SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

Filed by the Registrant þ

Filed by a Party other than the Registrant o

Check the appropriate box:

INTEL CORPORATION

(Name of Person(s) Filing Proxy Statement, If Other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

þ		No fee required.

o		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	(1)		Title of each class of securities to which transaction applies:
	(2)		Aggregate number of securities to which transaction applies:
	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
	(4)		Proposed maximum aggregate value of transaction:
	(5)		Total fee paid:

o		Fee paid previously with preliminary materials.

o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	(1)		Amount Previously Paid:
	(2)		Form, Schedule or Registration Statement No.:
	(3)		Filing Party:
	(4)		Date Filed:

INTEL CORPORATION
2200 Mission College Blvd.
Santa Clara, CA 95054-1549
(408) 765-8080

 

 

March 27, 2007

 

Dear Stockholder:

 

We will hold our 2007 Annual Stockholders’ Meeting at 8:30 a.m. Pacific Time on May 16, 2007 at the Santa Clara Convention Center, 5001 Great America Parkway, Santa Clara, California 95054, and we look forward to your attendance either in person or by proxy. We are pleased to offer a live Webcast of the annual meeting at www.intc.com.

 

If you received your annual meeting materials by mail, the notice of annual meeting, proxy statement, and proxy card from our Board of Directors are enclosed. If you received your annual meeting materials via e-mail, the e-mail contains voting instructions and links to the annual report and the proxy statement on the Internet, which are both available at www.intel.com/intel/annualreports.

 

We encourage you to conserve natural resources and reduce printing and processing costs by signing up for electronic delivery of our stockholder communications. For more information, see “Electronic Delivery of Our Stockholder Communications” in the proxy statement.

 

At this year’s annual meeting, the agenda includes the annual election of directors; ratification of the selection of our independent registered public accounting firm; amendment and extension of the 2006 Equity Incentive Plan; approval of the 2007 Executive Officer Incentive Plan; and consideration of one stockholder proposal, if properly presented at the annual meeting. The Board of Directors recommends that you vote FOR election of the director nominees, FOR ratification of the selection of our independent registered public accounting firm, FOR amendment and extension of the 2006 Equity Incentive Plan, FOR approval of the 2007 Executive Officer Incentive Plan, and AGAINST the stockholder proposal. Please refer to the proxy statement for detailed information on each of the proposals and the annual meeting. Your Intel stockholder vote is important, and we strongly urge you to cast your vote.

 

If you have any questions concerning the annual meeting or the proposals, please contact our Investor Relations department at (408) 765-1480. For questions regarding your stock ownership, you may contact our transfer agent, Computershare Investor Services, LLC, by e-mail through their Web site at www.computershare.com/contactus or by phone at (800) 298-0146 (within the U.S. and Canada) or (312) 360-5123 (outside the U.S. and Canada). For questions related to voting, you may contact D. F. King & Co., Inc., our proxy solicitors, at (800) 859-8509 (within the U.S. and Canada) or (212) 269-5550 (outside the U.S. and Canada).

 

Sincerely yours,

 

 

Craig R. Barrett
Chairman of the Board

 

INTEL CORPORATION

 

Notice of Annual Stockholders’ Meeting
May 16, 2007
8:30 a.m. Pacific Time

 

 

Dear Stockholder:

 

We invite you to attend our 2007 Annual Stockholders’ Meeting. The meeting will be held at 8:30 a.m. Pacific Time on May 16, 2007 at the Santa Clara Convention Center, 5001 Great America Parkway, Santa Clara, California 95054. Doors will open at 8:00 a.m. We are pleased to offer a live Webcast of the annual meeting at www.intc.com. For further details, see “Attending the Annual Meeting” in the proxy statement.

 

We are holding the annual meeting for the following purposes:

 

 

The proxy statement fully describes these items. We have not received notice of other matters that may be properly presented at the annual meeting.

 

Only stockholders of record at the close of business on March 19, 2007 will be entitled to vote at the annual meeting and any postponements or adjournments of the meeting. For 10 days before the annual meeting, a list of stockholders entitled to vote will be available for inspection at our principal executive offices at 2200 Mission College Blvd., Santa Clara, California 95054-1549. If you would like to view the stockholder list, please call our Investor Relations department at (408) 765-1480 to schedule an appointment.

 

Please vote as soon as possible to ensure that your vote is recorded promptly even if you plan to attend the annual meeting. You have three options for submitting your vote before the annual meeting: via the Internet, by phone, or by mail. For further details, see “Submitting and Revoking Your Proxy” in the proxy statement. If you have Internet access, we encourage you to record your vote on the Internet. It is convenient, and it saves your company significant printing and processing costs.

 

By Order of the Board of Directors

 

Cary I. Klafter
Corporate Secretary

 

Santa Clara, California
March 27, 2007

 

TABLE OF CONTENTS

 

 

If you received your annual meeting materials by mail, we strongly encourage you to conserve natural resources and reduce your company’s printing and processing costs by signing up to receive your stockholder communications via e-mail. With electronic delivery, we will notify you via e-mail as soon as the annual report and the proxy statement are available on the Internet, and you can submit your vote easily online. Electronic delivery can help reduce the number of bulky documents in your personal files and eliminate duplicate mailings. To sign up for electronic delivery:

 

 

Your electronic delivery enrollment will be effective until you cancel it. If you have questions about electronic delivery, please call our Investor Relations department at (408) 765-1480.

 

We offer two options for participating in our 2007 annual meeting: viewing a live Webcast at www.intc.com or attending in person. We will hold the annual meeting at 8:30 a.m. Pacific Time on Wednesday, May 16, 2007 at the Santa Clara Convention Center, 5001 Great America Parkway, Santa Clara, California 95054. When you arrive at the Convention Center, signs will direct you to the appropriate meeting rooms. Please note that the doors to the meeting rooms will not open until 8:00 a.m. Due to security measures, all bags will be subject to search, and all persons who attend the meeting will be subject to a metal detector and/or a hand wand search. We will be unable to admit anyone who does not comply with these security procedures. We will not permit the use of cameras (including cell phones with photographic capabilities) and other recording devices in the meeting hall. If you choose to view the Webcast, go to www.intc.com shortly before the meeting time, and follow the instructions for downloading the Webcast. During the Webcast, you will be able to submit questions by following the instructions on the Web site. If you miss the annual meeting, you can view a replay of the Webcast at www.intc.com until June 15, 2007. You do not need to attend the annual meeting to vote if you submit your proxy in advance of the annual meeting.

 

You may contact our Corporate Secretary to communicate with the Board, nominate or suggest a director candidate, make a stockholder proposal, request householding or additional annual meeting materials, or revoke a prior proxy instruction. You may contact the Corporate Secretary via e-mail at corporate.secretary@intel.com, by fax to (408) 653-8050, or by mail to Cary Klafter, Intel Corporation, M/S SC4-203, 2200 Mission College Blvd., Santa Clara, California 95054-1549.

INTEL CORPORATION
2200 Mission College Blvd.
Santa Clara, CA 95054-1549

 

 

PROXY STATEMENT

 

 

Our Board of Directors solicits your proxy for the 2007 Annual Stockholders’ Meeting to be held at 8:30 a.m. Pacific Time on Wednesday, May 16, 2007 at the Santa Clara Convention Center, 5001 Great America Parkway, Santa Clara, California 95054, and at any postponement or adjournment of the meeting, for the purposes set forth in “Notice of Annual Stockholders’ Meeting.”

 

Record Date and Share Ownership. Only stockholders of record at the close of business on March 19, 2007 will be entitled to vote at the annual meeting. The majority of the shares of common stock outstanding on the record date must be present in person or by proxy to have a quorum. We had 5,781,680,939 outstanding shares of common stock as of February 23, 2007. We made copies of this proxy statement available to stockholders beginning on March 27, 2007.

 

Submitting and Revoking Your Proxy. If you complete and submit your proxy, the persons named as proxies will follow your instructions. If you submit a proxy card but do not fill out the voting instructions on the proxy card, the persons named as proxies will vote your shares as follows:

 

 

In addition, if other matters are properly presented for voting at the annual meeting, the persons named as proxies will vote on such matters in accordance with their best judgment. We have not received notice of other matters that may be properly presented for voting at the annual meeting.

 

Your stockholder vote is important. Banks and brokers that have not received voting instructions from their clients cannot vote on their clients’ behalf on the proposal to amend and extend the 2006 Equity Incentive Plan, thus reducing the number of votes cast. Please vote as soon as possible to ensure that your vote is recorded promptly, even if you plan to attend the annual meeting in person. You have three options for submitting your vote before the annual meeting: via the Internet, by phone, or by mail. If you have Internet access, we encourage you to record your vote on the Internet. It is convenient, it saves your company significant printing and processing costs, and your vote is recorded immediately. If you hold your shares in your name as a registered holder and not through a bank or brokerage firm, you may submit your vote in person. The vote you cast in person will supersede any previous votes that you submitted, whether by Internet, phone, or mail. At this year’s annual meeting, the polls will close at 9:30 a.m. Pacific Time; any further votes will not be accepted after that time. We will announce preliminary results at the annual meeting and publish the final results on our Web site at www.intc.com shortly after the meeting and in our quarterly report on Form 10-Q for the second quarter of fiscal 2007. If you have any questions about submitting your vote, call our Investor Relations department at (408) 765-1480.

 

If you are a registered holder, you may revoke your proxy at any time before the close of the polls at 9:30 a.m. Pacific Time on May 16, 2007 by submitting a later-dated vote in person at the annual meeting, via the Internet, by telephone, or by mail, or by delivering instructions to our Corporate Secretary before the annual meeting. If you hold shares through a bank or brokerage firm, you must contact that firm to revoke any prior voting instructions.

 

If you participate in the Intel Stock Fund through our 401(k) savings plan for current and former employees, your proxy will serve as a voting instruction for Fidelity Management Trust Company, the plan’s trustee. If Fidelity does not receive voting instructions for shares in your plan account, Fidelity will vote those shares in the same proportion as other plan participants’ shares for which it has received voting instructions. You must submit your voting instructions for your Intel Stock Fund shares to Fidelity by May 11, 2007 to allow Fidelity time to receive your voting instructions and vote on behalf of the plan.

