Compensation

Compensation

Proposal 3: Advisory Vote to Approve Executive Compensation

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.

Intel has provided stockholders with an advisory “say on pay” vote on executive compensation since 2009, and in 2011 federal law made this practice mandatory for U.S. public companies. 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 these voting results and decided to adopt a policy providing for an annual advisory stockholder vote to approve our executive compensation. We are therefore holding this year’s advisory vote in accordance with that policy and pursuant to U.S. securities laws and regulations.

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 our 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. We also encourage you to review 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 described and explained in the “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.

Although this advisory vote to approve our executive compensation is non-binding, the Compensation Committee will carefully assess the voting results. The “Compensation Discussion and Analysis” in this proxy statement discusses our stockholder engagement efforts over the past year and reflects our commitment to consult directly with stockholders to better understand any significant views expressed in the context of matters voted upon at our stockholders’ meetings.

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 2018.

RECOMMENDATION OF THE BOARD

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

Compensation Discussion and Analysis

2016 LISTED OFFICERS

Brian M. Krzanich
Chief Executive Officer

Andy D. Bryant
Chairman of the Board

Robert H. Swan
Executive Vice President
and Chief Financial Officer

Stacy J. Smith
Executive Vice President
Manufacturing, Operations and Sales

Dr. Venkata S.M. (“Murthy”) Renduchintala
Executive Vice President
President, Client and Internet of Things (IoT) Businesses and System Architecture Group

Diane M. Bryant
Executive Vice President
General Manager, Data Center Group

William M. Holt
Former Executive Vice President, General Manager, Technology and Manufacturing Group

Gregory R. Pearson
Senior Vice President
General Manager, Sales and Marketing Group

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, as presented in the tables below under “Executive Compensation.”

This Compensation Discussion and Analysis is composed of four sections:

  • Executive Summary — Highlights of compensation for our executive leadership team; 
  • Stockholder Engagement and “Say on Pay” — A discussion of the 2016 “say on pay” results; 
  • 2016 Compensation of Our Listed Officers — Details on our executive compensation programs and the individual compensation of our listed officers; and 
  • Other Aspects of Our Compensation Programs — A discussion of our compensation framework, our use of peer group data, and other policies and processes related to our executive compensation programs.

Our 2016 listed officers reflect our evolving business. As we leverage our core assets to pursue new opportunities and fuel the Virtuous Cycle of Growth, we are hiring and developing new talent and new competencies. After serving as our chief financial officer since 2007, Mr. Smith in 2016 assumed responsibility for overseeing manufacturing, operations and sales. We recruited Mr. Swan and Dr. Renduchintala from other companies to provide new perspectives. After 42 years of service at Intel, Mr. Holt retired in June 2016, while Mr. Pearson continues to support Intel’s sales and marketing group but ceased to serve as an executive officer during the year.

Detailed compensation tables that quantify and further explain our listed officers’ compensation follow this Compensation Discussion and Analysis.

Executive Summary

LISTED OFFICER PAY

Intel’s executive compensation program is designed to complement our strategy to drive a Virtuous Cycle of Growth by:

  • aligning the interests of executives with those of stockholders; 
  • incentivizing executives to drive business performance over both the short and long term; 
  • providing total compensation necessary to attract and retain the best talent in the industry; and 
  • maintaining competitive benefits to support the executive, allowing the executive to maximize attention and optimize time in order to focus efforts in pursuit of building stockholder value.

The majority of compensation for Intel’s listed officers, approximately two-thirds, is delivered in the form of stock-based compensation, designed to create long-term alignment with our stockholders. This stock compensation is primarily in the form of performance stock units that vest based on Intel’s total shareholder return as measured against peers over a three-year period, driving a focus on delivering a superior return for stockholders. Additionally, listed officers are subject to significant stock ownership requirements that further reinforce the alignment with stockholders over the long term.

The next largest portion of a listed officer’s compensation is the annual incentive cash payout, which is based on a combination of annual company-wide financial goals and specific business unit objectives. Focusing our listed officers on annual financial and operational goals incentivizes the achievement of results that should ultimately drive stockholder value creation, and further enhances the link between pay and performance for our executives. The remaining component of our listed officers’ total direct compensation consists of a competitive base salary. In addition to the elements of total direct compensation (salary, annual incentive cash and long-term stock-based compensation), we provide a competitive benefits package that includes health care, retirement funding, financial planning, life insurance, and other programs that are designed to allow executives to maximize time and attention on activities designed to increase stockholder value.

The sum of these components enables Intel to attract and retain the very best talent. For example, we have recently experienced significant leadership changes, including hiring two of our listed officers from outside Intel within the past 18 months, retaining our former chief financial officer as he moved into a new senior executive role leading sales, manufacturing, and operations, and supporting our chairman as he transitioned to a role focused primarily on supporting and guiding the Board as Chairman and reducing his day-to-day involvement with management and business operational matters. These leadership changes, especially those for our newly hired listed officers, have resulted in certain event-driven compensation arrangements that are not typically elements of our executive compensation program at Intel, but which are common practices in the competitive technology sector used to attract outside senior leaders. We expect that these leadership changes, together with other business initiatives, will bring new perspectives from both external and internal viewpoints, that will help accelerate our transformation from a PC company to a cloud and smart, connected device company.

BUSINESS PERFORMANCE AND PAY

We are building on our strong position in client computing and are investing for growth in the data center, Internet of Things market segments, and disruptive differentiated memory technology. In order to accelerate our transformation from a PC-centric company to powering the cloud and the connected world, in second quarter 2016, we announced the 2016 Restructuring Program, which is on track to reduce our headcount, generate savings and increase the proximity among our employees, including our executives. We are reallocating these savings to our growth segments and are continuing to invest in areas that extend our leadership in Moore’s Law and expand market opportunities such as memory and autonomous driving. Our steady financial performance demonstrates a strategy that is working and providing a solid foundation for growth.

business-performance

We ended 2016 in a strong position — the fourth quarter of 2016 had record revenue growth of $16.4 billion, up 10% on a year-to-year basis. We continue to see our business evolve as we execute on our strategy to leverage the Virtuous Cycle of Growth.

Our business results for 2016 included the following:

  • Record revenue of $59.4 billion in 2016, up $4.0 billion, or up 7% from 2015. The increase was driven by the inclusion of the Programmable Solutions Group and growth in the Data Center Group, Client Computing Group, and Internet of Things Group. Net income for 2016 was $10.3 billion. 
  • Gross margin dollars were $36.2 billion, up $1.5 billion from 2015. Gross margin of 60.9% was down 1.7% from 2015. 
  • Research and development (R&D) and marketing, general and administrative (MG&A) spending totaled $21.1 billion, up 5% from a year ago. R&D and MG&A were 35.6% of revenue, down approximately one point from 2015. 
  • Earnings per share of $2.12 were down 21 cents, or down 9% from a year ago. 
  • Record cash flow from operations in 2016 was approximately $21.8 billion. 
  • Returned cash to stockholders by paying $4.9 billion in dividends and repurchasing $2.6 billion in stock.

The annual incentive cash plan, based on the financial and operational performance for 2016, resulted in a corporate average payout of 101% of annual incentive cash target, as compared with the 2015 payout of 94% of target.

Stockholder Engagement and the 2016 “Say on Pay” Vote

In 2016, the percentage of votes cast “For” our advisory “say on pay” resolution to approve our executive compensation was approximately 96%, similar to our 2015 vote. We have a program of stockholder outreach beginning the first quarter of each year, including 2016; this outreach occurs prior to the distribution of our annual proxy statement materials and is focused on executive compensation, stockholder proxy statement proposals, and corporate governance topics. Based on our discussions with stockholders in 2016, we believe that stockholders’ “say on pay” support in 2016 was primarily the result of our increased efforts to hold executive officers accountable for business results and reward them for consistently strong corporate performance and creation of value for our stockholders. The Board believes that our 2016 “say on pay” results and the positive input received through our engagement efforts are an affirmation of the structural soundness of our executive compensation programs. During the last several months of 2016, and prior to the date of this proxy statement in 2017, we pursued multiple avenues for stockholder engagement, including in-person and teleconference meetings with our stockholders. No significant changes have been made to the structure of our executive compensation programs in light of our 2016 “say on pay” results—our annual and long-term incentive programs remain substantially the same for 2017.

2016 Compensation of Our Listed Officers

PERFORMANCE AND INCENTIVE PAY FOR 2016

The principal elements of our pay-for-performance philosophy include a competitive pay positioning strategy, a heavy emphasis on incentive-driven pay, and goals that are appropriately aligned with our business strategy (in terms of both selection and attainability), as evidenced by the following program components.

