UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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Dell Inc.

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May 26, 2011

 

Dear Fellow Stockholders:

 

On behalf of the Board of Directors, it is my pleasure to invite you to Dell’s 2011 Annual Meeting of Stockholders. The meeting will be held on Friday, July 15, 2011, at 8:00 a.m., Central Daylight Time, at the Dell Round Rock Campus, 501 Dell Way, Building 2-East, Houston/Dallas conference rooms, Round Rock, Texas 78682. For your convenience, we are also offering a live Webcast of the meeting. You may attend and participate in the meeting via the Internet at www.dell.com/investor, where you will be able to vote electronically and submit questions during the meeting. If you choose to view the Webcast, go to www.dell.com/investor shortly before the meeting time and follow the instructions provided. If you miss the meeting, you can view a replay of the Webcast on that site.

 

You will find information regarding the matters to be voted on in the attached Notice of Annual Meeting of Stockholders and Proxy Statement. We are sending many of our stockholders a notice regarding the availability of this proxy statement, our Annual Report on Form 10-K for Fiscal 2011 and other proxy materials via the Internet. This electronic process gives you fast, convenient access to the materials, reduces the impact on the environment and reduces our printing and mailing costs. A paper copy of these materials may be requested using one of the methods described in the materials.

 

You may visit www.dell.com/investor to access an interactive Fiscal 2011 Year-in-Review, as well as various web-based reports, executive messages and timely information on Dell’s global business.

 

This meeting is for Dell stockholders. To attend the meeting in person, you will need an admission ticket or an account statement showing your ownership of Dell stock as of May 20, 2011, and proper photo identification. An admission ticket can be printed at www.proxyvote.com, or is included in the proxy materials if you received a paper copy of the proxy materials.

 

Whether or not you plan to attend the meeting in person or via the Internet, please vote by submitting your proxy or voting instructions using one of the voting methods described in the attached materials. Submitting your proxy or voting instructions by any of these methods will not affect your right to attend the meeting and vote in person or view the live Webcast and vote electronically should you so choose. However, if your shares are held through a broker or other nominee, you must obtain a legal proxy from the record holder of your shares in order to vote at the meeting.

 

If you have any questions concerning the meeting, please contact our Investor Relations Department at 512-728-7800 or Investor_Relations@dell.com. For questions regarding your stock ownership, you may contact our transfer agent, American Stock Transfer & Trust Company, at 800-937-5449 or www.amstock.com.

 

Sincerely,

 

Michael S. Dell

Chairman of the Board and Chief Executive Officer

 

TABLE OF CONTENTS

 

 

DELL INC.

 

One Dell Way

Round Rock, Texas 78682

 

 

 

 

Stockholders will also transact any other business properly brought before the meeting or any adjournments or postponements of the meeting. At this time, the Board of Directors knows of no other proposals or matters to be presented.

 

This Notice of Annual Meeting of Stockholders and the Proxy Statement are accompanied by the Annual Report on Form 10-K for Fiscal 2011, which, together with the Chairman’s letter to stockholders, is Dell’s annual report to stockholders for the fiscal year.

 

On behalf of the Board of Directors:

 

Lawrence P. Tu, Secretary

 

May 26, 2011

 

We are pleased to offer a Webcast of Dell’s 2011 annual meeting. Additionally, we are offering stockholders and proxyholders the ability to attend and participate via the Internet during the live Webcast, where you will be able to vote electronically and submit questions during the meeting. The live Webcast will begin at 8:00 a.m., Central Daylight Time. If you plan to attend and participate at the meeting via the Internet, go to www.dell.com/investor and log on prior to the meeting and follow the instructions provided. Only stockholders who use their control number to log on to the meeting will be able to vote electronically and submit questions during the meeting. Instructions on how to attend and participate via the Internet, including how to demonstrate proof of ownership, are posted at www.dell.com/investor. If you miss the meeting, you can view a replay of the Webcast on that site. (No votes may be cast during the replay of the Webcast.)

 

Stockholders who hold Dell common stock through a broker or other nominee receive proxy materials and a voting instruction form — either electronically or by mail — before each annual stockholder meeting.

 

Your broker will not be permitted to vote on your behalf on the election of directors or on the other annual meeting proposals, except for Proposal 2 (Ratification of Independent Auditor), unless you provide specific instructions by completing and returning the voting instruction form or following the instructions provided to you to submit your proxy through the Internet or by telephone. For your vote to be counted, you will need to communicate your voting decisions to your broker or other nominee before the date of the annual meeting or obtain a legal proxy to vote your shares at the meeting.

 

Your Participation in Voting the Shares You Own Is Important

 

Voting your shares is important to ensure that you have a say in the governance of your company and to fulfill the objectives of the majority voting standard that we apply in the election of directors and the other proposals to be considered at the annual meeting. Please review the proxy materials and follow the instructions on the voting instruction form to submit your proxy or voting instructions. We hope you will exercise your rights and fully participate as a Dell stockholder.

 

More Information Is Available

 

If you have any questions about the proxy voting process, please contact the broker, bank or other financial institution where you hold your shares. The Securities and Exchange Commission (the “SEC”) also has a website, www.sec.gov/spotlight/proxymatters.shtml, with more information about your rights as a stockholder. Additionally, you may contact Dell’s Investor Relations Department at 512-728-7800 or Investor_Relations@dell.com.

 

 

This proxy statement is furnished in connection with the solicitation of proxies by Dell Inc., on behalf of the Board of Directors (the “Board”), for the 2011 Annual Meeting of Stockholders. This proxy statement and the related proxy form are first being distributed to stockholders on or about June 3, 2011.

 

You can vote your shares using one of the following methods:

 

 

Internet and telephone submission of proxies and voting instructions are available 24 hours a day, and if you use one of those methods, you do not need to return a proxy or voting instruction card. Unless you are planning to vote at the meeting in person or via the Internet during the live Webcast, your proxy or voting instructions must be received by 11:59 p.m., Eastern Daylight Time, on July 14, 2011.

 

Even if you submit your proxy or voting instructions by one of the first three methods mentioned above, you may still vote at the meeting in person or via the Internet during the live Webcast if you are the record holder of your shares or hold a legal proxy from the record holder. See “Additional Information — Voting by Street Name Holders.” Your vote at the meeting will constitute a revocation of your earlier proxy or voting instructions.

 

Stockholders are being asked to consider seven proposals at the meeting. The following is a summary of the proposals and the voting recommendations of the Board:

 

 

 

The details of each proposal are set forth below.

 

The first proposal to be voted on at the annual meeting is the election of directors. The ten directors to be elected at this meeting will serve until the next annual meeting of stockholders and until their successors are elected and qualified. Upon recommendation of the Governance and Nominating Committee, the Board has nominated all of the current directors, other than Judy C. Lewent and Sam Nunn, for re-election to the Board. The nominees for election at the annual meeting are:

 

James W. Breyer		Donald J. Carty
Michael S. Dell		William H. Gray, III
Gerard J. Kleisterlee		Thomas W. Luce, III
Klaus S. Luft		Alex J. Mandl
Shantanu Narayen		H. Ross Perot, Jr.

 

Biographical and qualification information about each of the nominees is included under “Director Qualifications and Information” below.

 

The Board recommends a vote “FOR” all nominees.

 

Ms. Lewent and Mr. Nunn, who are currently serving as directors, will retire from the Board at the time of the annual meeting. Ms. Lewent, who has served as a member of the Board since May 2001, declined to stand for nomination for re-election at the annual meeting. Mr. Nunn, who has served as a member of the Board since December 1999, was ineligible for nomination under Dell’s Corporate Governance Principles, which do not permit nomination of any individual who has attained age 72. Upon the expiration of the Board terms of Ms. Lewent and Mr. Nunn at the time of the annual meeting, the Board will decrease the size of the Board from 12 to ten members in accordance with the company’s Bylaws.

 

Mr. Kleisterlee was appointed to the Board in December 2010, upon the recommendation of an outside consultant. The Governance and Nominating Committee is continuing its search for additional Board members who have the qualifications for directors set forth in the company’s Corporate Governance Principles.

 

If a nominee becomes unable or unwilling to accept nomination or election, the Board may either select a substitute nominee or reduce the size of the Board. If you have submitted a proxy and a substitute nominee is selected, your shares will be voted by the named proxies for the election of the substitute nominee. Alternatively, if the Board does not select a substitute nominee, the proxies may vote only for the remaining nominees, leaving a vacancy that may be filled at a later date by the Board.

 

The Board has no reason to believe that any nominee would be unable or unwilling to serve if elected.

 

According to Dell’s Bylaws, each of the above-named nominees will be elected to the Board if the nominee receives affirmative (“FOR”) votes from the holders of a majority of the shares of common stock present or represented by proxy at the meeting and entitled to vote on the election of directors. If a nominee who is currently serving as a director is not re-elected, Delaware law provides that the director would continue to serve on the Board as a “holdover director.” Under Dell’s Corporate Governance Principles, if a nominee fails to receive the requisite majority vote, the nominee will be required to submit his or her resignation. Any tendered resignation will be evaluated by the independent directors (excluding the director who tendered the resignation). In determining whether to accept or reject the resignation, or take other action, the Board may consider any factors it deems relevant. The Board will act on the tendered resignation, and will

publicly disclose its decision and rationale, within 90 days after certification of the stockholder vote. If no nominees receive the requisite majority vote at the meeting, the incumbent Board will nominate a new slate of nominees and hold a special meeting for the purpose of electing those nominees within 180 days after the certification of the stockholder vote. In this circumstance, the incumbent Board will continue to serve until new directors are elected and qualified. The foregoing provisions apply to elections in which the number of nominees does not exceed the number of directors to be elected. In the event of an election in which the number of nominees exceeds the number of directors to be elected, nominees will be elected by a plurality vote.