 

Votes Required to Adopt Proposals. Each share of our common stock outstanding on the record date is entitled to one vote on each of the 11 director nominees and one vote on each other matter. Directors receiving the majority of votes cast will be elected (the number of shares voted “for” a director nominee must exceed the number of votes cast “against” that nominee). Ratification of the selection of our independent registered public accounting firm, amendment and extension of the 2006 Equity Incentive Plan, approval of the 2007 Executive Officer Incentive Plan, and adoption of the stockholder proposal each require the affirmative vote of the majority of the shares of common stock present or represented by proxy with respect to such proposal.

 

Shares not present at the meeting and shares voting “abstain” have no effect on the election of directors. For the proposals ratifying the selection of our independent registered public accounting firm, amending and extending the 2006 Equity Incentive Plan, approving the 2007 Executive Officer Incentive Plan, and acting on the stockholder proposal, abstentions are treated as shares present or represented and voting, so abstaining has the same effect as a negative vote. Broker non-votes on a proposal (shares held by brokers that do not have discretionary authority to vote on the matter and have not received voting instructions from their clients) are not counted or deemed present or represented for determining whether stockholders have approved that proposal. Please note that banks and brokers that have not received voting instructions from their clients cannot vote on their clients’ behalf on the proposal to amend and extend the 2006 Equity Incentive Plan.

 

Our nominees for the election of directors at the annual meeting include nine independent directors, as defined in the applicable rules for companies traded on The NASDAQ Global Select Market* (NASDAQ), and two members of our senior management. Stockholders elect all directors annually. At the recommendation of the Corporate Governance and Nominating Committee, the Board of Directors has selected the nominees to serve as directors for the one-year term beginning at the annual meeting on May 16, 2007 or until their successors, if any, are elected or appointed.

 

Unless proxy cards are otherwise marked, the persons named as proxies will vote all proxies received FOR the election of each nominee named in this section. If any director nominee is unable or unwilling to serve as a nominee at the time of the annual meeting, the persons named as proxies may vote for a substitute nominee chosen by the present Board to fill the vacancy or for the balance of the nominees, leaving a vacancy. Alternatively, the Board may reduce the size of the Board. We have no reason to believe that any of the nominees will be unwilling or unable to serve if elected as a director.

 

Director Changes in 2006. In November 2006, E. John P. Browne retired from the Board. Also in November 2006, the Board elected Susan L. Decker to the Board. In August 2006, Gordon E. Moore retired from his positions as Chairman Emeritus and Director Emeritus.

 

Majority Vote Standard for Election of Directors. Intel’s Bylaws require that each director be elected by the majority of votes cast with respect to such director in uncontested elections (the number of shares voted “for” a director nominee must exceed the number of votes cast “against” that nominee). In a contested election (a situation in which the number of nominees exceeds the number of directors to be elected), the standard for election of directors would be a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of directors. Whether an election is contested or not is determined as of a date that is 14 days in advance of when we file our definitive proxy statement with the U.S. Securities and Exchange Commission (SEC); this year’s election was determined to be an uncontested election, and the majority vote standard will apply. If a nominee who is serving as a director is not elected at the annual meeting, Delaware law provides that the director would continue to serve on the Board as a “holdover director.” However, under our Bylaws and Corporate Governance Guidelines, each director annually submits an advance, contingent, irrevocable resignation that the Board may accept if the director fails to be elected through a majority vote. In that situation, the Corporate Governance and Nominating Committee would make a recommendation to the Board about whether to accept or reject the resignation, or whether to take other action. The Board will act on the Corporate Governance and Nominating Committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date the election results are certified. If a nominee who was not already serving as a director fails

to receive a majority of votes cast at the annual meeting, Delaware law provides that the nominee does not serve on the Board as a “holdover director.” In 2007, all director nominees are currently serving on the Board.

 

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

 

Craig R. Barrett (age 67) has been Chairman of the Board since 2005 and a director of Intel since 1992. Dr. Barrett joined Intel in 1974. In 1984, he became Vice President, and then in 1985 General Manager of the Components Technology and Manufacturing Group. Dr. Barrett became a Senior Vice President in 1987 and General Manager of the Microcomputer Components Group in 1989. He was an Executive Vice President from 1990 to 1997, Chief Operating Officer from 1993 to 1997, President from 1997 to 2002, and Chief Executive Officer from 1998 to 2005.

 

Ambassador Charlene Barshefsky (age 56) has been a director of Intel since 2004 and Senior International Partner at the law firm of Wilmer Cutler Pickering Hale and Dorr LLP since 2001. Formerly the United States Trade Representative, Ambassador Barshefsky was the chief trade negotiator and principal trade policy maker for the United States from 1997 to 2001 and a member of the President’s cabinet. Ambassador Barshefsky is a director of the American Express Company, The Estée Lauder Companies Inc., and Starwood Hotels & Resorts Worldwide, Inc.

 

Susan L. Decker (age 44) has been a director of Intel since November 2006. Since 2000, she has been Executive Vice President, Finance and Administration, and Chief Financial Officer of Yahoo! Inc. Ms. Decker is a director of Costco Wholesale Corporation.

 

D. James Guzy (age 71) has been a director of Intel since 1969. Since 1996, he has been Chairman of SRC Computers, Inc., a private computer software and hardware development corporation. Mr. Guzy is also Chairman of the Board of PLX Technology, Inc. and a director of Cirrus Logic Inc. He also holds directorships within the AllianceBernstein and Davis Funds complexes.

 

Reed E. Hundt (age 59) has been a director of Intel since 2001. Since 1998, Mr. Hundt has been a principal of Charles Ross Partners, LLC, a private investor and advisory service. Also since 1998, he has served as an independent adviser on information industries to McKinsey & Company, Inc., a management consulting firm, and since 2000, to The Blackstone Group, a private equity firm. From 1993 to 1997, Mr. Hundt was Chairman of the Federal Communications Commission.

 

Paul S. Otellini (age 56) has been a director and President of Intel since 2002 and Chief Executive Officer since May 18, 2005. Mr. Otellini joined Intel in 1974. In 1990, he became General Manager of the Microprocessor Products Group. He was elected a corporate officer in 1991, a Senior Vice President in 1993, and Executive Vice President in 1996. From 1994 to 1998, Mr. Otellini served as General Manager of the Sales and Marketing Group; from 1998 to 2002, he served as General Manager of the Intel Architecture Group; and from 2002 to 2005, he served as Chief Operating Officer. Mr. Otellini is a director of Google, Inc.

 

James D. Plummer (age 62) has been a director of Intel since 2005. He has been a Professor of Electrical Engineering at Stanford University since 1978 and Dean of the School of Engineering since 1999. Dr. Plummer is a member of the National Academy of Engineering. His research and teaching at Stanford focus on nanoscale silicon devices and technology. Dr. Plummer is also a director of International Rectifier Corporation, a semiconductor manufacturer, and Leadis Technology, Inc., a semiconductor company.

 

David S. Pottruck (age 58) has been a director of Intel since 1998. Since 2005, Mr. Pottruck has been Chairman and Chief Executive Officer of Red Eagle Ventures, Inc., a San Francisco private equity firm. Mr. Pottruck is also Chairman of Eos Airlines and serves as a Senior Fellow in the Wharton School of Business Center for Leadership and Change Management. In 2004, Mr. Pottruck resigned from The Charles Schwab Corporation, a financial services provider, after a 20-year career, having served as President, Chief Executive Officer, and a member of the board of directors.

 

Jane E. Shaw (age 68) has been a director of Intel since 1993. In 2005, after seven years with the company, Dr. Shaw retired as Chairman and Chief Executive Officer of Aerogen, Inc., a company developing drug-device combination aerosol products for patients with respiratory disorders. She was President and Chief Operating Officer of ALZA Corporation, a pharmaceutical company, from 1987 to 1994. Dr. Shaw is a director of McKesson Corporation.

 

John L. Thornton (age 53) has been a director of Intel since 2003. He is Professor and Director of Global Leadership at Tsinghua University in Beijing. Mr. Thornton retired in 2003 as President and Co-Chief Operating Officer, and as a member of the board of directors, of the Goldman Sachs Group, Inc. after a 22-year career. Mr. Thornton is a director of China Netcom Communications Group Corporation, the Ford Motor Company, and News Corporation.

 

David B. Yoffie (age 52) has been a director of Intel since 1989. Dr. Yoffie has been the Max and Doris Starr Professor of International Business Administration at the Harvard Business School since 1993 and has been on the Harvard University faculty since 1981. He is also a director of The Charles Schwab Corporation.

 

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

 

 

The Board believes that the positions of Chairman of the Board and CEO should be held by separate persons to aid in the Board’s oversight of management. In addition, the Board has an independent director designated as the Lead Independent Director. The Lead Independent Director’s authority and responsibilities are established in a written charter adopted by the Board. They include:

 

 

The Board and its committees meet throughout the year on a set schedule, and hold special meetings and act by written consent from time to time as appropriate. Board agendas include regularly scheduled sessions for the independent directors to meet without management present, and the Board’s Lead Independent Director leads those sessions. Board members have access to all of our employees outside of Board meetings, and the Board has a program that encourages each director to visit different Intel sites and events worldwide on a regular basis and meet with local management at those sites and events.

 

Board Committees and Charters. The Board delegates various responsibilities and authority to different Board committees. Committees regularly report on their activities and actions to the full Board. The Board currently has, and appoints the members of, standing Audit, Compensation, Corporate Governance and Nominating, Executive, and Finance Committees. In addition, the Finance Committee has the authority to appoint the members of the Retirement Plans Investment Policy Committee, and there is a Board member serving on that committee. The Board of Directors determined each member of the Audit, Compensation, Corporate Governance and Nominating, and Finance Committees to be an independent director in accordance with NASDAQ standards. Each of the Board committees has a written charter approved by the Board, and each committee conducts an annual evaluation of the committee’s performance. We post copies of each charter and the charter describing the position of Lead Independent Director on our Web site at www.intc.com under the “Corporate Governance & Responsibility” section. Each committee can engage outside experts, advisers, and counsel to assist the committee in its work. The following table identifies the current committee members.

