Texas Instruments



Board organization
 
Board and committee meetings
 
During 2010, the board held nine meetings. The board has three standing committees described below. The committees of the board collectively held 23 meetings in 2010. Each director attended at least 88 percent of board and relevant committee meetings combined. Overall attendance at board and committee meetings was approximately 97 percent.
 
Committees of the board
 
Audit Committee
The Audit Committee is a separately designated standing committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. All members of the Audit Committee are independent under the rules of the NYSE and the board’s corporate governance guidelines. From January 1, 2010, to April 30, 2010, the committee members were Ms. Patsley (Chair), Mr. Boren, Mr. MacMillan and Mr. Sanders, with Mr. Babb joining the committee effective March 15, 2010. Since May 1, the committee members have been Ms. Patsley (Chair), Mr. Babb, Mr. Boren and Mr. Carp. Mr. Sanchez will join the committee effective March 15, 2011. The Audit Committee is generally responsible for:
 
TEXAS INSTRUMENTS      |  56  |      2011 PROXY STATEMENT
     The board has determined that all members of the Audit Committee are financially literate and have financial management expertise, as the board has interpreted such qualifications in its business judgment. In addition, the board has designated Ms. Patsley as the Audit Committee financial expert as defined in the Securities Exchange Act of 1934, as amended.
     The Audit Committee met eight times in 2010. The Audit Committee holds regularly scheduled meetings and reports its activities to the board. The committee also continued its long-standing practice of meeting directly with our internal audit staff to discuss the audit plan and to allow for direct interaction between Audit Committee members and our internal auditors. Please see page 86 for a report of the committee.
 
Compensation Committee
The Compensation Committee consists of three independent directors. From January 1 to April 30, 2010, the committee members were Mr. Carp (Chair), Ms. Cox and Mr. Goode. Since May 1, the committee members have been Ms. Cox (Chair), Mr. Goode and Mr. MacMillan. The committee is responsible for:
     The Compensation Committee holds regularly scheduled meetings, reports its activities to the board, and consults with the board before setting annual executive compensation. During 2010, the committee met seven times. Please see page 73 for a report of the committee.
     In performing its functions, the committee is supported by the company’s Human Resources organization. The committee has the authority to retain any advisors it deems appropriate to carry out its responsibilities. The committee retained Pearl Meyer & Partners as its compensation consultant for the 2010 compensation cycle. The committee instructed the consultant to advise it directly on executive compensation philosophy, strategies, pay levels, decision-making processes and other matters within the scope of the committee’s charter. Additionally, the committee instructed the consultant to assist the company’s Human Resources organization in its support of the committee in these matters with such items as peer-group assessment, analysis of the executive compensation market, and compensation recommendations.
     The Compensation Committee considers it important that its compensation consultant’s objectivity not be compromised by other business engagements with the company or its management. In support of this belief, the committee has a policy on compensation consultants, a copy of which may be found on www.ti.com/corporategovernance. During 2010, neither the consultant nor any of its affiliates performed services for TI other than pursuant to the engagement by the committee.
     The Compensation Committee considers executive compensation in a multistep process that involves the review of market information, performance data and possible compensation levels over several meetings leading to the annual determinations in January. Before setting executive compensation, the committee reviews the total compensation and benefits of the executive officers and considers the impact that their retirement, or termination under various other scenarios, would have on their compensation and benefits.
 
TEXAS INSTRUMENTS      |  57  |      2011 PROXY STATEMENT
 
     The CEO and the senior vice president responsible for Human Resources, who is an executive officer, are regularly invited to attend meetings of the committee. The CEO is excused from the meeting during any discussion of his own compensation. No executive officer determines his or her own compensation or the compensation of any other executive officer. As members of the board, the members of the committee receive information concerning the performance of the company during the year and interact with our management. During the committee’s deliberations on executive compensation, the CEO gives the committee and the board an assessment of his own performance during the year just ended. He also reviews the performance of the other executive officers with the committee and makes recommendations regarding their compensation. The senior vice president responsible for Human Resources assists in the preparation of and reviews the compensation recommendations made to the committee other than for her compensation.
     The Compensation Committee’s charter provides that it may delegate its power, authority and rights with respect to TI’s long-term incentive plans, employee stock purchase plan and employee benefit plans to (i) one or more committees of the board established or delegated authority for that purpose; or (ii) employees or committees of employees except that no such delegation may be made with respect to compensation of the company’s executive officers.
     Pursuant to that authority, the Compensation Committee has delegated to a special committee established by the board the authority to grant a limited number of stock options and restricted stock units under the company’s long-term incentive plans. The sole member of the special committee is Mr. Templeton. The special committee has no authority to grant, amend or terminate any form of compensation to TI’s executive officers. The Compensation Committee reviews the grant activity of the special committee.
 