 

Director Qualifications — The Board believes that individuals who serve on the Board should have demonstrated notable or significant achievements in business, education, or public service; should possess the requisite intelligence, education, and experience to make a significant contribution to the Board and bring a range of skills, diverse perspectives and backgrounds to its deliberations; and should have the highest ethical standards, a strong sense of professionalism and intense dedication to serving the interests of Dell’s stockholders. The following are qualifications, experience and skills for Board members which are important to Dell’s business and its future:

 

 

Director Qualifications Matrix — The Governance and Nominating Committee selects, evaluates and recommends to the full Board qualified candidates for election or appointment to the Board. The committee has developed the following matrix outlining specific qualifications to ensure that the company’s directors bring to the Board a diversity of experience, background and international perspective. The matrix allows the committee to identify areas of expertise and experience that may benefit the Board in the future as well as gaps in those areas that may arise as directors retire. The committee uses this information as part of its process for identifying and recommending new directors for the Board.

 

DIRECTOR QUALIFICATIONS MATRIX

 

 

Set forth below is biographical information, as of May 26, 2011, about the persons who will constitute the Board following the annual meeting, assuming election of the nominees named above, and the qualifications, experience and skills the Nominating and Governance Committee and the Board considered in determining that each such person should serve as a director.

 

 

SEC Settlement with Mr. Dell — As previously reported, on October 13, 2010, a federal district court approved settlements by the company and Mr. Dell with the SEC resolving an SEC investigation into Dell’s disclosures and alleged omissions before Fiscal 2008 regarding certain aspects of its commercial relationship with Intel Corporation and into separate accounting and financial reporting matters. The company and Mr. Dell entered into the settlements without admitting or denying the allegations in the SEC’s complaint, as is consistent with common SEC practice. The SEC’s allegations with respect to Mr. Dell and his settlement were limited to the alleged failure to provide adequate disclosures with respect to the company’s commercial relationship with Intel Corporation prior to Fiscal 2008. Mr. Dell’s settlement did not involve any of the separate accounting fraud charges settled by the company and others. Moreover, Mr. Dell’s settlement was limited to claims in which only negligence, and not fraudulent intent, is required to establish liability, as well as secondary liability claims for other non-fraud charges. Under his settlement, Mr. Dell consented to a permanent injunction against future violations of these negligence-based provisions and other non-fraud based provisions related to periodic reporting. Specifically, Mr. Dell consented to be enjoined from violating Sections 17(a)(2) and (3) of the Securities Act of 1933 and Rule 13a-14 under the Securities Exchange Act of 1934 (the “Exchange Act”), and from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 under the Exchange Act. In addition, Mr. Dell agreed to pay a civil monetary penalty of $4 million. The settlement did not include any restrictions on Mr. Dell’s continued service as an officer or director of the company. The independent directors of the Board have unanimously determined that it is in the best interests of the company and its stockholders that Mr. Dell continue to serve as the company’s Chairman and Chief Executive Officer.

 

Corporate Governance

 

Corporate Governance Principles — The Board believes that adherence to sound corporate governance policies and practices is important in ensuring that Dell is governed and managed with the highest standards of responsibility, ethics and integrity and in the best interests of the stockholders. The Board maintains Dell’s Corporate Governance Principles, which are intended to reflect Dell’s core values and provide the foundation for Dell’s governance and management systems and Dell’s interactions with others. A copy of those principles can be found on the company’s website at www.dell.com/corporategovernance.

 

Director Independence — The Board believes that the interests of the stockholders are best served by having a substantial number of objective, independent representatives on the Board. For this purpose, a director will be considered to be “independent” only if the Board affirmatively determines that the director does not have any direct or indirect material relationship with Dell that may impair, or appear to impair, the director’s ability to make independent judgments. Under the Marketplace Rules of the NASDAQ Stock Market, on which Dell’s common stock is listed, at least a majority of Dell’s directors must qualify as “independent” within the meaning of the Marketplace Rules. Under Dell’s Corporate Governance Principles, Dell requires at least 60% of the directors to meet Dell’s standards for director independence.

 

The Board’s determination that a director is independent is made on the basis of the standards set forth in Dell’s Corporate Governance Principles, which incorporate the director independence standards of the NASDAQ Marketplace Rules. Dell’s Corporate Governance Principles identify certain relationships which will not, in and of themselves, preclude a determination that a director qualifies as independent. The Board may conclude, upon consideration of the relevant facts and circumstances, that a director is independent even if an applicable threshold specified in such relationships is exceeded in a particular case.

 

The following summarizes the Board’s determinations with respect to each director’s independence, including any transactions, relationships or arrangements not discussed under “Additional Information — Certain Relationships and Related Transactions” considered by the Board in its independence determinations.

 

DIRECTOR INDEPENDENCE

 

 

The Board will continue to monitor the standards for director independence established under applicable law and the NASDAQ Marketplace Rules to ensure that Dell’s Corporate Governance Principles remain consistent with those standards.

 

Board Leadership Structure — Dell’s Bylaws provide that the Chairman of the Board will preside over meetings of the Board of Directors. The Chief Executive Officer has management responsibility for the business and affairs of the company. Both the Chairman and Chief Executive Officer positions are currently held by Mr. Dell. The company also has an independent Lead Director elected annually by the majority of independent directors during an executive session. In December 2010, Mr. Mandl succeeded Mr. Nunn as the Lead Director. The Lead Director has broad authority and responsibility to: (1) chair executive sessions of the independent directors; (2) assist the Chairman in the management of Board meetings; (3) confer with the members of the Board on the number of regular Board meetings and determine the meeting agendas; (4) advise on and, with the Chairman, set the agendas for Board meetings; (5) oversee the Governance and Nominating Committee’s responsibility for selecting and recommending nominees for director positions to the full Board; (6) monitor and oversee corporate governance initiatives; (7) consult with a representative group of stockholders periodically and other stockholders as needed; (8) act as Chairman if Mr. Dell should have a conflict of interest; (9) serve as a resource to all committee chairs and advise them as appropriate; (10) propose an annual schedule of major discussion items for the Board to consider; (11) oversee the evaluation of the Chief Executive Officer, in coordination with the Governance and Nominating Committee; (12) oversee the self-evaluation of the Board as a whole, in coordination with the Governance and Nominating Committee; and (13) perform such other roles as are assigned by the Governance and Nominating Committee or the full Board. Additionally, the Lead Director may hire outside advisors and consultants reporting directly to the Board.

In addition, Dell’s Corporate Governance Policies contain several features which the company believes will ensure that the Board maintains effective and independent oversight of management, including the following:

 

 

The Board has determined that its current structure, with a combined Chairman and Chief Executive Officer, an independent Lead Director, and independent directors as chairs and members of each committee, is in the best interests of the company and its stockholders. The Board believes that combining the Chairman and Chief Executive Officer positions is currently the most effective leadership structure for the company given Mr. Dell’s in-depth knowledge of the company’s business and industry, his ability to formulate and implement strategic initiatives, and his extensive contact with and knowledge of customers. As Chief Executive Officer, Mr. Dell is intimately involved in the day-to-day operations of the company and is thus in a position to elevate the most critical business issues for consideration by the independent directors of the Board. The Board believes that the combination of the Chairman and Chief Executive Officer roles as part of a governance structure that includes an independent Lead Director and exercise of key Board oversight responsibilities by independent directors provides an effective balance for the management of the company in the best interests of Dell’s stockholders.

 

Board Committees — The Board maintains the following standing committees to assist it in discharging its oversight responsibilities. The current membership of each committee is indicated above with the directors’ biographical information.

 

 

 

Each committee is governed by a written charter approved by the full Board. These charters form an integral part of Dell’s Corporate Governance Principles. A copy of each charter can be found on Dell’s website at www.dell.com/corporategovernance.

 

Board Risk Oversight — The Board oversees and maintains Dell’s governance and compliance processes and procedures to promote the conduct of Dell’s business in accordance with applicable laws and regulations and with the highest standards of responsibility, ethics and integrity. As part of its oversight responsibility, the Board is responsible for the oversight of risks facing the company and seeks to provide guidance with respect to the management and mitigation of those risks. An analysis of strategic and operational risks is presented to the Board in reports submitted by the Chief Executive Officer, the Chief Financial Officer and the General Counsel, as well as by other members of Dell’s senior management who regularly appear before the Board to provide detailed overviews of the businesses they oversee. In addition, at least once each year, each member of the Board meets with the management of the business segment of the director’s choice to review in detail that segment’s operations, customer set, strategies and risks. Directors also have complete and open access to all Dell employees and are free to, and do, communicate directly with management.

 

The Board also delegates oversight of the following specific areas of risk to its committees.

 

 

Each of the committee chairs reports to the full Board at its regular meetings concerning the activities of the committee, the significant issues it has discussed, and the actions taken by the committee.

 

While the Board is responsible for risk oversight, management is responsible for risk management. Dell seeks to maintain an effective internal controls environment and has processes to identify and manage risk, including an Executive Risk Steering Committee. This committee has adopted a Risk and Controls Framework and exercises oversight of the various risk assessment and monitoring and controls processes across the company, which includes an annual risk assessment process that supports the annual internal audit plan. Dell also maintains and enforces a Code of Conduct, an Accounting Code of Conduct, an ethics and compliance program, a comprehensive internal audit process, and approved quality standards.