  • In the technology sector the competition for executive talent is significant. The Compensation Committee believes that a competitive total compensation target is critical to attract, retain, and reward the executive talent crucial to driving value for the stockholders. To that end, total compensation is designed to be competitive with a peer group of companies all vying for the top technical talent in the world. Adjustments to each individual’s pay position take into account our desire to compensate our executive officers based upon performance, while fairly balancing internal and external pay equity considerations among executive roles.
  • Total direct compensation opportunities are designed so that the majority of pay is variable or “at risk,” with value derived from company business performance and stock price performance over the long term.
  • To further align our executive officers’ interests with those of our stockholders, the committee has structured compensation so that the proportion of variable cash and equity-based pay increases with higher levels of responsibility. 
  • By using financial measures such as net income growth and relative total stockholder return (TSR), our incentive plans provide a clear and quantifiable link to the creation of long-term stockholder value. 
  • To further link the long-term interests of management and stockholders, Intel has established stock ownership guidelines that specify an amount of shares that executive officers must accumulate and hold.

CEO COMPENSATION MIX:

Our executive compensation programs are periodically refined so that they support Intel’s business goals and promote both near- and long-term profitable growth of the company. As illustrated below, approximately 92% of targeted total direct compensation for Mr. Krzanich in 2016 was “at risk,” consisting of approximately 70% equity and 22% incentive cash. Only 8% of his compensation, in the form of base salary, was fixed, ensuring a strong link between his targeted total direct compensation and business results.

CEO Performance and Incentive Pay Mix¹

compensation-pie

1 Does not include “Change in Pension Value and Non-Qualified Deferred Compensation Earnings” or “All Other Compensation” as reported in the Summary Compensation Table on page 59.

LISTED OFFICERS’ TOTAL DIRECT COMPENSATION MIX:

The majority of executive compensation for our listed officers is delivered through programs that link pay realized by executive officers with financial and operational results, and with TSR. Variable cash compensation payouts under our annual incentive cash plan were based on measures of absolute and relative financial performance, company performance relative to operational goals, and individual performance.

The two sets of bar charts below show the components of total direct compensation for each listed officer, as a percentage of the total. For most of our listed officers (the first chart), this is comprised of: base salary; annual cash incentives; restricted stock units (RSUs) and outperformance-based restricted stock units (OSUs) granted in the year. For our two newly hired listed officers (the second chart), these same elements are illustrated along with sign-on cash awards and new-hire RSUs, which are elements beyond our standard annual compensation programs and which offset in part the value foregone by each officer in separating from his prior employer to join Intel.

Total Direct Compensation Chart – Legacy Listed Officers

direct-comp-bar

Total Direct Compensation Chart – Newly Hired Listed Officers

swan-renduchintala-comp

OTHER ELEMENTS OF PAY FOR 2016

Our listed officers’ compensation for 2016 reflects a number of event-driven compensation arrangements. For both Mr. Swan and Dr. Renduchintala, significant portions of their 2016 compensation were provided to offset the value of compensation forfeited or forgone when they separated from their prior employers and to reflect the competitive market for executives in the technology sector: they each were granted new-hire RSUs in 2016 that were designed to offset in part the value of stock awards they forfeited by separating from their prior employers to join Intel; and they both received sign-on cash awards from Intel that took into account previously granted cash awards that were likewise forfeited or foregone in connection with their resignations. A portion of Mr. Holt’s 2016 compensation relates to broad-based retirement payments and benefits he received under our 2016 Restructuring Program in connection with his retirement. Finally, in January 2016, Ms. Bryant received the last installment payout of a cash-based retention award granted her in 2013, prior to when she became an executive officer.

2016 INCENTIVE COMPENSATION PAYOUTS

INCENTIVE CASH COMPENSATION

The corporate average payout percentage under the annual incentive cash plan for 2016 was 101% of the annual incentive cash target, compared with 94% in 2015. Intel’s net income results were down slightly from the previous year, which were offset by stronger performance under the operational scores. Despite the higher corporate average payout percentage, average annual incentive cash payouts for our listed officers in 2016 were down due to lower average target amounts for our listed officers under our annual incentive cash plan in 2016, as compared with 2015. The link between our financial performance and the listed officers’ annual incentive cash plan is illustrated in the following graph, which shows how the average annual incentive cash payments have varied based on Intel’s net income results.

Total Return Performance¹

average-incentive

1 Average annual incentive reflects annualized amounts for listed officers who were not employed for the full year (Messrs. Swan and Holt) and while the chart above shows our GAAP net income for each year, annual incentive in 2010 was based on non-GAAP net income that excluded certain charges recorded in the fourth quarter of 2010, primarily due to a design issue with the Intel® 6 Series Express Chipset family and the related tax impacts of those charges.

INCENTIVE EQUITY COMPENSATION

For the January 2013 through January 2016 performance period, OSUs vested at 92.8%, reflecting that Intel’s TSR was 2.9 percentage points below the peer group median TSR over the performance period. Total payout, including dividend equivalents accrued on earned shares as a result of our strong record in returning value to stockholders through our dividend policy, was 102.2%of target. These payouts are reported in the Stock Option Exercises and Stock Vested in Fiscal Year 2016 table on page 65.

ALIGNMENT OF PRINCIPAL ELEMENTS OF PAY-FOR-PERFORMANCE

In 2016, the Compensation Committee requested that Farient assess the relationship between our CEO’s compensation and long-term performance for our stockholders. In addition to conducting a number of pay-for-performance tests typically relied upon by proxy advisors, Farient used its pay-for-performance alignment model to test the alignment of our CEO’s average annualized performance-adjusted compensation (which includes salary, actual annual incentive cash payments, and the performance-adjusted value of long-term incentives) and performance, as indicated by TSR, over time. In doing so, Farient compared our CEO’s average annualized performance-adjusted compensation over successive three-year rolling periods to our compound annual TSR for the same three-year rolling periods and tested the results against the companies in our peer group (excluding Alphabet, Amazon, Apple, Facebook and Oracle, which Farient determined are affected by founder CEO pay practices or are skewed by mega-grant equity awards to the CEO in a particular year resulting in an outlier situation).

As indicated by the chart below, Farient determined that there is a strong relationship between our CEO’s average annualized performance-adjusted compensation and our company’s TSR. Specifically, when our TSR is higher, our CEO performance-adjusted compensation is higher, and conversely, when our TSR is lower, our CEO performance-adjusted compensation is lower. In addition, Farient’s analysis indicated that our CEO’s average annual performance-adjusted compensation, considering our company’s size and the performance we delivered, has been and continues to be reasonable. Farient considers performance-adjusted compensation to be reasonable for companies that generally pay CEOs, on a performance-adjusted basis, below the upper boundary of a competitive pay range that Farient deems to be acceptable for the performance achieved based on a company’s size and performance. Based on the alignment model, Farient concluded that our company shows a strong relationship between pay and performance compared to our peers.

Pay-for-Performance Alignment
(Over Three-Year Period Ending in Year Shown)

average-PAC

✔ WHAT WE DO✗ WHAT WE DON'T DO
  • Performance-based compensation that uses a variety of performance measures and performance periods
  • No change in control arrangements
  • Robust stock ownership guidelines for all executive officers
  • No tax gross-ups (except for business expenses such as relocation costs)
  • Claw-back policy that applies to our annual incentive cash plan and equity incentive plan
  • No special retirement benefits exclusively for executive officers
  • Annual stockholder say-on-pay vote and biennial vote on equity compensation plan
  • No hedging of our stock for executives and directors
  • Independent Compensation Committee and independent compensation consultant
  • No liberal share recycling under the equity incentive plan
  • Annual compensation review and risk assessment
  • No employment agreements (outside of the new hire context)
  • Limit on maximum incentive payouts
  • No repricing or exchange of underwater options without stockholder approval

2016 CASH COMPENSATION

In January of each year, the Compensation Committee conducts a robust review of external market data, individual and company performance and management recommendations and makes adjustments to compensation accordingly. In connection with that review, the committee made the following cash compensation changes for 2016, for each listed officer, a summary of which is shown in the tables below.

Mr. Krzanich. The committee increased Mr. Krzanich’s base salary by 14% to $1,250,000 and made no change to his annual incentive cash target of $3,500,000. These determinations bring Mr. Krzanich fully in line with the market median for the CEO position and represent the culmination of a three-year plan designed to bring Mr. Krzanich’s compensation to market median over time as he became more seasoned in his role as CEO (when Mr. Krzanich first assumed the role, his pay was set at the 25th percentile of the competitive market). Mr. Krzanich’s actual annual incentive cash payment for 2016 was $3,546,700, up 7% from the previous year, as a result of stronger corporate business performance.

