NOTICE OF ANNUAL MEETING
AND
PROXY STATEMENT
2005
May 31, 2005
Dear Fellow Stockholders:
On behalf of the Board of Directors, it is my pleasure to invite
you to Dell’s 2005 Annual Meeting of Stockholders. The
meeting will be held on Friday, July 15, 2005, at
8:00 a.m. Central Time, in Ballroom D on the 4th Floor
of the Austin Convention Center, 500 E. Cesar Chavez,
Austin, Texas 78701. For your convenience, we are also offering
a Webcast of the meeting. If you choose to view the Webcast, go
to www.dell.com/investor shortly before the meeting time and
follow the instructions provided. If you miss the meeting, you
can view a replay of the Webcast on that site until
August 15, 2005.
You will find information regarding the matters to be voted on
in the attached Notice of Annual Meeting of Stockholders and
Proxy Statement. A copy of our Annual Report on Form 10-K
and a copy of the brochure entitled “Dell Fiscal 2005 in
Review” are enclosed with these materials. We also offer
you the opportunity to receive future stockholder communications
electronically. By signing up for electronic delivery, you can
receive stockholder communications faster and can help us reduce
our printing and mailing costs. For more information, see
“Electronic Delivery of Stockholder Communications” on
page ii inside.
This meeting is for Dell stockholders. If you attend the meeting
in person, you will need the enclosed admission ticket and
proper photo identification for entry into the meeting. If you
have received your materials electronically, you may request a
ticket from www.proxyvote.com. You may also receive a ticket at
the door by presenting proper photo identification and an
account statement showing your ownership of Dell stock.
Whether or not you plan to attend the meeting in person, please
submit your vote using one of the voting methods described in
the attached materials. Submitting your vote by any of these
methods will not affect your right to attend the meeting and
vote in person should you so choose.
If you have any questions concerning the meeting, please contact
Dell’s Investor Relations Department at 512-728-7800 or
Dell Investor Relations@dell.com. For
questions regarding your stock ownership, you may contact our
transfer agent, American Stock Transfer & Trust
Company, at 800-937-5449 or www.amstock.com.
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Sincerely, |
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Michael S. Dell |
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Chairman of the Board |
TABLE OF CONTENTS
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DELL INC.
One Dell Way
Round Rock, Texas 78682
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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Date |
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Friday, July 15, 2005 |
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Time |
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8:00 a.m., Central Time |
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Place |
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Austin Convention Center — Ballroom D,
4th Floor
500 E. Cesar Chavez
Austin, Texas 78701 |
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Webcast |
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www.dell.com/investor |
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Proposals |
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Proposal 1 — Election of Directors |
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Proposal 2 — Ratification of Independent Auditor |
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Stockholder P roposal 1 — Majority Voting for
Directors |
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Stockholder P roposal 2 — Expensing Stock Options |
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Record Date |
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May 20, 2005 |
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Voting Methods |
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Internet — Go to www.proxyvote.com
Telephone — Use the toll-free number
shown on the proxy card
Written ballot — Complete and return a
proxy card
In person — Attend and vote at the
meeting |
Stockholders will also transact any other business properly
brought before the meeting. At this time, the Board of Directors
knows of no other proposals or matters to be presented.
The Proxy Statement is accompanied by a copy of the Annual
Report on Form 10-K and a copy of the brochure entitled
“Dell Fiscal 2005 in Review.”
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On behalf of the Board of Directors: |
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Lawrence P. Tu, Secretary |
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May 31, 2005 |
www.dell.com/investor
Electronic Delivery of
Stockholder Communications
Our Proxy Statement, Annual Report on Form 10-K and
“Dell Fiscal 2005 in Review” brochure are available
electronically. As an alternative to receiving printed copies of
these materials in future years, you may elect to receive and
access them electronically. By signing up for electronic
delivery, you can receive stockholder communications as soon as
they are available without waiting for them to arrive in the
mail. You can also reduce the number of bulky documents in your
personal files, eliminate duplicate mailings, conserve natural
resources and help us reduce our printing and mailing costs.
To sign up for electronic delivery, please vote via the Internet
at www.proxyvote.com and, when prompted, indicate that you agree
to receive or access stockholder communications electronically
in future years. If you have any questions about electronic
delivery, please contact Dell’s Investor Relations
Department at 512-728-7800 or
Dell Investor Relations@dell.com. For
additional information, please visit www.dell.com/investor.
Webcast of Annual
Meeting
We are pleased to offer a Webcast of our 2005 annual meeting,
and viewers, like attendees, will have the ability to ask
questions online during the question and answer session. If you
choose to view the Webcast, go to www.dell.com/investor shortly
before the meeting time and follow the instructions provided. If
you miss the meeting, you can view a replay of the Webcast on
that site until August 15, 2005.
Please note that you will not be able to vote your shares via
the Webcast. If you plan to view the Webcast, please submit your
vote using one of the methods described in the accompanying
materials prior to the meeting.
www.dell.com/investor
ii
PROXY STATEMENT
This Proxy Statement is furnished in connection with the
solicitation of proxies by Dell Inc., on behalf of the Board of
Directors, for the 2005 Annual Meeting of Stockholders. This
Proxy Statement and the related proxy form are being distributed
on or about June 8, 2005.
You can vote your shares using one of the following methods:
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Vote through the Internet at www.proxyvote.com using the
instructions on the proxy card |
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Vote by telephone using the toll-free number shown on the proxy
card |
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Complete and return a written proxy card |
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Attend and vote at the meeting |
Internet and telephone voting are available 24 hours a day,
and if you use one of those methods, you do not need to return a
proxy card. Unless you are planning to vote at the meeting, your
vote must be received by 11:59 p.m., Eastern Time, on
July 14, 2005.
Even if you submit your vote by one of the first three methods
mentioned above, you may still vote at the meeting if you are a
record holder of your shares or hold a legal proxy from the
record holder. See “Additional Information —
Voting by Street Name Holders.” Your vote at the meeting
will constitute a revocation of your earlier voting instructions.
Stockholders are being asked to consider four proposals at the
meeting. The following is a summary of the proposals and the
voting recommendations of the Board of Directors:
SUMMARY OF PROPOSALS
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Board | |
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Recommendation | |
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1 – Election of Directors
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FOR |
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2 – Ratification of
Independent Auditor
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FOR |
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Stockholder
Proposal 1 – Majority Voting for Directors
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AGAINST |
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Stockholder
Proposal 2 – Expensing Stock Options
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AGAINST |
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The details of each proposal are set forth below.
www.dell.com/investor
1
Proposal 1 — Election
of Directors
The first proposal to be voted on at the meeting is the election
of directors. The directors elected at this meeting will serve
until next year’s annual meeting. The Board of Directors
currently consists of ten director positions, and the
Board’s nominees for those positions are:
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• Donald J. Carty |
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• Michael S. Dell |
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• William H. Gray, III |
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• Judy C. Lewent |
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• Thomas W. Luce, III |
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• Klaus S. Luft |
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• Alex J. Mandl |
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• Michael A. Miles |
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• Samuel A. Nunn, Jr. |
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• Kevin B. Rollins |
Each of these nominees is currently serving as a Dell director.
Biographical information about each of these nominees is
included under “Director Information” below.
The Board of Directors recommends a vote “FOR” all
nominees.
If a nominee becomes unable or unwilling to accept nomination or
election, the Board will either select a substitute nominee or
reduce the size of the Board. If you have submitted a proxy and
a substitute nominee is selected, your shares will be voted for
the election of the substitute nominee.
President George W. Bush has nominated Mr. Luce to be
Assistant Secretary of Education (Planning, Evaluation and
Policy Development). Mr. Luce intends to continue to serve
on the Dell Board until his nomination is confirmed by the U.S.
Senate. Subject to that limited exception, the Board has no
reason to believe that any other nominee would be unable or
unwilling to serve if elected.
In accordance with Dell’s Bylaws, directors are elected by
a plurality of the votes of shares represented and entitled to
be voted at the meeting. That means the nominees will be elected
if they receive more affirmative votes than any other nominees.
www.dell.com/investor
2
Director Information
Set forth below is biographical and other information, as of
May 20, 2005, about the persons who will make up the Board
following the meeting, assuming election of the nominees named
above.
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Donald J.
Carty
Age: 58
Director since December 1992
Board committees: Audit (Chair)
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Mr. Carty is the former Chairman of the Board and Chief
Executive Officer of AMR Corporation, positions he held from
1998 until April 2003. From 1998 to 2002, Mr. Carty also
held the position of President of AMR Corporation. From 1995 to
1998, he was President AMR Airline Group/ AA for American
Airlines, Inc., a subsidiary of AMR Corporation. Mr. Carty
held other executive level positions with American Airlines,
Inc. or its subsidiaries from 1978 to 1995. Mr. Carty is
also a director of Sears Holdings Corporation, CHC Helicopter
Corporation, Hawaiian Holdings, Inc., SolutionsInc. Ltd. and
PlacerDome, Inc. |
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Michael S.
Dell
Age: 40
Director since May 1984
No Board committees
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Mr. Dell currently serves as Chairman of the Board of
Directors of Dell. He has held this role since he founded the
company in 1984. Mr. Dell also served as Chief Executive
Officer of Dell from 1984 until July 2004. He sits on the
Foundation Board of the World Economic Forum, serves on the
executive committee of the International Business Council and is
a member of the U.S. Business Council. He also serves on
the U.S. President’s Council of Advisors on Science
and Technology and sits on the governing board of the Indian
School of Business in Hyderabad, India. |
www.dell.com/investor
3
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William H.
Gray, III
Age: 63
Director since November 2000
Board committees: Audit, Governance and
Nominating
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Beginning June 2005, Mr. Gray will be the Head of Public
Policy and Business Diversity of Buchanan Ingersoll PC. He is
the former President and Chief Executive Officer of The College
Fund/ UNCF, positions he held from September 1991 to June 2004.
In June 2005, Mr. Gray will become Pastor Emeritus of the
Bright Hope Baptist Church in Philadelphia, after having served
as Senior Minister since 1972. From 1979 to 1991, Mr. Gray
served as a United States Congressman from Pennsylvania. During
his tenure, he was Chairman of the House Budget Committee, a
member of the Appropriations Committee, Chairman of the House
Democratic Caucus and Majority Whip. Mr. Gray is also a
director of J.P. Morgan Chase & Co., Prudential
Financial Inc., Visteon Corporation and Pfizer Corporation. |
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Judy C.
Lewent
Age: 56
Director since May 2001
Board committees: Finance, Compensation
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Ms. Lewent is Executive Vice President, Chief Financial Officer
and President, Human Health Asia of Merck & Co., Inc.
She has served as Chief Financial Officer of Merck since 1990
and has also held various other financial and management
positions since joining Merck in 1980. Ms. Lewent is a
director of Motorola, Inc. Ms. Lewent is also a trustee and
the chairperson of the audit committee of the Rockefeller Family
Trust, a life member of the Massachusetts Institute of
Technology Corporation, a director of the National Bureau of
Economic Research, a member of the Penn Medicine Board and a
member of the American Academy of Arts and Sciences. |
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Thomas W.
Luce, III
Age: 64
Director since November 1991
Board committees: Audit, Finance |
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Mr. Luce is a partner with Luce & Williams, Ltd., a
business advisory firm. He was formerly Of Counsel with the law
firm Hughes & Luce, L.L.P., Dallas, Texas, having
retired in December 2003 after having co-founded the firm in
1973. From October 1991 through April 1992, Mr. Luce was
Chairman of the Board and Chief Executive Officer of First
Southwest Company, a Dallas-based investment firm that is a
member of the National Association of Securities Dealers, Inc. |
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www.dell.com/investor
4
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Klaus S.