 

CEO Succession Planning — The Board has the responsibility to ensure that the leadership of the company is meeting the needs of the company now and can meet those needs in the future. The Board has developed a governance framework for CEO succession planning that is intended to

provide for a continuous and collaborative process in which the Board ensures that the CEO builds a talent-rich leadership organization that can drive the company’s strategic objectives. Under its governance framework, the Board:

 

 

The Board reviews succession planning for the CEO on an annual basis. As part of this process, the CEO reviews the annual performance of each member of the management team with the Board and the Board engages in a discussion with the CEO and the Senior Vice President of Human Resources regarding each team member and the team member’s development. In addition, the Board reviews for possible modification the plan to address any unexpected short-term absence of the CEO.

 

Meetings and Attendance — During Fiscal 2011, the full Board met 12 times, the Audit Committee met eight times, the Leadership Development and Compensation Committee met seven times, the Governance and Nominating Committee met three times, and the Finance Committee met four times. During Fiscal 2011, all directors attended at least 75% of the meetings of the full Board and the meetings of the committees on which they served during the period in which they served, with the exception of Mr. Breyer, who attended 64% of such meetings, and Mr. Kleisterlee, who was appointed to the Board in December 2010, and was not able to attend the one meeting held after his appointment.

 

It is Dell’s policy, as reflected in the company’s Corporate Governance Principles, that each director is expected to attend the annual meeting of stockholders. All directors then serving on the Board attended last year’s annual meeting initially convened on July 16, 2010.

 

Communications with Directors — Stockholders may send communications to the Board as a whole, the independent directors as a group, any Board committee, the Lead Director, or any other individual member of the Board. Any stockholder who wishes to send such a communication may obtain the appropriate contact information at www.dell.com/boardofdirectors. The Board has implemented procedures for processing stockholder communications, a description of which can also be found at www.dell.com/boardofdirectors.

 

Mr. Dell, as the only member of the Board who is also a Dell employee, does not receive any compensation for service on the Board. This section describes the Fiscal 2011 compensation of Dell’s non-employee directors.

 

Annual Retainer Fee — Each non-employee director receives an annual retainer fee, which during Fiscal 2011 was $75,000. The chair of the Audit Committee receives an additional annual retainer fee of $20,000; the chair of each of the other standing Board committees receives an additional annual retainer fee of $15,000; and the Lead Director receives an additional annual retainer fee of $15,000 if he or she is not the chair of a Board committee. Each director may elect to receive the retainer in cash, or in the form of nonqualified stock options or restricted stock units in lieu of cash. Directors also may defer all or a portion of the retainer into a deferred compensation plan. Any such deferred

amounts are payable in a lump sum or in installments beginning upon termination of service as a director. The number of options or restricted stock units received in lieu of the annual retainer fee (or the method of computing the number) and the terms and conditions of those awards are determined from time to time by the Leadership Development and Compensation Committee. The annual retainers are payable at the first Board meeting after the annual stockholders’ meeting for all members elected by the stockholders. For new members appointed by the Board, the retainer is prorated based on the remaining number of Board meetings during the “Service Year” (a period beginning at the annual meeting of stockholders and ending at the next annual meeting of stockholders) and is payable at the first Board meeting attended by the new director.

 

Option and Restricted Stock Unit Awards — The non-employee directors are also eligible for annual stock option and restricted stock unit awards. The number of options and units awarded, as well as the other terms and conditions of the awards (such as vesting and exercisability schedules and termination provisions), are generally within the discretion of the Leadership Development and Compensation Committee, except that (1) no non-employee director may receive awards (not including awards in lieu of the annual cash retainer) covering more than 50,000 shares of common stock in any Service Year (other than the Service Year in which the director joins the Board, when the limit is two times the normal annual limit), (2) the exercise price of any option may not be less than the fair market value of the common stock on the date of grant, and (3) no option may become exercisable, and no restricted stock unit may become transferable, earlier than six months from the date of grant.

 

Option and restricted stock unit awards are granted at the first Board meeting after the annual stockholders’ meeting for all members elected by the stockholders. New members appointed by the Board receive a director grant that is equal to the director annual stock options and restricted stock unit awards prorated based on the remaining number of Board meetings during the Service Year (ending at the annual meeting of stockholders).

 

Computer Hardware and Technical Support — Dell provides directors personal computers and equipment for their use in connection with their Board service and for personal use. Dell also provides from time to time personal technical support to directors.

 

Other Benefits — Dell reimburses directors for reasonable expenses associated with attending Board and committee meetings, and when requested by the company, reasonable expenses for their spouses to attend a Dell sponsored event, and provides them with liability insurance coverage for their activities as directors.

 

Indemnification — Under Dell’s Certificate of Incorporation and Bylaws, the directors are entitled to indemnification from Dell to the fullest extent permitted by Delaware corporate law. Dell has entered into indemnification agreements with each of the non-employee directors. Those agreements establish processes for indemnification claims, but do not increase the extent or scope of the indemnification provided.

Director Compensation During Fiscal 2011 — The following table sets forth the compensation paid to the non-employee directors in Fiscal 2011. Mr. Kleisterlee, who was appointed to the Board in December 2010, attended his first Board meeting in Fiscal 2012, and therefore did not receive any compensation in Fiscal 2011.

 

DIRECTOR COMPENSATION IN FISCAL 2011

 

 

 

		Restricted
		Stock/Restricted
Name		Stock Units				Stock Options
Mr. Breyer			49,506				—
Mr. Carty			40,714				550,547
Mr. Gray			30,714				67,087
Mr. Luce			31,095				33,234
Mr. Kleisterlee			—				—
Ms. Lewent			30,714				157,669
Mr. Luft			30,714				104,112
Mr. Mandl			30,714				105,052
Mr. Narayen			36,463				—
Mr. Nunn			30,714				154,809
Mr. Perot			36,463				18,735

 

 

 

 

The Board is asking the stockholders to ratify the Audit Committee’s selection of PricewaterhouseCoopers LLP as Dell’s independent auditor for Fiscal 2012. Although current law, rules and regulations, as well as the charter of the Audit Committee, require Dell’s independent auditor to be engaged, retained and supervised by the Audit Committee, the Board considers the selection of an independent auditor to be an important matter of stockholder concern and considers a proposal for stockholders to ratify such selection to be an opportunity for stockholders to provide direct feedback to the Board on an important issue of corporate governance. If the appointment of PricewaterhouseCoopers LLP is not ratified by stockholders, the Audit Committee will take such action, if any, with respect to the appointment of the independent auditor as the Audit Committee deems appropriate.

 

The Board recommends a vote “FOR” the ratification of PricewaterhouseCoopers LLP as Dell’s independent auditor for Fiscal 2012.

 

Approval of this proposal requires the affirmative vote of holders of a majority of the shares of common stock present or represented by proxy at the meeting and entitled to vote on the proposal.

PricewaterhouseCoopers LLP is a registered independent public accounting firm and has been Dell’s independent auditor since 1986. In addition to retaining PricewaterhouseCoopers LLP to conduct an integrated audit of the financial statements and internal control over financial reporting, Dell engages the firm from time to time to perform other services. The following table sets forth all fees incurred in connection with professional services rendered to Dell by PricewaterhouseCoopers LLP during each of the last two fiscal years.

 

AUDITOR FEES (in millions)

 

 

 

The Audit Committee has determined that the provision of the non-audit services described in note (c) above was compatible with maintaining the independence of PricewaterhouseCoopers LLP.

 

All Fiscal 2011 and Fiscal 2010 services were pre-approved by the Audit Committee. The Audit Committee has adopted a policy requiring pre-approval by the committee of all services (audit and non-audit) to be provided by the company’s independent auditor. In accordance with that policy, the Audit Committee has given its approval for the provision of audit services by PricewaterhouseCoopers LLP for Fiscal 2012 and has also given its approval for up to one year in advance for the provision by PricewaterhouseCoopers LLP of particular categories or types of audit-related, tax and other permitted non-audit services. In cases where the Audit Committee’s pre-approval of such services is not covered by one of those approvals, the chairman of the Audit Committee or a designated member of the Audit Committee has the delegated authority to pre-approve the provision of services, which pre-approvals are then communicated to the full Audit Committee.

 

Representatives of PricewaterhouseCoopers LLP are expected to be present at the annual meeting to respond to appropriate questions, and will have an opportunity to make a statement if they desire to do so.

 

In this proposal 3, in accordance with recently adopted Section 14A of the Exchange Act and the SEC’s rules thereunder, the Board of Directors is asking stockholders to approve, on an advisory basis, the compensation of Dell’s named executive officers as disclosed in this proxy statement.

 

The Board of Directors recommends that stockholders vote “FOR” approval of Dell’s compensation of its named executive officers as disclosed in this proxy statement.

 

Approval of this proposal requires the affirmative vote of holders of a majority of the shares of common stock present or represented by proxy at the meeting and entitled to vote.

 

As described below under “Executive Compensation” in the “Compensation Discussion and Analysis” section of this proxy statement, the Leadership Development and Compensation Committee has structured Dell’s executive compensation program to emphasize long-term, performance-dependent pay to motivate and reward long-term value creation for Dell’s stockholders. Dell’s executive compensation program has a number of features designed to ensure adherence to the company’s pay-for-performance philosophy.