 

Corporate

Retirement Plans

Governance

Investment

Name

Audit

Compensation

and Nominating

Executive

Finance

Policy

Craig R. Barrett

ü

Charlene Barshefsky

ü

Susan L. Decker

D. James Guzy

ü

Chair

Reed E. Hundt

Chair

ü

Paul S. Otellini

ü

James D. Plummer

ü

ü

David S. Pottruck

ü

ü

ü

Chair

Jane E. Shaw

Chair

ü

John L. Thornton

ü

ü

David B. Yoffie

ü

Chair

Chair

Number of Committee Meetings in 2006

8

4

4

1

1

5

 

Audit Committee. The Audit Committee assists the Board in its general oversight of our financial reporting, internal controls, and audit functions, and is responsible for the appointment, retention, compensation, and oversight of the work of our independent registered public accounting firm. The Board has determined that Dr. Shaw and Mr. Pottruck both meet the SEC’s qualifications to be an “audit committee financial expert,” including meeting the relevant definition of an “independent director.” The Board determined that each Audit Committee member has sufficient knowledge in reading and understanding the company’s financial statements to serve on the Audit Committee. The responsibilities and activities of the Audit Committee are described in detail in “Report of the Audit Committee” and the Audit Committee’s charter.

 

Compensation Committee. The Compensation Committee has authority for reviewing and determining salaries, performance-based incentives, and other matters related to the compensation of our executive officers, and administering our stock option plans, including reviewing and granting stock options to our executive officers. The Compensation Committee also reviews and determines various other compensation policies and matters, including making recommendations to the Board with respect to employee compensation and benefit plans generally, making recommendations to the Board on stockholder proposals related to compensation matters, and administering the employee stock purchase plan. While the Compensation Committee is responsible for executive compensation, the Corporate Governance and Nominating Committee recommends the compensation for non-employee directors. The Compensation Committee can delegate to any member of the Board the authority to grant equity awards to employees who are not executive officers. The Compensation Committee can also designate one or more of its members to perform duties on its behalf, subject to reporting to or ratification by the Compensation Committee.

 

Intel’s Corporate Secretary, the Compensation and Benefits Group in Intel’s Human Resources department, and several other internal groups support the Compensation Committee in its work. Since 2005, the Compensation Committee has engaged the services of Professor Brian Hall of the Harvard Business School to advise the committee with respect to executive compensation philosophy, cash incentive design, the amount of cash and equity compensation awarded, and committee process. During 2006, Professor Hall’s work with the Compensation Committee related to the following:

 

 

The Compensation Committee will continue to engage Professor Hall in 2007 to advise it with regard to executive compensation programs, data presentations, and related matters. Professor Hall was selected by the Compensation Committee and has not performed work for Intel other than pursuant to his engagement by the committee. For more information on the responsibilities and activities of the Compensation Committee, including the committee’s processes for

determining executive compensation, see “Compensation Discussion and Analysis,” “Report of the Compensation Committee,” “Executive Compensation,” and the Compensation Committee’s charter.

 

Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee reviews and reports to the Board on a periodic basis with regard to matters of corporate governance and corporate social responsibility, such as environmental, workplace, and stakeholder issues. The committee also reviews and assesses the effectiveness of the Board’s Corporate Governance Guidelines, makes recommendations to the Board regarding proposed revisions to these Guidelines, and makes recommendations to the Board regarding the size and composition of the Board. In addition, the committee makes recommendations to the Board regarding the agendas for our annual meetings, reviews stockholder proposals, makes recommendations to the Board for action on such proposals, and reviews and makes recommendations concerning compensation for the non-employee directors. The Corporate Governance and Nominating Committee’s charter describes the responsibilities and activities of the committee in detail.

 

The Corporate Governance and Nominating Committee is responsible for reviewing with the Board, from time to time, the appropriate skills and characteristics required of Board members in the context of the current makeup of the Board. This assessment includes issues of diversity in numerous factors such as age; understanding of and experience in manufacturing, technology, finance, and marketing; and international experience and culture. The committee reviews these factors, and others considered useful by the committee, in the context of an assessment of the perceived needs of the Board at a particular point in time. As a result, the priorities and emphasis of the committee and of the Board may change from time to time to take into account changes in business and other trends, and the portfolio of skills and experience of current and prospective Board members. The committee establishes procedures for the nomination process, recommends candidates for election to the Board, and nominates officers for election by the Board.

 

Consideration of new Board candidates typically involves a series of internal discussions, review of information concerning candidates, and interviews with selected candidates. Board members or employees typically suggest candidates for nomination to the Board. In 2006, we did not employ a search firm or pay fees to other third parties in connection with seeking or evaluating Board candidates. Board members other than the CEO initially suggested Ms. Decker as a Board candidate. The committee considers candidates proposed by stockholders and evaluates them using the same criteria as for other candidates. A stockholder seeking to recommend a prospective nominee for the committee’s consideration should submit the candidate’s name and qualifications to our Corporate Secretary.

 

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

 

Finance Committee. The Finance Committee reviews and recommends matters related to our capital structure, including the issuance of debt and equity securities; banking arrangements, including investment of corporate cash; and management of the corporate debt structure. In addition, the Finance Committee reviews and approves finance and other cash management transactions whose authorization is not otherwise approved by the Board or delegated to our management.

 

Retirement Plans Investment Policy Committee. The Retirement Plans Investment Policy Committee is responsible for adopting and amending investment policies for our U.S. employee retirement plans. The Finance Committee appoints the members of this committee, including company officers.

 

Attendance at Board, Committee, and Annual Stockholders’ Meetings. The Board held seven meetings in 2006. We expect each director to attend every meeting of the Board and the committees on which he or she serves and attend the annual meeting. In 2006, each director attended the 2006 Annual Stockholders’ Meeting, with the exception of Mr. Pottruck. All directors with the exception of Mr. Browne attended at least 75% of the meetings of the Board and the committees on which they served in 2006.

 

Director Independence. Each of the non-employee directors qualifies as “independent” in accordance with the published listing requirements of NASDAQ: Ambassador Barshefsky, Ms. Decker, Mr. Guzy, Mr. Hundt, Dr. Plummer, Mr. Pottruck, Dr. Shaw, Mr. Thornton, and Dr. Yoffie. Dr. Barrett and Mr. Otellini do not qualify as independent because they are Intel employees. The NASDAQ rules have both objective tests and a subjective test for determining who is an “independent director.” The objective tests state, for example, that a director is not considered independent if he or she is an employee of the company or is a partner in or executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year. The subjective test states that an independent director must be a person who lacks a relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

 

None of the non-employee directors were disqualified from “independent” status under the objective tests. In assessing independence under the subjective test, the Board took into account the standards in the objective tests, and reviewed and discussed additional information provided by the directors and the company with regard to each director’s business and personal activities as they may relate to Intel and Intel’s management. Based on all of the foregoing, as required by NASDAQ rules, the Board made a subjective determination as to each independent director that no relationships exists which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board has not established categorical standards or guidelines to make these subjective determinations, but considers all relevant facts and circumstances.

 

In addition to the board-level standards for director independence, the directors who serve on the Audit Committee each satisfy standards established by the SEC providing that to qualify as “independent” for the purposes of membership on that Committee, members of audit committees may not accept directly or indirectly any consulting, advisory, or other compensatory fee from Intel other than their director compensation.

 

Transactions Considered in Independence Determinations. In making its independence determinations, the Board considered transactions occurring since the beginning of 2004 between Intel and entities associated with the independent directors or members of their immediate family. All identified transactions that appear to relate to Intel and a person or entity with a known connection to a director are presented to the Board for consideration. In making its subjective determination that each non-employee director is independent, the Board considered the transactions in the context of the NASDAQ objective standards, the special standards established by the SEC for members of audit committees, and the SEC and Internal Revenue Service (IRS) standards for compensation committee members. In each case, the Board determined that, because of the nature of the director’s relationship with the entity and/or the amount involved, the relationship did not impair the director’s independence. The Board’s independence determinations included reviewing the following transactions.

 

Ambassador Barshefsky is a partner at the law firm of Wilmer Cutler Pickering Hale and Dorr LLP. Intel paid this firm less than $500,000 in each of 2006, 2005, and 2004 for professional services. Ambassador Barshefsky does not provide any legal services to Intel, and she does not receive any compensation related to our payments to this firm. Ambassador Barshefsky’s husband is an officer of Honda Motor Co., Ltd. Intel and the Intel Foundation participated in a loan to Honda Finance Corp. in 2006 by purchasing a short-term debt instrument as a cash-management transaction.

 

Ms. Decker is employed and until 2004, Mr. Pottruck was employed, as an executive officer of a company with which Intel does business. Mr. Hundt and Dr. Plummer have been employed as outside advisers to companies with which Intel does business, but in such capacity did not provide advice or services to Intel. Family members of Ambassador Barshefsky, Ms. Decker, and Mr. Thornton are directors or employees of companies with which Intel does business. The amount that Intel paid in each fiscal year to each of these companies for goods and services represented less than 1% of the company’s annual revenue, and the amount received in each fiscal year by Intel for goods and services from each company represented less than 1% of Intel’s annual revenue.

 

Ms. Decker, Mr. Hundt, Dr. Plummer, Mr. Pottruck, Dr. Shaw, Mr. Thornton, Dr. Yoffie, or one of their immediate family members have each served as a trustee, director, employee, or advisory board member for one or more colleges and universities. Intel has a variety of dealings with these institutions, including:

 

 

Payments to each of these institutions (including discretionary contributions by Intel and the Intel Foundation) constituted less than the greater of $200,000 or 1% of that institution’s 2006 annual revenue.