Mr. Bryant. To reflect the transition in Mr. Bryant’s role towards focusing primarily on supporting and guiding the Board as Chairman and reducing his day-to-day involvement with management and business operational matters, the committee reduced Mr. Bryant’s base salary by 37% to $500,000 and reduced his annual incentive cash target by 35% to $943,000. Mr. Bryant’s actual annual incentive cash payout for 2016 was $1,170,500, down 15% from the previous year, despite stronger corporate business performance, as a result of Mr. Bryant’s reduced annual incentive target commensurate with the reduction of his employment-related activities.

Mr. Swan. Mr. Swan was hired in October 2016, and the committee determined his cash compensation for 2016 as part of his recruitment and hiring process, which consists of a base salary of $850,000 and an annual incentive cash target of $1,122,000. Mr. Swan’s actual annual incentive cash payment for 2016 was $284,200 based on strong corporate business performance, but pro-rated to reflect his being in the role for a partial year in 2016. Mr. Swan also received a cash payout of $2,750,000 in 2016, the first of three installments of his sign-on award, made to him in part to offset compensation forgone when he separated from his prior employer to join Intel. The two remaining installments will be paid in 2017 and 2018, on the first and second anniversaries of his hire date at Intel.

Mr. Smith. The committee increased Mr. Smith’s base salary by 3% to $800,000 and made no change to his annual incentive cash target of $1,800,000. The increase to Mr. Smith’s base salary was commensurate with the move in the market in 2016 for his role as the then CFO of Intel. Mr. Smith’s actual annual incentive cash payment for 2016 was $1,824,000, up 7% from the previous year, as a result of stronger corporate business performance.

Dr. Renduchintala. Dr. Renduchintala was hired in November 2015, and the committee established his cash compensation for 2016 as part of his recruitment and hiring process, which consists of a base salary of $900,000 and an annual incentive cash target of$2,100,000. Dr. Renduchintala’s actual annual incentive cash payment for 2016 was $2,128,000, as a result of strong corporate business performance. Dr. Renduchintala also received a cash payout of $2,700,000 in 2016, the second of three installments of his sign-on award, made to him in part to offset the cash compensation forgone when he separated from his prior employer to join Intel. The remaining installment will be paid in 2017, on the second anniversary of his hire date with Intel.

Ms. Bryant. During 2016, Ms. Bryant was promoted from Senior Vice President to Executive Vice President, and she was appointed as an executive officer. At the time of her promotion, Ms. Bryant’s base salary was adjusted to $650,000 and her annual incentive cash target was adjusted to $1,050,000. Ms. Bryant’s actual annual incentive cash payment for 2016 was $882,100, which reflects a proration of her award based on different incentive target levels of a Senior Vice President and an Executive Vice President. Finally, Ms. Bryant received $400,000 under a cash-based retention award granted to her in 2013, prior to when she became an executive officer.

Mr. Holt. The committee increased Mr. Holt’s base salary by 4% to $675,000 and increased his annual incentive cash target by 1% to$1,095,000. The increases to Mr. Holt’s base salary and annual incentive cash target were commensurate with the move in the market in 2016 for his role. Mr. Holt’s actual annual incentive cash payout for 2016 was $574,900, which reflects the strong Technical Manufacturing Group business unit performance and proration for a partial year of service due to his retirement in accordance with the generally applicable terms of our annual incentive cash plan. Finally, Mr. Holt received a $1,120,000 retirement payment under the same program and formula available as all employees who elected to retire under our 2016 Restructuring Program.

Mr. Pearson. The committee adjusted Mr. Pearson’s base salary to $545,000 and his annual incentive cash target to $690,000. Mr. Pearson’s actual annual incentive cash payment for 2016 was $664,700, as a result of Sales and Marketing Group business unit performance below target.

BASE SALARY

The table below shows the ending annualized base salary for our listed officers for 2016, as compared with 2015, with the exceptions of Mr. Swan, Dr. Renduchintala, Ms. Bryant, and Mr. Pearson, who were not listed officers in 2015.

base-salary

ANNUAL INCENTIVE CASH PLAN TARGETS AND PAYMENTS

The table below shows the ending target annual incentive for our listed officers under our annual incentive cash plan in 2016, as compared with 2015, with the exceptions of Mr. Swan, Dr. Renduchintala, Ms. Bryant, and Mr. Pearson, who were not listed officers in 2015.

annual-incentive-cash

Annual Incentive Cash Formula Details

performance-pie

The annual incentive cash payout percentage that can be earned is based on a weighted average of three corporate performance components: an absolute financial component (25% weighting), a relative financial component (25% weighting), and an operational performance component (50% weighting). The Compensation Committee assigned a 50% weighting to operational performance because it views operational excellence and technological leadership as ultimately driving superior financial performance. Operational performance for business unit leaders is based on business-unit-specific goals in order to drive a sharper focus on key strategic initiatives, increase visibility into those initiatives, and enhance accountability. Generally, for corporate level officers, operational performance is based on the average of 10 business units’ scores that may be adjusted by our CEO at his discretion, as permitted under the annual incentive cash plan. Officers who lead a business unit receive the operational score for their business unit. In 2016, none of the listed officers benefited from any discretionary adjustments by our CEO. All operational performance goals are subject to adjustment based on corporate-level goals that for 2016 related to hiring and retaining of ‘diverse’ (women and under-represented minorities) talent, as well as the reduction of cycle time and number of iterations between product design and production. Following the end of fiscal year 2016, the Compensation Committee reviewed and certified the annual incentive cash plan performance results and determined the final cash payouts. Payouts may be adjusted upward or downward based on individual performance, but the committee did not make any such adjustments for the listed officers for 2016.

For 2016, the plan’s formula yielded an annual incentive cash payout of 101% of target, calculated as shown below, reflecting stronger performance under the operational scores for all listed officers, other than Ms. Bryant, Mr. Holt, and Mr. Pearson, based on the corporate average performance on the operational components. Achievement scores for the operational goals are derived from a process for tracking and evaluating performance; while some goals are quantitative, some goals have non-quantitative measures that require a degree of subjective evaluation. Over the past five years, corporate average operational goals have scored between 90%and 122%, with an average result of 103%, and for 2016 the corporate average operational goal achievement was higher than the overall payout percentage, reflecting strong accomplishments in the Client Computing Group, Intel Security Group, and Programmable Solutions Group. Ms. Bryant’s award is based on the performance goals established for the Data Center Group, which she leads; her annual incentive cash payout was 97% of target, based on the Data Center Group’s performance. Likewise, Mr. Pearson’s award is based on the performance goals established for the Sales and Marketing Group. Mr. Pearson’s annual incentive cash payout was 96% of target, based on the Sales and Marketing Group’s performance. Mr. Holt’s award is based on the operational performance goals established for the Technology and Manufacturing Group, which he led until his retirement; his annual incentive cash payout was 105% of target, and prorated to reflect his retirement, per the generally applicable terms of our annual incentive cash plan.

For more information on how the three performance components are measured and on the plan’s formula, see the discussion in “Executive Compensation; Grants of Plan-Based Awards in Fiscal Year 2016; 2016 Operational Goals; Annual Incentive Cash” on page 63 of this proxy statement.

The table below illustrates the calculation of the annual incentive cash payout for 2016 and describes the factors affecting 2016 payouts.

Annual Incentive Cash Calculation (in millions)

annual-cash-calculation

The following table details the annual incentive cash payments for each listed officer for 2015 and 2016 (except Mr. Swan, Dr. Renduchintala, Ms. Bryant, and Mr. Pearson, who were not listed officers in 2015) reflecting the year-over-year changes resulting from the higher annual incentive cash payout for 2016 and the changes in the annual incentive cash target amounts discussed above. The reduction in Mr. Bryant’s annual incentive cash payment reflects the change in his duties towards a more Board-focused orientation. The reduction in Mr. Holt’s annual incentive cash payment is reflective of proration due to his retirement, per the standard terms of our annual incentive cash plan.

annual-incent-cash-payment

1 Mr. Swan, Dr. Renduchintala, Ms. Bryant, and Mr. Pearson were not listed officers in 2015.
2 Mr. Swan was hired in October 2016 and Mr. Holt retired in June 2016. The 2016 Annual Incentive Cash Payments for Mr. Swan and Mr. Holt represent their pro-rated Annual Incentive Cash Payment based on employment start date and retirement date, respectively.