Luft
Age: 63
Director since March 1995
Board committees: Compensation |
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Mr. Luft is the founder and Chairman of the Supervisory Board of
Artedona AG, a privately held mail order e-commerce company
established in 1999, headquartered in Munich, Germany. He is
also owner and President of Munich-based MATCH —
Market Access for Technology Services GmbH. Since August 1990,
Mr. Luft has served and continues to serve as Vice Chairman
and International Advisor to Goldman Sachs Europe Limited. From
March 1986 to November 1989, he was Chief Executive Officer of
Nixdorf Computer AG, where he served for more than 17 years
in a variety of executive positions in marketing, manufacturing
and finance. Mr. Luft is the donator and Chairman of the
Klaus Luft Foundation, which focuses on supporting young
students’ university education and the arts. He is also the
Honorary Consul of the Republic of Estonia in the State of
Bavaria. |
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Alex J.
Mandl
Age: 61
Director since November 1997
Board committees: Finance (Chair) |
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Mr. Mandl has been President and Chief Executive Officer and a
member of the Board of Directors of Gemplus International S.A.
since August 2002. He has served as Principal of ASM
Investments, a company focusing on early stage funding in the
technology sector since April 2001. From 1996 to March 2001,
Mr. Mandl was Chairman and CEO of Teligent, Inc., which
offered business customers an alternative to the Bell Companies
for local, long distance and data communication services. With
the collapse of the new local competitive telecom (CLEC)
industry and the closing of capital markets for this sector, on
May 21, 2001 Teligent filed for voluntary reorganization
under Chapter 11 of the U.S. Bankruptcy Code.
Mr. Mandl was AT&T’s President and Chief Operating
Officer from 1994 to 1996, and its Executive Vice President and
Chief Financial Officer from 1991 to 1993. From 1988 to 1991,
Mr. Mandl was Chairman of the Board and Chief Executive
Officer of Sea-Land Services Inc. Mr. Mandl is a board
member of Haas School of Business at the University of
California at Berkeley, Willamette Univer- |
www.dell.com/investor
5
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sity and the American Enterprise Institute for Public Policy
Research. |
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Michael A.
Miles
Age: 65
Director since February 1995
Board committees: Compensation (Chair),
Governance and Nominating |
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Mr. Miles is a special limited partner and a member of the
Advisory Board of the investment firm Forstmann Little and Co.
He is the former Chairman of the Board and Chief Executive
Officer of Philip Morris Companies Inc., having served in those
positions from September 1991 to July 1994. Prior to September
1991, Mr. Miles was Vice Chairman and a member of the board
of directors of Philip Morris Companies Inc. Mr. Miles is
also a director of Time Warner Inc., AMR Corporation, Morgan
Stanley, Citadel Broadcasting Corporation and Sears Holdings
Corporation Mr. Miles is also a trustee of Northwestern
University. |
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Samuel A.
Nunn, Jr.
(Presiding Director)
Age: 66
Director since December 1999
Board committees: Audit, Governance and
Nominating (Chair) |
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Mr. Nunn is co-Chairman and Chief Executive Officer of the
Nuclear Threat Initiative (NTI), a charitable organization
working to reduce the global threats from nuclear, biological
and chemical weapons. He was a Senior Partner at the law firm of
King & Spalding, Atlanta, Georgia, from 1997 until
December 2003. From 1972 through 1996, he served as a United
States Senator from Georgia. During his tenure as Senator, he
served as Chairman of the Senate Armed Services Committee and
the Permanent Subcommittee on Investigations. He also served on
the Intelligence and Small Business Committees. Mr. Nunn
serves as a director of the following publicly-held companies:
ChevronTexaco Corporation, The Coca-Cola Company, General
Electric Company, Internet Security Systems, Inc. and
Scientific-Atlanta, Inc. |
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Kevin B.
Rollins
Age: 52
Director since July 2004
No Board committees |
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Mr. Rollins is President and Chief Executive Officer of Dell. He
joined Dell in April 1996 as Senior Vice President, Corporate
Strategy, was named Senior Vice President, General
Manager — Americas in May 1996, and was named Vice
Chairman in 1997. In 2001, Mr. Rollins’ title was
changed from Vice Chairman to President and Chief Operating
Officer, and he was named Chief Executive Officer in July 2004.
For 12 years |
www.dell.com/investor
6
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prior to joining Dell, Mr. Rollins was employed by
Bain & Company, an international strategy consulting
firm, most recently serving as a director and partner.
Mr. Rollins is a member of the President’s Leadership
Council and the Marriott School National Advisory Council at
Brigham Young University, where he founded and continues to
sponsor the Rollins Center for E-Commerce. In April 2003,
Mr. Rollins was appointed by President George W. Bush to
serve on the Advisory Committee for Trade Policy and
Negotiation, offering counsel to the U.S. Trade
Representative on matters of policy affecting national
interests, and is a member of the Computer Systems Policy
Project and the U.S. Business Council. Mr. Rollins is
also a member of the board of directors of Catalyst Inc., a
leading non-profit organization dedicated to the advancement of
women in the workplace. |
Corporate Governance
Corporate Governance Principles — The Board of
Directors believes that adherence to sound corporate governance
policies and practices is important in ensuring that Dell is
governed and managed with the highest standards of
responsibility, ethics and integrity and in the best interests
of its stockholders. The Board maintains a set of Corporate
Governance Principles, which provide an effective corporate
governance framework for Dell and are intended to reflect a set
of core values that provide the foundation for Dell’s
governance and management systems and its interactions with
others. A copy of those principles can be found on Dell’s
website at www.dell.com/corporategovernance.
Director Independence — The Board believes that
the interests of the stockholders are best served by having a
substantial number of objective, independent representatives on
the Board. For this purpose, a director will be considered to be
“independent” only if the Board affirmatively
determines that the director does not have any direct or
indirect material relationship with Dell that may impair, or
appear to impair, the director’s ability to make
independent judgments.
www.dell.com/investor
7
The Board has recently evaluated all relationships between each
director and Dell and has made the following determinations with
respect to each director’s independence:
DIRECTOR INDEPENDENCE
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Statusa |
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Mr. Carty
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Independent
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Mr. Dell
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Not independent
b
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Mr. Gray
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Independent
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Ms. Lewent
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Independent
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Mr. Luce
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Independentc
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Mr. Luft
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Independent
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Mr. Mandl
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Independent
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Mr. Miles
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Independent
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Mr. Nunn
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Independent
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Mr. Rollins
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Not independent
d
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Unless otherwise noted, the Board’s determination that a
director is independent was made on the basis of the standards
set forth in the Corporate Governance Principles. |
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Mr. Dell is the Chairman of the Board and an executive
officer of Dell and, therefore, is not independent in accordance
with the standards set forth in the Corporate Governance
Principles. |
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| c – |
During 2004, Mr. Luce served as a director of, but was not
compensated by, AP Strategies, Inc., a not-for-profit
organization dedicated to increasing successful participation in
advanced placement curriculum classes by minority and
underserved children. During 2004, The Michael and Susan Dell
Foundation contributed $325,000 to AP Strategies, Inc., which
amount constituted approximately 3% of the organization’s
charitable receipts for 2004. The Board has concluded that the
contribution is not material and does not otherwise impair, or
appear to impair, Mr. Luce’s ability to make
independent judgments and, therefore, does not prevent
Mr. Luce from being considered an “independent”
director. |
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| d – |
Mr. Rollins is Dell’s President and Chief Executive
Officer and, therefore, is not independent in accordance with
the standards set forth in the Corporate Governance Principles. |
The Board will continue to monitor the standards for director
independence established under applicable law or Nasdaq listing
requirements and will ensure that Dell’s Corporate
Governance Principles continue to be consistent with those
standards.
Dell purchases services, supplies and equipment in the normal
course of business from many suppliers and sells or leases
products and services to many customers. In some instances,
these transactions occur with companies with which members of
the Board of Directors have relationships as directors or
executive officers. For fiscal 2005, none of these transactions
was significant or reportable, either individually or
collectively.
www.dell.com/investor
8
Committees — The Board maintains the following
committees to assist it in discharging its oversight
responsibilities:
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Audit Committee — The Audit Committee assists
the Board in fulfilling its responsibility to provide oversight
with respect to Dell’s financial statements and reports and
other disclosures provided to stockholders, the system of
internal controls, the audit process and legal and ethical
compliance. Its primary duties include reviewing the scope and
adequacy of Dell’s internal and financial controls;
reviewing the scope and results of the audit plans of
Dell’s independent and internal auditors; reviewing the
objectivity, effectiveness and resources of the internal audit
function; appraising Dell’s financial reporting activities
and the accounting standards and principles followed; and
reviewing and approving ethics and compliance policies. The
Audit Committee also selects, engages, compensates and oversees
Dell’s independent auditor and pre-approves all services to
be performed by that firm. |
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The Audit Committee is comprised entirely of directors who
satisfy the standards of independence established under
Dell’s Corporate Governance Principles, as well as
additional or supplemental independence standards applicable to
audit committee members established under applicable law and
Nasdaq listing requirements. The Board has determined that each
Audit Committee member meets the Nasdaq “financial
literacy” requirement and that Mr. Carty, the current
Chair of the Audit Committee, is a “financial expert”
within the meaning of the current rules of the Securities and
Exchange Commission. |
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Compensation Committee — The Compensation
Committee reviews and approves, on behalf of the Board, the
amounts and types of compensation to be paid to Dell’s
executive officers and the non-employee directors; reviews and
approves, on behalf of the Board, all bonus and equity
compensation to be paid to other Dell employees; and administers
Dell’s stock-based compensation plans. The Compensation
Committee is comprised entirely of directors who satisfy the
standards of independence established in Dell’s Corporate
Governance Principles, as well as additional or supplemental
independence standards applicable to compensation committee
members established under applicable law and Nasdaq listing
requirements. |
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Governance and Nominating Committee — The
Governance and Nominating Committee oversees all matters of
corporate governance for Dell, including formulating and
recommending to the full Board governance policies and processes
and monitoring and safeguarding the independence of the Board,
and selects, evaluates and recommends to the full Board
qualified candidates for election or appointment to the Board.
This committee also recommends the structure and membership of
the Board committees and administers an annual self-evaluation
of Board performance. This committee is also responsible for
monitoring, on behalf of the Board, Dell’s sustainability
and corporate responsibility activities and initiatives. The
Governance and Nominating Committee is comprised entirely of
directors who satisfy the standards of independence established
in Dell’s Corporate Governance Principles, as well as
additional or supplemental independence standards applicable to |
www.dell.com/investor
9
|
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| |
|
nominating committee members
established under applicable law and Nasdaq listing requirements.
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| |
For information regarding the Governance and Nominating
Committee’s policies and processes for identifying,
evaluating and selecting director candidates, including
candidates recommended by stockholders, see “Additional
Information — Director Nomination Process” below. |
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• |
Finance Committee — The Finance Committee
oversees all areas of corporate finance for Dell, including
capital structure, equity and debt financings, capital
expenditures, cash management, banking activities and
relationships, investments, foreign exchange activities and
share repurchase activities. |
Each committee is governed by a written charter approved by the
full Board. These charters form an integral part of the
Corporate Governance Principles, and a copy of each charter can
be found with those principles on Dell’s website at
www.dell.com/corporategovernance.
Meetings and Attendance — During fiscal 2005,
the full Board held five meetings, the Audit Committee met ten
times, the Compensation Committee met five times, the Governance
and Nominating Committee met four times and the Finance
Committee met four times. All current directors attended at
least 75% of the meetings of the full Board and the meetings of
the committees on which they served.
It is Dell’s policy that each director is expected to
attend the annual meeting of stockholders, and that policy has
been incorporated into the Corporate Governance Principles. All
ten directors attended last year’s stockholders meeting.
Communicating with Directors — Dell
stockholders may send communications to the Board of Directors
as a whole, the independent directors as a group, any Board
committee, the Presiding Director or any other individual member
of the Board. Any stockholder who wishes to send such a
communication may obtain the appropriate contact information at
www.dell.com/boardofdirectors. The Board has implemented
procedures for processing stockholder communications, and a
description of those procedures can also be found at
www.dell.com/boardofdirectors.
Director Compensation
Mr. Dell and Mr. Rollins are the only directors who
are also Dell employees, and they do not receive any additional
compensation for serving on the Board of Directors.
