The general policy of the Board is that compensation for independent directors should be a mix of cash and equity, with the majority of compensation provided in the form of equity. The Corporate Governance and Nominating Committee, consisting solely of independent directors, has the primary responsibility for reviewing director compensation and considering any changes in how we compensate our independent directors. The Board reviews the committee’s recommendations and determines the amount of director compensation.
Intel’s Legal department, our Corporate Secretary, and the Compensation and Benefits Group in the Human Resources department support the committee in recommending director compensation and creating director compensation programs. In addition, the committee can engage outside advisors, experts, and others to assist the committee. The director peer group is the same as the peer group used in 2016 to set executive compensation and consisted of 15 technology companies and 10 companies in Standard & Poor’s S&P 100 Index (S&P 100), as described in detail below under “Compensation Discussion and Analysis; External Competitive Considerations for 2016.” The committee targets cash and equity compensation at the average of the peer group.
For 2016, annual compensation for independent directors consisted of the following elements:
1 The cash fees are paid on a quarterly basis.
The Corporate Governance and Nominating Committee reviews director compensation on an annual basis, taking into account factors such as workload and market data. Intel does not pay its management directors for Board service in addition to their regular employee compensation.
Director Compensation for Fiscal Year 2016
The following table details the compensation of Intel’s independent directors for the 2016 fiscal year.
Director Compensation for Fiscal Year 2016 Table
1 Consists of OSUs and RSUs valued at grant date fair values (computed in accordance with the Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 718). Grant date fair value of RSUs is calculated assuming a risk-free rate of return of 0.8% and a dividend yield of 3.5%. Grant date fair value of OSUs is calculated assuming volatility of 22.9%, risk-free rate of return of 1.2%, and a dividend yield of 3.5%. For additional information, see “Director Compensation; Equity Awards” below. Assumptions apply to all stock awards with the exception of those granted to Dr. Liu, who received her awards in July when she was elected to the Board.
2 Stock awards granted to Dr. Liu consist of OSUs and RSUs valued at grant date fair values (computed in accordance with ASC Topic 718). Grant date fair value of RSUs is calculated assuming a risk-free rate of return of 0.7% and a dividend yield of 3.0%. Grant date fair value of OSUs is calculated assuming volatility of 23.7%, risk-free rate of return of 0.9%, and a dividend yield of 3.0%.
3 The Intel Foundation made matching charitable contributions on behalf of Ambassador Barshefsky ($5,000), Dr. Plummer ($5,000), Mr. Pottruck ($10,000), and Mr. Yeary ($10,000). Directors’ charitable contributions to schools and universities that meet the guidelines of Intel’s employee charitable matching gift program are eligible for matching funds.
4 Ambassador Barshefsky participated in the Cash Deferral Election, under which she elected to defer her cash compensation until her retirement from the Board.
5 Includes 3,010 RSUs granted to Mr. Bhusri in lieu of his annual cash retainer for 2015 (which were paid in 2016). Mr. Bhusri’s annual cash retainer and Compensation
6 Ms. Decker retired from the Board in May 2016.
7 Includes 3,345 RSUs granted to Mr. Donahoe in lieu of his annual cash retainer for 2015 (which were paid in 2016). Mr. Donahoe’s annual cash retainer and Compensation Committee member fees for 2016 were paid in the form of RSUs in 2017.
8 As Dr. Liu was elected to the Board in July 2016, she received prorated fees and stock awards to reflect her partial year of service. Her stock awards have the same vesting schedule as the annual awards granted to the other independent directors for 2016.
9 Includes a $2,500 committee chair fee for Mr. Pottruck’s service as chairman of the Retirement Plans Investment Policy Committee for the first quarter of 2016.
10 Dr. Yoffie is the only current director covered by the Board’s retirement program, which ended in 1998. At that time, Dr. Yoffie was vested with the nine years he had served on the Board at that point. He will receive an annual benefit equal to the annual retainer fee in effect at the time of payment, to be paid beginning upon his departure from the Board. Payments will continue for nine years, or until his death, whichever is earlier. The amounts in the “Change in Pension Value and Non-Qualified Deferred Compensation Earnings” column in the Director Compensation for Fiscal Year 2016 table represent the net actuarial change in pension value accrued under this program. Assumptions used in determining these changes include an interest rate of approximately 4.3%, a retirement age of 65 or current age if older, the RP2014 Mortality Tables, and an annual benefit amount of $90,000.
RSUs in Lieu of Fees. Under the “RSUs in Lieu of Cash Election” program, independent directors can elect to receive 100% of their cash compensation in the form of RSUs (but not less than 100%). RSUs elected in lieu of payments in cash have the same vesting terms as the annual RSU grant to directors. This election is made year by year, and must be made in the tax year before the compensation will be earned. Under this program, in January 2016, Mr. Bhusri was granted 3,010 RSUs in lieu of cash and Mr. Donahoe was granted 3,345 RSUs in lieu of cash for their fees earned from January 1, 2015 to December 31, 2015.