 

Each of our non-employee directors is, or was during the previous three fiscal years, a non-management director of another company that did business with Intel at some time during those years. These business relationships were, variously, as a supplier or purchaser of goods or services, licensing or research arrangements, or financing arrangements in which Intel or the Intel Foundation participated as a creditor.

 

Corporate Business Principles and Principles for Responsible Business. It is our policy that all employees must avoid any activity that is or has the appearance of being hostile, adverse, or competitive with Intel, or that interferes with the proper performance of their duties, responsibilities, or loyalty to Intel. Our Corporate Business Principles contain these policies and cover our directors (with respect to their Intel-related activities), executive officers, and other employees. Each director and executive officer is instructed to inform our Board when confronted with any situation that may be perceived as a conflict of interest, even if the person does not believe that the situation would violate our Corporate Business Principles. If in a particular circumstance the Board concludes that there is or may be a perceived conflict of interest, the Board will instruct our Legal department to work with our relevant business units to determine if there is a conflict of interest and how the conflict should be resolved. Any waivers to these conflict rules with regard to a director or an executive officer require the prior approval of the Board or the Audit Committee. Our Corporate Business Principles is our code-of-ethics document. Our Principles for Responsible Business succinctly express our commitment to ethical and legal practices on a worldwide basis. We have posted our Corporate Business Principles and our Principles for Responsible Business on our Web site at www.intc.com under the “Corporate Governance & Responsibility” section.

 

Communications from Stockholders to the Board. The Board recommends that stockholders initiate any communication with the Board in writing and send it to the attention of our Corporate Secretary. This process will assist the Board in reviewing and responding to stockholder communications in an appropriate manner. The Board has instructed our Corporate Secretary to review such correspondence and, in his discretion, not to forward items if he deems them to be of a commercial or frivolous nature or otherwise inappropriate for the Board’s consideration.

 

Corporate Governance Guidelines. The Board has adopted a set of Corporate Governance Guidelines. The Corporate Governance and Nominating Committee is responsible for overseeing the Guidelines and annually reviews them and makes recommendations to the Board concerning corporate governance matters. The Board may amend, waive, suspend, or repeal any of the Guidelines at any time, with or without public notice, as it determines necessary or appropriate in the exercise of the Board’s judgment or fiduciary duties. We have posted the Guidelines on our Web site at www.intc.com under the “Corporate Governance & Responsibility” section. Among other matters, the Guidelines include the following items concerning the Board:

 

 

 

The general policy of the Board is that compensation for independent directors should be a mix of cash and equity-based compensation. Intel does not pay management directors for Board service in addition to their regular employee compensation. The Corporate Governance and Nominating Committee, which consists solely of independent directors, has the primary responsibility for reviewing and considering any revisions to director compensation. The Board reviews the committee’s recommendations and determines the amount of director compensation.

 

Intel’s Legal department, its Corporate Secretary, and the Compensation and Benefits Group in Intel’s Human Resources department support the committee in setting director compensation and creating director compensation programs. In addition, the committee can engage the services of outside advisers, experts, and others to assist the committee. During 2006, the committee did not use an outside adviser to aid in setting director compensation.

 

To assist the committee in its annual review of director compensation, Intel’s Compensation and Benefits Group provides director compensation data compiled from the annual reports and proxy statements of companies that the Board uses as its “peer group” for determining director compensation. The director peer group consists of companies within the Fortune 100 and technology companies generally considered comparable to Intel. The director peer group consists of the following companies:

 

American International Group Inc. Bank of America Corporation Chevron Corporation Cisco Systems Inc. Dell Inc. Hewlett-Packard Company International Business Machines Corporation		Johnson & Johnson JP Morgan Chase & Co. Microsoft Corporation Motorola, Inc. Proctor and Gamble Texas Instruments Incorporated Wal-mart Stores, Inc.

 

The Board followed the recommendation of the committee and determined non-employee director compensation as follows, effective July 2006:

 

 

The following table details the total compensation earned by Intel’s non-employee directors in 2006.

 

 

 

Fees Earned or Paid in Cash. Directors receive cash fees in quarterly installments. Annual retainers are prorated so that adjustments can be made during the year. Unpaid portions of cash retainers are forfeited upon termination, retirement, disability, or death. The following table provides a breakdown of fees earned or paid in cash.

 

								Committee Chair/Lead					Audit Committee
			Annual Retainers					Director Fees					Member Fees					Total
Name			($)					($)					($)					($)
Charlene Barshefsky				75,000					—					—					75,000
E. John P. Browne				65,600					—					3,700					69,300
Susan L. Decker				9,400					—					—					9,400
D. James Guzy				75,000					10,000					10,000					95,000
Reed E. Hundt				75,000					10,000					—					85,000
James D. Plummer				75,000					—					10,000					85,000
David S. Pottruck				75,000					10,000					6,300					91,300
Jane E. Shaw				75,000					20,000					—					95,000
John L. Thornton				75,000					5,000					—					80,000
David B. Yoffie				75,000					35,000					—					110,000

 

Equity Compensation. In accordance with Intel’s 2006 Equity Incentive Plan, equity grants to non-employee directors may not exceed 30,000 shares per director per year. The current practice is to grant each non-employee director RSUs each July with a market value of the underlying shares on the grant date of approximately $145,000. On July 21, 2006, Intel granted each independent director 8,470 RSUs, as the market price of Intel’s common stock was $17.12 on that date. Dr. Yoffie was awarded an additional 1,750 RSUs for his service as Lead Independent Director. For the purpose of granting RSUs, market value is the number of RSUs multiplied by the price of Intel’s common stock on the date of grant. Directors’ RSUs vest in equal annual installments over a three-year period from the date of grant. Vesting of all shares is accelerated upon retirement from the Board if a director is 72 years of age or has at least seven years of service on Intel’s Board. Directors do not receive dividends on unvested RSUs.

 

The following table provides information on the outstanding equity awards at fiscal year-end for non-employee directors. Market value is determined by multiplying the number of shares by the closing price of Intel common stock on NASDAQ on the last trading day of the fiscal year ($20.25 on December 29, 2006). Mr. Browne’s options expired on February 13, 2007, which was 90 days following his retirement from the Board on November 15, 2006.

 

			Option Awards															Stock Awards
			Number of															Number of					Market Value of
			Securities															Shares or					Shares or
			Underlying					Option										Units of Stock					Units of Stock
			Unexercised					Exercise					Option					That Have					That Have
			Options					Price					Expiration					Not Vested					Not Vested
Name			(#) Exercisable					($)					Date					(#)					($)
Charlene Barshefsky				15,000					27.53					5/19/11					8,470					171,500
				19,000					27.15					7/20/12
				5,000					32.06					1/21/14
Total				39,000															8,470					171,500
E. John P. Browne				15,000					29.39					2/13/07					8,470					171,500
				15,000					61.45					2/13/07
				15,000					27.53					2/13/07
				15,000					29.41					2/13/07
				15,000					29.19					2/13/07
				19,000					27.15					2/13/07
				15,000					18.73					2/13/07
Total				109,000															8,470					171,500
D. James Guzy				20,000					20.45					5/21/07					8,470					171,500
				20,000					19.48					5/20/08
				15,000					29.39					5/19/09
				15,000					61.45					5/17/10
				15,000					27.53					5/19/11
				15,000					29.41					5/23/11
				15,000					29.19					5/22/12
				19,000					27.15					7/20/12
				15,000					18.73					5/21/13
Total				149,000															8,470					171,500
Reed E. Hundt				15,000					27.53					5/19/11					8,470					171,500
				35,000					28.76					5/24/11
				15,000					29.19					5/22/12
				19,000					27.15					7/20/12
				15,000					18.73					5/21/13
Total				99,000															8,470					171,500
James D. Plummer				15,000					27.15					7/20/12					8,470					171,500
Total				15,000															8,470					171,500
David S. Pottruck				20,000					33.58					1/26/09					8,470					171,500
				15,000					29.39					5/19/09
				15,000					61.45					5/17/10
				15,000					27.53					5/19/11
				15,000					29.41					5/23/11
				15,000					29.19					5/22/12
				19,000					27.15					7/20/12
				15,000					18.73					5/21/13
Total				129,000															8,470					171,500

			Option Awards															Stock Awards
			Number of															Number of					Market Value of
			Securities															Shares or					Shares or
			Underlying					Option										Units of Stock					Units of Stock
			Unexercised					Exercise					Option					That Have					That Have
			Options					Price					Expiration					Not Vested					Not Vested
Name			(#) Exercisable					($)					Date					(#)					($)
Jane E. Shaw				20,000					20.45					5/21/07					8,470					171,500
				20,000					19.48					5/20/08
				15,000					29.39					5/19/09
				15,000					61.45					5/17/10
				15,000					27.53					5/19/11
				15,000					29.41					5/23/11
				15,000					29.19					5/22/12
				19,000					27.15					7/20/12
				15,000					18.73					5/21/13
Total				149,000															8,470					171,500
John L. Thornton				15,000					27.53					5/19/11					8,470					171,500
				19,000					27.15					7/20/12
				12,500					24.58					7/23/13
Total				46,500															8,470					171,500
David B. Yoffie				20,000					20.45					5/21/07					10,220					207,000
				20,000					19.48					5/20/08
				15,000					29.39					5/19/09
				15,000					61.45					5/17/10
				15,000					27.53					5/19/11
				15,000					29.41					5/23/11
				15,000					29.19					5/22/12
				19,000					27.15					7/20/12
				15,000					18.73					5/21/13
Total				149,000															10,220					207,000

 

The amounts included in the “Option Awards” and “Stock Awards” columns in the Director Summary Compensation table reflect the dollar amounts recognized for financial statement reporting purposes for the fiscal year ended December 30, 2006 in accordance with Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123(R)), excluding forfeitures. The “Stock Awards” column includes amounts from awards granted in 2006 and the “Option Awards” column includes amounts from awards granted in 2006 and 2005. The following table includes the assumptions used in the calculation of these amounts as well as the compensation expense on a grant-by-grant basis. The grant date fair value of the RSUs awarded in 2006 is also included. The grant date fair value is generally the amount the company would expense in its financial statements over the award’s service period, excluding forfeitures. Because Mr. Browne, Mr. Guzy, Mr. Pottruck, Dr. Shaw, and Dr. Yoffie are retirement-eligible under the 2006 Equity Incentive Plan, their 2006 RSU awards would accelerate in full upon their retirement from the Board (Mr. Browne’s award did accelerate upon his retirement). As a result, we recognized all of the compensation expense associated with their 2006 RSU grants immediately.