Annual Retainer Fee — Each non-employee
director receives an annual retainer fee, which was $60,000
during fiscal 2005. The director can receive that amount in
cash, can defer all or a portion of it into a deferred
compensation plan or, at the discretion of the Compensation
Committee, can receive fair market value stock options or
restricted stock in lieu of cash. Amounts deferred into the
deferred compensation plan are payable in a lump sum or in
installments beginning upon termination of service as a
director. The number of options or shares of restricted stock
received in lieu of the annual retainer fee (or the method of
computing the number) and the
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10
terms and conditions of those awards are determined from time to
time by the Compensation Committee.
Option or Stock Awards — The non-employee
directors are also eligible for stock option and restricted
stock awards. The number of options or shares awarded, as well
as the other terms and conditions of the awards (such as vesting
and exercisability schedules and termination provisions) are
generally within the discretion of the Compensation Committee,
except that (1) no non-employee director may receive awards
(not including awards in lieu of annual cash retainer) covering
more than 50,000 shares of stock in any year (other than
the year the director joins the Board, when the limit is two
times the normal annual limit), (2) no more than 20% of the
awards granted to a non-employee director during a year (not
including awards in lieu of annual cash retainer) may consist of
restricted stock, (3) the exercise price of any option
cannot be less than the fair market value of the stock on the
date of grant and (4) no option can become exercisable, and
no share of restricted stock can become transferable, earlier
than six months from the date of grant. In addition, like all
options granted under Dell’s 2002 Long-Term Incentive Plan,
no option granted to non-employee directors can be
“repriced” if the effect would be to reduce the
exercise price per share.
Other Benefits — Dell reimburses directors for
the reasonable expenses associated with attending Board meetings
and provides them with liability insurance coverage for their
activities as directors of Dell.
Under Dell’s Certificate of Incorporation and Bylaws, the
directors are entitled to indemnification from Dell to the
fullest extent permitted by Delaware corporate law. Dell has
entered into indemnification agreements with each of the
non-employee directors. Those agreements do not increase the
extent or scope of the indemnification provided, but were
entered into to establish processes and procedures for
indemnification claims.
Compensation During Fiscal 2005 — The following
table describes the compensation paid to the non-employee
directors for the last fiscal year.
| |
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|
| |
|
Cash | |
|
Restricted | |
|
Options | |
| Name |
|
Payments | |
|
Stocka | |
|
Grantedb | |
| | |
|
Mr.
Cartyc
|
|
$ |
0 |
|
|
|
3,559 |
|
|
|
7,492 |
|
|
Mr.
Grayc
|
|
|
30,000 |
|
|
|
2,716 |
|
|
|
7,492 |
|
|
Ms.
Lewentc
|
|
|
0 |
|
|
|
3,559 |
|
|
|
7,492 |
|
|
Mr.
Lucec
|
|
|
0 |
|
|
|
3,559 |
|
|
|
7,492 |
|
|
Mr.
Luftc
|
|
|
0 |
|
|
|
3,559 |
|
|
|
7,492 |
|
|
Mr.
Mandlc
|
|
|
0 |
|
|
|
3,559 |
|
|
|
7,492 |
|
|
Mr. Miles
|
|
|
60,000 |
|
|
|
1,873 |
|
|
|
7,492 |
|
|
Mr.
Nunnd
|
|
|
0 |
|
|
|
1,873 |
|
|
|
12,549 |
|
|
|
| a – |
Effective July 16, 2004, each non-employee director
received 1,873 shares of restricted stock. The restrictions
lapse ratably over five years (20% per year), so long as
the director remains a member of the Board. All unvested
restricted stock is forfeited when the director ceases to be a
member of the Board for any reason other than death or permanent
disability. All unvested restricted stock vests immediately upon
death or permanent disability. |
www.dell.com/investor
11
|
|
| b – |
Effective July 16, 2004, each non-employee director
received options to purchase 7,492 shares of common
stock with an exercise price of $35.595 per share. The
options vest and become exercisable ratably over five years
(20% per year), so long as the director remains a member of
the Board. All unvested options terminate when the director
ceases to be a member of the Board for any reason other than
death or permanent disability. If the director ceases to be a
member of the Board because of death or permanent disability,
all unvested options vest immediately and all options terminate
one year after the director ceases to be a member of the board.
If the director resigns at the request or demand of the Board,
or is otherwise removed from the Board, all vested options
terminate immediately. If the director resigns for any other
reason, all vested options terminate 90 days after such
resignation. In any event, the options terminate ten years from
the date of grant unless otherwise terminated as described
above. The options are transferable to family members under
specified conditions. |
| |
| c – |
Elected to receive restricted stock in lieu of some or all of
the annual retainer. The number of shares of restricted stock
granted was determined by dividing the foregone retainer amount
by the fair market value of the common stock on the date of
grant ($35.595). The restrictions lapsed on January 15,
2005, six months after the date of grant. |
| |
| d – |
Elected to receive options in lieu of the annual retainer. The
number of options granted was determined by dividing 300% of the
foregone retainer amount by the exercise price, which was set at
the fair market value of the common stock on the date of grant
($35.595). The options are fully vested, but they become
exercisable ratably over five years (20% per year). The
options terminate on the tenth anniversary of the date of grant.
These options are also transferable to family members under
specified conditions. |
Proposal 2 — Ratification
of Independent Auditor
The Audit Committee has selected PricewaterhouseCoopers LLP as
Dell’s independent auditor for fiscal 2006, and the Board
is asking stockholders to ratify that selection. Although
current law, rules and regulations, as well as the Charter of
the Audit Committee, require Dell’s independent auditor to
be engaged, retained and supervised by the Audit Committee, the
Board considers the selection of independent auditor to be an
important matter of stockholder concern and considers a proposal
for stockholders to ratify such selection to be an important
opportunity for stockholders to provide direct feedback to the
Board on an important issue of corporate governance.
The Board of Directors recommends a vote “FOR” the
ratification of PricewaterhouseCoopers LLP as Dell’s
independent auditor for fiscal 2006.
Approval of this proposal requires the affirmative vote of a
majority of the shares of common stock represented at the
meeting and entitled to vote.
PricewaterhouseCoopers LLP is a registered public accounting
firm and has been Dell’s independent auditor since 1986. In
addition to retaining PricewaterhouseCoopers LLP to audit
Dell’s financial statements, Dell engages the firm from
time to time to perform other services. The following table sets
forth the
www.dell.com/investor
12
aggregate fees paid to PricewaterhouseCoopers LLP in connection
with services rendered during the last two fiscal years (in
millions).
| |
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|
| Fee Type |
|
Fiscal 2005 | |
|
Fiscal 2004 | |
| | |
|
Audit
Feesa
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|
$ |
8.4 |
|
|
$ |
3.9 |
|
|
Audit Related
Feesb
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0.8 |
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1.2 |
|
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Tax
Feesc
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|
|
1.7 |
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|
1.9 |
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| |
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| |
Total
|
|
$ |
10.9 |
|
|
$ |
7.0 |
|
|
|
| a – |
This category includes fees paid for professional services
rendered in connection with the audit of the annual financial
statements, for the audit of internal controls under
Section 404 of the Sarbanes-Oxley Act, for the review of
the quarterly financial statements and for the statutory audits
of international subsidiaries. |
| |
| b – |
This category includes fees paid for professional services
rendered in connection with assurance and other activities not
explicitly related to the audit of Dell’s financial
statements, including the audits of Dell’s employee benefit
plans, contract compliance reviews and accounting research. |
| |
| c – |
This category includes fees paid for domestic and international
income tax compliance and tax audit assistance, corporate-wide
tax planning and executive tax consulting and return preparation. |
The Audit Committee considered whether the provision of the
non-audit services described in note (c) above was
compatible with maintaining the independence of
PricewaterhouseCoopers LLP, and determined that the provision of
such services was compatible with maintaining independence.
All fiscal 2005 and 2004 fees were pre-approved by the Audit
Committee. The Audit Committee has adopted a policy requiring
pre-approval by the committee of all services (audit and
non-audit) to be provided to Dell by its independent auditor. In
accordance with that policy, the Audit Committee has given its
approval for the provision of audit services by
PricewaterhouseCoopers LLP for fiscal 2006 and has also given
its approval for up to a year in advance for the provision by
PricewaterhouseCoopers LLP of particular categories or types of
audit-related, tax and permitted non-audit services, in each
case subject to a specific budget. In cases where the Audit
Committee’s pre-approval is not covered by one of those
approvals, a designated member of the Audit Committee has the
delegated authority to pre-approve the provision of services,
and such pre-approvals are then communicated to the full Audit
Committee.
Representatives of PricewaterhouseCoopers LLP will be present at
the meeting to respond to appropriate questions, and they will
have an opportunity to make a statement if they desire to do so.
Stockholder
Proposal 1 —
Majority Voting for
Directors
The United Brotherhood of Carpenters Pension Fund (the “UBC
Pension Fund”), which beneficially owns 41,100 shares
of Dell common stock, has requested that a proposal regarding
majority voting for directors be presented for stockholder vote
at the annual meeting. The proposal, along with the UBC Pension
Fund’s supporting
www.dell.com/investor
13
statement, is included verbatim below. The UBC Pension
Fund’s request was submitted by Douglas J. McCarron,
Fund Chairman of the UBC Pension Fund,
101 Constitution Avenue, N.W., Washington, D.C. 20001.
For the reasons set forth following the proposal and supporting
statement, management of Dell disagrees with the UBC Pension
Fund’s proposal and supporting statement.
The Board of Directors recommends a vote “AGAINST”
the UBC Pension Fund’s proposal.
Approval of the UBC Pension Fund’s proposal requires the
affirmative vote of a majority of the shares of common stock
represented at the meeting and entitled to vote.
UBC Pension Fund’s Proposal and Supporting Statement
Shareholder Resolution
RESOLVED: That the shareholders of Dell Inc.
(“Company”) hereby request that the Board of Directors
initiate the appropriate process to amend the Company’s
governance documents (certificate of incorporation or bylaws) to
provide that director nominees shall be elected by the
affirmative vote of the majority of votes cast at an annual
meeting of shareholders.
Supporting Statement
Our Company is incorporated in Delaware. Among other issues,
Delaware corporate law addresses the issue of the level of
voting support necessary for a specific action, such as the
election of corporate directors. Delaware law provides that a
company’s certificate of incorporation or bylaws may
specify the number of votes that shall be necessary for the
transaction of any business, including the election of
directors. (DGCL, Title 8, Chapter 1, Subchapter VII,
Section 216). Further, the law provides that if the level
of voting support necessary for a specific action is not
specified in the certificate of incorporation or bylaws of the
corporation, directors “shall be elected by a plurality of
the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of
directors.”
Our Company presently uses the plurality vote standard for the
election of directors. We feel that it is appropriate and timely
for the Board to initiate a change in the Company’s
director election vote standard. Specifically, this shareholder
proposal urges that the Board of Directors initiate a change to
the director election vote standard to provide that in director
elections a majority vote standard will be used in lieu of the
Company’s current plurality vote standard. Specifically,
the new standard should provide that nominees for the board of
directors must receive a majority of the vote cast in order to
be elected or re-elected to the Board.
Under the Company’s current plurality vote standard, a
director nominee in a director election can be elected or
re-elected with as little as a single affirmative vote, even
while a substantial majority of the votes cast are
“withheld” from that
www.dell.com/investor
14
director nominee. So even if 99.99% of the shares
“withhold” authority to vote for a candidate or all
the candidates, a 0.01% “for” vote results in the
candidate’s election or re-election to the board. The
proposed majority vote standard would require that a director
receive a majority of the vote cast in order to be elected to
the Board.
It is our contention that the proposed majority vote standard
for corporate board elections is a fair standard that will
strengthen the Company’s governance and the Board. Our
proposal is not intended to limit the judgment of the Board in
crafting the requested governance change. For instance, the
Board should address the status of incumbent directors who fail
to receive a majority vote when standing for re-election under a
majority vote standard or whether a plurality director election
standard is appropriate in contested elections.