Annual Equity Awards. Each independent director received annual grants of OSUs and RSUs with a combined market value on the grant date of approximately $220,000, with the exception of Dr. Liu, whose awards were granted with a prorated combined market value on the grant date of approximately $110,000 to reflect her partial year of service. The grant date fair value reported in the “Stock Awards” column in the Director Compensation for Fiscal Year 2016 table above differs from these amounts because of changes in the fair value of these awards between the date they were approved and the date they were granted. In addition, the fair value of an RSU for accounting purposes is discounted for present value of dividends that are not paid on RSUs prior to vesting.
Outperformance restricted stock units (OSUs) are variable performance-based restricted stock units. On January 25, 2016, Intel granted OSUs with a target amount of 2,820 shares to each independent director, with the exception of Dr. Liu, who was elected to the Board in July 2016. Dr. Liu was granted OSUs with a target amount of 1,270 shares on July 27, 2016. The grant date fair value of each director OSU grant was $109,700, with the exception of Dr. Liu’s OSU grant, which had a grant date fair value of $54,200. Director OSUs granted in 2016 (including Dr. Liu’s) vest in full on the 37-month anniversary of January 25, 2016 if the director is still serving at that time. If a director retires from the Board before the vesting date, and is either 72 or older or has at least seven years of service on the Board, he or she will be able to retain the unvested awards. The number of shares of Intel common stock that a director receives from this grant will range from 0% to 200% of the target amount, subject to the same performance payout conditions that are applicable to OSUs granted to our listed officers, as discussed below under “Compensation Discussion and Analysis; OSU Awards.” For the OSUs granted in 2016, directors receive dividend equivalents on the final shares earned and vested; the dividend equivalents will pay out upon vesting in the form of additional shares.
Restricted stock units (RSUs) generally vest in equal annual installments over a three-year period from the grant date. On January 25, 2016, Intel granted each independent director 3,680 RSUs, with the exception of Dr. Liu, who was granted 1,575 RSUs on July 27, 2016. All director RSUs granted in 2016 (including Dr. Liu’s) vest in equal annual installments over a three-year period from January 25, 2016. The grant date fair value of each director RSU grant was $102,500, with the exception of Dr. Liu’s RSU grant, which had a grant date fair value of $51,800. All RSU shares are payable upon retirement from the Board if a director is 72 years old or has at least seven years of service on the Board. Directors do not receive dividend equivalents on unvested RSUs.
Deferred Compensation Plan. This plan allows independent directors to defer their cash and equity compensation. Under the cash deferral program, directors may defer up to 100% of their cash compensation and receive an investment return on the deferred funds as if the funds were invested in Intel common stock. Participants receive credit for reinvestment of dividends under this cash deferral program. Plan participants must elect irrevocably to receive the deferred funds either in a lump sum or in equal annual installments over five or 10 years, and to begin receiving distributions either at retirement or at a future date not less than 24 months from the election date. This deferred cash compensation is an unsecured obligation for Intel.
The equity deferral program allows directors to defer the settlement of their vested RSUs and OSUs until termination of service. Directors can elect to defer only RSUs, only OSUs, or both, but the election must be all-or-nothing with respect to the type of equity award, applying to all RSUs, all OSUs, or all equity awards granted during the year, as applicable. Directors do not receive dividends on deferred RSUs. The terms of OSUs generally provide that directors receive dividend equivalents on the final shares earned and vested, payable upon vesting in the form of additional shares. If a director elects to defer his or her OSUs, the settlement of these dividend equivalent shares will also be deferred along with the vested OSU shares, but further dividends are not earned or payable on any shares during the deferral period between vesting and settlement.
Outstanding Equity Awards for Directors
The following table provides information on the outstanding equity awards held by the independent directors at fiscal year-end 2016, with OSUs shown at their target amount. Market value 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 Awards for Directors at Fiscal Year-End 2016 Table
1 Vested but deferred awards are excluded from this column. Awards in this column may vest and become payable, or may be retained by the director, upon the director’s retirement from the Board, depending on the director’s age or length of service.
2 The market value of vested but deferred awards is excluded from this column.
3 Ms. Decker retired in May 2016 and her RSUs and OSUs became available to her under retirement eligibility guidelines, but her OSU’s are still outstanding as they have not yet completed their performance period for calculating the final OSU payout.
Independent Director Stock Ownership Guidelines. Intel’s stock ownership guidelines state that each independent director must acquire and hold at least 15,000 shares of Intel common stock within five years of joining the Board. After each succeeding five years of Board service, they must own an additional 5,000 shares (for example, 20,000 shares after 10 years of service). Unvested OSUs and unvested RSUs do not count toward this requirement. Deferred RSUs count toward this requirement once they vest. As of December 31, 2016, each independent director nominee had met these ownership guidelines or still had time to do so.
Equipment. Intel provides each independent director a laptop computer for personal use and offers each director the use of other equipment employing Intel® technology.
Travel Expenses. Intel does not pay meeting fees. We reimburse our directors for their travel and related expenses in connection with attending Board meetings and Board-related activities, such as Intel site visits and sponsored events, as well as continuing education programs.