 

 

								Assumptions
																		Risk-Free															Grant Date Fair
													Expected					Interest					Dividend					2006					Value of Stock
			Grant					Volatility					Life					Rate					Yield					Expense					Awards Granted
Name			Date					(%)					(Years)					(%)					(%)					($)					in 2006 ($)
Charlene Barshefsky				7/20/05					23					4.0					4.0					1.2					62,400
				7/21/06					—					—					5.2					2.3					20,100					138,800
E. John P. Browne				7/20/05					23					4.0					4.0					1.2					62,400
				7/21/06					—					—					5.2					2.3					138,800					138,800
D. James Guzy				7/20/05					23					4.0					4.0					1.2					62,400
				7/21/06					—					—					5.2					2.3					138,800					138,800
Reed E. Hundt				7/20/05					23					4.0					4.0					1.2					62,400
				7/21/06					—					—					5.2					2.3					31,100					138,800
James D. Plummer				7/20/05					23					4.0					4.0					1.2					49,300
				7/21/06					—					—					5.2					2.3					20,100					138,800
David S. Pottruck				7/20/05					23					4.0					4.0					1.2					62,400
				7/21/06					—					—					5.2					2.3					138,800					138,800
Jane E. Shaw				7/20/05					23					4.0					4.0					1.2					62,400
				7/21/06					—					—					5.2					2.3					138,800					138,800
John L. Thornton				7/20/05					23					4.0					4.0					1.2					62,400
				7/21/06					—					—					5.2					2.3					20,100					138,800
David B. Yoffie				7/20/05					23					4.0					4.0					1.2					62,400
				7/21/06					—					—					5.2					2.3					167,400					167,400

 

Retirement. Intel has a deferred compensation plan that allows non-employee directors to defer up to 100% of their cash compensation and receive an investment return on the deferred funds as if the funds were invested in Intel common stock. Plan participants must elect irrevocably to receive the deferred funds either in a lump sum or in equal annual installments over five or 10 years, and to begin receiving distributions either at retirement or at a future date not less than 24 months from the election date. This deferred compensation is Intel’s unsecured obligation. Ambassador Barshefsky participated in the deferred compensation plan with respect to her cash payments for 2006, electing to receive 3,881 phantom shares of Intel common stock in lieu of cash.

 

In 1998, the Board ended its retirement program for independent directors. Non-employee directors serving at that time were vested with the number of years served. They will receive an annual benefit equal to the annual retainer fee in effect at the time of payment, to be paid beginning upon the director’s departure from the Board. The payments will continue for the lesser of the number of years served as a non-employee director or the life of the director. The amounts in the “Change in Pension Value and Non-Qualified Deferred Compensation Earnings” column in the Director Summary Compensation table represent the actuarial increase in pension value accrued under this program. Assumptions used in determining these increases include a discount rate of 5.5%, a retirement age of 65 or current age if older, RP2000 Mortality Table projected to 2006, and an annual benefit amount of $75,000.

 

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

 

Equipment. Intel gives each director a notebook computer for his or her personal use, and offers each director the use of other equipment employing Intel technology, such as consumer electronics devices using Intel^® Viiv^tm technology. The director receives a “tax gross-up” payment at the maximum federal and California state income tax rates if the provision of this equipment is considered taxable income. The amounts in the “All Other Compensation” column in the Director Summary Compensation table represent the fair market value (including tax gross-up payments) of the notebook computers given to the directors.

 

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

 

Director Stock Ownership Guidelines. The Board has established stock ownership guidelines for the non-employee directors. Within five years of joining the Board, the director must attain and hold at least 15,000 shares of Intel common

stock. After each succeeding five years of Board service, non-employee directors must own an additional 5,000 shares (for example, 20,000 shares after 10 years of service). Unexercised stock options and unvested RSUs do not count toward this requirement.

 

RSU Election and Deferral. In July 2006, the Board approved two non-employee director programs: the RSU in Lieu of Cash Election and the RSU Deferral Election. Under the RSU in Lieu of Cash Election program, directors will be allowed to elect annually to receive all of their cash compensation in the form of RSUs. This election must be 100% or 0% and must be made in the tax year prior to receiving compensation. The RSUs elected in lieu of cash will be granted on the same grant date as the annual RSU grant to directors, and will vest in equal annual installments over three years. Under the RSU Deferral Election program, directors can elect to defer their RSUs until termination of service. This election also must be 100% or 0% and will apply to all RSUs granted during the year. Deferred RSUs will count toward Intel’s stock ownership guidelines once they have vested. Directors do not receive dividends on deferred RSUs.

 

The following table sets forth the information that we know regarding ownership of our common stock on February 23, 2007 by each of our directors and listed officers and all of our directors and executive officers as a group. To our knowledge, none of our stockholders owns more than 5% of our common stock. Except as otherwise indicated and subject to applicable community property laws, each owner has sole voting and investment power with respect to the securities listed.

 

 

 

 

The Board’s Audit Committee is responsible for review, approval, or ratification of “related-person transactions” between Intel or its subsidiaries and related persons. Under SEC rules, a related person is a director, officer, nominee for director, or 5% stockholder of the company since the beginning of the last fiscal year and their immediate family members. The company has adopted written policies and procedures that apply to any transaction or series of transactions in which the company or a subsidiary is a participant, the amount involved exceeds $120,000, and a related person has a direct or indirect material interest. The Audit Committee has determined that, barring additional facts or circumstances, a related person does not have a direct or indirect material interest in the following categories of transactions:

 

 

Transactions involving related persons that are not included in one of the above categories are reviewed by the company’s disclosure committee. The disclosure committee determines whether a related person could have a significant interest in such a transaction, and any such transaction is forwarded to the Audit Committee for review. The Audit Committee determines whether the related person has a material interest in a transaction and may approve, ratify, rescind, or take other action with respect to the transaction in its discretion.

 

In 2006, there was one related-person transaction under the relevant standards: Intel employed the brother-in-law of Robert J. Baker, an executive officer, as an industrial engineer. Mr. Baker’s brother-in-law received total compensation of $130,000 for 2006, calculated in the same manner as in the Summary Compensation table. The Audit Committee reviewed and ratified this transaction.

 

Our compensation programs are designed to support our business goals and promote both short-term and long-term growth. This section of the proxy statement explains how our compensation programs are designed and operate in practice with respect to our listed officers. Our listed officers are the CEO, CFO, and three most highly compensated executive officers in a particular year. The “Executive Compensation” section presents compensation earned by the listed officers in 2006, 2005, and 2004.

 

The Compensation Committee of the Board of Directors determines the compensation for Intel’s executive officers. Intel’s executive officers have the broadest job responsibilities and policy-making authority in the company. The Committee reviews and determines all components of executive officers’ compensation, including making individual compensation decisions and reviewing and revising the executive officer compensation plans, programs, and guidelines as appropriate. The Committee also consults with management regarding non-executive employee compensation programs.

 

Intel’s Compensation Philosophy

 

The core element of Intel’s overall compensation philosophy is the alignment of pay and performance. Total compensation varies with individual performance and Intel’s performance in achieving financial and non-financial objectives. Intel’s equity plans are designed to ensure that executive compensation is aligned with the long-term interests of Intel’s stockholders. The Committee and Intel’s management believe that compensation should help to recruit, retain, and motivate the employees that the company will depend on for current and future success. The Committee and Intel’s management also believe that the proportion of “at risk” compensation (variable cash compensation and equity) should rise as an employee’s level of responsibility increases. This philosophy is reflected in the following key design priorities that govern compensation decisions:

 

 

Each element of compensation reflects one or more of these design priorities. Intel employees, including executive officers, are employed at will, without employment agreements, severance payment arrangements (except as required by local law), or payment arrangements that would be triggered by a “change in control” of Intel. Retirement plan programs are broad-based; Intel does not provide special retirement plans or benefits solely for executive officers.

 

Total compensation for the majority of Intel’s employees located in the United States, including executive officers, consists of the following components:

 

 

 

The Committee and management continue to believe that a similar method of compensating all employees with cash, equity, and retirement and other benefits supports a culture of fairness, collaboration, and egalitarianism.

 

Determining Executive Compensation

 

A substantial amount of the Committee’s annual cycle of work relates to the determination of compensation for Intel’s executive officers. The Committee’s goal is that total cash compensation for executive officers should be at the 65th percentile when company financial performance equals the average of the peer group companies. Because of the high proportion of cash compensation that is at risk, total cash compensation can be higher when company financial performance exceeds that of the peer group companies, and lower when financial performance is lower than that of the peer group companies. The Committee’s goal for equity compensation is that the combination of annual equity awards and long-term retention grants will approximate the market average over time.