We urge your support of this important director election reform.
Dell’s Statement in Opposition
Dell believes that adherence to sound corporate governance
policies and practices is important in ensuring that Dell is
governed and managed with the highest standards of
responsibility, ethics and integrity and in the best interests
of its stockholders. Dell currently elects its directors by a
plurality standard, meaning that the nominees who receive the
most affirmative votes are elected to the board. This method of
voting, which is permissible under Delaware corporate law and is
the predominant method currently in use among U.S. public
companies, has served Dell well for many years. In fact, in no
instance can it be found that plurality voting prevented Dell
stockholders from either electing the directors they wanted to
elect or otherwise expressing their dissatisfaction with any
particular director or the board as a whole.
For the following reasons, Dell believes it would not be in the
best interests of Dell stockholders to change the method by
which directors are elected at this time:
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• |
This proposal is unnecessary to the achievement of sound
corporate governance at Dell. |
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|
| |
No director elected in Dell’s 17-year history as a public
company has received less than 93% favorable votes.
Consequently, this proposal would have had no effect whatsoever
on any Dell board election to date. Even without this proposal,
Dell stockholders have been highly successful in electing
responsible, objective directors who consistently protect the
best interests of the stockholders. |
|
|
|
| |
• |
Dell maintains a rigorous director nomination and election
process that gives due regard to stockholder nominees. |
|
|
| |
The Board of Directors maintains a Governance and Nominating
Committee that is comprised entirely of independent directors.
As described under “Additional Information —
Director Nomination Process” below, the Governance and
Nominating Committee maintains and applies a robust set of
criteria in selecting candidates for election to the board and
considers candidates |
www.dell.com/investor
15
|
|
| |
recommended by stockholders in the same manner as other
candidates. Consequently, adoption of the UBC Pension
Fund’s proposal is not necessary in order to compel or
encourage the board to consider stockholder interests and
desires. |
|
|
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| |
• |
Given the current state of applicable corporate law and
practice, majority voting for directors may have unintended
negative consequences. |
|
|
| |
Plurality voting is the accepted standard for the election of
directors of U.S. public companies, is the default method
of electing directors under Delaware corporate law and offers
advantages over majority director voting. Delaware law provides
that a director is elected to serve until his or her successor
is elected and qualified. In the case of majority voting, if an
incumbent director fails to receive a majority vote, or if no
candidate in a contested election receives a majority vote, the
incumbent would remain in office until removed by stockholders
or until a successor was elected even if the opposing candidate
received more favorable votes than the incumbent. Plurality
voting, on the other hand, dictates that whoever received the
most favorable votes would win the election. Furthermore,
plurality voting gives stockholders the opportunity to express
their dissatisfaction with some element of corporate governance
(by voting “withhold” on one or more directors)
without disrupting the elective process. |
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| |
Dell believes that adoption of the UBC Pension Fund’s
proposal would be inappropriate at this time, particularly in
light of the fact that the proposal does not address the legal
and practical issues of changing long-standing, successful
voting procedures. Dell does not believe that stockholders
should be asked to approve a proposal without understanding the
full ramifications of its adoption. |
| |
| |
A majority voting standard is currently being considered and
evaluated by governmental authorities, scholars, corporations
and investors in an effort to determine whether adoption of the
standard for U.S. public companies is a worthy and workable
goal. The Board of Directors of Dell is monitoring, and will
continue to monitor, these discussions and will take appropriate
action to maintain its commitment to the highest standards of
corporate governance. |
For these reasons, the Board of Directors strongly urges Dell
stockholders to vote against the UBC Pension Fund’s
proposal to require majority voting for the election of
directors.
Stockholder
Proposal 2 —
Expensing Stock
Options
The Laborers’ International Union of North America Staff
Pension Fund (the “LIU Pension Fund”), which
beneficially owns 11,300 shares of Dell common stock, has
requested that a proposal regarding the expensing of stock
options be presented for stockholder vote at the annual meeting.
The proposal, along with the LIU Pension Fund’s supporting
statement, is included verbatim below. The LIU Pension
Fund’s request was submitted on behalf of the LIU Pension
Fund by Terence M.
www.dell.com/investor
16
O’Sullivan, General President of the Laborers’
International Union of North America, 905 16th
Street, NW, Washington, D.C. 20006-1765.
For the reasons set forth following the proposal and supporting
statement, management of Dell disagrees with the LIU Pension
Fund’s proposal and supporting statement.
The Board of Directors recommends a vote “AGAINST”
the LIU Pension Fund’s proposal.
Approval of the LIU Pension Fund’s proposal requires the
affirmative vote of a majority of the shares of common stock
represented at the meeting and entitled to vote.
The LIU Pension Fund’s Proposal and Supporting
Statement
Shareholder Resolution
RESOLVED: That the shareholders of Dell Inc.
(“Company”) hereby request that the Company’s
Board of Directors establish a policy of expensing in the
Company’s annual income statement the cost of all future
stock options issued by the Company.
Supporting Statement
Current accounting rules give companies the choice of reporting
stock option expenses annually in the company income statement
or as a footnote in the annual report. (Financial Accounting
Standards Board Statement 123) Many companies, including
ours, report the cost of stock options as a footnote in the
annual report, rather than include the option costs in
determining operating income. We believe that expensing stock
options would more accurately reflect a company’s
operational earnings.
Stock options are an important component of our Company’s
executive compensation program. We believe that the lack of
option expensing can promote excessive use of options in a
company’s compensation plans, obscure and understate the
cost of executive compensation and promote the pursuit of
corporate strategies designed to promote short-term stock price
rather than long-term corporate value.
“The failure to expense stock option grants has introduced
a significant distortion in reporting earnings,” stated
Federal Reserve Board Chairman Greenspan. “Reporting stock
options as expenses is a sensible and positive step toward a
clearer and more precise accounting of a company’s
worth.” Globe and Mail, “Expensing Options is a
Bandwagon Worth Joining,” Aug. 16, 2002.
Warren Buffett wrote in a New York Times Op-Ed piece on
July 24, 2002:
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There is a crisis of confidence today about corporate earnings
reports and the credibility of chief executives. And it’s
justified. |
| |
| |
For many years, I’ve had little confidence in the earnings
numbers reported by most corporations. I’m not talking
about Enron and WorldCom — examples of |
www.dell.com/investor
17
|
|
| |
outright crookedness. Rather, I am referring to the legal, but
improper, accounting methods used by chief executives to inflate
reported earnings. |
| |
| |
Options are a huge cost for many corporations and a huge benefit
to executives. No wonder, then, that they have fought
ferociously to avoid making a charge against their earnings. |
| |
| |
Without blushing, almost all CEOs have told their shareholders
that options are cost-free... |
| |
| |
When a company gives something of value to its employees in
return for their services, it is clearly a compensation expense.
And if expenses don’t belong in the earnings statement,
where in the world do they belong? |
Bear Stearns recently reported that more than 483 companies
are expensing stock options or have indicated their intention to
do so. 113 of these companies are S&P 500 companies,
representing 41% of the index based on market capitalization.
(Bear Stearns Equity Research, February 12, 2004,
“Companies that currently expense or intend to expense
using the fair value method.”)
This Fund and other Building Trades’ union pension funds
have sponsored numerous expensing proposals over the past two
proxy seasons. Majority votes in support of the proposals were
recorded at over fifty companies, including Georgia-Pacific,
Thermo Electron, Apple Computer, Intel, IBM, Novell, PeopleSoft
and Kohl’s. We urge your support for this reform.
Dell’s Statement in Opposition
Dell’s management fully supports all efforts to provide
investors with the highest degree of integrity, quality and
transparency in financial reporting and disclosures. As
permitted by current accounting standards, Dell reports the pro
forma effect of stock options in its financial statement
footnotes. This disclosure describes the pro forma effect that
expensing stock options would have had on reported net income
and earnings per share.
Dell is not opposed to recognizing stock options as a
compensation expense, but for the following reasons, believes
that it would not be in the best interests of Dell stockholders
to change its accounting treatment of stock options at this time:
|
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• |
The Financial Accounting Standards Board (“FASB”),
which sets the accounting and financial reporting standards for
U.S. public companies, has now issued a standard requiring
the expensing of stock options in the near future. |
|
|
| |
On December 16, 2004, the FASB issued an accounting
standard that requires companies to expense stock options.
Consequently, under current accounting standards and Securities
and Exchange Commission rules, Dell will be required to begin
reporting stock-based compensation expense in the first quarter
of its next fiscal year, less than nine months from now.
Consequently, the LIU Pension Fund’s proposal will have no
effect other than to require Dell to adopt the new FASB standard
only months before it would otherwise be required to. For the
reasons discussed below, Dell believes that |
www.dell.com/investor
18
|
|
| |
early adoption would prevent Dell from benefiting from the
clarification and guidance expected from the FASB before the
required implementation date. |
|
|
|
| |
• |
Expensing stock options before the final FASB standard
becomes effective would result in confusing disclosures to
investors and would do little to enhance the transparency,
understandability and comparability of financial reporting. |
|
|
| |
Management feels that expensing stock options at this time would
be premature. Dell believes that it is in the best interests of
stockholders to wait until the effective date of the new FASB
standard when all public companies will be required to report
their stock-based compensation expense in accordance with the
final FASB standard. The new FASB standard permits companies to
choose among various methods of calculating the cost of stock
options and making the transition from the disclosure only
method to the expensing method. Efforts by other companies to
implement the new standard and the various choices that it
provides could result in further clarifications and guidance by
the FASB and perhaps amendments to the new standard prior to the
required implementation date. Delaying the expensing of stock
options until the final FASB standard is effective will avoid
the possibility that Dell would be required to alter its
expensing methodology, which could cause confusion among
investors, or that Dell would become committed to a methodology
that is not the most appropriate. |
| |
| |
Until the FASB standard is effective, Dell will continue to
report the pro forma effect of expensing stock options in its
financial statement footnotes as permitted under current
accounting standards. Management believes that this method gives
investors the full range of information they need to consider
the financial impact of the issuance of stock options; allows
investors to consider, at their discretion, whether to include
this information in their analyses of a company’s financial
results; and provides an effective tool for enhancing
comparability among companies’ reported results. |
For these reasons, the Board of Directors strongly urges Dell
stockholders to vote against the LIU Pension Fund’s
proposal for early adoption of expensing stock options.
Executive
Compensation
Compensation Committee Report
Dell’s mission is to be a premier information-technology
supplier and partner by directly providing customers worldwide
with superior value, high-quality and relevant technology,
customized systems, exceptional service and support and products
and services that are easy to buy and use. To accomplish this
objective, Dell has developed a comprehensive business strategy
that emphasizes maximizing long-term stockholder value through
its direct customer relationships, excellent financial
www.dell.com/investor
19
performance, product quality, superior customer experience and
employee satisfaction.
Compensation Philosophy
The Compensation Committee of the Board of Directors is
committed to implementing a compensation program for executive
officers that furthers Dell’s mission. The Compensation
Committee therefore adheres to the following compensation
policies, which are designed to support the achievement of
Dell’s business strategies:
|
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| |
• |
Executive officers’ total compensation programs should
strengthen the relationship between pay and performance by
emphasizing variable, at-risk compensation that is dependent
upon the successful achievement of specified corporate, region,
business segment and individual performance goals. |
| |
| |
• |
A significant amount of pay for executive officers should be
comprised of long- term, at-risk pay to align management
interests with those of stockholders. |
| |
| |
• |
The at-risk components of pay should be heavily weighted toward
equity-based pay opportunities. Encouraging long-term ownership
of Dell stock focuses management on profitable growth and total
stockholder return. |
| |
|
|
| |
• |
Total compensation opportunities should enhance Dell’s
ability to attract, retain and develop exceptionally
knowledgeable and experienced executives upon whom, in large
part, the successful operation and management of Dell depend. |
|
|
| |
| |
• |
Base compensation should be targeted at the median of
compensation paid to executives of similar high-tech and other
large global general industrial companies. |
| |
| |
• |
If Dell’s performance exceeds that of its peers, total
compensation should be paid above market median, commensurate
with the level of success achieved. |
The Compensation Committee compares total compensation levels
for Dell’s executive officers to the compensation paid to
executives of a peer group comprised of similar high-tech and
other large global general industrial companies. Each year,
management develops the peer group based on similar sales
volumes, market capitalization, employment levels and lines of
business. The Compensation Committee reviews and approves that
peer group. For fiscal 2005, the peer group consisted of
approximately 20 companies. This group is not the same
group used for the industry comparison in the “Five-Year
Performance Graph” since it includes additional companies
that Dell competes with for employees in addition to
industry-product competitors.