QUARTERLY INCENTIVE CASH PAYMENTS

The listed officers also participate in our company-wide quarterly incentive cash payments, which deliver cash compensation to employees based on Intel’s profitability. In 2016, quarterly incentive cash payments represented approximately 1% of the listed officers’ total direct compensation. Payouts are communicated as extra days of cash compensation, with executives typically receiving the same number of days of pay as the company’s employees. However, with respect to the second and third quarters of 2016, executive officers, including the listed officers, received smaller quarterly incentive cash payments relative to other company employees. The payouts of the executive officers were based on profitability results inclusive of restructuring charges related to our 2016 Restructuring Program, whereas those of other company employees excluded these charges. We pay up to an additional two days of compensation for each performance year if Intel achieves its customer satisfaction goals. Payments earned in 2016 represented 17.8 days of compensation per employee generally, and 15.5 days of compensation for each of our listed officers (down from 16.5 days in 2015). The payouts included two days of compensation for 2016 and one day of compensation for 2015 resulting from Intel’s achievement of its customer satisfaction goals.

2016 ANNUAL EQUITY AWARDS

In January of each year, the Compensation Committee conducts a robust review of external market data, individual and company performance, expected future contributions, and management recommendations and makes annual equity grants accordingly. In 2016, the committee made the following equity grants for each listed officer, a summary of which is shown in the table below.

Mr. Krzanich. Mr. Krzanich was granted equity awards in the amount of $12,000,000, a 20% increase over the previous year. The award is in line with completing the movement of Mr. Krzanich’s total compensation to the median of the market and is split such that 60% of the grant value is in OSUs and 40% is in RSUs.

Mr. Bryant. Mr. Bryant was granted equity awards in the amount of $2,175,000, a 54% decrease from the previous year. The award reflects the change in his role as Chairman of the Board towards a more Board-focused orientation, and the award is split such that 50% of the grant value is in the form of OSUs and 50% is in RSUs, the same allocation as the independent members of the Board of Directors receive annually as part of their compensation.

Mr. Swan. Mr. Swan was not granted an annual equity award for 2016, but in connection with his hiring in October 2016, he was granted RSUs in the amount of $9,500,000, made in part to offset the value of equity awards forfeited when he separated from his prior employer.

Mr. Smith. Mr. Smith was granted equity awards in the amount of $4,725,000, a 5% increase over the previous year. The increase in award value of the previous year is in line with the market movement for Executive Vice Presidents, and is split such that 60% of the grant value is in OSUs and 40% is in RSUs.

Dr. Renduchintala. Dr. Renduchintala was granted equity awards in the amount of $6,000,000, which the committee established at the time of negotiating his offer to join Intel in late 2015. This award is split such that 60% of the grant value is in OSUs and 40% is in RSUs. In addition to his annual equity award grant, Dr. Renduchintala was granted an RSU award with a grant value of $8,100,000, made in part to offset the value of equity awards forfeited when he separated from his prior employer; this grant was made in January 2016—the first available opportunity to make an equity grant following his hire date.

Ms. Bryant. Ms. Bryant was granted equity awards in the amount of $3,975,000, split such that 60% of the grant value is in OSUs and 40% is in RSUs. In addition to her annual equity award grant, the committee approved a grant of RSUs to Ms. Bryant in recognition of her promotion to Executive Vice President in May 2016, with a grant value of $500,000.

Mr. Holt. Mr. Holt was granted equity awards in the amount of $3,950,000, a 5% increase over the previous year. The increase in award value is in line with the market movement for Executive Vice Presidents, and is split such that 60% of the grant value is in OSUs and 40% is in RSUs.

Mr. Pearson. Mr. Pearson was granted equity awards in the amount of $3,300,000, and split such that 60% of the grant value is in OSUs and 40% is in RSUs.

The table below shows the annual equity award values approved by the committee for our listed officers in 2016, as compared with annual equity award values approved in 2015. In 2016, annual awards to the listed officers were composed of approximately 60%OSUs and 40% RSUs by approved value excluding the new-hire grants. Amounts reported in the Summary Compensation Table and the Grants of Plan-Based Awards in Fiscal Year 2016 table on pages 59 and 62 differ marginally from the approved values due primarily to changes in our stock price between the date the committee approved awards and the date they were actually granted. In addition, the fair value of an RSU for accounting purposes is discounted for the present value of dividends that are not paid on RSUs prior to vesting.

2016-equity-awards

1 Mr. Swan, Dr. Renduchintala, Ms. Bryant, and Mr. Pearson were not listed officers in 2015.

OSU AWARDS

For 2016, approximately 60% of the total value of the listed officers’ annual equity awards, excluding the new-hire grants and the Chairman’s grants, was made in the form of OSUs. OSUs are variable performance-based RSUs under which the number of shares of Intel common stock received following vesting is based on Intel’s TSR performance measured against the median TSR of a technology peer group of companies over a three-year performance period. TSR is a measure of stock price appreciation plus any dividends payable during the performance period for the OSUs. The committee elected to use OSUs as the primary equity vehicle for listed officers because the OSUs are performance-based and present significant upside potential for superior relative stock price performance, which accounts for industry cyclicality, but also offers the potential for some value to the recipient even if the stock price declines over the three-year performance period; this limits the excessive risk-taking that may be encouraged by highly leveraged performance awards.

Performance is measured over the 36 months following the grant date and OSUs convert into shares in the 37th month (usually, in February). Additionally, there is a minimum threshold performance that must be met before any shares will be issued: If Intel’s TSR is more than 25 percentage points below the median TSR of the technology peer group, the threshold is not met, and no shares will be issued. For more information on how OSUs are earned, see the narrative following the Grants of Plan-Based Awards in Fiscal Year 2016 table in “Executive Compensation.”

RSU AWARDS

For 2016, approximately 40% of the total value of the listed officers’ annual grant of equity awards, excluding the new-hire grants and the Chairman’s grants, was made in the form of RSUs. 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 also serve to balance the riskier nature of OSUs and provide a significant incentive to stay with the company. As with RSUs granted in 2015, awards granted to the listed officers in 2016 will vest in substantially equal quarterly increments over three years from the grant date. Quarterly vesting of RSUs helps offset the 37-month cliff vesting of the OSUs.

Other Aspects of Our Executive Compensation Programs

INTEL’S COMPENSATION FRAMEWORK

The Compensation Committee determines the compensation for our executive officers. It also 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 served as the committee’s independent advisor for 2016. During 2016, Farient’s work with the committee included advice and recommendations on:

  • total compensation philosophy; 
  • program design, including program goals, components, and metrics; 
  • compensation trends in the technology sector and in the general marketplace for senior executives; 
  • regulatory trends; 
  • compensation of the CEO and the other executive officers; and 
  • stockholder engagement efforts.

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

Executive officers do not propose or seek approval for their own compensation. The CEO makes a recommendation to the committee on the base salary, annual incentive cash targets, and equity awards for each executive officer other than himself and the Chairman of the Board, 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. He then bases his evaluation on his knowledge of the executive officer’s performance, a self-assessment completed by the executive officer, and input from employees who report directly to the executive officer. Intel’s Senior Vice President of Human Resources and the Compensation and Benefits Group assist the CEO in developing the executive officers’ performance reviews and reviewing market compensation data to determine the compensation recommendations

Annual performance reviews of the CEO and of the Chairman are 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, 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. The Compensation Committee uses this evaluation 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:

  • Strategic Capability. How well does the executive officer identify and develop relevant business strategies and plans? 
  • Execution. How well does the executive officer execute strategies and plans? 
  • Leadership Capability. How well does the executive officer lead and develop the organization and people?

EXTERNAL COMPETITIVE CONSIDERATIONS FOR 2016

To assist the Compensation Committee in its review of executive compensation for 2016, Farient, in conjunction with 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 selected as a peer group for executive compensation analysis purposes. These historical compensation data were adjusted to arrive at current-year estimates for the peer group. The committee used these data to compare the compensation of our listed officers to that of the peer group.

The peer group for 2016 included the 15-company technology peer group and 10 S&P 100* companies outside the technology industry. When the peer group was created in 2007, the committee chose companies from the S&P 100 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. The committee also selected companies with three-year averages for revenue that approximated Intel’s. The peer group includes companies with which Intel competes for employees and the companies that Intel uses for measuring relative financial performance for annual incentive cash payments.

For 2016, we have made changes to the technology peer group. We retained both companies resulting from the HP spin-off (i.e., both HP Inc. and HP Enterprise) and we added Facebook, Inc. and Micron Technology, Inc. We removed eBay Inc. (because the spin-off of PayPal left the remaining company too small to be appropriately comparable to Intel’s size), Western Digital (because it was determined that Micron is more appropriately comparable to Intel’s business model), and EMC (because it was acquired by Dell Inc.).

The table below shows information for our 2016 technology peer group and peers selected from the S&P 100:

peer-group

1 HP Enterprise and HP Inc. were excluded from the 2016 annual incentive cash calculation for measuring relative financial performance due to the lack of historical comparability.
2 Data set forth for TSMC Limited is based on unaudited financial information.