 

To assist the Committee in its review of executive compensation, Intel’s Compensation and Benefits Group provides compensation data compiled from executive compensation surveys, as well as data gathered from annual reports and proxy statements from companies that the Committee selects as a “peer group” for executive compensation analysis purposes (the peer group is also sometimes referred to as the “market”). Professor Hall, the Committee’s independent adviser, reviews this data with the Committee. The peer group consists of technology companies generally considered comparable to Intel as well as non-technology companies within the Fortune 100. The Committee’s intent generally is to choose peer group members that have one or more attributes significantly similar to Intel’s, including semiconductor or computer design, manufacturing and integration, and large enterprises with global operations. The peer group includes the following companies:

 

Advanced Micro Devices, Inc. Apple Inc. Applied Materials, Inc. Bank of America Corporation Chevron Corporation Cisco Systems, Inc. Citigroup Inc. The Coca-Cola Company Dell Inc. EMC Corporation Exxon Mobil Corporation Ford Motor Company		General Electric Company General Motors Company Hewlett-Packard Company Honeywell International Inc. International Business Machines   Corporation Johnson & Johnson Lockheed Martin Corporation Microsoft Corporation Motorola, Inc. National Semiconductor   Corporation		Nortel Networks Corporation PepsiCo, Inc. Pfizer Inc. Qualcomm Incorporated Safeway Inc. Sony Corporation Sun Microsystems, Inc. Target Corporation Texas Instruments Incorporated Time Warner Inc. United Parcel Service, Inc. The Walt Disney Company

 

The Committee’s process for determining compensation also includes a review of Intel’s executive compensation programs and practices, and an analysis, for each Intel executive officer, of all elements of compensation. The Committee compares these compensation components separately and in total to compensation at the peer group companies. The Committee also compares the compensation of executive officers with the compensation of other Intel employees for internal pay equity purposes. In the first quarter of each year, the Committee establishes base salaries, sets the incentive baseline amounts under the Executive Officer Incentive Plan, and grants equity awards to executive officers. Following the end of each year, the Committee determines the annual incentive cash payments to be made under the plan.

 

Before the Committee makes decisions on base salary, incentive baseline amounts under the Executive Officer Incentive Plan, and equity awards for the year, the CEO documents each executive officer’s performance during the year, detailing accomplishments, areas of strength, and areas for development. The CEO bases this evaluation on his knowledge of each executive officer’s performance, an individual self-assessment, and feedback provided by each executive officer’s peers and direct reports. The executive officers are then rated based on their performance during the year. The CEO also reviews the compensation data gathered from the compensation surveys and makes a recommendation to the Committee on each executive officer’s compensation, except for the Chairman and CEO. Executive officers do not propose or seek approval for their own compensation.

 

The Chairman of the Board and the CEO’s annual performance reviews are developed by the independent directors acting as a committee of the whole chaired by the Lead Independent Director. For the CEO’s review, formal feedback is received from the independent directors, the Chairman of the Board, and the CEO’s direct reports. The Chairman and the CEO also

submit self-assessments. The independent directors meet in executive session to prepare the reviews, which are completed and presented to the Chairman and the CEO before the Committee determines their base salary, incentive baseline amounts under the Executive Officer Incentive Plan, and equity awards.

 

In determining base salary, incentive baseline amounts under the Executive Officer Incentive Plan, and equity awards for executive officers, the Committee reviews company and individual performance information and peer group executive compensation data. The Committee also reviews the value of each element of compensation that each of Intel’s executive officers could potentially receive in each of the next 10 years, under scenarios of continuing employment with Intel or upon termination or retirement. For this review, total remuneration includes all aspects of the executive officer’s total cash compensation from continuing employment, the future value of equity awards under varying stock price assumptions (and including, as applicable, the impact of accelerated vesting upon retirement), the value of any deferred compensation and profit sharing retirement benefits, and the value of health care benefits.

 

Elements of Compensation

 

Base Salary

 

The Committee establishes executive officers’ base salaries at levels that it believes are below the 25th percentile of the peer group companies for comparable positions. The Committee strives to have the majority of the executive officers’ pay at risk, as reflected by the fact that only 6% of the listed officers’ total compensation (“total compensation” as reported in the Summary Compensation table is used throughout this proxy statement) was provided in the form of base salary in 2006 (5% in 2005 and 5% in 2004). As a percentage of total cash compensation (the sum of the “Salary,” “Bonus,” “Non-Equity Incentive Plan Compensation,” and “All Other Compensation” columns of the Summary Compensation table), base salary constituted 24% of the listed officers’ cash compensation in 2006 (17% in 2005 and 24% in 2004). When the Committee determines the executive officers’ base salaries during the first quarter of the year, the Committee takes into account each officer’s role and level of responsibility at the company. In general, executive officers with the highest level and amount of responsibility have the lowest percentage of their compensation fixed as base salary and the highest percentage of their compensation at risk. In January 2006, the Committee increased base salaries for the listed officers other than Dr. Barrett based on the Committee’s review of the officers’ current performance and expected future contributions, and in recognition that the listed officers’ salaries were below the 25th percentile of the peer group. The Committee reduced Dr. Barrett’s base salary following his transition from CEO to Chairman, as the expectation of the Committee is that the CEO should be the highest paid employee in the company.

 

Performance-Based Compensation

 

Intel’s pay-for-performance programs include cash incentive payments that reward strong financial performance and equity awards that reward strong stock price performance. The incentive cash and equity compensation of executive officers is intended to increase if Intel’s financial performance and return to stockholders increase and, conversely, to decrease if performance and return decrease. Annual and semiannual incentive cash payments are determined primarily by Intel’s financial results, and are not linked directly to Intel’s stock price performance. We believe that Intel’s executive officers, including listed officers, have more compensation risk than most of the executive officers at the peer group companies because performance-based compensation constitutes a higher proportion of their total compensation.

 

During 2006, 17% of the listed officers’ total compensation was provided in the form of annual and semiannual incentive cash payments (22% in 2005 and 15% in 2004) and 74% in the form of equity compensation (the sum of the “Stock Awards” and “Option Awards” columns of the Summary Compensation table) (59% in 2005 and 78% in 2004). Therefore, in 2006, 91% of the listed officers’ total compensation was delivered through performance-based compensation (81% in 2005 and 93% in 2004), in alignment with Intel’s compensation philosophy. In 2006, Intel paid some of its listed officers higher than market cash compensation based on their individual performance in addition to Intel’s overall performance. Intel paid other listed officers lower than market total cash compensation based on their being relatively new to their positions or because of individual performance.

 

Key financial components of Intel’s cash incentive programs include revenue, operating income, and net income. In 2006, revenue declined 8.9%, operating income declined 53.3%, and net income declined 41.8% compared to 2005. Primarily because of those results, total cash compensation to listed officers overall declined 30% and was below the median in our peer group.

 

Annual Incentive Cash Payments. Annual incentive cash payments are made under the Executive Officer Incentive Plan. This plan is the primary cash incentive program covering executive officers. Each executive officer has an “incentive baseline amount,” and that amount is multiplied at year-end using a formula. The result of that computation is the

maximum amount that the officer might receive as his or her annual incentive cash payment for the year. The amount cannot be increased beyond the maximum limits calculated each year under the formula and cannot in any event exceed $5 million for any individual, even if the formula calculation results in a higher number. The Committee has broad discretion to reduce (but not increase) the size of the annual incentive cash payments below the amounts set by the formula, and it did so for the 2006 payments. The plan formula is designed so that the annual incentive cash payments are expected to be higher than the incentive baseline amounts due to the intended multiplier effect of the formula. It is also expected that the multiplier and the payments under the plan will vary year by year, because the financial performance of the company will vary year by year.

 

The plan formula for determining the maximum annual incentive cash payment for each executive officer is as follows:

 

 

 

Following the end of fiscal year 2006, the Committee determined the maximum annual incentive cash payments that could be paid in accordance with the plan’s formula. The 2006 financial results yielded a Plan EPS of $1.20, as adjusted operating income per share of $1.20⁽¹⁾ exceeded the adjusted net income per share of $1.03⁽²⁾. Multiplying the performance factor of 2.91 by the Plan EPS of $1.20 resulted in a multiplier of 3.49 under the Executive Officer Incentive Plan. Multiplying an individual’s incentive baseline amount by 3.49 would yield the maximum amount that could be paid to that individual under the Executive Officer Incentive Plan for 2006.

 

The Committee has broad discretion to reduce the size of the annual incentive cash payments below these maximum amounts; the Committee’s practice has been to reduce the annual incentive cash payments for purposes of egalitarianism and, when appropriate, to reflect individual performance assessments. In addition to the Executive Officer Incentive Plan, Intel has a broad-based annual incentive cash plan for employees generally. The broad-based plan also has a formula that results in a multiplier for calculating payments under that plan, and that multiplier is typically smaller than the multiplier under the Executive Officer Incentive Plan for the same year. The Committee often uses its negative discretion and calculates bonuses based on the multiplier calculated under this broad-based incentive cash plan in lieu of the higher Executive Officer Incentive Plan multiplier. In five of the past six years, the Committee has used its discretion

 

 

to set the annual incentive cash payments lower than the amounts derived from the Executive Officer Incentive Plan formula for all participants.

 

In the past few years, the multipliers used by the Committee for Executive Officer Incentive Plan purposes ranged from 1.66 to 4.59, and were intended to reflect the changes in reported financial results and progress to corporate goals for those periods; these multipliers were typically the ones that had been set for the broad-based plan for those years and were lower than the multipliers calculated with the formula in the Executive Officer Incentive Plan. For the 2006 payments to all executive officers (excluding the CEO and Chairman), the Committee elected to use the broad-based plan multiplier of 2.33 as a basis for its exercise of negative discretion. The Committee had similarly exercised negative discretion in 2005, and had used the 2005 broad-based plan multiplier of 3.76 as a basis for determining 2005 payments under the Executive Officer Incentive Plan. The decrease in the broad-based multiplier between 2005 and 2006 was based on declines in Intel’s revenue, operating income, net income, and performance to operational goals. For 2006, the Committee also determined to reduce the multiplier for the CEO and Chairman an additional 10% to 2.10. The Compensation Committee determined to reduce the multiplier for the Chairman and CEO in light of the totality of Intel’s performance in 2006. In addition, as described below, the Committee used its negative discretion to apply another lower multiplier to a portion of the incentive baseline amounts for Mr. Baker, Mr. Bryant, and Mr. Maloney.

 

The following graph shows how the amount of the average annual incentive cash payment to listed officers varied with changes to Intel’s diluted EPS as reported under GAAP.