Internal Revenue Code Section 162(m) generally limits the
U.S. corporate income tax deduction for compensation paid
to certain executive officers to $1 million, unless the
compensation is “performance-based compensation” or
qualifies under certain other exceptions. In designing
Dell’s compensation programs, the Compensation Committee
carefully considers the effect of this provision together with
other factors relevant to Dell’s business needs. Dell has
historically taken, and intends to
www.dell.com/investor
20
continue taking, reasonably practicable steps to minimize the
impact of Section 162(m).
Components of Compensation
The key elements of Dell’s executive compensation program
are base salary, short-term (annual) incentive and
long-term incentive compensation. These elements are addressed
separately below.
The Compensation Committee does not exclusively use mathematical
formulas in determining any element of compensation. In setting
each component of compensation, the Compensation Committee
considers all elements of an executive officer’s total
compensation package, including insurance and other benefits.
Base Salaries. Base salaries are targeted at median
levels for the peer group of companies and are adjusted to
recognize varying levels of responsibility, individual
performance, business segment performance and internal equity
issues, as well as external pay practices. The Compensation
Committee reviews each executive officer’s base salary
annually.
Short-Term Incentives. Short-term incentives for fiscal
2005 were paid pursuant to Dell’s Executive Annual
Incentive Bonus Plan. This plan was designed to comply with the
performance-based compensation exemption under Internal Revenue
Code Section 162(m) and was approved by stockholders at the
2003 annual meeting.
Under this plan, the Compensation Committee establishes a
specific annual performance target for each executive officer.
The performance target is represented as a specific percentage
of consolidated net income and may not exceed 0.5%. The
Compensation Committee has the discretion to reduce (but not
increase) an executive officer’s bonus amount from the
amount that would otherwise be payable under the established
performance target. Although the plan does not specify factors
the Compensation Committee will evaluate, the committee
evaluates, among other things, overall company and business
segment financial performance, as well as non-financial company
performance, in determining the appropriate final incentive
bonus payout for each executive officer.
For fiscal 2005, the Compensation Committee established a
specific percentage of consolidated net income for each
executive officer. At the end of the year, it certified that the
performance targets had been achieved and that incentive bonus
amounts could be paid. In determining the actual incentive bonus
amount to be paid to each executive officer, the Compensation
Committee considered several factors, including company and
business segment revenue growth, operating profit margin,
operating income and non-financial performance relating to
Dell’s fiscal 2005 strategic initiatives. Based on an
evaluation of these factors, the Compensation Committee modified
bonus payout amounts. The amounts paid to the Named Executive
Officers are set forth in the Summary Compensation Table below.
Long-Term Incentives. In keeping with Dell’s
philosophy of providing a total compensation package that favors
at-risk components of pay, long-term incentives comprise a
significant component of an executive officer’s total
compensation package. These incentives are designed to motivate
and reward executive officers
www.dell.com/investor
21
for maximizing stockholder value and encourage the long-term
employment of key employees.
When awarding long-term incentives, the Compensation Committee
considers an executive officer’s level of responsibility,
prior experience and individual performance criteria, as well as
the compensation practices of the peer group of companies used
to evaluate total compensation. The objective is to provide
executive officers with above-average long-term incentive award
opportunities. The long-term incentive program is designed to be
highly leveraged, ensuring that if Dell’s stockholder
returns exceed industry norms, actual gains will exceed industry
norms.
The size of stock option grants is based primarily on the dollar
value of the award granted. As a result, the number of shares
underlying stock option awards varies and is dependent on the
price of Dell’s common stock on the date of grant. The size
of the award can also be adjusted based on individual factors.
In March and September 2004, Dell granted stock options with an
exercise price set at the fair market value on the date of grant
as part of the semi-annual stock option grant cycle. These
options generally vest ratably over five years (20% per
year) beginning on the first anniversary of the date of grant.
The size of each award was determined based on the criteria for
awarding long-term incentives stated above.
Because the exercise price of these options is equal to the fair
market value of Dell’s common stock on the date of grant,
the options have value only if the stock price appreciates from
the value on the date the options were granted. This design is
intended to focus executive officers on the long-term
enhancement of stockholder value.
In fiscal 2005, awards were earned under the 2004 Long-Term Cash
Incentive Bonus Program for all executive officers other than
Mr. Dell and Mr. Rollins. This program, which was
approved in March 2003, is designed to recognize achievement of
Dell’s long-term growth and profitability goals, which are
considered to be important contributors to long-term stockholder
value. The amount earned during fiscal 2005 for each
participating executive officer was equal to 200% of the
executive’s annual cash bonus for fiscal 2005. Assuming
continued employment and eligibility, awards earned will be paid
in 2007 if specified cumulative performance thresholds are met
over the four-year performance period.
In light of Dell’s achievement of revenue and profitability
goals related to the 2004 Long-Term Cash Incentive Bonus Program
earlier than projected, a new 2006 Long-Term Cash Incentive
Bonus Program was implemented in March 2005 to focus executive
officers’ performance on new growth and profitability
goals. Earned awards under this new program will be paid in
2008, assuming continued employment and attainment of the
performance goals.
Compensation of the Chief Executive Officer
Mr. Rollins’ base salary was increased from $850,000
to $900,000 in July 2004 at the time of his promotion to Chief
Executive Officer. Mr. Rollins’ salary is below the
median base salary earnings for chief executive officers of the
peer group of companies. The Compensation Committee focuses on
the performance-based
www.dell.com/investor
22
elements of Mr. Rollins’ compensation package and
places less emphasis on fixed base pay.
As a result of Company performance in fiscal 2005,
Mr. Rollins received an incentive bonus under the Executive
Annual Incentive Bonus Plan equal to 160% of his target bonus.
Mr. Rollins received a stock option grant of
400,000 shares in March 2004, which vests ratably over five
years (20% per year) beginning on the first anniversary of
the date of each grant. In July 2004, Mr. Rollins received
a grant of 800,000 options, 400,000 shares of which
constituted a promotion grant. This grant vests ratably over
seven years (14.3% per year) beginning on the first
anniversary of the date of grant. The Compensation Committee
granted these options to provide a competitive level of
long-term incentive value, consistent with Dell’s
compensation philosophy.
Conclusion
The Compensation Committee believes that these executive
compensation policies and programs effectively serve the
interests of stockholders and Dell. The various pay vehicles
offered are carefully designed to motivate executive officers to
contribute to Dell’s overall future success, thereby
enhancing the value of Dell for the stockholders’ benefit.
|
|
| |
THE COMPENSATION COMMITTEE |
| |
| |
Michael A. Miles,
Chair |
| |
Judy C. Lewent
|
| |
Klaus S. Luft
|
Compensation Committee Interlocks and Insider
Participation
Mr. Miles, Ms. Lewent and Mr. Luft are not
officers or employees, or former officers or employees, of Dell
or any of its subsidiaries. No interlocking relationship exists
between the members of Dell’s Board of Directors or the
Compensation Committee and the board of directors or
compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
www.dell.com/investor
23
Summary Compensation Table
The following table summarizes the total compensation, for each
of the last three fiscal years, for Mr. Rollins and the
four other most highly compensated executive officers who were
serving as executive officers at the end of fiscal 2005. These
persons are referred to as the “Named Executive
Officers.”
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Long-Term Compensation | |
|
|
| |
|
|
|
|
|
|
|
|
|
Awards | |
|
|
| |
|
|
|
|
|
| |
|
|
| |
|
|
|
Annual Compensation | |
|
Restricted | |
|
Shares | |
|
|
| Name and |
|
Fiscal | |
|
| |
|
Stock | |
|
Underlying | |
|
All Other | |
| Principal Position |
|
Year | |
|
Salary | |
|
Bonus | |
|
Othera | |
|
Awards | |
|
Options | |
|
Compensationb | |
| | |
|
Kevin B. Rollins
|
|
|
2005 |
|
|
$ |
869,231 |
|
|
$ |
2,086,154 |
|
|
|
— |
|
|
|
— |
|
|
|
1,200,000 |
|
|
$ |
14,013 |
|
| |
President and Chief
|
|
|
2004 |
|
|
|
797,115 |
|
|
|
1,721,768 |
|
|
|
— |
|
|
|
— |
|
|
|
800,000 |
|
|
|
8,123 |
|
| |
Executive
Officerc
|
|
|
2003 |
|
|
|
770,962 |
|
|
|
2,012,210 |
|
|
|
— |
|
|
|
— |
|
|
|
500,000 |
|
|
|
8,073 |
|
| |
|
Michael S. Dell
|
|
|
2005 |
|
|
|
950,000 |
|
|
|
2,280,000 |
|
|
|
— |
|
|
|
— |
|
|
|
400,000 |
|
|
|
7,825 |
|
| |
Chairman of the
|
|
|
2004 |
|
|
|
950,000 |
|
|
|
2,052,000 |
|
|
|
— |
|
|
|
— |
|
|
|
800,000 |
|
|
|
6,973 |
|
| |
Boardc
|
|
|
2003 |
|
|
|
950,000 |
|
|
|
2,479,500 |
|
|
|
— |
|
|
|
— |
|
|
|
500,000 |
|
|
|
6,973 |
|
| |
|
James M. Schneider
|
|
|
2005 |
|
|
|
535,385 |
|
|
|
822,351 |
|
|
|
— |
|
|
|
— |
|
|
|
300,000 |
|
|
|
7,530 |
|
| |
Senior Vice President
|
|
|
2004 |
|
|
|
500,000 |
|
|
|
720,000 |
|
|
|
— |
|
|
|
— |
|
|
|
650,000 |
|
|
|
7,419 |
|
| |
and Chief Financial
|
|
|
2003 |
|
|
|
417,692 |
|
|
|
643,507 |
|
|
|
— |
|
|
|
— |
|
|
|
400,000 |
|
|
|
7,064 |
|
| |
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Paul D. Bell
|
|
|
2005 |
|
|
|
522,115 |
|
|
|
868,799 |
|
|
$ |
1,228,157 |
|
|
|
— |
|
|
|
300,000 |
|
|
|
7,178 |
|
| |
Senior Vice President
|
|
|
2004 |
|
|
|
497,115 |
|
|
|
687,019 |
|
|
|
763,623 |
|
|
|
— |
|
|
|
300,000 |
|
|
|
6,596 |
|
| |
and President Europe,
|
|
|
2003 |
|
|
|
472,115 |
|
|
|
699,422 |
|
|
|
748,623 |
|
|
|
— |
|
|
|
400,000 |
|
|
|
6,564 |
|
| |
Middle East and Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Rosendo G. Parra
|
|
|
2005 |
|
|
|
522,115 |
|
|
|
802,969 |
|
|
|
— |
|
|
|
— |
|
|
|
300,000 |
|
|
|
7,492 |
|
| |
Senior Vice President,
|
|
|
2004 |
|
|
|
497,115 |
|
|
|
687,019 |
|
|
|
— |
|
|
|
— |
|
|
|
300,000 |
|
|
|
27,892 |
|
| |
Americas
|
|
|
2003 |
|
|
|
472,115 |
|
|
|
699,422 |
|
|
|
— |
|
|
|
— |
|
|
|
400,000 |
|
|
|
14,640 |
|
|
|
| a – |
Includes the cost of providing various perquisites and personal
benefits if the amount exceeds $50,000 in any year. The amounts
for Mr. Bell consist of payments made in connection with
his expatriate assignment (to cover housing, automobile and
other expenses, as well as tax equalization). |
| |
|
|
| b – |
Includes the value of Dell’s contributions to the
company-sponsored 401(k) plan and deferred compensation plan and
the amount paid by Dell for term life insurance coverage under
health and welfare plans. Certain executive officers receive
reimbursement for the cost of operating personal aircraft while
on business travel. Dell also provides personal security
protection for certain executive officers when deemed advisable
by Dell. Such amounts are considered to be corporate business
expenses and are not included in this table as compensation to
the executive officers. |
|
|
| |
| c – |
Michael S. Dell served as Chief Executive Officer until
July 16, 2004, when Kevin B. Rollins was named Chief
Executive Officer. Mr Dell continues to serve as Chairman of the
Board and is an executive officer. |
www.dell.com/investor
24
Stock Options
The following table sets forth certain information about the
stock option awards that were made to the Named Executive
Officers during fiscal 2005.
