable.

 

2

In 2009, Mr. Perlmutter received an additional $10,800 for relocation that was not reported due to the late receipt of a supplier invoice.

 

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Table of Contents

Grants of Plan-Based Awards in Fiscal Year 2011

The following table presents equity awards granted under the 2006 Equity Incentive Plan, and awards granted under our annual and semiannual incentive cash plans in 2011.

 

Name   Award Type  

Grant

Date

   

Approval

Date

   

Estimated Future

Payouts Under
Non-Equity

Incentive Plan Awards

    Estimated Future Payouts
Under Equity
Incentive Plan Awards1
   

All

Other

Stock

Awards:

Number

of

Shares

of Stock

or Units
(#)

   

All Other

Option

Awards:

Securities

Underlying

Options
(#)

   

Exercise

or Base

Price of

Option

Awards3

($/Sh)

   

Closing

Market

Price

on

Grant

Date3

($/Sh)

   

Grant

Date Fair

Value of

Stock

and

Option

Awards4

($)

 
       

Target2

($)

   

Maximum

($)

   

Minimum

(#)

   

Target

(#)

   

Maximum

(#)

           

Paul S. Otellini

  OSU     1/24/11        1/20/11                        90,125        180,250        360,500                                        4,724,400   
    RSU     1/24/11        1/20/11                  130,900              2,606,700   
    Stock Option     1/24/11        1/20/11                    467,010        21.09        21.24        1,802,800   
    Annual Cash         4,800,000        10,000,000                     
    Semiannual Cash                     269,500                                                                           

Stacy J. Smith

  OSU     1/24/11        1/20/11            39,970        79,940        159,880                2,095,200   
    RSU     1/24/11        1/20/11                  58,050              1,156,000   
    Stock Option     1/24/11        1/20/11                    207,110        21.09        21.24        799,500   
    Annual Cash         1,050,000        10,000,000                     
    Semiannual Cash                     98,000