 

The Board urges stockholders to read the “Compensation Discussion and Analysis” section below, which describes in detail how Dell’s executive compensation practices operate and are designed to achieve Dell’s core executive compensation objectives, as well as the Summary Compensation Table and other related compensation tables and narrative discussion appearing under “Executive Compensation” below, which provide detailed information about the compensation of our named executive officers. The Leadership Development and Compensation Committee and the Board of Directors believe that the compensation practices described in “Compensation Discussion and Analysis” are effective in achieving Dell’s core executive compensation objectives and that the compensation of our named executive officers as disclosed in this proxy statement reflects and supports the appropriateness of Dell’s executive compensation philosophy and practices.

 

In accordance with Section 14A of the Exchange Act and the SEC’s rules thereunder, Dell is asking stockholders to approve this proposal by approving the following non-binding resolution:

 

RESOLVED, that the compensation paid to the company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.

 

A vote on this resolution, commonly referred to as a “say-on-pay” resolution, is not binding on the Board of Directors or Dell. Although the vote is non-binding, the Leadership Development and Compensation Committee will review and consider the voting results when evaluating the compensation program for Dell’s named executive officers.

 

In proposal 3 above, the Board of Directors is asking stockholders to vote, on an advisory basis, to approve the compensation of Dell’s named executive officers as disclosed in this proxy statement. Dell is required under recently adopted Section 14A of the Exchange Act and the SEC’s rules thereunder to provide this type of advisory “say-on-pay” vote at least once every 3 years. In accordance with these requirements, the Board of Directors is asking stockholders in this proposal 4 to vote, on an advisory basis, on whether future advisory votes on named executive officer compensation should occur every 1 year, every 2 years or every 3 years.

The Board of Directors recommends that stockholders vote “FOR” every 1 YEAR as the frequency with which Dell should hold a stockholder advisory vote to approve the compensation of its named executive officers as disclosed in the company’s annual proxy statement.

 

After careful consideration, the Board of Directors has determined to recommend that future advisory votes on named executive officer compensation occur every 1 year (annually). Although Dell’s executive compensation program is designed to promote a long-term connection between pay and performance, the company’s executive compensation disclosures are made annually. The Board has considered that an advisory vote on named executive officer compensation annually will allow stockholders to provide more immediate feedback on Dell’s compensation philosophy, objectives and practices as disclosed in the company’s annual proxy statement.

 

Stockholders are not voting in this proposal to approve or disapprove the Board’s recommendation. Stockholders will be able to specify one of the following four choices for this proposal on the proxy card or voting instruction form:

 

 

Generally, a proposal presented to stockholders, such as proposal 4, will be approved by the affirmative vote of holders of a majority of the shares of common stock present or represented by proxy at the meeting and entitled to vote on the proposal. However, because the vote on this proposal is not binding on the Board of Directors or Dell, if none of the frequency options — every 1 year, every 2 years or every 3 years — receives the required majority vote, the option receiving the greatest number of votes will be considered the frequency preferred by the stockholders. Although this vote is not binding on it, the Board will take into account the outcome of this vote in making a determination on the frequency with which advisory votes on named executive officer compensation will be included in the company’s annual proxy statement.

 

The American Federation of State, County and Municipal Employees Pension Plan, 1625 L Street N.W., Washington, DC 20036, (the “AFSCME Pension Plan”), which represents that it is the beneficial owner of 54,808 Dell shares, has requested that the company present for stockholder vote at the annual meeting a proposal for the Board to adopt a policy that the Board’s Chairman be an independent director. The proposal, along with the AFSCME Pension Plan’s supporting statement, is included verbatim below.

 

For the reasons set forth following the proposal and supporting statement, the Board of Directors disagrees with the AFSCME Pension Plan’s proposal and supporting statement.

 

The Board of Directors recommends a vote “AGAINST” the AFSCME Pension Plan’s proposal.

 

Approval of the AFSCME Pension Plan’s proposal requires the affirmative vote of holders of a majority of the shares of common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal.

 

The AFSCME Pension Plan’s Proposal and Supporting Statement

 

RESOLVED: That stockholders of Dell Inc. (“Dell” or the “Company”) ask the Board of Directors to adopt a policy that the Board’s Chairman be an independent director according to the definition set

forth in the NASDAQ listing standards, unless Dell stock ceases to be listed there and is listed on another exchange, at which point, that exchange’s standard of independence should apply. If the Board determines that a Chairman who was independent when he or she was selected is no longer independent, the Board shall promptly select a new Chairman who satisfies this independence requirement. Compliance with this requirement may be excused if no director who qualifies as independent is elected by shareholders or if no independent director is willing to serve as Chairman. This independence requirement shall apply prospectively so as not to violate any Company contractual obligation at the time this resolution is adopted.

 

Supporting Statement

 

Dell’s CEO Michael Dell also serves as chairman of the Company’s board of directors. In our view, an independent board chair provides a better balance of power between the CEO and the board and supports strong, independent board leadership and functioning. The primary duty of a board of directors is to oversee the management of a company on behalf of its shareowners. But if a CEO also serves as chair, we believe this presents a conflict of interest that can result in excessive management influence on the board and weaken the board’s oversight of management.

 

In March 2009, the Chairmen’s Forum, a group of more than 50 current and former board chairmen, directors, chief executives, investors and governance experts hosted by Yale’s Millstein Center, endorsed the voluntary adoption of independent, non-executive chairmen of the board, finding that ‘‘[t]he independent chair curbs conflicts of interest, promotes oversight of risk, manages the relationship between the board and CEO, serves as a conduit for regular communication with shareowners, and is a logical step in the development of an independent board.” (Chairing the Board: The Case for Independent Leadership in Corporate North America, Yale Millstein Center, 2009).

 

An independent chairman is standard best practice at companies in the United Kingdom, Australia, Brazil, Canada, Germany, the Netherlands, and South Africa (McKinsey Quarterly 2004 Number 2, p. 44). We believe independent board leadership would be particularly constructive at Dell, where last year our company paid $100 million and Mr. Dell paid $4 million to settle SEC charges for alleged disclosure and accounting violations. A Forbes article on the case noted “the alleged rouge employees included the chairman of the board, the CEO and the CFO... As described by the SEC, Dell’s actions were failures of strategy, ethics and leadership resulting from slick behavior, questionable board oversight, a lack of robust accounting oversight, and absence of meaningful penalties by the capital markets regulatory system.” (Edward Hess, “Stark Lessons from the Dell Fraud Case,” Forbes, October 13, 2010.)

 

We urge support for this proposal.

 

Dell does not have a policy that dictates whether the position of Board Chairman and CEO should be separate or combined. Instead, the Board selects Dell’s Chairman by considering the best interests of Dell and its stockholders.

 

At this time, and after careful consideration, the Board believes those interests are best served by having Dell’s CEO also serve as Chairman of the Board. The Board believes this approach strikes the appropriate balance between the benefits of having Michael Dell serve as both Chairman and CEO with the need for independent and effective Board oversight.

 

Combining the roles of Chairman and CEO offers several distinct benefits. This approach offers unified leadership and direction. It provides stability and consistency within the company. Moreover, it avoids potential confusion regarding leadership roles and prevents inefficient duplication of efforts resulting from separation of the two roles. It allows the company to speak with one voice and

facilitates efficient coordination of Board action. Beyond these general benefits of a combined Chairman and CEO, having Michael Dell specifically serve in both these capacities provides additional benefits to the company. As the founder of the company, Mr. Dell’s record of innovation, achievement and leadership is self-evident. In addition, Mr. Dell is able to share his unique, in-depth knowledge of the company and its competitive challenges with the Board, and his significant stockholdings in the company provide unparalleled alignment with the interests of his fellow stockholders.

 

The Board also believes that the interests of stockholders are best served when the Board’s independent members are fully involved in the company’s operations and provide independent oversight of management. However, the Board does not consider that requiring the Chairman to be an independent director is necessary to accomplish this goal. Rather, independent oversight at Dell is achieved through the composition of the Board and through Dell’s corporate governance policies and processes. The Board is composed of independent, active and effective directors who are critical thinkers and have a wide range of relevant expertise. Eight of the ten Dell Board members standing for election at the annual meeting are independent, as are all members of the Board committees, including the Leadership Development and Compensation Committee, which regularly reviews the performance of the CEO. Dell has robust governance policies and processes in place to further ensure effective oversight, including those discussed above under “Corporate Governance — Board Leadership Structure.” Among the most notable of these policies is the requirement for an independent Lead Director invested with broad powers to lead an independent board in overseeing management and mitigating any potential conflicts of interest that might arise from combining the roles of Chairman and CEO.

 

Even if the Chairman and CEO positions were currently split, the Board does not believe the proposed policy would be in the best interests of stockholders because it would mandate separation of the two roles for all future periods. This would deprive the Board of valuable flexibility to make governance changes as necessary and would fundamentally handicap its ability to organize its governance functions as circumstances require. The current leadership structure provides valuable benefits to the company while the composition of the Board and its effective governance structures ensure independent oversight of management. In contrast, the proposal would impose a structure on the Board that would deprive the company of the flexibility to structure itself in a manner that reflects its needs and the abilities of its Board members and that effectively serves stockholder interests.

 

For these reasons, the Board urges Dell stockholders to vote “AGAINST” the AFSCME Pension Plan’s proposal regarding the company’s adoption of a policy requiring the Board’s Chairman to be an independent director.

 

James McRitchie, 9295 Yorkship Court Elk Grove, California 05758, who represents he is a beneficial owner of no less than 200 Dell shares, has requested that the company present for stockholder approval at the annual meeting a proposal requesting Dell’s Board of Directors to undertake such steps as may be necessary to permit the company’s stockholders to act by written consent instead of at a meeting of stockholders. The proposal, along with Mr. McRitchie’s supporting statement, is included verbatim below.