OPTION GRANTS IN LAST FISCAL
YEARa
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Number of | |
|
Percentage of | |
|
|
|
Fair | |
|
|
|
|
|
|
| |
|
Shares | |
|
Total Options | |
|
|
|
Market | |
|
|
|
|
|
|
| |
|
Underlying | |
|
Granted to | |
|
Exercise | |
|
Value on | |
|
|
|
|
|
|
| |
|
Options | |
|
Employees In | |
|
Price Per | |
|
Grant | |
|
Grant | |
|
Expiration | |
|
Grant Date | |
| Name |
|
Granted | |
|
Fiscal Year | |
|
Share | |
|
Date | |
|
Date | |
|
Date | |
|
Present Valueb | |
| | |
|
Mr. Rollins
|
|
|
400,000 |
|
|
|
0.77 |
% |
|
$ |
32.985 |
|
|
$ |
32.985 |
|
|
|
3-4-04 |
|
|
|
3-4-14 |
|
|
$ |
4,196,000 |
|
| |
|
|
800,000 |
|
|
|
1.54 |
% |
|
|
35.595 |
|
|
|
35.595 |
|
|
|
7-16-04 |
|
|
|
7-16-14 |
|
|
|
10,216,000 |
|
|
Mr. Dell
|
|
|
400,000 |
|
|
|
0.77 |
% |
|
|
32.985 |
|
|
|
32.985 |
|
|
|
3-4-04 |
|
|
|
3-4-14 |
|
|
|
4,196,000 |
|
|
Mr. Schneider
|
|
|
150,000 |
|
|
|
0.29 |
% |
|
|
32.985 |
|
|
|
32.985 |
|
|
|
3-4-04 |
|
|
|
3-4-14 |
|
|
|
1,573,500 |
|
| |
|
|
150,000 |
|
|
|
0.29 |
% |
|
|
35.350 |
|
|
|
35.350 |
|
|
|
9-2-04 |
|
|
|
9-2-14 |
|
|
|
1,620,000 |
|
|
Mr. Bell
|
|
|
150,000 |
|
|
|
0.29 |
% |
|
|
32.985 |
|
|
|
32.985 |
|
|
|
3-4-04 |
|
|
|
3-4-14 |
|
|
|
1,573,500 |
|
| |
|
|
150,000 |
|
|
|
0.29 |
% |
|
|
35.350 |
|
|
|
35.350 |
|
|
|
9-2-04 |
|
|
|
9-2-14 |
|
|
|
1,620,000 |
|
|
Mr. Parra
|
|
|
150,000 |
|
|
|
0.29 |
% |
|
|
32.985 |
|
|
|
32.985 |
|
|
|
3-4-04 |
|
|
|
3-4-14 |
|
|
|
1,573,500 |
|
| |
|
|
150,000 |
|
|
|
0.29 |
% |
|
|
35.350 |
|
|
|
35.350 |
|
|
|
9-2-04 |
|
|
|
9-2-14 |
|
|
|
1,620,000 |
|
|
|
| a – |
With the exception of the 800,000 share grant to
Mr. Rollins on July 16, 2004, all options described in
this table vest and become exercisable ratably over five years
(20% per year) beginning on the first anniversary of the
date of grant. The July 16 grant to Mr. Rollins vests and
becomes exercisable ratably over seven years (14.3% per
year) beginning on the first anniversary of the date of grant.
All of these options are transferable to family members under
specified circumstances. |
| |
| b – |
Calculated using the Black-Scholes model with the following
material assumptions: (1) a weighted average interest rate
equal to the rate on U.S. Treasury securities with a
maturity date similar to the assumed option term (3.55% for the
July 16 grant to Mr. Rollins, and 2.89% in all other
cases); (2) a volatility rate of 36%, which was estimated
using expected volatility as well as other economic data;
(3) a dividend rate of 0%; and (4) an expected option
term of 3.8 years (5 years in the case of the July 16
grant to Mr. Rollins), which was determined on the basis of
an evaluation of the historical stock option behavior of Dell
employees as well as other relevant factors. The actual value
realized will depend on the difference between the market value
of the common stock on the date the option is exercised and the
exercise price. |
www.dell.com/investor
25
The following table sets forth certain information about option
exercises during fiscal 2005 by the Named Executive Officers and
the value of their unexercised options at the end of the year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Number of Shares | |
|
Value of Unexercised | |
| |
|
|
|
|
|
Underlying Unexercised | |
|
In-the-Money Options | |
| |
|
Shares | |
|
|
|
Options at Fiscal Year-End | |
|
at Fiscal Year-Endb | |
| |
|
Acquired | |
|
Value | |
|
| |
|
| |
| Name |
|
On Exercise | |
|
Realizeda | |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable | |
|
Unexercisable | |
| | |
|
Mr. Rollins
|
|
|
993,000 |
|
|
$ |
36,345,441 |
|
|
|
8,597,458 |
|
|
|
4,681,908 |
|
|
$ |
174,044,712 |
|
|
$ |
56,372,401 |
|
|
Mr. Dell
|
|
|
0 |
|
|
|
0 |
|
|
|
15,373,375 |
|
|
|
3,020,000 |
|
|
|
306,005,962 |
|
|
|
33,375,800 |
|
|
Mr. Schneider
|
|
|
390,000 |
|
|
|
5,327,671 |
|
|
|
927,757 |
|
|
|
1,441,532 |
|
|
|
11,001,593 |
|
|
|
16,481,579 |
|
|
Mr. Bell
|
|
|
0 |
|
|
|
0 |
|
|
|
2,134,980 |
|
|
|
1,546,372 |
|
|
|
25,640,966 |
|
|
|
18,750,634 |
|
|
Mr. Parra
|
|
|
465,354 |
|
|
|
5,149,298 |
|
|
|
697,825 |
|
|
|
1,490,000 |
|
|
|
2,727,986 |
|
|
|
18,186,750 |
|
|
|
| a – |
If the shares were sold immediately upon exercise, the value
realized was calculated using the difference between the actual
sales price and the exercise price. Otherwise, the value
realized was calculated using the difference between the closing
price of the common stock on the date of exercise and the
exercise price. |
| |
| b – |
Amounts were calculated using the closing price of the common
stock on the last trading day of fiscal year 2005 ($41.06). |
2006 Long-Term Cash Incentive Bonus Program
In March 2005, the Compensation Committee approved a new fiscal
2006 Long-Term Cash Incentive Bonus Program (the “2006
Program”) for certain executive officers other than
Mr. Dell and Mr. Rollins. The purpose of the program
is to encourage commitment to, and provide incentive for the
attainment of, Dell’s long-term growth and profitability
goals. The Compensation Committee considers these goals to be
important contributors to long-term stockholder value.
The Compensation Committee approved a similar program in fiscal
2004 (the “2004 Program”), as set forth in the
company’s 2003 proxy statement. Under the 2004 Program,
performance metrics are measured over a four-year performance
period. Since the company is meeting the goals set for the 2004
program more quickly than anticipated, the Compensation
Committee approved the 2006 program with new growth and
profitability goals in order to further align executive
incentives with company performance.
Under the 2006 Program, certain revenue growth and profitability
metrics are measured over a three-year performance period
(beginning with fiscal 2006 and continuing through fiscal 2008).
If actual company performance, on an annual basis, meets
specified revenue targets and profitability threshold levels,
participating executives will be entitled to receive one-time
cash bonuses at the end of the performance period. The bonus
amounts will be a multiple of the executive’s annual cash
bonus for each year that the annual performance goals are met.
The maximum aggregate bonus modifier over the period is 500%.
Payment of each executive’s
www.dell.com/investor
26
long-term cash incentive bonus is also conditioned on continued
employment and eligibility.
Because the amount of an executive’s long-term cash
incentive bonus is dependent on (a) the amount of his or
her annual cash bonus for each year during the performance
period (which cannot be determined at this time) and
(b) the satisfaction of specified annual performance
targets and thresholds, it is not possible to estimate the
amount of the long-term cash incentive bonuses that will be paid
at the end of the performance period. The following table
describes, for each of the Named Executive Officers who are
eligible for awards under this program, the maximum amount of
the long-term cash incentive bonus that would be payable
following fiscal 2008 assuming (1) satisfaction of all
performance targets and thresholds, as well as all other vesting
conditions, and (2) the annual cash bonus paid for each of
the years in the performance period is the same as that paid for
fiscal 2005:
2006 LONG-TERM CASH INCENTIVE BONUS PROGRAM
| |
|
|
|
|
|
|
|
|
| |
|
Performance Period |
|
Representative |
| Namea |
|
(Fiscal Years) |
|
Future Payoutb |
| |
|
Mr. Schneider
|
|
|
2006 – 2008 |
|
|
$ |
4,111,755 |
|
|
Mr. Bell
|
|
|
2006 – 2008 |
|
|
$ |
4,343,995 |
|
|
Mr. Parra
|
|
|
2006 – 2008 |
|
|
$ |
4,014,845 |
|
|
|
| a – |
Awards under the 2006 Program will be payable in March 2008 to
certain selected executives officers. Neither Mr. Dell nor
Mr. Rollins are participating in the program. |
| |
| b – |
Presented solely for purposes of demonstrating the calculation
of long-term cash incentive bonuses. Actual amount to be paid,
if any, cannot be reasonably estimated at this time. In no event
may any award under the program exceed 0.1% of cumulative
consolidated operating income over the performance period. |
Awards under this program were made pursuant to the 2002
Long-Term Incentive Plan, which was approved by the stockholders
at the 2002 annual meeting. Compensation paid pursuant to this
program should qualify as “performance-based
compensation” for purposes of Section 162(m) of the
Internal Revenue Code.
Equity Compensation Plans
Equity Compensation Plans Approved by Stockholders
Stock Option Plans — Dell stockholders have
approved the 1989 Stock Option Plan, the 1994 Incentive Plan and
the 2002 Long-Term Incentive Plan. Although options are still
outstanding under the 1989 and 1994 plans, no shares are
available for future awards. Dell currently uses the 2002
Long-Term Incentive Plan for stock-based incentive awards. These
awards can be in the form of stock options, stock appreciation
rights and restricted stock. Stock options are generally issued
at the fair market value on the date of grant and typically vest
ratably over five years.
www.dell.com/investor
27
Employee Stock Purchase Plan — Dell maintains
an employee stock purchase plan that is available to
substantially all employees. This plan has been approved by
stockholders. Under the plan, participating employees may
contribute up to 15% of their base compensation (subject to
certain IRS limits) to purchase common stock at the end of each
participation period. Through June 30, 2005, the
participation periods were six-month periods running from
January to June and July to December each year and the purchase
price was equal to 85% of the lower of the fair market value of
the stock at the beginning or the end of the period. Beginning
July 1, 2005, the participation periods are three-month
periods running from January to March, April to June, July to
September and October to December each year and the purchase
price is equal to 85% of the fair market value of the stock on
the last day of the purchase period.