POST-EMPLOYMENT COMPENSATION ARRANGEMENTS

Intel does not provide change in control benefits to executive officers, and generally provides limited post-employment compensation arrangements to executive officers. In order to attract and retain the best talent in the technology sector, we have provided for time-limited, post-employment separation benefits to two newly hired listed officers in their offer letters, as described more fully below under “Other Agreements.”

Likewise, Mr. Holt was eligible to participate in the retirement component of our 2016 Restructuring Program, and received the broad-based retirement benefits made available to other retirement-eligible employees in connection with his retirement. Mr. Holt’s 2016 Restructuring Program retirement benefits included a retirement payment equal to one year of base pay and annual incentive cash target, up to two years of health care assistance (including six months of premium support contributions under our retiree medical plan) and one year of financial planning assistance; in order to receive these retirement benefits under our 2016 Restructuring Program, Mr. Holt executed a release of claims in favor of Intel.

The limited post-employment compensation arrangements made generally available to our executives, including the listed officers, consist of:

  • a 401(k) savings plan; 
  • a discretionary company-funded retirement contribution plan, and a company-funded pension plan, each of which is intended to be tax-qualified; 
  • a non-tax-qualified supplemental deferred compensation plan for certain highly compensated employees; and 
  • retirement acceleration provisions for equity awards.

The company-funded pension plan was closed to new hires starting January 1, 2011. Effective January 1, 2015, future benefit accruals were frozen for all employees at or above a specific grade level, including all listed officers.

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 terms governing the retirement or deferred compensation benefits under these plans for the listed officers are the same as those available to other eligible employees in the United States.

Intel does not make matching contributions based on the amount of employee contributions under any of these plans. Instead, Intel’s contribution consists of a discretionary cash contribution determined annually by the committee for listed officers, and by the CEO for other employees. These contribution percentages have historically been the same for listed officers and other employees but are made to different plans depending on employee grade level and start date.

For 2016, Intel’s discretionary contribution (including allocable forfeitures) for eligible U.S. employees, including listed officers, in the applicable plan equaled 5% of eligible salary (which included annual and quarterly 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 (the tax code), Intel credits the additional amount to the non-qualified deferred compensation plan. Effective January 1, 2015, plan assets contributed for U.S. participants and discretionary employer contributions are participant-directed.

PERSONAL BENEFITS

Intel provides perquisites to executive officers when the Compensation Committee determines that such arrangements are appropriate and consistent with Intel’s business objectives. In 2016, Intel offered the listed officers certain financial planning services and physical examinations. In addition, in 2016, our Board of Directors determined to enhance the personal security for our CEO and certain other listed officers in response to specific Intel-related incidents and threats against those officers and, in some cases, members of their families. We do not consider these additional security measures to be a personal benefit for our listed officers, but rather appropriate expenses for the benefit of Intel that arise out of our executives’ employment responsibilities and that are necessary to their job performance and personal safety. In determining to authorize these arrangements and expenses, the Board and committee followed a robust process, including reviewing and discussing analyses and recommendations from a leading security firm and law enforcement agencies. The Board and committee have taken specific steps to ensure that such measures are appropriately targeted, including providing enhanced security only in response to specific incidents and threats; not providing enhanced security for all executive officers generally; and ensuring that the committee, comprised solely of independent directors, authorizes each arrangement (with no executive officer participating in the decision to approve enhanced security measures for himself or herself). Further, the Board and committee instituted a process for periodic oversight of the nature and cost of security measures and will discontinue, adjust, or enhance security as appropriate. In connection with hiring Dr. Renduchintala to join Intel, the committee approved providing relocation assistance and certain travel benefits, reflecting the competitive market for executives in the technology industry. Other than the perquisites listed above, Intel does not provide perquisites to its executive officers.

OTHER AGREEMENTS

As discussed above, to accelerate our transformation from a PC company to a cloud and smart, connected device company, we have made two significant outside hires in the past 18 months: Dr. Renduchintala, to lead our Client and IoT Businesses and System Architecture Group, and Mr. Swan as our new Chief Financial Officer. In order to offset the value of compensation forgone or forfeited when they separated from their prior employers and reflecting the competitive market for executives in the technology sector, we have provided certain additional benefits in their offers.

Pursuant to his offer letter, Dr. Renduchintala was eligible to receive a sign-on cash award and an equity award in part to offset the value he lost by leaving his prior employer. In addition, for 2016, and for each of 2017 and 2018, Dr. Renduchintala is eligible to receive a supplemental bonus in the event that his annual incentive cash payment is less than $2,100,000 in each year due to the company’s performance; no supplemental bonus was payable in respect of 2016. Likewise, for each of 2016, 2017, and 2018, Dr. Renduchintala is eligible for an annual equity grant with a grant date value of at least $6,000,000. Under his offer letter, Dr. Renduchintala was eligible for our standard relocation benefits in connection with his move to the San Francisco Bay Area, as well as coverage of commuting and travel costs between his home in Southern California and Intel’s headquarters in Santa Clara until the completion of the move; to optimize his time, Dr. Renduchintala is eligible for certain travel benefits, including a car and driver for commuting purposes. Finally, in the event that his employment is terminated by Intel within the first three years of employment for any reason other than cause (as defined in the offer letter), Dr. Renduchintala is eligible for a severance payment, the value of which declines in quarterly increments over the three-year period, subject to his execution and delivery of an effective release of claims in favor of Intel.

Pursuant to his offer letter, Mr. Swan was provided certain benefits in part to offset the value he lost by leaving his prior employer, consisting of a sign-on cash award in the aggregate amount of $5,500,000 payable in three installments from 2016 through 2018, and a new-hire RSU with a grant value of $9,500,000. In terms of our annual and long-term incentive plans, Mr. Swan’s offer letter provides that he is eligible for a target payout of $1,122,000 under Intel’s annual incentive cash plan, with the 2016 payout prorated for his actual period of service. Finally, in the event that his employment is terminated by Intel within the first two years of employment for any reason other than cause (as defined in the offer letter), Mr. Swan is eligible to receive the then-unpaid portion of his sign-on award, subject to his execution and delivery of an effective release of claims in favor of Intel.

CORPORATE OFFICER STOCK OWNERSHIP GUIDELINES

Because the Compensation Committee believes in linking the interests of management and stockholders, the Board has set stock ownership guidelines for Intel’s executive and other senior officers. These guidelines specify the number of shares that Intel’s corporate officers must accumulate and hold within five years of appointment or promotion. Unvested OSUs and RSUs, and unexercised stock options do not count toward satisfying these ownership guidelines.

As of December 31, 2016, each of Intel’s listed officers had satisfied these ownership guidelines, or still had time to do so.

The following table lists the specific ownership requirements.

ownership-requirement

INTEL POLICIES REGARDING DERIVATIVES OR “SHORT SALES”

Intel prohibits directors, listed officers, and other senior employees from investing in any 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

Both Intel’s 2016 Annual Performance Bonus program (formerly the 2007 Executive Officer Incentive Plan), under which annual incentive cash payments are made, and Intel’s 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 those amounts had been inflated due to financial results that later had to be restated. The 2006 Equity Incentive Plan in addition provides that the Compensation Committee must first determine that the applicable executive officer engaged in conduct contributing to the reason for the restatement.

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). To maintain flexibility and promote simplicity in administration, compensation arrangements such as OSUs, RSUs, and annual and quarterly incentive cash payments may not satisfy the conditions of Section 162(m) of the tax code and therefore may not be deductible.

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, Brian M. Krzanich, and our Chief Financial Officer, Robert H. Swan. 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 2016 Annual Report on Form 10-K (incorporated by reference) and in this proxy statement.

Compensation Committee
David S. Pottruck, Chairman
Reed E. Hundt
David B. Yoffie

Executive Compensation

The following table lists the annual compensation for fiscal years 2016, 2015, and 2014 of our CEO, Chairman, CFO, and our other most highly compensated officers in 2016, including two who were not serving as executive officers as of the end of 2016 (referred to as our listed officers).

2016 Summary Compensation Table

Summary-Compensation-Table

1 In 2015, the following listed officers had a loss in pension value of the following amounts: Mr. Bryant ($18,000) and Mr. Smith ($7,000). Mr. Krzanich’s pension value did not change. Mr. Holt took a distribution in 2016 and had no outstanding benefit at year-end.
2 Mr. Swan, Dr. Renduchintala, Ms. Bryant, and Mr. Pearson were not listed officers prior to 2016. Mr. Swan was hired in October 2016.
3 Mr. Holt retired from the company in June 2016.

Bonus. Mr. Swan and Dr. Renduchintala received sign-on cash awards made in part to offset cash compensation forgone when they separated from their prior employers to join Intel. Ms. Bryant received the last installment payment under a cash-based retention award granted to her in 2013, prior to when she became an executive officer.