 

For the reasons set forth following the proposal and supporting statement, the Board of Directors disagrees with Mr. McRitchie’s proposal and supporting statement.

 

The Board of Directors recommends a vote “AGAINST” Mr. McRitchie’s proposal.

Approval of Mr. McRitchie’s proposal requires the affirmative vote of holders of a majority of the shares of common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal.

 

Mr. McRitchie’s Proposal and Supporting Statement

 

Shareholder Action by Written Consent

 

RESOLVED, Shareholders hereby request that our board of directors undertake such steps as may be necessary to permit written consent by shareholders entitled to cast the minimum number of votes that would be necessary to authorize the action at a meeting at which all shareholders entitled to vote thereon were present and voting (to the fullest extent permitted by law). This includes written consent regarding issues that our board is not in favor of.

 

This proposal topic also won majority shareholder support at 13 major companies in 2010. This included 67%-support at both Allstate and Sprint. Hundreds of major companies enable shareholder action by written consent.

 

Taking action by written consent in lieu of a meeting is a means shareholders can use to raise important matters outside the normal annual meeting cycle. A study by Harvard professor Paul Gompers supports the concept that shareholder dis-empowering governance features, including restrictions on shareholder ability to act by written consent, are significantly related to reduced shareholder value.

 

The merit of this Shareholder Action by Written Consent proposal should also be considered in the context of the need for additional improvement in our company’s 2010 reported governance status:

 

The Corporate Library www.thecoporatelibrary.com, as an independent investment research firm, said Peter Altabef was paid $17 million. Two of the four members of our Executive Pay Committee attracted our highest negative votes, William Gray and Samuel Nunn. William Gray was also marked as a “Flagged (Problem) director” by The Corporate Library because he was a director at Visteon which went bankrupt. Mr. Gray was also allowed to be on our Nomination Committee.

 

Mr. Gray and Mr. Nunn each served on 4 boards — overextension concern. Four directors had 13 to 26 year long-tenure — independence concern. Another independence concern was that two directors were inside-related. And two directors owned zero stock — no skin in the game concern. Plus we did not have an independent chairman or the ability for 10% of shareholders to call a special meeting.

 

Please encourage our board to respond positively to this proposal to support improved corporate governance and financial performance: Shareholder Action by Written Consent — Yes on Stockholder Proposal 2.

 

Dell’s Certificate of Incorporation and Bylaws prohibit the company’s stockholders from taking action by written consent instead of at a meeting of stockholders. This proposal to permit stockholder action by written consent is not in the best interest of Dell or its stockholders. Permitting stockholders to act by written consent may hurt stockholder interests by disenfranchising certain stockholders, circumventing protections and advantages provided by stockholder meetings, wasting company resources and confusing stockholders.

 

Action by written consent does not require input from, or even communication to, all stockholders, and as a result, it disenfranchises all of those stockholders who do not have the opportunity to participate in the written consent. Instead, action by written consent would allow stockholders

holding a majority of outstanding shares to take an action, including significant actions such as agreeing to sell the company, without a vote or any other input from other stockholders. In fact, such an action could be finalized before other stockholders were even aware of it, much less before they were offered an opportunity to consent or object. This risk of disenfranchisement is even more serious when considering the possible context under which it could occur. Action at a stockholder meeting requires that a proposing stockholder hold the shares for at least one year before making a proposal, and affords all shareholders an equal opportunity to review, consider, and vote on such a proposal. In contrast, action by written consent allows opportunistic market participants who hold (or borrow) shares for only a short period of time to determine the outcome on a particular issue, and to do so without any notice to long-term investors. Moreover, such activity can be directed at very short-term speculation in stock prices which could be at odds with long-term, sustainable company success.

 

In addition, the requirement for corporate action through votes at stockholder meetings provides protections and advantages not offered by an action by written consent. Information regarding proposed stockholder actions at stockholder meetings is widely disseminated through the required proxy statement. Proxy statements must include certain information on proposed actions, including information from both sides on proposals that management considers not to be in the best interests of the company. In addition, a meeting provides a stockholder with an opportunity to discuss concerns with other stockholders, with the Board and with management. The process of voting in stockholder meetings provides for transparent, public, and deliberate consideration of issues facing the company and ensures that stockholders have sufficient information and time to weigh the arguments presented by all sides. In contrast, action by written consent does not guarantee any of these protections and advantages.

 

Action by written consent can also waste company resources and result in stockholder confusion. The proposal would allow stockholders to solicit written consents as frequently as desired and regardless how small their holdings of Dell shares are. If a proposed action is not in the best interests of the company, because it reflects a narrow self-interest or otherwise, the company could end up spending valuable resources tracking and defending against such an action. Moreover, multiple groups of stockholders would be able to solicit written consents, some of which may be duplicative or conflicting. This could only lead to confusion for stockholders and a chaotic state of affairs for the company.

 

Besides not being in the best interests of the company or its stockholders, permitting stockholder action by written consent is unnecessary to achieve the proponent’s objective as discussed in the supporting statement, of providing a means for stockholders to raise important matters outside the normal annual meeting cycle. There is no need for stockholders to act by written consent to raise such matters. The company welcomes and encourages stockholders to communicate with it at all times and has several mechanisms already in place, including those described in “Corporate Governance — Communications with Directors,” to facilitate a dialog with the Board and any of its members. In addition, communications are similarly always welcome through the company’s Investor Relations Department via phone, e-mail or its website.

 

Moreover, stockholder action by written consent is not necessary to ensure that the Board is accountable to stockholders in considering potential transactions that might result in a change of control of Dell. The company has adopted a majority voting standard for the election of directors, and requires that each director be elected on an annual basis. In addition, the company has eliminated supermajority voting provisions from its Certificate of Incorporation and Bylaws and it does not have a stockholder rights plan in place. As a result of the company’s current structure and practices with regard to these matters, permitting stockholder action by written consent will not enhance the ability of stockholders to participate effectively in Dell’s corporate governance.

 

For these reasons, the Board urges Dell stockholders to vote “AGAINST” Mr. McRitchie’s proposal regarding stockholder action by written consent.

 

Ms. Linda Bush, 7927 Escala Drive, Austin, Texas 78735, and Mr. Paul Schwarzbach, 280 Euclid Ave., San Francisco, California 94118 (the “Proponents”), who represent that they individually own at least $2,000 worth of Dell common stock, have requested that the company present for stockholder vote at the annual meeting a proposal that the Board of Directors declare a quarterly dividend. The proposal, along with the Proponents’ supporting statement, is included verbatim below.

 

For the reasons set forth following the proposal and supporting statement, the Board of Directors disagrees with the Proponents’ proposal and supporting statement.

 

The Board of Directors recommends a vote “AGAINST” the Proponents’ proposal.

 

Approval of the Proponents’ proposal requires the affirmative vote of holders of a majority of the shares of common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal.

 

The Proponents’ Proposal and Supporting Statement

 

Shareholder resolution: That the Board of Directors declare a quarterly cash dividend.

 

Supporting statement: We believe that Dell has matured to a point that it is no longer a high-growth company requiring growth capital in lieu of dividends, and its cash generation and holdings are sufficient to justify payment of a cash dividend. We further believe a cash dividend is in the best interest of long term share owners due to the following attributes:

 

Tangible value: Dell Owners would receive cash, without transaction costs at favorable US income tax rates, and would not be obligated to sell shares to realize cash;

 

Consistency: return of value to owners via quarterly cash dividends is dependably regular, and less subject to vagaries of share repurchase programs;

 

Owner flexibility: owners get the flexibility to reinvest dividend proceeds for increased ownership, or use cash for alternative uses;

 

Owner focused: dividend proceeds accrue to long term owners and do not necessitate selling shares to obtain cash as repurchase programs do.

 

Dell has consistently argued that share repurchases are superior to dividends. We refute this argument for the following reasons.

 

No apparent benefit to share owners from past repurchase program: In the 10 fiscal years 2001-2010, Dell spent $31.4 billion repurchasing 1.0 billion shares (average $31.36 per share), which reduced diluted shares outstanding 28%. Yet Dell’s 12/31/2010 share price was $13.55 and its market value was $26.4 billion. Over 10 years Dell has repurchased more than 100% of the company’s recent market value, at share prices more than 130% higher than recent levels. We see no apparent value to long-term owners from historic share repurchases (perhaps sellers at $31.36 did benefit). Conversely, a cash dividend accrues income to long term owners. Irrespective of share price movement.

 

Share repurchase program too inconsistent and subject to short term biases: In the past, Dell argued that share repurchases offer superior flexibility to shareholders wishing to convert shares into cash. However, Dell has not consistently repurchased shares. Negligible shares were purchased in fiscal 2010 and calendar 2007, despite share prices persisting far below levels of previous repurchases. In fact, payment of a quarterly dividend provides much greater consistency and flexibility to shareholders.

Dividends reduce subjectivity for use of cash: Dell has previously (2006 and 2007) stated foregoing a dividend enabled “reinvestment for growth.” Yet some of the aforementioned investments (e.g., Lodz, Poland facility) have subsequently been shuttered without contribution to growth. More recently Dell emphasized the need for spending on acquisitions. Yet the historic record of high-technology acquisitions is quite suspect, and Dell risks pursuing expensive acquisitions that will not meet expectations or increase shareholder value. Paying a cash dividend insures some return of value to shareholders and balances the risk that growth oriented cash uses will disappoint.