Governance and Stockholder Relations Committee
All members of the G&SR Committee are independent. From January 1 to April 30, 2010, the committee members were Ms. Simmons (Chair), Ms. Whitman and Mr. Adams, who retired from the board in April 2010. Since May 1, the committee members have been Ms. Simmons (Chair), Mr. Sanders and Ms. Whitman. The G&SR Committee is generally responsible for:
     The G&SR Committee met eight times in 2010. The G&SR Committee holds regularly scheduled meetings and reports its activities to the board. Please see page 52 for a discussion of stockholder nominations and page 54 for a discussion of communications with the board.
 
Board leadership structure
 
The board, led by its G&SR Committee, reviews the board’s leadership structure. The board’s current leadership structure combines the positions of chairman and CEO, and uses a rotating lead director approach whereby the chair of the appropriate board committee leads independent directors’ executive sessions at which the principal item to be discussed is within the scope of authority of his or her committee. If there is no principal item, the chair of the G&SR Committee presides. The board chose this structure to facilitate oversight of management and to fully engage all independent directors. At each meeting of the board, immediately preceding the executive session the chairman reviews with the board the proposed strategic agenda for future board meetings. The independent directors offer comment and directly influence the agenda. The independent directors then meet in executive session to voice their observations of the meeting including the discussion of future board agendas. Immediately following each session, the director who served as lead notifies the CEO of the independent directors’ assessment of the meeting and desired agendas for future meetings. Each director has an equal stake in the board’s actions and equal accountability to the corporation and its stockholders.
     The board’s consideration of its leadership structure is guided by two questions: would stockholders be better served and would the board be more effective with a different structure. The board’s views are informed by a review of the practices of other companies and insight into the preferences of top stockholders, as gathered from face-to-face dialogue and review of published guidelines. The board
 
TEXAS INSTRUMENTS      |  58  |      2011 PROXY STATEMENT
 
also considers how board roles and interactions would change if it established a permanent lead director. For example, implementation of such a model could result in less engagement by independent directors (other than the permanent lead director) than exists under the current model, an outcome considered highly undesirable by the board.
     The board has determined that a change in leadership structure would offer no net benefit to stockholders, and in fact, the current practice of a rotating director is superior in its ability to encourage active involvement, independent thinking and an environment of equal influence among all directors. The board continues to believe that there is no uniform solution for a board leadership structure. Indeed, the company has had varying board leadership models over its history, at times separating the positions of chairman and CEO and at times combining the two. The board believes that the right structure should be informed by the needs and circumstances of the company, its board and its stockholders, and directors should remain adaptable to shaping the leadership structure as those needs change.
 
Risk oversight by the board
 
It is management’s responsibility to assess and manage the various risks TI faces. It is the board’s responsibility to oversee management in this effort. In exercising its oversight, the board has allocated some areas of focus to its committees and has retained areas of focus for itself, as more fully described below.
     Management generally views the risks TI faces as falling into the following categories: strategic, operational, financial and compliance. The board as a whole has oversight responsibility for the company’s strategic and operational risks (e.g., major initiatives, competitive markets and products, sales and marketing, and research and development). Throughout the year the CEO discusses these risks with the board during strategy reviews that focus on a particular business or function. In addition, at the end of the year, the CEO provides a formal report on the top strategic and operational risks.
     TI’s Audit Committee has oversight responsibility for financial risk (such as accounting, finance, internal controls and tax strategy). Oversight responsibility for compliance risk is shared among the board committees. For example, the Audit Committee oversees compliance with the company’s code of conduct and finance- and accounting-related laws and policies, as well as the company’s compliance program itself; the Compensation Committee oversees compliance with the company’s executive compensation plans and related laws and policies; and the G&SR Committee oversees compliance with governance-related laws and policies, including the company’s corporate governance guidelines.
     The Audit Committee oversees the company’s approach to risk management as a whole. It reviews the company’s risk management process at least annually by means of a presentation by the CFO.
     The board’s leadership structure is consistent with the board and committees’ roles in risk oversight. As discussed above, the board has found that its current structure, which relies on each of the committee chairs for leadership of the independent directors, is effective in fully engaging the independent directors. Allocating various aspects of risk oversight among the committees provides for similar engagement. Having the chairman and CEO review strategic and operational risks with the board ensures that the director most knowledgeable about the company, the industry in which it operates and the competition and other challenges it faces shares those insights with the board, providing for a thorough and efficient process.



Texas Instruments   © Copyright 1995-2011 Texas Instruments Incorporated. All rights reserved.