Equity Awards. Under SEC rules, the values reported in the “Stock Awards” column of the Summary Compensation Table reflect the aggregate grant date fair value, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (FASB ASC Topic 718), of grants of 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 Aon Hewitt Consulting company, using the Monte Carlo simulation valuation method. We calculate the grant date fair value of an RSU by taking the average of the high and low trading prices of Intel common stock on the grant date 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.

The following table includes the assumptions used to calculate the aggregate grant date fair value of awards reported for 2016, 2015, and 2014 on a grant-date by grant-date basis.

grant-date

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

non-equity-incentive

Change in Pension Value and Non-Qualified Deferred Compensation Earnings. The actuarial present value of the benefit that the listed officers have in the tax-qualified pension plan arrangement, which offsets the non-qualified pension plan benefit, increased as of the 2016 fiscal year-end compared with the 2015 fiscal year-end value. Since the benefit is a fixed dollar amount payable at the assumed retirement age of 65, year-to-year differences in the present value of the accumulated benefit arise mainly from changes in the interest rate used to calculate present value and the participant’s age approaching 65. The listed officers had an overall increase in 2016 because the lump-sum conversion rate used to convert an annuity into a lump-sum benefit decreased from 2015 to 2016. This was partially offset by the increase to the interest rate used to calculate present value increased from approximately 4.0% for 2015 to approximately 4.3% for 2016.

All Other Compensation. The amounts in the “All Other Compensation” column of the Summary Compensation Table include tax-qualified discretionary company contributions credited under the retirement contribution component of the 401(k) savings plan, discretionary company contributions credited under the retirement contribution component of the non-qualified deferred compensation plan, and payments for perquisites, as detailed in the table below. Perquisites for 2016 include financial planning and eligibility for health evaluations, company-provided transportation (including commuting and relocation services for Dr. Renduchintala), and residential security costs.

all-other-comp

1 Amounts included in the “Retirement Plan Contributions” column become payable only upon the earliest to occur of retirement, termination, disability, or death (receipt may be deferred following retirement or termination but no later than reaching age 70 1/2).
2 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 in the calendar year before the calendar year in which that compensation is deferred.
3 Amounts represent equalization payments to Dr. Renduchintala to offset taxes imposed on his relocation benefits, consistent with the company-wide policy for relocation costs.
4 Amounts represent retirement payments and benefits for Mr. Holt under broad-based Intel programs in connection with his retirement.
5 For company-provided aircraft, the amount reported represents the cost per flight hour of the aircraft less amounts reimbursed by the listed officer. For other company-provided transportation costs and residential security costs, the amount reported represents the cost to Intel or, with respect to arrangements that are utilized both in business and non-business contexts, an allocation of the cost to Intel of such arrangements.

The “All Other Compensation” column of the Summary Compensation Table also includes, in addition to the amounts above, personal security arrangements for Mr. Krzanich in the amount of $1,858,500, for Mr. Smith in the amount of $309,900, and for Dr. Renduchintala in the amount of $944,800. We do not consider these measures to be a personal benefit for our listed officers, but instead appropriate expenses for the benefit of Intel that arise out of our executives’ employment responsibilities and that are necessary to their job performance. In determining to authorize these non-standard arrangements and expenses, the Board and Compensation Committee has evaluated the need to respond to specific Intel-related incidents and threats, and has reviewed recommendations from a leading security firm and law enforcement agencies. As with security provided when our officers attend public events and business travel-related security that is provided when appropriate, Intel monitors these arrangements and adjusts them as circumstances warrant. In addition, the Board and committee instituted a process for periodic oversight of the nature and cost of security measures and will discontinue, adjust, or enhance security as appropriate.

Grants of Plan-Based Awards in Fiscal Year 2016

The following table presents equity awards granted under the 2006 Equity Incentive Plan and awards granted under our annual incentive cash plan and quarterly incentive cash payments in 2016. Under SEC rules, the values reported in the “Grant Date Fair Value of Stock Awards” column reflect the grant date fair value of grants of stock awards determined under accounting standards applied by Intel, as discussed above.

Grants of Plan-Based Awards in Fiscal Year 2016 Table

gpba

1 The “Estimated Future Payouts under Equity Incentive Plans” columns represent the minimum, target, and maximum number of OSUs that upon converting to shares could be received by each listed officer, excluding dividend equivalents.
2 Amounts reported as “Target” in the “Annual Cash” rows are the listed officer’s annual incentive cash target, and the amounts reported as “Target” in the “Quarterly Cash” rows are the listed officer’s 2016 quarterly incentive payment. Actual 2016 annual incentive cash payments are reported under the heading “Non-Equity Incentive Plan Compensation” above.
3 The grant date fair value (computed in accordance with FASB ASC Topic 718) is generally the amount that Intel would expense in its financial statements over the award’s service period, but does not include a reduction for forfeitures. This does not represent the actual value that may be realized by a listed officer upon vesting of the award.

OSU Awards. OSUs granted to the listed officers in 2016 have a three-year performance period from the grant date, and a 37-month vesting schedule, meaning that the performance metrics are measured over the first 36 months, and the corresponding number of shares will vest in the 37th month. The number of shares of Intel common stock to be received at vesting will range from 0% to 200%of the target amount, based on the TSR of Intel common stock measured against the median TSR of the technology peer group over a three-year period. For OSUs granted to listed officers in 2016, the percentage rates at which OSUs convert into shares are as follows: if Intel’s TSR is within 1% of the peer group’s TSR, OSUs convert into shares at target; 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-to-1 (a 2-percentage-point reduction in units for each percentage point of under-performance), but if Intel’s TSR is more than 25 percentage points below the median TSR of the technology peer group, no shares will be issued and the OSUs will be forfeited; 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 4-to-1 (a 4-percentage-point increase in units for each percentage point of over-performance), with a maximum percentage of 200%. TSR is a measure of stock price appreciation plus any dividends paid during the performance period. For the OSUs granted in 2016, listed officers receive dividend equivalents based on dividends payable over the vesting period on the number of shares of Intel common stock earned and vested. The dividend equivalents will be paid upon vesting in the form of additional shares of Intel common stock.

RSU Awards. RSUs granted to the listed officers in 2016, with the exception of Robert Swan’s RSUs, will vest in substantially equal quarterly increments over three years from the grant date. The RSUs granted to Mr. Swan when he was hired will vest annually over three years from the grant date.

2016 Operational Goals

Annual Incentive Cash. Early in the year, the Compensation Committee sets each listed officer’s incentive cash target amount as part of the annual performance review and compensation adjustment cycle. After the end of the year, the incentive cash target amount is multiplied by the annual incentive cash payout percentage, which is based on a weighted average of three corporate performance components; an absolute financial component (25% weighting), a relative financial component (25% weighting), and an operational performance component (50% weighting).

Each corporate performance component is targeted around a score of 100%, with a minimum score of zero. Additional details on each component are provided below. This plan mirrors the broad-based plan for employees, with the added feature that the payout may be adjusted for individual performance.

  • Absolute Financial Component. The Absolute Financial Component represents 25% of the annual incentive cash payout formula and is based on year-over-year growth of Intel’s net income. This component rewards executive officers for sustained performance. To determine absolute financial performance, Intel’s current-year net income was divided by Intel’s prior year net income. In 2016, Intel’s net income was 10% lower than in 2015, resulting in a score of 90% for this component, whereas Intel’s 2015 net income was 2.4% lower than the prior year. 
  • Relative Financial Component. The Relative Financial Component represents 25% of the annual incentive cash payout formula and is based on Intel’s year-over-year net income growth compared with net income growth of technology peer companies. This component rewards executive officers for how well Intel’s year-over-year net income growth performs compared with the broader technology market. To calculate Intel’s performance relative to the market comparator group, Intel’s year-over-year net income percentage change (expressed as a percentage from a base of 100%) was divided by the simple average of the total annual net income percentage change for the technology peer group companies other than Intel (again, expressed as a percentage from a base of 100%). In 2016, the scoring for the relative component was 88% for Intel’s performance relative to the market’s performance, a decrease compared with the 2015 relative score of 96%.
    In applying the net income tests for both the absolute and relative financial components, the Compensation Committee may adjust Intel’s net income based on criteria determined by the committee, as described in the plan. However, the committee did not apply any adjustments in evaluating Intel’s net income performance for 2016. The committee also may include or exclude certain types of charges when determining the technology peer group’s net income results, similar to charges that may be included or excluded for purposes of determining Intel’s net income.
  • Operational Performance Component. The Operational Performance Component represents 50% of the annual incentive cash payout formula and is based on specific operational goals that the Compensation Committee approves for each business unit within 90 days of the beginning of each year. This component rewards executive officers for achieving meaningful measures of performance based on performance in key areas, including financial performance, product development and launch roadmaps, manufacturing, cost and productivity improvements, and corporate responsibility and environmental sustainability. The operational goals established by the committee are also used in the broad-based employee annual incentive cash plan and are prepared each year as part of the annual planning process for the company. To drive focus and accountability at the business unit level, the committee approved the use of three to five specific operational performance goals for each of Intel’s 10 business units used in the formula. Employees in corporate level and administrative groups, including each of our listed officers other than Ms. Bryant, Mr. Holt, and Mr. Pearson, are paid based on the average of 10 business units’ scores, subject to adjustment for performance against a corporate-level goal. Ms. Bryant, Mr. Holt, and Mr. Pearson are paid using the respective results for business groups they head—the Data Center Group, the Technology and Manufacturing Group and the Sales and Marketing Group.
  • Achievement scores for the operational goals are derived from a process for tracking and evaluating performance; however, some goals have non-quantitative measures that require a degree of subjective evaluation, and the weight assigned to particular goals is determined subjectively. The scoring for operational goals ranges from 0% to 125%; although achievement of the corporate level goal can result in a corporate level score above 125%. The scores for the year, representing Intel’s achievement of the year’s operational goals, are calculated by senior management following the end of the performance period and are reviewed and approved by the Compensation Committee.