 

 

 

Because the Committee used its negative discretion to employ the multiplier determined under the broad-based plan in 2006 and prior years, the following discussion highlights how the broad-based plan multiplier was determined and how the broad-based plan multiplier differed from that of the Executive Officer Incentive Plan. Significant differences between the Executive Officer Incentive Plan and the broad-based plan formulas are that the broad-based plan includes a variable that reflects the scoring of operational goals and the broad-based plan uses only net income, while the Executive Officer Incentive Plan uses the greater of net income or operating income. In 2006, the broad-based plan multiplier formula was:

 

 

In this formula, BSA (which stands for “business segment achievement”) relates to a set of operational goals with weightings that total 100 points; each goal can be scored between 0 and 1.25, with the total expressed as a percentage between 0% and 125%. The operational goals are prepared each year as part of the annual planning process for the company. The scoring for each goal sets a score of 1.0 (100%) for achievement at a level reflected in the company’s confidential internal annual business plan of financial goals (such as revenue, cost, expenses, and volume) and non-financial goals (such as product milestones and customer goals). Scores greater or less than 1.0 reflect results positively or negatively at variance with particular goals. While the use of BSA is intended to establish a rigorous process for tracking and evaluating performance, the company’s assessment of performance against particular goals often involves some degree of subjective evaluation of non-quantitative measures. The operational goals are intended to be a practical and realistic

estimate of the coming year based on the data, projections, and analyses used by the company in its planning processes. However, the goals (as with the annual business plan from which they are derived) are predictions of the future, and their realization is dependent upon a large number of variables subject to wide ranges of possible outcomes. The variables that ultimately determine these outcomes may be quite different when comparing goal to goal. The BSA scores for the year, representing Intel’s achievement of the year’s operational goals, are calculated by senior management and are reviewed and approved by the Committee.

 

Portions of the incentive baseline amounts for Mr. Baker, Mr. Bryant, and Mr. Maloney under the Executive Officer Incentive Plan (Transition Portions) had been awarded with the intent to further motivate and reward these persons in 2006 as the company transitioned to a new CEO and undertook a number of changes to its product lines, business units, and operations. The Committee expected at the time of award that the Transition Portions would be multiplied by the lower of the Executive Officer Incentive Plan multiplier and a multiplier (ranging from 0.4 to 1.4) determined based on the BSA score described above (which for 2006 equaled 0.8).

 

Senior management set the Growth Factor at 2.151 at the beginning of the year. Intel’s 2006 financial results yielded an EPS of $1.03 for purposes of the broad-based plan (calculated in the same manner as adjusted net income per share under the Executive Officer Incentive Plan). In 2006, we organized our operational goals into three principal categories: Architecture/Platforms, Manufacturing/Technology, and Worldwide Growth.

 

Architecture/Platforms goals included:

 

 

Manufacturing/Technology goals included:

 

 

Worldwide Growth goals included:

 

 

Intel achieved a score of 88% for its operational goals in 2006, down from a score of 108% in 2005. In 2006, the company performed above its expectations on the Manufacturing/Technology goals and below its expectations on Architecture/Platforms and Worldwide Growth. The BSA score of 88% led to a BSA multiplier of 0.8, which was the multiplier applied to the Transition Portions of the incentive baseline amount for Mr. Bryant, Mr. Maloney, and Mr. Baker.

The following table shows the 2006 annual incentive baseline amounts for the listed officers, the 3.49 plan multiplier for 2006, the resulting maximum individual amounts payable under the Executive Officer Incentive Plan for 2006, and the amounts actually paid through the exercise of negative discretion by the Committee.

 

 

Proposed Changes to the Annual Incentive Cash Payment Plan in 2007. Intel has terminated the prior Executive Officer Incentive Plan and is now seeking stockholder approval for the 2007 Executive Officer Incentive Plan at the annual meeting (see “Proposal 4: Approval of the 2007 Executive Officer Incentive Plan” for more information). If the 2007 plan is approved by stockholders, the formula used to calculate annual incentive cash payments will change, and the formula will include operational goals similar in nature to the current broad-based plan and other factors not currently in the Executive Officer Incentive Plan formula. Under the 2007 plan, the executive officer’s incentive baseline amount will continue to be adjusted by a multiplier. However, instead of Plan EPS and a performance factor, the new multiplier will consist of an absolute financial component, a relative financial component, an operational component, and an individual component. The proposal describes each of these components. The new multiplier under the 2007 plan would typically range between 2 and 4, with a target multiplier of 3. The intent of the program remains unchanged: an annual cash-based, pay-for-performance incentive program designed to motivate and reward our executive officers for their contributions to Intel’s performance and to link incentive payments to our financial and operational performance. We believe that the new formula is an improvement over the formula in the current plan. To link incentive payments more directly to financial and operational performance, the company has adopted a parallel plan for determining annual incentive cash payments for employees generally, except that the individual component is not included in the broad-based plan.

 

Semiannual Incentive Cash Payments. Intel’s executive officers participate in a companywide, semiannual cash incentive plan that calculates payouts based on Intel’s corporate profitability to link compensation to financial performance. The payout is computed using two formulas, with the payout based on the formula delivering the higher value. Payouts are communicated as a number of extra days of pay, with executive officers receiving the same number of extra days as other employees. Under this plan, executive officers and other eligible employees each receive 0.55 day of pay (calculated based on eligible earnings for the six-month period, including one-half of incentive baseline amounts) for every two percentage points of corporate pretax margin (pretax profit as a percentage of revenue), or a payment expressed as days of pay based on 4% of net income divided by the current value of a worldwide day of pay (essentially, Intel’s daily payroll cost).

 

We make these payments in the first and third quarters of each year based on corporate performance for the preceding two quarters. We pay an additional day of pay for each six-month period if Intel achieves customer satisfaction goals. Intel achieved these goals in 2006. Plan payments earned in 2006 totaled 15.1 days of pay per employee, down from 17.8 days in 2005. In 2006, 2005, and 2004, semiannual incentive cash payments represented 5% or less of listed officers’ total incentive cash payments. In 2007, we will increase the days of pay to 0.65 and days of pay based on net income to 4.5% to offset the impact of including share-based compensation expense in the semiannual incentive cash formula. We will pay an additional two days of pay annually if Intel achieves annual customer satisfaction goals.

 

Equity Incentive Plans. The Committee believes that equity awards should constitute the majority of the executive officers’ total compensation. In alignment with this belief, in 2006 the Committee allocated 74% of the total compensation of the listed officers (as reported in the Summary Compensation table) in the form of equity awards (59% in 2005 and 78% in 2004). We based the values reported in the “Stock Awards” and “Option Awards” columns of the Summary Compensation table on the SFAS No. 123(R) compensation expense related to awards granted in 2006 and prior

years, excluding forfeitures. We calculated compensation expense at the time of grant and recognized it over the service period, which is usually the vesting period. The amounts the listed officers eventually realize from these equity awards may be higher or lower than the compensation expense recognized for purposes of SFAS No. 123(R). The views of the Committee and management regarding equity awards are based on the principle that equity compensation should seek to align employees’ actions with stockholders’ interests. The Committee and management believe that equity compensation can help the company recruit, retain, and motivate the employees needed for the present and future success of the company.

 

Executive officers and other employees realize long-term incentive compensation through equity grants. To reward, retain, and motivate employees in 2006, the Committee and Intel used stock options and RSUs as long-term incentive vehicles. Due to Intel’s strong belief in the egalitarian treatment of employees, the company continues to grant equity awards to the broad-based employee population. In 2006, the majority of Intel’s employees received RSUs instead of stock option grants, and the remaining eligible employees, including executive officers, received equity grants that were a mix of RSUs and stock options. As an employee’s level of responsibility increases, the percentage of stock options is a greater portion of the equity grant, equating to more at-risk compensation for higher level executive officers. Stock options provide actual economic value to the holder if the price of Intel stock has increased from the grant date at the time the option is exercised. In contrast, RSUs convert to shares when they vest, so they will have a gross value at that time equal to the then-current market value. While stock options motivate executive officers by providing more potential upside, RSUs assist the company in retaining executive officers because RSUs have value even if the stock price declines or stays flat. The use of RSUs also assists in maintaining the Board’s long-term goal that equity grants not result in an average annual dilution rate that exceeds 2%.

 

Equity grants are a key element of Intel’s market-competitive total compensation package. We make most equity grants on an annual basis in connection with the annual performance review and compensation adjustment cycle. In general, options and RSUs vest in 25% annual increments beginning one year from the date of grant. For all employees including executive officers, Intel uses pre-established quarterly dates for the formal granting of equity awards during the year. With limited exceptions, these dates typically occur shortly after publication of Intel’s quarterly earnings releases. Mr. Otellini, constituting a Grant Subcommittee, has been granted the authority by the Committee to review and grant, as the act of the Committee and of the Board, equity awards of up to 75,000 shares to eligible employees who are not corporate officers. The Committee is responsible for determining equity awards to executive officers.

 

For Intel’s executive officers, the Committee uses a combination of annual equity grants (as described above) targeted to be below market average in value, and long-term retention equity grants, which in combination with the annual grants are intended to approximate the market average over a period of time. An executive officer is eligible for consideration to receive a long-term retention grant every four years. We award these long-term retention grants in 25% annual increments over a four-year period. Long-term retention grants have a five-year cliff-vesting schedule, meaning that 100% of the grant vests on the fifth anniversary of the date that the grants are awarded. As an example, if the Committee granted an officer an option to purchase 100,000 shares of Intel stock as a long-term retention grant at the beginning of 2006, the Committee would then make this award as four separate option grants in 2006, 2007, 2008, and 2009, with each grant providing an option to purchase 25,000 shares. These options would vest in 2011, 2012, 2013, and 2014. Beginning in 2006, these long-term retention equity grants were a mix of RSUs (approximately 20% of total equity award value) and stock options (approximately 80% of total) based on their grant date fair values as calculated under SFAS No. 123(R).

