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During 2011, the board held ten meetings. The board has three standing committees described below. The committees of the board collectively held 21 meetings in 2011. Each director attended at least 82 percent of board and relevant committee meetings combined. Overall attendance at board and committee meetings was approximately 93 percent.
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 NASDAQ rules and the board’s corporate governance guidelines. From January 1 to April 22, 2011, the committee members were Ms. Patsley (Chair), Mr. Babb, Mr. David L. Boren (who retired from the board in April 2011) and Mr. Carp. Mr. Sanchez joined the committee effective March 15, 2011. Since April 22, the committee members have been Ms. Patsley (Chair), Mr. Babb and Mr. Sanchez. The Audit Committee is generally responsible for:
- Appointing, compensating, retaining and overseeing TI’s independent registered public accounting firm.
- Reviewing the annual report of TI’s independent registered public accounting firm related to quality control.
- Reviewing TI’s annual reports to the SEC, including the financial statements and the “Management’s Discussion and Analysis” portion of those reports, and recommending appropriate action to the board.
- Reviewing TI’s audit plans.
- Reviewing before issuance TI’s news releases regarding annual and interim financial results and discussing with management any related earnings guidance that may be provided to analysts and rating agencies.
- Discussing TI’s audited financial statements with management and the independent registered public accounting firm, including a discussion with the firm regarding the matters required to be reviewed under applicable legal or regulatory requirements.
- Reviewing relationships between the independent registered public accounting firm and TI.
- Reviewing and discussing the adequacy of TI’s internal accounting controls and other factors affecting the integrity of TI’s financial reports with management and with the independent registered public accounting firm.
- Creating and periodically reviewing TI’s whistleblower policy.
- Reviewing TI’s risk assessment and risk management policies.
- Reviewing TI’s compliance and ethics program.
- Reviewing a report of compliance of management and operating personnel with TI’s code of business conduct, including TI’s conflict of interest policy.
- Reviewing TI’s non-employee-related insurance programs.
- Reviewing changes, if any, in major accounting policies of the company.
- Reviewing trends in accounting policy changes that are relevant to the company.
- Reviewing the company’s policy regarding investments and financial derivative products.
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The Audit Committee met seven times in 2011. 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 93 for a report of the committee.
All members of the Compensation Committee are independent. From January 1 to April 22, 2011, the committee members were Ms. Cox (Chair), Mr. David R. Goode (who retired from the board in April 2011) and Mr. MacMillan. From April 22, 2011, to February 17, 2012, the committee members were Ms. Cox (Chair), Mr. MacMillan and Ms. Simmons. Since February 17, 2012, the committee members have been Ms. Cox (Chair) and Ms. Simmons. The committee is responsible for:
- Reviewing the performance of the CEO and determining his compensation.
- Setting the compensation of the company’s other executive officers.
- Overseeing administration of employee benefit plans.
- Making recommendations to the board regarding:
- Institution and termination of, revisions in and actions under employee benefit plans that (i) increase benefits only for officers of the company or disproportionately increase benefits for officers of the company more than other employees of the company, (ii) require or permit the issuance of the company’s stock or (iii) the board must approve.
- Reservation of company stock for use as awards of grants under plans or as contributions or sales to any trustee of any employee benefit plan.
- Taking action as appropriate regarding the institution and termination of, revisions in and actions under employee benefit plans that are not required to be approved by the board.
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 2011 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 2011, 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.
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 deliberations or vote on his 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.
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All members of the G&SR Committee are independent. From January 1 to April 22, 2011, the committee members were Ms. Simmons (Chair), Mr. Sanders and Ms. Whitman. Since April 22, the committee members have been Ms. Whitman (Chair), Mr. Carp and Mr. Sanders. The G&SR Committee is generally responsible for:
- Making recommendations to the board
regarding:
- The development and revision of our corporate governance principles.
- The size, composition and functioning of the board and board committees.
- Candidates to fill board positions.
- Nominees to be designated for election as directors.
- Compensation of board members.
- Organization and responsibilities of board committees.
- Succession planning by the company.
- Issues of potential conflicts of interest involving a board member raised under TI’s conflict of interest policy.
- Election of executive officers of the company.
- Topics affecting the relationship between the company and stockholders.
- Public issues likely to affect the company.
- Responses to proposals submitted by stockholders.
- Reviewing:
- Contribution policies of the company and of the TI Foundation.
- Revisions to TI’s code of ethics.
- Electing officers of the company other than the executive officers.
- Overseeing an annual evaluation of the board and the committee.
The independent directors have elected Ms. Patsley to serve as lead director through April 2013. Thereafter, the lead director will be elected by the independent directors annually. The duties of the lead director are to:
- Preside at all meetings of the board at which the chairman is not present, including executive sessions of the independent directors;
- Serve as liaison between the chairman and the independent directors;
- Approve information sent to the board;
- Approve meeting agendas for the board;
- Approve meeting schedules to assure that there is sufficient time for discussion of all agenda items; and
- If requested by major shareholders, ensure that he or she is available for consultation and direct communication.
The board, led by its G&SR Committee, regularly reviews the board’s leadership structure. The board’s consideration 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 also considers how board roles and interactions would change if its leadership structure changed. The board’s goal is for each director to have an equal stake in the board’s actions and equal accountability to the corporation and its stockholders.
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, and now utilizing a lead director.
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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 by 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 and practices are 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.
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