Over the past five years, operational goals have scored between 90% and 122%, with an average result of 103%, and for 2016 the corporate average operational goal achievement was higher than the overall payout percentage. The corporate average score on operational goals in 2016 was 113%, an increase compared with 92% in 2015. For 2016, the corporate level goals were focused on hiring and retaining of diverse talent, as well as the reduction cycle time and number of iterations between product design and production, which were achieved, increasing overall corporate level annual incentive cash payouts by 7% of target.

Quarterly Incentive Cash Payments. Quarterly cash awards are made under a broad-based plan based on Intel’s profitability. Listed officers and other eligible employees receive a payment expressed as days of compensation based on 5% of net income divided by the current value of a worldwide day of compensation. We pay up to an additional two days of compensation for each performance year if Intel achieves its customer satisfaction goals. Because benefits are determined under a formula and the Compensation Committee does not set a target amount under the plan, under SEC rules the target amounts reported in the table above are the amounts earned in 2016.

Stock Option Exercises and Stock Vested in Fiscal Year 2016

The following table provides information on stock option exercises and vesting of RSUs and OSUs during fiscal year 2016.

exercise-stock-vested

2013–2016 OSU Payout. In 2016, the three-year performance period ended for OSUs granted in 2013, and the committee certified the performance results. Intel’s TSR was 52.9%, below the 2013 Proxy Statement’s 13 technology peer group companies’ TSR of 55.8% by 2.9 percentage points. The 2013 OSUs paid out at 100% minus 2.5 percentage points for every percentage point that Intel’s TSR was below the median peer group TSR. Therefore, the OSUs were converted into earned units equal to 92.8% of target and, together with dividend equivalents accrued on the shares that were earned over the 37-month vesting period, were settled at 102.2%of target and are included in the table above.

Outstanding Equity Awards at Fiscal Year-End 2016

The following table provides information regarding outstanding equity awards held by the listed officers as of December 31, 2016. Unless otherwise specified, options vest at a rate of 25% per year on each of the first four anniversaries of the grant date and RSUs vest quarterly over the first three years from the grant date. 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 ($36.27 on December 30, 2016) and the option exercise price, and multiplying it by the number of outstanding stock options. Market value for stock awards (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.

outstanding-equity

1 OSUs are shown at their target amount. The actual conversion of OSUs into Intel shares following the conclusion of the vesting period (37 months following the grant date) will range from 0% to 200% of that target amount. The actual conversion will depend upon Intel’s TSR performance versus the TSR benchmark over the applicable three-year performance period. Listed officers also will receive dividend equivalents on the final shares earned and vested, which will pay out upon vesting in the form of additional shares.
2 Robert Swan’s 10/25/16 RSU award vests annually over three years.
3 Mr. Holt retired in June 2016 and his RSUs and OSUs became available to him under retirement eligibility guidelines, but his OSUs are still outstanding as they have not yet completed their performance period for calculating the final OSU payout.
4 Mr. Pearson’s April 25, 2013 RSU award vests annually over four years.
5 Mr. Pearson’s April 22, 2014 RSU award vests quarterly over four years.

Pension Benefits for Fiscal Year 2016

The following table shows the estimated present value of accumulated pension benefits for the listed officers.

pension-benefits

1 Until distribution, these benefits are also reflected in the listed officer’s balance reported in the Non-Qualified Deferred Compensation table. The amounts of these tax-qualified pension plan arrangements are not tied to years of credited service. Upon termination, the amount that the listed officer receives under the non-qualified deferred compensation plan will be reduced by the amount received under the tax-qualified pension plan arrangement. Mr. Swan and Dr. Renduchintala are not eligible for pension benefits as they were hired after January 1, 2015.

The U.S. Intel Minimum Pension Plan is a defined benefit plan with two components. The first component provides participants with retirement income that is determined by a pension formula based on final average compensation, Social Security-covered compensation, and length of service upon separation not to exceed 35 years. It provides pension benefits only if the annuitized value of a participant’s account balance in Intel’s tax-qualified retirement contribution plan is less than the pension plan benefit, in which case the pension plan funds a net benefit that makes up the difference. As of December 31, 2016, none of the amounts included in the table above were associated with this component. Effective January 1, 2015, compensation earned and service accruals were frozen as of December 31, 2014 in the U.S. Intel Minimum Pension Plan for all employees at or above a specific grade level, including all listed officers.

The second component is a tax-qualified pension plan arrangement under which pension benefits offset amounts that otherwise would be paid under the non-qualified deferred compensation plan described below. Employees who were participants in the non-qualified deferred compensation plan as of December 31, 2003 were able to consent to a one-time change to the non-qualified deferred compensation plan’s benefit formula. This change reduces the employee’s distribution amount from the non-qualified deferred compensation plan by the lump sum value of the employee’s tax-qualified pension plan arrangement at the time of distribution. Each participant’s pension plan arrangement was established as a fixed single life annuity amount based on assumed retirement at age 65. The annual amount of this annuity is $11,700 for Mr. Krzanich, $165,000 for Mr. Bryant, $98,500 for Mr. Smith, $6,900 for Ms. Bryant,$165,000 for Mr. Holt, and $23,600 for Mr. Pearson; Dr. Renduchintala and Mr. Swan are not eligible to participate in these arrangements.

Each participant’s benefit was set based on a number of elements, including his or her non-qualified deferred compensation plan balance as of December 31, 2003, IRS pension rules that consider age and other factors, and limits that Intel sets for equitable administration. The benefit under this portion of the plan is frozen, and accordingly, year-to-year differences in the present value of the accumulated benefit arise mostly from changes in the interest rate used to calculate present value and the participant’s age becoming closer to age 65. We calculated the present value assuming that the listed officers will remain in service until age 65, using the interest rate and other assumptions used by Intel for financial statement accounting, as reflected in Note 18 to the financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016. An officer who terminates service before age 65 can elect to receive his or her benefits at any time following termination of employment, but not later than age 65. If such officer works past age 65 then the benefits must start upon termination. Distributions before age 55 may be subject to a 10% federal penalty tax.

Non-Qualified Deferred Compensation for Fiscal Year 2016

The following table shows the non-qualified deferred compensation activity for each listed officer during fiscal year 2016.

non-q-deferred

1 Amounts included in the Summary Compensation Table in the “Salary” and “Non-Equity Incentive Plan Compensation” columns for 2016.
2 These amounts, which accrued during fiscal year 2016 and were credited to the participants’ accounts in 2017, are included in the Summary Compensation Table in the “All Other Compensation” column for 2016.
3 These amounts are not included in the Summary Compensation Table because plan earnings were not preferential or above market.
4 Withdrawal and distribution amounts are not included in the Summary Compensation Table because these are payouts of prior years’ earnings and contributions.
5 These amounts are as of December 31, 2016 and do not take into account the amounts in the “Intel Contributions in Last Fiscal Year” column in the table above that were accrued during fiscal year 2016 but were credited to the participants’ accounts in 2017. The following amounts are included in the fiscal year-end balance and previously were reported as compensation to the listed officers in the Summary Compensation Table for 2006 through 2015 (except for Mr. Smith, who was not a listed officer in 2006; Mr. Krzanich who was not a listed officer prior to 2012; Mr. Holt, who was not a listed officer prior to 2014; and Mr. Swan, Dr. Renduchintala, Ms. Bryant, and Mr. Pearson who were not listed officers prior to 2016 ): Mr. Krzanich, $561,400; Mr. Bryant, $7,994,300; Mr. Smith, $4,374,400; and Mr. Holt, $147,400.