Equity Compensation Plans Not Approved by Stockholders
Broad Based Stock Option Plan — In October
1998, the Board of Directors approved the Broad Based Stock
Option Plan, which permitted awards of fair market value stock
options to non-executive employees. This plan was terminated by
the Board in November 2002, and options are no longer being
awarded under this plan.
EQUITY COMPENSATION PLANS
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Number of Securities |
| |
|
|
|
|
|
Remaining Available for |
| |
|
Number of Securities |
|
|
|
Future Issuance Under |
| |
|
to be Issued Upon |
|
Weighted-Average |
|
Equity Compensation |
| |
|
Exercise of |
|
Exercise Price of |
|
Plans (excluding securities |
| Plan Category |
|
Outstanding Options |
|
Outstanding Options |
|
reflected in first column) |
| |
|
Plans approved by stockholders
|
|
|
362,760,793 |
|
|
$ |
29.55 |
|
|
|
311,585,750 |
a |
|
Plans not approved by stockholders
|
|
|
6,220,591 |
b |
|
$ |
38.76 |
|
|
|
0 |
c |
|
|
| a – |
This number includes 20,679,536 shares that were available
for issuance under the Employee Stock Purchase Plan and
290,906,214 shares that were available for issuance under
the 2002 Long Term Incentive Plan. Of the shares available under
the 2002 plan, 192,992,187 shares were available to be
issued in the form of restricted stock awards. |
| |
| b – |
This is the number of shares that were issuable pursuant to
options granted under the Broad Based Stock Option Plan that
were outstanding as of the end of fiscal 2005. |
| |
| c – |
The Broad Based Stock Option Plan was terminated in November
2002, and consequently, no shares are available for future
awards. |
Other Benefit Plans
401(k) Retirement Plan — Dell maintains a
401(k) retirement savings plan that is available to
substantially all U.S. employees. Until December 31,
2004, Dell matched 100% of each participant’s voluntary
contributions up to 3% of the participant’s compensation,
and participants vested ratably in the matching contributions
over the
www.dell.com/investor
28
first five years of employment (20% per year). As of
January 1, 2005, Dell matches 100% of each
participant’s voluntary contributions up to 4% of the
participant’s compensation and a participant vests
immediately in the matching contributions. Participants may
invest their contributions and the matching contributions in a
variety of investment choices, including a Dell stock fund, but
are not required to invest any specific portion of their
contributions in Dell stock.
Deferred Compensation Plan — Dell also
maintains a nonqualified deferred compensation plan that is
available to executives. Under the terms of this plan, Dell
matches 100% of each participant’s voluntary deferrals up
to 3% of the participant’s compensation. A participant
vests ratably in the matching contributions over the first five
years of employment (20% per year). A participant’s
funds are distributed upon the participant’s death or
retirement or, under certain circumstances, at the request of
the participant during the participant’s employment.
Employment Agreements and Change-in-Control Arrangements
Substantially all of Dell’s employees enter into a standard
employment agreement upon commencement of their employment. The
standard employment agreement primarily addresses intellectual
property and confidential and proprietary information matters
and does not contain provisions regarding compensation or
continued employment.
The Compensation Committee has the authority under Dell’s
stock plans to issue awards with provisions that accelerate
vesting and exercisability in the event of a change-in-control
and to amend existing awards to provide for such acceleration.
To date, the Compensation Committee has not elected to include
change-in-control acceleration provisions in any awards.
www.dell.com/investor
29
Five-Year Performance
Graph
The following graph compares the cumulative total return on
Dell’s common stock during the last five fiscal years with
the S&P 500 Index and the Dow Jones Computer Index
during the same period. The graph shows the value, at the end of
each of the last five fiscal years, of $100 invested in Dell
common stock or the indices on January 28, 2000, and
assumes the reinvestment of all dividends. The graph depicts the
change in the value of common stock relative to the indices as
of the end of each fiscal year and not for any interim period.
Historical stock price performance is not necessarily indicative
of future stock price performance.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
End of Fiscal Year | |
| |
|
| |
| |
|
2000 | |
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Dell
|
|
$ |
100 |
|
|
$ |
68 |
|
|
$ |
72 |
|
|
$ |
64 |
|
|
$ |
90 |
|
|
$ |
110 |
|
|
S&P 500 Index
|
|
$ |
100 |
|
|
$ |
99 |
|
|
$ |
83 |
|
|
$ |
63 |
|
|
$ |
83 |
|
|
$ |
86 |
|
|
Dow Jones Computer Index
|
|
$ |
100 |
|
|
$ |
92 |
|
|
$ |
57 |
|
|
$ |
40 |
|
|
$ |
55 |
|
|
$ |
58 |
|
www.dell.com/investor
30
Stock
Ownership
The following table sets forth certain information, as of
April 29, 2005, about the ownership of Dell common stock by
the directors and executive officers and each person known to
Dell to be the beneficial owner of more than 5% of the total
number of shares outstanding. Unless otherwise indicated, each
person named below holds sole investment and voting power over
the shares shown.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Total as a |
| |
|
|
|
Options |
|
|
|
Percentage of |
| |
|
Number of |
|
Exercisable |
|
Total |
|
Shares |
| |
|
Shares |
|
Within |
|
Beneficial |
|
Outstanding |
| Beneficial Owner |
|
Owned |
|
60 Days |
|
Ownership |
|
(if 1% or more)a |
| |
|
Michael S. Dell
|
|
|
207,983,382 |
b |
|
|
16,013,375 |
|
|
|
223,996,757 |
|
|
|
9.11 |
% |
| |
One Dell Way
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Round Rock, Texas 78682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FMR Corp.
|
|
|
130,914,928 |
|
|
|
0 |
|
|
|
130,914,928 |
|
|
|
5.27 |
% |
| |
82 Devonshire Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Boston, Massachusetts 02109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald J. Carty
|
|
|
3,559 |
|
|
|
1,040,029 |
|
|
|
1,043,588 |
|
|
|
— |
|
|
William H. Gray, III
|
|
|
3,716 |
|
|
|
0 |
|
|
|
3,716 |
|
|
|
— |
|
|
Judy C. Lewent
|
|
|
3,559 |
|
|
|
62,562 |
|
|
|
66,121 |
|
|
|
— |
|
|
Thomas W. Luce, III
|
|
|
43,337 |
c |
|
|
36,313 |
|
|
|
79,650 |
|
|
|
— |
|
|
Klaus S. Luft.
|
|
|
3,559 |
|
|
|
89,847 |
|
|
|
93,406 |
|
|
|
— |
|
|
Alex J. Mandl
|
|
|
5,259 |
d |
|
|
89,696 |
|
|
|
94,955 |
|
|
|
— |
|
|
Michael A. Miles
|
|
|
535,873 |
|
|
|
1,078,258 |
|
|
|
1,614,131 |
|
|
|
— |
|
|
Samuel A.
Nunn, Jr.
|
|
|
3,873 |
|
|
|
97,928 |
|
|
|
101,801 |
|
|
|
— |
|
|
Kevin B. Rollins
|
|
|
17,547 |
|
|
|
10,077,458 |
|
|
|
10,095,005 |
|
|
|
— |
|
|
James M. Schneider
|
|
|
26,847 |
|
|
|
1,177,757 |
|
|
|
1,204,604 |
|
|
|
— |
|
|
Paul D. Bell
|
|
|
6,049 |
|
|
|
2,554,980 |
|
|
|
2,561,029 |
|
|
|
— |
|
|
Rosendo G. Parra
|
|
|
228,220 |
e |
|
|
949,493 |
|
|
|
1,177,713 |
|
|
|
— |
|
|
Directors and executive officers as
a group (24 persons)
|
|
|
209,711,367 |
|
|
|
38,359,045 |
|
|
|
248,070,412 |
|
|
|
10.0 |
% |
|
|
| |
a – Other than the percentage reported for FMR
Corp., the percentage is based on the number of shares
outstanding (2,441,863,947) at the close of business on
April 29, 2005. The percentage reported for FMR Corp. is
based on the Form 13G filed with the Securities and
Exchange Commission by FMR Corp. on February 14, 2005. |
| |
| |
b – Does not include 26,449,112 shares held
in a separate property trust for Mr. Dell’s spouse. |
| |
| |
c – Includes 39,778 shares held in a
retirement plan for Mr. Luce. |
| |
| |
d – Includes 400 held by shares
Mr. Mandl’s spouse and 1,300 shares held in an
IRA for Mr. Mandl’s spouse. |
| |
| |
e – Includes 15,000 shares held by
Mr. Parra’s spouse. |
www.dell.com/investor
31
Stock Ownership Requirements
The Board of Directors has established stock ownership
guidelines for themselves and Dell’s executive officers to
increase their equity stake in Dell and more closely link their
interests with those of Dell’s stockholders. Under those
guidelines, each director and executive officer must maintain
the following minimum investment position in Dell common stock:
|
|
|
| |
• |
Non-employee directors — 300% of annual retainer |
| |
| |
• |
Chairman and Chief Executive Officer — 500% of base
salary |
| |
| |
• |
Other executive officers — 400% of base salary |
These persons will have until March 2006 or three years after
assuming their position (whichever is later) to attain the
specified minimum investment position. Unexercised stock options
may not be used to satisfy these minimum ownership requirements,
but unvested restricted stock can.
Report of the Audit
Committee
The Audit Committee assists the Board of Directors in its
oversight of Dell’s financial reporting process. The Audit
Committee’s responsibilities are more fully described in
its charter, which is accessible on Dell’s website at
www.dell.com/corporategovernance.
Management has the primary responsibility for the preparation
and integrity of Dell’s financial statements, accounting
and financial reporting principles and internal controls and
procedures designed to assure compliance with accounting
standards and applicable laws and regulations. Dell’s
independent auditor, PricewaterhouseCoopers LLP, is responsible
for performing an independent audit of the consolidated
financial statements and expressing an opinion on the conformity
of those financial statements with generally accepted accounting
principles.
In fulfilling its oversight responsibilities, the Audit
Committee has reviewed and discussed the audited financial
statements for fiscal 2005 with Dell’s management, and has
discussed with PricewaterhouseCoopers LLP the matters that are
required to be discussed by Statement on Auditing Standards
No. 61, Communication with Audit Committees. In
addition, PricewaterhouseCoopers LLP has provided the Audit
Committee with the written disclosures and the letter required
by the Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, and the
Audit Committee has discussed with PricewaterhouseCoopers LLP
its independence.
Based on these reviews and discussions, the Audit Committee has
recommended to the Board of Directors that the audited financial
statements be included in Dell’s
www.dell.com/investor
32
Annual Report on Form 10-K for the year ended
January 28, 2005, for filing with the Securities and
Exchange Commission.
|
|
| |
THE AUDIT COMMITTEE |
| |
| |
Donald J. Carty,
Chair |
| |
William H. Gray, III
|
| |
Thomas W. Luce, III
|
| |
Samuel A. Nunn, Jr.
|
Additional
Information
Record Date; Shares Outstanding
Stockholders of record at the close of business on May 20,
2005, are entitled to vote their shares at the annual meeting.
As of that date, there were 2,422,796,290 shares of common
stock outstanding and entitled to be voted at the meeting. The
holders of shares on the record date are entitled to one vote
per share.
Quorum
More than 50% of the stockholders entitled to vote must be
represented at the meeting before any business may be conducted.
If a quorum is not present, the stockholders who are represented
may adjourn the meeting until a quorum is present. The time and
place of the adjourned meeting will be announced at the time the
adjournment is taken, and no other notice need be given. An
adjournment will have no effect on the business that may be
conducted at the meeting.
Proxies; Right to Revoke
By submitting your proxy, you will authorize Lawrence P. Tu and
Thomas H. Welch, Jr., to represent you and vote your shares
at the meeting in accordance with your instructions. They may
also vote your shares to adjourn the meeting and will be
authorized to vote your shares at any adjournments or
postponements of the meeting.
If you attend the meeting, you may vote your shares in person,
regardless of whether you have submitted a proxy. In addition,
you may revoke your proxy by sending a written notice of
revocation to Dell’s Corporate Secretary, by submitting a
later-dated proxy or by voting in person at the meeting.