 

In recent years many respected technology companies embraced dividends, including Intel, Microsoft, Hewlett Packard, IBM, KLATenco, Qualcomm, Oracle, and Applied Materials. Each did so without abandoning its growth ambitions.

 

We believe long term Dell shareholders would benefit from the payment of a quarterly cash dividend, and we urge your support of this initiative.

 

Enhancing the return on investment for Dell stockholders is of the utmost importance to Dell’s Board and management. The Board does not believe that, at the current time, return on investment can best be enhanced by paying quarterly dividends. Instead the Board considers that this objective can currently best be served by continuing to use the company’s cash flow to reinvest in growth and to return capital to stockholders and manage dilution through a stock repurchase program. The Board also believes that maintaining a strong liquidity position is in the stockholders’ best interests, as the company continually seeks to balance the cash needs of its business with the desire to return capital to stockholders.

 

Reinvestment in Growth — Dell’s current strategy involves investment in organic growth and supplementing organic growth with a disciplined acquisition program targeting businesses that will expand Dell’s portfolio of enterprise solutions offerings. Consistent with this strategy, Dell followed its acquisition of Perot Systems Corporation in late Fiscal 2010 with a number of other acquisitions throughout Fiscal 2011 that extended Dell’s core capabilities in a variety of enterprise solutions offerings. Dell has been able to fund these acquisitions out of operating cash flows because of the Board’s policy of maintaining flexibility in the way the company deploys its available cash.

 

Return of Capital and Management of Dilution — Since 1996, Dell has had an active stock repurchase program, the objectives of which have been to distribute cash to stockholders and to manage dilution resulting from shares issued under its equity compensation plans. As of the end of Fiscal 2011, Dell had cumulatively repurchased 1.862 billion shares of common stock for an aggregate cost of $36.3 billion. The program as currently approved by the Board authorizes the expenditure of up to an additional $3.7 billion on share repurchases.

 

The Board believes that Dell’s stock repurchase program is an effective way of returning cash to stockholders and offers several distinct advantages over the payment of dividends, including the following:

 

 

For these reasons, the Board and management believe that the company should continue to return capital to Dell’s stockholders through share repurchases rather than dividends.

 

Dividend Consideration — Under Delaware law, the declaration and payment of dividends is within the discretion of the Board, whose members are elected by the stockholders to exercise sound business judgment in deciding such matters. As a part of its fiduciary duties, the Board regularly evaluates whether we should pay a dividend. In making that decision, the Board has considered, and will continue to consider, a variety of factors in an effort to balance the anticipated needs of the company for liquidity, the ability of the company to generate earnings and cash flow, and the most effective means to enhance stockholder value.

 

The Board has determined that, at present, it is in the best interests of the company and its stockholders to continue to use Dell’s cash flow to reinvest in growth and to return capital to stockholders and manage dilution through the stock repurchase program. The Board continues, however, actively to review how to deploy the company’s available cash, including the possibility of paying cash dividends in the future.

 

Ms. Bush submitted the same proposal for stockholder vote at Dell’s 2006 and 2007 annual meetings. At each such meeting, the proposal received the affirmative vote of less than 7% of the votes cast.

 

For these reasons, the Board urges Dell stockholders to vote “AGAINST” the Proponents’ proposal regarding the declaration of a dividend.

 

Introduction

 

This Compensation Discussion and Analysis is designed to provide stockholders with an understanding of Dell’s compensation philosophy, its core principles and its arrangements with the executive officers identified in the Summary Compensation Table, who are referred to as the “Named Executive Officers.”

 

Dell’s compensation program is designed to attract the best people from a competitive industry and provide differentiated compensation based on performance in order to create a culture of meritocracy. Consequently, Dell believes that emphasis on long-term, performance-dependent pay motivates and rewards long-term value creation for Dell’s stockholders. Dell uses its compensation program to manage fixed costs while driving individual and company performance by placing greater emphasis on performance-based variable pay components without encouraging excessive risk taking.

 

The compensation program for executive officers consists of base salary, annual incentive bonus, long-term incentives, benefits, and limited perquisites. It is designed to attract, reward, motivate, and retain high-quality talent and to provide appropriate cash and equity-based incentives for achieving Dell’s financial goals and strategic objectives. A substantial portion of executive officers’ pay is directly tied to Dell’s performance and, therefore, is at risk.

Executive Summary

 

Fiscal 2011 Financial Highlights

 

Dell achieved strong financial results for Fiscal 2011. Total net revenue increased 16% over Fiscal 2010 with increases across all of Dell’s Commercial segments. The recovery in the economy during Fiscal 2011 helped strengthen demand from commercial customers as the corporate refresh cycle continued, particularly for Dell’s Large Enterprise and Small and Medium Business customers. Dell’s profitability improved for each quarter of Fiscal 2011. Enterprise solutions and services revenue for Fiscal 2011 grew 27% over Fiscal 2010. Dell has also improved profitability in its client product business by simplifying its product offerings, optimizing its supply chain, and improving pricing discipline during a favorable component cost environment. The following table summarizes key financial results for Fiscal 2011 as compared to Fiscal 2010 (in millions, except per share data):

 

		Fiscal 2011				Fiscal 2010				Change
Net revenue		$	61,494			$	52,902				16	%
Operating income		$	3,433			$	2,172				58	%
Net income		$	2,635			$	1,433				84	%
Earnings per share — diluted		$	1.35			$	0.73				85	%
Operating income (non-GAAP)a		$	4,149			$	2,974				40	%
Net income (non-GAAP)a		$	3,106			$	2,054				51	%
Earnings per share — diluted (non-GAAP)a		$	1.59			$	1.05				51	%

 

 

Summary of Compensation Decisions For Fiscal 2011

 

 

 

Link Between Company Performance and CEO Compensation

 

Over the past five fiscal years, Mr. Dell has not received a salary increase from his Fiscal 2007 salary level. In addition, Mr. Dell has declined a bonus for the past three fiscal years and has declined all equity grants since 2005. Partly as a result of these decisions, Mr. Dell’s total compensation is consistently ranked at or below the 25th percentile as compared to CEO total compensation for the Full Peer Group and the Core Comparator Peer Group (as described below). The Committee took these factors into account, including the fact that Mr. Dell’s request to reduce any bonus for the past three fiscal years would unavoidably exaggerate the year-over-year comparison in the year when the bonus payments resume, as is the case this year. In addition, the Committee takes a long-term view when analyzing CEO pay and company performance. This long-term view is reflected in the graphs below.

 

The following graphs show the relationship between Mr. Dell’s total compensation and company performance as measured by three key financial metrics, which are considered critical components of both the company’s strategy and the measurement of Mr. Dell’s performance. The company believes that these three metrics — revenue, operating income, and earnings per share — correlate strongly with long-term stockholder value. The following graphs report revenue, operating income and earnings per share on a GAAP basis, and include the impact on the year-over-year trend line of Mr. Dell’s request that he not receive a bonus payment for Fiscal 2008, 2009 and 2010. Because the Committee did not calculate a bonus payout for Mr. Dell for Fiscal 2008, 2009 or 2010, these

graphs assume that Mr. Dell would have received a “Target Bonus” (defined below) consistent with the application of the company’s corporate performance modifier for the applicable fiscal year).

 

 

 

“Total Compensation” is the total compensation amount reported for Mr. Dell in the Summary Compensation Table in the company’s prior proxy filings.

 

“Target Bonus” represents an estimated bonus that Mr. Dell voluntarily declined to receive. The estimated bonus is calculated based on his target bonus (two times base salary) times an estimated personal modifier (100%) times the company’s corporate performance modifier. The company’s corporate modifiers for Fiscal 2008, 2009 and 2010 were 106%, 70% and 70%, respectively. Since the Committee did not calculate a personal modifier for Mr. Dell for Fiscal 2008, 2009 or 2010, the company assumed a 100% personal modifier in calculating the estimated bonus that Mr. Dell voluntarily declined.

 

Compensation Governance Practices

 

The Committee seeks to implement and maintain sound compensation governance practices to ensure adherence to our pay-for-performance philosophy while appropriately managing risk and aligning Dell’s compensation programs with long-term stockholder interests. The following governance practices were in effect during Fiscal 2011:

 

 

Dell Business Strategy

 

Dell built its reputation as a leading technology provider through listening to customers and developing solutions that meet customer needs. Dell is focused on providing long-term value creation through the delivery of customized solutions that make technology more efficient, more accessible, and easier to use.

 

Dell will continue to focus on shifting Dell’s portfolio to higher-margin and recurring revenue streams over time, improving its core business, and maintaining a balance of liquidity, profitability, and growth. Dell consistently focuses on generating strong cash flow returns, allowing Dell to expand its capabilities and acquire new ones. Dell seeks to grow revenue over the long term while improving operating income and cash flow. In accordance with Dell’s differentiated view of

enterprise solutions, Dell offers its customers open, capable, affordable, and integrated solutions. Dell has three primary components to its strategy:

 

 

By successfully executing its strategy and driving greater efficiency and productivity in how Dell operates, Dell believes it can help customers grow and thrive and create long-term value for its stockholders. Fiscal 2012 incentive plans are designed to reward achievement of these same key strategic objectives while continuing to align executive officers with stockholders through a heavy focus on stock-based programs.

 

Executive Compensation Philosophy and Core Objectives

 

The Committee is committed to and responsible for designing, implementing and administering a compensation program for executive officers that ensures appropriate linkage between pay, company performance and results for stockholders, all while appropriately balancing risk. The Committee seeks to increase stockholder value by rewarding performance with cost-effective compensation and ensuring that Dell can attract and retain the best executive talent through adherence to the following core compensation objectives:

 

 

Dell’s compensation programs are designed to reward achievement of corporate priorities without establishing incentives that lead to excessive or inappropriate risk taking by employees. The specific principles, components and decisions used in Fiscal 2011 to manage the compensation of executive officers are discussed in more detail below.