Intel will distribute the balances reported in the Non-Qualified Deferred Compensation table (plus any future contributions or earnings) to the listed officers in the manner that the officers have chosen under the plan’s terms. Some balances reported in the table above include the offset amount that the employee would receive under the tax-qualified pension plan arrangement; the actual amount distributed under this plan will be reduced by the benefit under the pension plan arrangement. See the Pension Benefits table above for these amounts.

The following table summarizes the total contributions made by the participant and Intel, including gains, losses, and distributions attributable to such contributions, that were previously reported (or that would have been reported had the participant been a listed officer for all years) in the Summary Compensation Table over the life of the plan. The amounts in the table are as of December 31, 2016 and do not take into account any amounts that were accrued during fiscal year 2016 but were credited to the participants’ accounts in 2017.

aggregate-deferrals

Intel’s non-qualified deferred compensation plan allows certain highly compensated employees, including executive officers, to defer up to 50% of their salary and up to 100% of their annual incentive cash payment. Effective January 1, 2016, the maximum salary deferral has been increased to 60% and the maximum annual incentive deferral has been reduced to 75%. Gains on equity compensation are not eligible for deferral. Intel’s contributions to the employee’s account represent the portion of Intel’s retirement contribution on eligible compensation (consisting of base salary and annual and quarterly incentive cash payments) earned in excess of the tax code covered compensation limit of $265,000 in 2016. Intel’s contributions are subject to the same vesting provisions as the retirement contribution plan. After two years of service, Intel’s contributions vest in 20% annual increments until the participant is 100% vested after six years of service. Intel’s contributions also vest in full upon death, disability, or reaching the age of 60, regardless of years of service. All listed officers, other than Dr. Renduchintala and Mr. Swan, are fully vested in the value of Intel’s contributions, as they have more than six years of service; Mr. Swan and Dr. Renduchintala will become fully vested in any Intel contributions by 2020 and 2021, respectively.

Employment Contracts and Change in Control Arrangements

All of Intel’s listed officers are employed at will, and, other than Dr. Renduchintala and Mr. Swan, without employment agreements or offer letters (subject only to the effect of local labor laws), and we do not maintain any payment arrangements that would be triggered by a “change in control” of Intel. Intel entered into offer letters with each of Dr. Renduchintala and Mr. Swan, which provide for time-limited severance benefits in the event of a termination of employment without cause by Intel. In the event that Intel terminated the employment of these listed officers without cause on December 31, 2016, the severance payouts to Dr. Renduchintala and Mr. Swan would be $8,775,000, and $2,750,000, respectively. These payments would be in addition to the benefits set forth in the Voluntary Termination/Retirement table below.

Other Potential Post-Employment Payments

SEC rules require companies to report the amount of benefits that are triggered by termination of employment. These amounts are reported in the following tables under the headings “Accelerated Option Awards” and “Accelerated Stock Awards.” As noted above, we do not maintain arrangements for listed officers that are triggered by a change in control.

The tables below report the value of all forms of compensation that would be available to the listed officers upon the specified events, an amount that is sometimes referred to as the “walk-away” amount. This amount includes the value of vested equity awards that the listed officer is entitled to regardless of whether employment is terminated, and the value of vested deferred compensation and retirement benefits that are also reported in the tables above.

The amounts in the tables below assume that the listed officer left Intel effective December 31, 2016 (except as otherwise noted) and are based on the price per share of Intel common stock on the last trading day of the fiscal year ($36.27 on December 30, 2016). Amounts actually received if any of the listed officers cease to be employed will vary based on factors such as the timing during the year of any such event, the company’s stock price, the listed officer’s age, and any changes to our benefit arrangements and policies.

Voluntary Termination/Retirement

voluntary-term

1 The deferred compensation, pension plan, retirement contribution plan, and 401(k) savings plan amounts assume the listed officer left Intel as of December 31, 2016. All other items are determined as of the company’s fiscal year-end.
2 Sheltered Employee Retirement Medical Account funds can be used to pay premiums under the medical plan of the listed officer’s choice.
3 Mr. Holt retired from Intel in June 2016. Amounts above reflect what he actually received upon his retirement from the company unless otherwise noted. In addition, amounts for Mr. Holt under the Other Retirement Benefits column represent payments received under the broad-based Intel programs in connection with his retirement.
4 While Mr. Holt’s RSUs and OSUs became available to him upon his retirement, Mr. Holt’s OSUs are subject to a performance period for calculating the final OSU payout. OSUs, as part of the total amount of accelerated stock awards for Mr. Holt, are shown at their target amount with a market value as of December 31, 2016 of $6,776,700.

Death or Disability

death-disability

1 The deferred compensation, pension plan, retirement contribution plan, and 401(k) savings plan amounts assume the listed officer left Intel as of December 31, 2016. All other items are determined as of the company’s fiscal year-end.
2 Sheltered Employee Retirement Medical Account funds can be used to pay premiums under the medical plan of the listed officer’s choice.
3 Mr. Holt retired from Intel in June 2016. Amounts above reflect what he actually received upon his retirement from the company unless otherwise noted. In addition, amounts for Mr. Holt under the Other Retirement Benefits column represent payments received under the broad-based Intel programs in connection with his retirement.
4 While Mr. Holt’s RSUs and OSUs became available to him upon his retirement, Mr. Holt’s OSUs are subject to a performance period for calculating the final OSU shares payout. OSUs, as part of the total amount of accelerated stock awards for Mr. Holt, are shown at their target amount with a market value as of December 31, 2016 of $6,776,700.

Equity Incentive Plans. Unvested OSUs are canceled upon termination of employment for any reason other than retirement, death, or disability. OSUs are fully vested upon retirement under the Rule of 75 or reaching the age of 60. OSUs are not settled into shares of Intel stock until after the end of the performance period, even if the holder qualifies for early vesting. RSUs and stock options are subject to retirement vesting under the rule of Age 60 or the Rule of 75, but not both. Upon retirement under the rule of Age 60, the holder receives one additional year of vesting for every five years of service. Upon retirement under the Rule of 75, when the holder’s age and years of service equal at least 75, the holder receives one additional year of vesting. Additional years of vesting means that any RSUs or stock options scheduled to vest within the number of years from the retirement date determined under the rule of Age 60 or Rule of 75 will be vested on the holder’s retirement date. Under the standard grant agreements for stock options granted under our equity incentive plans, the option holder generally has 90 days to exercise stock options that vested on or before the date that employment ends (other than for death, disability, retirement, or discharge for misconduct). The option holder’s estate may exercise vested stock options upon the holder’s death for a period of 365 days, unless the stock options’ expiration date occurs first. Similarly, the option holder may exercise vested stock options upon termination due to disability or retirement for a period of 365 days, unless the options’ expiration date occurs first. Upon disability or death, all unvested OSUs, RSUs, and stock options become 100% vested.

Non-Qualified Deferred Compensation Plan and Pension Plan. All listed officers, other than Dr. Renduchintala and Mr. Swan, are fully vested in the non-qualified deferred compensation plan discussed above. If a listed officer ended employment with Intel for any reason, the vested account balances set forth in the Non-Qualified Deferred Compensation table would continue to be adjusted for earnings and losses in the investment choices selected by the officer until paid, pursuant to the distribution election made by the officer. As discussed above, the actual amount payable under the non-qualified deferred compensation plan would be reduced to reflect the offset amount payable under the tax-qualified pension plan arrangement. The benefit amounts set forth in the Pension Benefits table would continue to be adjusted based on actuarial assumptions until paid to the officer. Beginning on January 1, 2015, future benefit accruals were frozen in the U.S. Intel Minimum Pension Plan for all employees at or above a specific grade level, including all listed officers.

Retirement Contribution Plan. After two years of service, Intel’s contributions vest in 20% annual increments until the participant is 100% vested after six years. Intel’s contributions vest in full upon death, disability, or reaching the age of 60, regardless of years of service. All listed officers, other than Dr. Renduchintala and Mr. Swan, are fully vested in the value of Intel’s contributions, as they each have more than six years of service. Eligible U.S. Intel retirees (including executive officers) receive a prorated contribution for the year in which they retire. The contribution is calculated based on eligible earnings in the year of retirement. Starting in 2016, employees impacted by the freeze of future benefit accruals in the pension plan receive discretionary employer contributions in the Intel 401(k) savings plan, instead of the retirement contribution plan.

401(k) Savings Plan. Intel does not match the participant’s contributions to his or her 401(k) savings plan. Each participant is always fully vested in the value of his or her contributions under the plan. All currently listed officers other than Dr. Renduchintala and Mr. Swan, will be fully vested in future employer contributions to the 401(k) savings plan, as they have more than six years of service.

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