 

The Committee determines the amount of annual equity grants and long-term retention grants based on factors such as relative job scope, expected future contributions to the growth and development of the company, the value of past awards, the Committee’s evaluation of 10-year potential total remuneration scenarios, and the competitiveness of grants relative to the peer group companies. During 2006, none of the listed officers received a long-term retention grant. Therefore, in 2006, the equity grants to each of the listed officers were below market average.

 

Employee Stock Purchase Plan

 

Intel also has a tax-qualified employee stock purchase plan, generally available to all employees including executive officers, that allows participants to acquire Intel stock at a discount price. This plan has a six-month look-back and allows participants to buy Intel stock at a 15% discount to the market price with up to 10% of their salary and incentives (subject to IRS limits), with the objective of allowing employees to profit when the value of Intel stock increases over time. Under applicable tax law, no plan participant may purchase more than $25,000 in market value (based on the market value of Intel stock on the last trading day before the beginning of the enrollment period for each subscription period) of Intel stock in any calendar year.

 

Retirement Plans

 

Intel provides limited post-employment compensation arrangements to our listed officers, consisting of an employee-funded 401(k) savings plan, a discretionary company-funded profit sharing retirement plan, and a company-funded pension plan, each of which is tax-qualified and available to substantially all U.S. employees, and a non-tax-qualified supplemental deferred compensation plan for highly compensated employees. For employees outside the U.S., Intel offers similar retirement benefits consistent with local market practices. A plan is tax-qualified if it satisfies the requirements of Section 401(a) of the Internal Revenue Code of 1986, as amended (the tax code). Under a tax-qualified plan, Intel is eligible for a tax deduction for its contributions for the year to which the contribution relates, while the benefits are taxable to the participant for the year in which they are ultimately received. Under a plan that is not tax-qualified, Intel is not eligible for a tax deduction until the year in which the benefits are paid to the participant.

 

The Committee allows for the participation of the executive officers in these plans, and the terms governing the retirement benefits under these plans for the executive officers are the same as those available for other eligible employees in the U.S. The plans differ, but each plan other than the pension plan results in individual participant balances that reflect a combination of:

 

 

Employees, including Intel’s executive officers, may have different account balances due to a combination of factors, including the number of years that the employee has participated in the plan, the amount of money contributed or compensation deferred from year to year, and the investments chosen by the participant with regard to plans providing for participant-directed investments. These plans do not involve any guaranteed minimum or above-market returns, as returns depend on actual investment results; however, the pension plan does provide a minimum benefit amount. When determining annual compensation for executive officers, the Committee reviews the individuals’ retirement plan balances and payout projections over a 10-year period.

 

The profit sharing retirement plan is a defined contribution plan designed to accumulate retirement funds for Intel’s employees, including executive officers, and to allow Intel to make contributions or allocations to those funds. The profit sharing retirement plan features a discretionary cash contribution determined annually by the Committee for executive officers, and by the CEO for other employees. These contribution percentages have historically been the same for executive officers and other employees. For 2006, Intel’s discretionary contributions (including allocable forfeitures) to the profit sharing retirement plan for all eligible U.S. employees, including executive officers, equaled 7% of eligible salary (which included annual and semiannual incentive cash payments as applicable) up to the tax code limit of $15,400. Intel invests all of its contributions to the profit sharing retirement plan in a diversified portfolio.

 

Participants in the non-qualified deferred compensation plan can elect to defer their base salary and their annual incentive cash payment without regard to the tax code limitations applicable to the tax-qualified plans. The deferred compensation plan is intended to promote retention by providing employees with an opportunity to save in a tax-efficient manner. Because the listed officers do not receive above-market rates of return under the deferred compensation plan, earnings under the plan are not included in the Summary Compensation table but are included in the Non-Qualified Deferred Compensation table. The notional investment options available under the non-qualified plan are the same investment options that are available in the 401(k) savings plan. The non-qualified deferred compensation plan also has a profit sharing component. This component credits an amount equal to the portion of Intel’s contribution under the profit sharing retirement plan above tax code limitations.

 

The pension plan is a defined benefit plan with two components. The first component is designed to provide participants with retirement income as determined by a pension formula based on final average pay, Social Security covered compensation, and length of service upon separation not to exceed 35 years. It provides pension benefits only if a participant’s profit sharing retirement plan account balance does not afford a minimum level of retirement income, in which case the floor offset makes up the difference. Because the profit sharing retirement plan balance for each of Intel’s executive officers is above this minimum, none of those individuals would receive any payments from this component of the pension plan if they retired today. The second component is a tax-qualified arrangement that provides pension benefits that offset amounts that would otherwise be paid under the non-qualified deferred compensation plan described above. Each participant’s tax-qualified amount in this arrangement was established based on a number of elements, including the

participant’s non-qualified deferred compensation plan balance as of December 31, 2003, IRS pension rules that take into consideration age and other factors, and limits set by Intel for equitable administration.

 

Other Compensation Policies

 

Personal Benefits. The Committee supports the goal of Intel’s management to maintain an egalitarian culture in its facilities and operations. Intel’s executive officers are not entitled to operate under different standards than other employees. Intel does not provide its executive officers with reserved parking spaces or separate dining or other facilities, nor does Intel have programs for providing personal benefit perquisites to executive officers, such as permanent lodging or defraying the cost of personal entertainment or family travel. Intel’s office buildings provide cubicles for all employees, including executive officers. Employees’ access to business equipment, transportation, temporary accommodation, or other support services is allocated based on appropriate business purposes and not as a form of informal compensation. The company provides air and other travel for Intel’s executive officers for business purposes only. Intel’s company-owned aircraft hold approximately 40 passengers and are used in regularly scheduled shuttle routes between Intel’s major U.S. facility locations, and Intel’s use of noncommercial aircraft on a time-share or rental basis is limited to appropriate business-only travel. Intel’s health care, insurance, and other welfare and employee benefit programs are essentially the same for all eligible employees, including executive officers, although the details of the programs may vary by country. Intel shares the cost of health and welfare benefits with its employees, a cost that is dependent on the level of benefits coverage that each employee elects. Intel’s employee loan programs are not available to Intel’s executive officers. Intel has no outstanding loans of any kind to any of its executive officers.

 

Stock Ownership Guidelines. Because the Committee believes in linking the interests of management and stockholders, the Board has set stock ownership guidelines for Intel’s executive officers. The ownership guidelines specify a number of shares that Intel’s executive officers must accumulate and hold within five years of the later of the effective date of the guidelines or the date of appointment or promotion as an officer. The specific share requirements range from 35,000 to 250,000, with the higher guidelines applicable to executive officers having the highest levels of responsibility. Stock options and unvested RSUs do not count toward satisfying these ownership guidelines. Each of our listed officers satisfied these ownership guidelines in 2006.

 

Intel Policies Regarding Claw-Backs. In January 2007, the Board of Directors adopted standards for seeking the return (claw-back) from executive officers of cash incentive payments and stock sale proceeds to the extent that they had been inflated due to financial results that later had to be restated. We have added these standards as provisions in the 2007 Executive Officer Incentive Plan and 2006 Equity Incentive Plan as proposed. Under the 2007 Executive Officer Incentive Plan, if Intel’s financial statements are the subject of a restatement due to error or misconduct, the Board will seek reimbursement of excess annual incentive cash payments to executive officers for the relevant performance periods, whether or not the executive officers engaged in any misconduct. Excess incentive cash compensation means the positive difference, if any, between the payment made to the executive officer and the payment that would have been made to the executive officer had the multiplier been calculated based on the company’s financial statements as restated. Under the 2006 Equity Incentive Plan, if an executive officer engaged in an act of embezzlement, fraud, or breach of fiduciary duty that contributed to the obligation for Intel to restate its financial statements, the officer will be required to repay proceeds from the sale of shares issued upon exercise of a stock option or stock appreciation right (SAR), or vesting of restricted stock or RSU, occurring during the 12-month period following the first public issuance or filing with the SEC of the financial statements required to be restated, in an amount determined appropriate by the Committee to reflect the effect of the restatement on Intel’s financial statements. These remedies would be in addition to any actions imposed by law enforcement agencies, regulators, or other authorities.

 

Tax Deductibility. Section 162(m) of the tax code places a limit of $1 million on the amount of compensation that Intel may deduct in any one year with respect to its CEO and each of the next four most highly compensated executive officers. Certain performance-based compensation approved by stockholders is not subject to this deduction limit. Intel’s Executive Officer Incentive Plan and 2006 Equity Incentive Plan have each been structured with the intention that cash payments and stock options awarded under these plans be qualified performance-based compensation not subject to Section 162(m) of the tax code. Proposal 4 in this proxy statement is proposing that stockholders approve the 2007 Executive Officer Incentive Plan; however, due to the plan’s design, it is not expected to meet other qualifications for tax deductibility under Section 162(m) of the tax code. To maintain flexibility in compensating Intel’s executive officers in a manner designed to promote varying corporate goals, it is not a policy of the Committee that all executive compensation must be tax-deductible.

 

The Compensation Committee, which is composed solely of independent members of the Board of Directors, assists the Board in fulfilling its responsibilities with regard to compensation matters, and is responsible under its Committee charter for determining the compensation of Intel’s executive officers. In previous proxy statements, the Committee submitted reports that sought to describe in detail the philosophy and execution of executive compensation at Intel. In accordance with SEC rules that are now effective for this and future proxy statements, a new “Compensation Discussion and Analysis” section includes this information. In addition, the “Executive Compensation” section includes more information concerning the compensation of our listed officers than has been published previously; and Proposals 3 and 4 in this proxy statement include additional information about our proposed amendments to the 2006 Equity Incentive Plan and our proposed 2007 Executive Officer Incentive Plan. In this regard, the Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis” section of this proxy statement with management, including our Chief Executive Officer, Paul S. Otellini, and our Chief Financial Officer, Andy D. Bryant. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the “Compensation Discussion and Analysis” section be included in Intel’s 2006 Annual Report on Form 10-K and in this proxy statement.

 

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

 

The following table lists the annual compensation for our CEO, CFO, and our three other most highly compensated executive officers in 2006 (referred to as listed officers) for the fiscal years 2006, 2005, and 2004.