 

Executive Officer Compensation

 

Process for Evaluating Chairman and Chief Executive Officer Compensation

 

The Committee discusses and makes all recommendations relating to the compensation of the Chairman and Chief Executive Officer in regular session without the CEO present. In reviewing the compensation of the CEO, the Committee considers the performance of the company and his contribution to that performance. This assessment includes a holistic review of financial metrics such as revenue, operating income performance, earnings per share, and cash flow metrics as well as compensation of peer CEOs and progress against non-financial initiatives such as customer service, share growth, leadership, employee engagement, culture, ethics, and integrity. Based on this review, the Committee makes base salary, bonus, and long-term incentive recommendations subject to approval of the full Board.

 

Process for Evaluating Executive Officer Compensation (other than the CEO)

 

Process — When making individual compensation decisions for executive officers, the Committee takes many factors into account, including the performance of the company; the performance of

an executive officer’s business unit (if applicable); the recommendation of the CEO; the individual’s performance and experience; the individual’s historical compensation; comparisons to other executive officers (both those of the company and those of the Core Comparator Peer Group, as described below); and any retention concerns.

 

Compensation Consultants — The charter of the Committee authorizes the Committee to engage independent consultants at any time at the expense of the company. The Committee periodically evaluates the need to engage independent consultants for specific requirements. The Committee did not engage a consultant during Fiscal 2011 for the purpose of advising or recommending the amount or form of director or executive compensation.

 

Elements of the Total Compensation Package — The key elements of the compensation program for the executive officers are base salary, annual incentive bonus, long-term incentives, benefits and perquisites.

 

Pay Mix — Because executive officers are in a position to directly influence the overall performance of the company, a significant portion of their compensation is delivered in the form of performance-dependent, short- and long-term incentives. The level of performance-dependent pay varies for each executive based on level of responsibility, market practices, and internal equity considerations. Dell does not target a fixed mix of pay for individual executive positions, but instead strives to maintain each pay element in its targeted competitive range as described in the “Market Positioning” section below.

 

Competitive Market Assessment — The Committee annually reviews market compensation levels for executive officers at similar technology and other large global general industry companies to determine whether the compensation components for Dell’s executive officers remain in the targeted ranges described below under “Market Positioning.” Management collects and presents to the Committee compensation data for the executive officers from a list of targeted comparable companies as well as data for executive officers from published compensation surveys. These compensation surveys include data on technology and general industry pay practices for executive positions at companies similar in size and complexity to Dell. The compensation assessment includes an evaluation of base salary, target annual incentive opportunities, and long-term incentive grant values for each of the executive officer positions relative to similar positions in the market.

 

The Committee uses a peer group (the “Full Peer Group”) and a core comparator subset of the Full Peer Group (the “Core Comparator Peer Group,” in bold in the table below) as a reference basis for market compensation practices. The Committee uses the Full Peer Group to evaluate director compensation and benefits, non-executive benefits, share usage/dilution and to benchmark corporate governance practices The Committee uses the Core Comparator Peer Group to evaluate executive officer compensation, benefits and perquisites. The Full Peer Group is composed of companies with which Dell competes for talent and companies similar in size, product mix and business results. The Committee reviews and approves the Full Peer Group annually using an assessment of sales volumes, market capitalization, number of employees, product mix and business results. Companies in the Core Comparator Peer Group are selected based on an assessment of revenue, industry and position as a market leader or competitor. At the time of the peer group analysis, the median annual revenue for the Full Peer Group was $41 billion and the

median market capitalization was $82 billion. The Full Peer Group consists of the following 26 companies^a:

 

 

 

Market Positioning — The Committee targets base salary and benefits at the median of the Core Comparator Peer Group and targets variable compensation opportunity (annual incentives and long-term incentives) at the 75th percentile of the Core Comparator Peer Group for each component. The Committee targets the 75th percentile of the Core Comparator Peer Group because it believes that:

 

 

The actual target total compensation for each individual executive may be higher or lower than the targeted market position for each compensation component based on individual skills, experience, contributions, performance, internal equity, overall responsibility for company performance, or other factors that the Committee may take into account that are relevant to the individual executive. In addition, actual compensation results may be higher or lower than target based on corporate, business unit, and individual performance.

 

Individual Compensation Components

 

Base Salary

 

Design — Dell’s philosophy is that base salaries should meet the objectives of attracting and retaining the executive officers needed to run the business. Base salaries generally are targeted at median levels of the Core Comparator Peer Group, although each executive officer may have a base salary above or below the median of the market based on the Committee’s judgment with respect to each executive officer’s responsibility, performance, experience, retention concerns, historical compensation or internal equity considerations. In Fiscal 2011, the Named Executive

Officer base salaries ranged from $550,000 to $950,000. During Fiscal 2011, the Committee carefully considered the input and recommendations of Mr. Dell as CEO when evaluating factors relative to the other executive officers in order to approve salary adjustments.

 

Results — Most executive officer base salaries are slightly below the market median of Dell’s Core Comparator Peer Group. To further cost management efforts and reflective of the continued challenging external market conditions, only one Named Executive Officer received a salary increase for Fiscal 2011, which was a result of a significant increase in responsibilities.

 

The table below summarizes the base salaries and percentage of base salary increase for the Named Executive Officers in Fiscal 2010, 2011 and 2012. Due to timing of the pay increases and other payroll processes, the actual base salaries paid in a fiscal year can vary from those shown in the table. Information on amounts actually earned by the Named Executive Officers in Fiscal 2009, 2010 and 2011 can be found in the Summary Compensation Table below.

 

						Percentage								Percentage
		Fiscal 2010				Salary				Fiscal 2011				Salary				Fiscal 2012
Named Executive		Salary				Increase				Salary				Increase				Salary
Mr. Dell		$	950,000				0%			$	950,000				0	%		$	950,000
Mr. Gladden			700,000				0%				700,000				4.29	%			730,000
Mr. Bell			720,000				0%				720,000				4.17	%			750,000
Mr. Felice			585,000				19.66%				700,000				7.14	%			750,000
Mr. Rose			N/A				N/A				550,000				2.73	%			565,000

 

Annual Incentive Bonus

 

Design — The annual incentive bonus plan is designed to align executive officer pay with short-term financial results that the Committee believes will yield long-term stockholder value. The plan provides a reward based on the achievement of a performance goal of positive consolidated net income and such other standards as the Committee determines to be appropriate.

 

Annual incentives for Fiscal 2011 were established and paid to executive officers, other than Mr. Rose, under the Executive Annual Incentive Bonus Plan (“EIBP”). The EIBP was designed to qualify as tax-deductible under Section 162(m) of the Internal Revenue Code. To qualify for tax deductibility under Section 162(m), the Board set the maximum payout for each Named Executive Officer for Fiscal 2011 at 0.10% of consolidated net income.

 

Within the Section 162(m) cap described above, the Committee establishes a target incentive opportunity for each executive officer expressed as a percentage of base salary. These target award opportunities are established based on the competitive market positioning targets described in the “Market Positioning” section above as well as the company’s philosophy of increasing the proportion of pay at risk for those positions with the greatest impact on company results. Mr. Dell, the individual with the greatest overall responsibility for company performance, was granted a larger incentive opportunity in comparison to his base salary in order to weight his annual cash compensation mix more heavily towards performance-based compensation. For each of the Named Executive Officers other than the CEO, the Committee deemed their potential impact on

company results as equally significant. Fiscal 2011 target annual incentives for the Named Executive Officers were as follows:

 

 

To arrive at a potential payout number, the target percentage of salary for each executive officer is multiplied by a formula based on corporate performance, business unit performance (if applicable) and the achievement of individual performance goals. For Mr. Bell and Mr. Felice, business unit performance was also a factor in the determination of bonus payouts. The corporate bonus and business unit bonus formulas are illustrated below. In determining the amount of the actual payout, the Committee may consider the potential payout number produced by the formula and any other factors it deems appropriate.

 

Corporate Bonus Formula^a

 

 

 

Corporate Bonus Formula with Business Unit Modifier^b

 

 

 

Corporate Financial Performance Targets and the Corporate Scorecard — For Fiscal 2011, the bonus pool funding and the Corporate Performance Modifier were 75% dependent on the achievement of two financial performance targets and 25% dependent on the achievement of the Corporate Scorecard performance objectives.