Default Voting
If you submit a proxy but do not indicate any voting
instructions, your shares will be voted FOR Proposal 1
(Election of Directors), FOR Proposal 2 (Ratification of
Independent Auditor), AGAINST Stockholder Proposal 1
(Majority Voting for Directors) and AGAINST Stockholder
Proposal 2 (Expensing Stock Options). If any other business
properly comes before the stockholders for a vote at the
meeting, your shares will be voted according to the discretion
of the holders of the proxy.
www.dell.com/investor
33
Voting by Street Name Holders
If your shares are held in a brokerage account or by another
nominee, you are considered the “beneficial owner” of
shares held in “street name,” and these proxy
materials are being forwarded to you by your broker or nominee
(the “record holder”) along with a voting instruction
card. As the beneficial owner, you have the right to direct your
record holder how to vote your shares, and the record holder is
required to vote your shares in accordance with your
instructions. If you do not give instructions to your record
holder, the record holder will be entitled to vote your shares
in its discretion on Proposal 1 (Election of Directors) and
Proposal 2 (Ratification of Independent Auditor), but will
not be able to vote your shares on either of the Stockholder
Proposals and your shares will be considered a “broker
non-vote” on those proposals.
As the beneficial owner of shares, you are invited to attend the
annual meeting. Please note, however, that if you are a
beneficial owner, you may not vote your shares in person at the
meeting unless you obtain a “legal proxy” from the
record holder that holds your shares.
Tabulation of Votes
American Stock Transfer & Trust Company, the transfer
agent, will tabulate and certify the votes.
If your shares are treated as a broker non-vote or abstention,
your shares will be included in the number of shares represented
for purposes of determining whether a quorum is present.
Abstentions will also be counted as shares present and entitled
to be voted. Broker non-votes, however, are not counted as
shares present and entitled to be voted with respect to the
matters which the broker has not expressly voted. Thus, broker
non-votes will not affect the outcome of the voting on any of
the proposals.
If you own shares of Dell through the Dell 401(k) plan for
employees, you can direct the trustee to vote the shares held in
your account in accordance with your instructions by returning
the enclosed proxy card or by registering your instructions via
the telephone or Internet as directed on the proxy card. If you
wish to instruct the trustee on the voting of shares held in
your account, you should submit those instructions no later than
July 12, 2005. The trustee will vote shares for which no
voting instructions were received on or before that date as
directed by the plan fiduciary.
Proxy Solicitation
Dell will bear all costs of this proxy solicitation. Proxies may
be solicited by mail, in person, by telephone or by facsimile by
officers, directors and regular employees. In addition, Dell
will utilize the services of D.F. King & Co., Inc., an
independent proxy solicitation firm, and will pay $15,000 plus
reasonable expenses as compensation for those services. Dell may
also reimburse brokerage firms, custodians, nominees and
fiduciaries for their expenses to forward proxy materials to
beneficial owners.
www.dell.com/investor
34
Director Nomination Process
Director Qualifications — The Board of
Directors believes that individuals who are nominated by the
Board to be a director should have demonstrated notable or
significant achievements in business, education or public
service; should possess the requisite intelligence, education
and experience to make a significant contribution to the Board
and bring a range of skills, diverse perspectives and
backgrounds to its deliberations; and should have the highest
ethical standards, a strong sense of professionalism and intense
dedication to serving the interests of the stockholders. The
following attributes or qualifications will be considered by the
Governance and Nominating Committee in evaluating a
person’s candidacy for membership on the Board:
|
|
|
| |
• |
Management and leadership experience — Relevant
experience should include, at a minimum, a past or current
leadership role in a major public company or recognized
privately held entity; a past or current leadership role at a
prominent educational institution or senior faculty position in
an area of study important or relevant to Dell; a past elected
or appointed senior government position; or a past or current
senior managerial or advisory position with a highly visible
nonprofit organization. Consideration will also be given to
relevant experience in Dell’s high priority growth areas;
demonstrated experience in major challenges Dell faces or a
unique understanding of Dell’s business environment; and
experience with, exposure to or reputation among a broad subset
of Dell’s customer base. |
| |
| |
• |
Skilled and diverse background — All candidates
must possess the aptitude or experience to understand fully the
legal responsibilities of a director and the governance
processes of a public company, as well as the personal qualities
to be able to make a substantial active contribution to Board
deliberations, including intelligence and wisdom,
self-assuredness, interpersonal and communication skills,
courage and inquisitiveness. Consideration will also be given to
financial management, reporting and control expertise or other
experience that would qualify the candidate as a “financial
expert” under established standards, and international
experience. Consideration will be given to assuring that the
Board, as a whole, adequately reflects the diversity of
Dell’s constituencies and the communities in which Dell
conducts its business. |
| |
| |
• |
Integrity and professionalism — The following
are essential characteristics for each Board candidate: highest
standards of moral and ethical character and personal integrity;
independence, objectivity and an intense dedication to serve as
a representative of the stockholders; a personal commitment to
Dell’s principles and values; and impeccable corporate
governance credentials. |
Further, each candidate must be willing to commit, as well as
have, sufficient time available to discharge the duties of Board
membership and should have sufficient years available for
service to make a significant contribution to Dell over time.
Selection and Nomination Process — Whenever a
vacancy occurs on the Board of Directors, the Governance and
Nominating Committee is responsible for identifying
www.dell.com/investor
35
one or more candidates to fill that vacancy, investigating each
candidate, evaluating his or her suitability for service on the
Board and recommending a candidate to the full Board. In
addition, the committee is responsible for recommending nominees
for election or reelection to the Board at each annual meeting
of stockholders.
The Governance and Nominating Committee is authorized to use any
methods it deems appropriate for identifying candidates for
Board membership, including recommendations from current Board
members and recommendations from stockholders. The committee may
engage outside search firms to identify suitable candidates.
The Governance and Nominating Committee is also authorized to
engage in whatever investigation and evaluation processes it
deems appropriate, including a thorough review of the
candidate’s background, characteristics, qualities and
qualifications and personal interviews with the committee as a
whole, one or more members of the committee or one or more other
Board members.
In formulating its recommendation, the Governance and Nominating
Committee will consider not only the findings and conclusions of
its investigation and evaluation process, but also the current
composition of the Board; the attributes and qualifications of
serving Board members; additional attributes, capabilities or
qualifications that should be represented on the Board; and
whether the candidate could provide those additional attributes,
capabilities or qualifications. The committee will not recommend
any candidate unless that candidate has indicated a willingness
to serve as a director and has agreed to comply, if elected,
with the expectations and requirements of Board service.
Stockholder Recommendations — Candidates
recommended by Dell stockholders will be considered in the same
manner as other candidates. A stockholder who wishes to make
such a recommendation should complete a Director Recommendation
Form (available on Dell’s website at
www.dell.com/boardofdirectors) and submit it, along with
appropriate supporting documentation and information, to the
Governance and Nominating Committee, c/o Board Liaison,
Dell Inc., One Dell Way, Mail Stop 8033,
Round Rock, Texas 78682.
Each stockholder recommendation will be processed expeditiously
upon receipt of the completed Director Recommendation Form. If
the Governance and Nominating Committee determines that a
stockholder-recommended candidate is suitable for Board
membership, it will include the candidate in the pool of
candidates to be considered for nomination upon the occurrence
of the next Board vacancy or in connection with the next annual
meeting of stockholders. Stockholders who are recommending
candidates for nomination in connection with the next annual
meeting of stockholders should submit their completed Director
Recommendation Forms no later than March 1 of the year of
that meeting.
Stockholder Nominations — Stockholders who wish
to nominate a person for election as a director (as opposed to
making a recommendation to the Governance and Nominating
Committee) must follow the procedures described in
Article III, Section 12 of the Bylaws, either in
addition to or in lieu of making a recommendation to the
committee. Those procedures are described under
“Stockholder Proposals for Next Year’s
Meeting — Bylaw Provisions” below.
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Re-Election of Existing Directors — In
considering whether to recommend directors who are eligible to
stand for re-election, the Governance and Nominating Committee
may consider a variety of factors, including a director’s
contributions to the Board and ability to continue to contribute
productively, attendance at Board and committee meetings and
compliance with the Corporate Governance Principles (including
satisfying the expectations for individual directors), as well
as whether the director continues to possess the attributes,
capabilities and qualifications considered necessary or
desirable for Board service, the results of the annual Board
self-evaluation, the independence of the director and the nature
and extent of the director’s non-Dell activities.
Stockholder Proposals for Next Year’s Meeting
Bylaw Provisions — In accordance with
Dell’s bylaws, a stockholder who desires to present a
proposal for consideration at next year’s annual meeting
(which is currently scheduled for July 21, 2006) must
submit the proposal no later than the close of business on
May 22, 2006. The submission should include the proposal
and a brief statement of the reasons for it, the name and
address of the stockholder (as they appear in Dell’s stock
transfer records), the number of Dell shares beneficially owned
by the stockholder and a description of any material direct or
indirect financial or other interest that the stockholder (or
any affiliate or associate) may have in the proposal. Proposals
should be addressed to Corporate Secretary, Dell Inc., One Dell
Way, Mail Stop 8033, Round Rock, Texas 78682.
Inclusion in Next Year’s Proxy Statement —
A stockholder who desires to present a proposal for
inclusion in next year’s proxy statement must deliver the
proposal to Dell’s principal executive offices no later
than the close of business on February 3, 2006. Submissions
should be addressed to Corporate Secretary, Dell Inc., One Dell
Way, Mail Stop 8033, Round Rock, Texas 78682, and should
comply with all applicable Securities and Exchange Commission
rules.
Presentation at Meeting — For any proposal that
is not submitted for inclusion in next year’s proxy
statement, but is instead sought to be presented directly at
next year’s annual meeting, Securities and Exchange
Commission rules permit management to vote proxies in its
discretion if (a) Dell receives notice of the proposal
before the close of business on April 20, 2006, and advises
stockholders in next year’s proxy statement about the
nature of the matter and how management intends to vote on such
matter, or (b) does not receive notice of the proposal
prior to the close of business on April 20, 2006.
Section 16(a) Beneficial Ownership Reporting
Compliance
In November 2004, Mr. Jeffrey W. Clarke, an executive
officer, failed to report timely the transfer of funds
equivalent to 882 shares of common stock from the Dell
Stock Fund in the Dell 401(k) Plan. This failure was inadvertent
and the transaction was reported on a Form 5 filed in March
2005.
Code of Conduct
Dell maintains a Code of Conduct (entitled Winning with
Integrity) that is applicable to all of its employees
worldwide, including the Chief Executive Officer, the Chief
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37
Financial Officer and the Chief Accounting Officer. That Code of
Conduct, which satisfies the requirements of a “code of
ethics” under applicable Securities and Exchange Commission
rules, contains written standards that are designed to deter
wrongdoing and to promote honest and ethical conduct, including
the ethical handling of actual or apparent conflicts of
interest; full, fair, accurate, timely and understandable public
disclosures and communications, including financial reporting;
compliance with applicable laws, rules and regulations; prompt
internal reporting of violations of the code; and accountability
for adherence to the code. A copy of Dell’s Code of Conduct
is posted on Dell’s website at www.dell.com/codeofconduct.
Dell will post any disclosable waivers or amendments to the Code
of Conduct on its website at www.dell.com/codeofconduct.
Stockholder List
For at least ten days prior to the meeting, a list of the
stockholders entitled to vote at the annual meeting will be
available for examination, for purposes germane to the meeting,
during ordinary business hours at Dell’s principal
executive offices. The list will also be available for
examination at the meeting.
Annual Report on Form 10-K
A copy of the fiscal 2005 Annual Report on Form 10-K
(without exhibits) is being distributed along with this Proxy
Statement. It is also available via the Internet at
www.dell.com/investor. In addition, the report (with exhibits)
is available at the website maintained by the Securities and
Exchange Commission (www.sec.gov).
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