 

At the end of the fiscal year, the Committee evaluates company performance against specific corporate financial performance targets set at the beginning of the year and modifies the bonus payout from 0% to 200% of the target (subject to the possible application of the other modifiers included in the formula). For Fiscal 2011, the Committee selected financial performance objectives aimed at driving profitable growth and included net revenue and Operating Income Percentage targets. Net revenue is intended to measure Dell’s revenue growth. Operating Income Percentage, which is non-GAAP financial measure, is included to measure absolute profitability of Dell’s operations. Operating Income Percentage is calculated by using Dell’s externally reported operating income, calculated on a GAAP basis, as adjusted to exclude costs relating to the amortization of purchased intangibles, acquisitions, severance and facility actions, stock option accelerated vesting charges and other fees and settlements. The weighting of bonus performance goals was designed to provide significant incentive to drive growth once acceptable operating income goals were

achieved. These bonus metrics were based on the company’s internal and relative performance goals, as follows:

 

 

At the beginning of the fiscal year, Mr. Dell and Mr. Gladden, with input from the Committee, establish the Corporate Scorecard containing several key financial and non-financial objectives relating to our “Best Value Solutions” initiative, our “Client Reinvention” initiative, Dell’s “eDell” initiative and customer experience. These objectives are critical to the successful transformation of Dell as it moves from being a company that redefined value and expanded access to computing products to being a company that is revolutionizing the way technology works for people and organizations. “Best Value Solutions” is the initiative directed at creating, offering and selling best-in-class technology solutions that are open, capable, and affordable. “Client Reinvention” is the initiative directed at making Dell’s business less complex and more adaptable in ways that customers value, and revolutionizing how IT products are developed, produced, delivered, serviced, and recycled. “eDell” is the initiative directed at building Dell’s online heritage, strength, and global presence to deliver rich customized relationships, solutions and social experiences that distinguish Dell from other companies. Customer experience is about putting the customer first, offering a rewarding experience, and building customer loyalty. The evaluation criteria for each objective are noted in the following table:

 

 

 

At the end of the fiscal year, Mr. Dell and Mr. Gladden, with input from the Committee, rate performance for each objective on a scale of one (worst) to five (best). The objectives are equally

weighted and the scores for each objective are averaged and 25% of the bonus pool is determined as follows:

 

		Corporate Scorecard
Average Scorea		Pool Funding
Less than 2			0	%
2			75	%
3			100	%
4			125	%
5			150	%

 

 

Business Unit Performance — Each of Dell’s business units, which generally align with Dell’s operating segments and the Services organization, was assigned a performance scorecard with goals relating to business unit revenue, adjusted operating income, cash flow contribution, relative unit growth (based on IDC data), net promoter score, integration execution, revenue backlog, and enterprise product revenue goals, if applicable. The Committee approved each business unit’s scorecard metrics and corresponding goals to reflect the role that such unit was expected to play in contributing to overall Dell results for Fiscal 2011, although there were not specific weightings associated with these measures. The plan is designed such that the overall bonus pool is funded based on corporate Operating Income Percentage, net revenue, and Corporate Scorecard performance. This pool is allocated across business units based on relative performance against business unit performance scorecard goals. The Committee believes that the performance targets are challenging based on Dell’s historical performance and industry and market conditions. The performance targets were positioned to be aggressive and the probability of achieving these targets was substantially uncertain at the time the targets were set. The chart below represents each business unit’s performance scorecard and the applicable goals for Fiscal 2011.

 

 

Individual Performance — The Committee, with input from Mr. Dell, evaluates individual performance for the company’s executive officers using a mix of objective and subjective performance criteria, established at the beginning of the fiscal year. For Fiscal 2011, the following criteria were included:

 

 

The Committee does not place specific weightings on the considered objectives noted above but assigns a subjective individual performance modifier ranging from 0% to 150% of the bonus award based on a holistic and subjective assessment of each individual executive officer’s performance

against these criteria. To the extent an individual meets these objectives, a modifier of 100% is assigned. As performance deviates from this level, payouts vary above or below the 100% modifier subject to the 150% maximum. The Committee believes that the achievement of these performance objectives will correspond to meaningful improvements for the organization and, therefore, are reasonably difficult to attain.

 

Results — For Fiscal 2011, Dell achieved non-GAAP Operating Income Percentage of net revenue of 6.7% and net revenue of $61.5 billion, which fell between the target and maximum performance objectives established for the year and resulted in a financial performance funding modifier of 166%. Non-GAAP operating income is calculated in the manner described above. The average overall score on the Corporate Scorecard of 2.9 fell slightly below the target performance objectives established for the year, resulting in a Corporate Scorecard modifier of 97%. Based on this level of performance for both the corporate financial performance and the Corporate Scorecard performance, the Committee approved a corporate bonus modifier of 149%, which includes a 10% high-performer pool. The purpose of the 10% high-performer pool is to fund additional bonus payouts to high performers and ensure strong individual modifier differentiation between high performers and moderate performers. Based on an assessment of business unit performance against business scorecards, Mr. Dell, with input from the Committee, approved funding modifiers ranging from 142% to 164% of target for each business unit. Total payouts for each business unit under each applicable business unit modifier corresponded to the total aggregate payouts under the overall approved corporate funding modifier of 149%.

 

In evaluating Mr. Dell’s bonus payout for Fiscal 2011, the Committee determined that setting Mr. Dell’s bonus at the maximum payout as set forth in the EIBP at 0.10% of consolidated net income did not accurately reflect Mr. Dell’s strong performance for the year. Based on Mr. Dell’s leadership and performance for the year reflective in Dell’s strong financial results and the significant progress made towards Dell’s strategic transformation, the Committee awarded Mr. Dell a 120% individual modifier, which resulted in Mr. Dell receiving the maximum payout under the EIBP of $2,635,000 and an additional discretionary bonus payment of $750,000. The Committee noted the following individual performance highlights for Mr. Dell:

 

 

Individual modifiers and bonus amounts for the eligible Named Executive Officers are described below.

 

 

Long-Term Incentives

 

Design — Long-term incentive opportunities are the most significant element of total executive officer compensation. These incentives are designed to motivate executive officers to make decisions in support of long-term company financial interests while also serving as the primary tool

for attraction and retention. Long-term incentive awards are delivered through a variety of stock and cash vehicles, described below, intended to meet these objectives.

 

 

Stock options align the interests of the executive officers with those of the stockholders by providing a return only if Dell’s stock price appreciates. PBUs are designed to reward participants for the achievement of financial objectives over the long term. PBUs are denominated in full shares of Dell’s common stock and thus the amount earned is also dependent on Dell’s stock price over the performance period.

 

Dell typically grants RSUs as part of executive new-hire packages in order to buy out the approximate value of unvested long-term incentives at a previous employer.

 

Long-term cash awards may be granted to deliver a fixed amount of compensation to replace long-term incentives or pension values foregone by executives when they join Dell. These awards have also been used periodically as an additional retention tool to retain key individuals, including executive officers.

 

Dell currently maintains the following process relating to the granting of equity awards:

 

 

Fiscal 2011 Long-Term Incentive Awards — In awarding long-term incentives, the Committee considers level of responsibility, prior experience and achievement of individual performance criteria, as well as the compensation practices of the Core Comparator Peer Group of companies. In addition, the Committee also considers past grants of long-term incentive awards, as well as current equity holdings. The objective is to provide executive officers with above-average long-term incentive award opportunities targeted at the 75th percentile of the Core Comparator Peer Group for on-going, annual awards. The long-term incentive program is designed to create significant upside potential as well as exposure to downside risk by tying gains in award values to stockholder returns in excess of industry norms, and losses in award values to stockholder returns below industry norms or the failure to obtain other company goals.

 

In Fiscal 2011, the Committee established annual long-term equity incentive opportunities for each eligible executive officer in combinations of stock options, PBUs, and RSUs based on their estimated value at grant date. Except for Mr. Rose, who was not yet a Dell employee, and Mr. Dell, the Committee established a mix of Fiscal 2011 Named Executive Officer long-term incentive awards consisting of 50% stock options and 50% PBUs. This mix was considered appropriate to balance the need to retain Named Executive Officers with the need to motivate financial and stock price performance and enhance the Named Executive Officers’ alignment with stockholders.

 

The executive officer’s individual grant value is determined by taking into consideration market data, individual and Dell performance, internal equity considerations, retention concerns and the expense of the grant. To determine the number of stock options an executive officer receives, the grant value determined by the Committee is divided by the closing price of the common stock on the NASDAQ Stock Market on the date of grant, with the resulting number then multiplied by 2.5, which

reflects an estimated Black-Scholes value of the options equal to 40% of the market value of the underlying stock on the date of grant. The stock options vest ratably over three years beginning on the first anniversary of the date of grant. Because the exercise price of the options is equal to the fair market value of Dell’s common stock on the date of grant, these stock options will deliver a reward only if the stock price appreciates from the price on the date the stock options were granted.

 

The size of PBU grants is based on a target dollar value of the award divided by the stock price on the date of grant. The actual number of shares earned by Named Executive Officers is determined based on company performance measured over three consecutive one-year periods against performance goals determined at the beginning of each one-year performance period. Units earned pursuant to PBU awards granted in Fiscal 2011 vest 100% on the third anniversary of the date of grant.

 

Attainment of performance goals established for Fiscal 2011 affects one-third of the PBUs granted in March 2008, one-third of the PBUs granted in March 2009, and one-third of the PBUs granted in March 2010. The table below provides threshold, target and maximum performance levels and the percentage of targeted PBUs earned at these levels. The percentage of PBUs earned is prorated within the ranges below based on the performance level.

 

 

PBUs granted in Fiscal 2011 are also subject to a performance modifier ranging from 75% to 125% of the units earned from the three one-year performance periods based on the company’s three year TSR ranking compared to the TSR ranking of companies included in the S&P North American Technology Sector Composite Index. The table below provides threshold, target and maximum performance levels and percentage of PBUs earned at these levels.

 

 

The performance metrics for the Fiscal 2011 PBU grant were selected because the Committee views these metrics as the most critical drivers of long-term value creation for Dell stockholders. The Committee also added the three year TSR ranking to add a performance objective that was measured based on Dell’s achievement relative to peers.

 

Fiscal 2012 Long-Term Incentive Awards — In March 2011, the Committee approved grants to each of the Named Executive Officers, including Mr. Dell, of PBUs and nonqualified stock options. The number of PBUs earned will vary from 0% to 150% of the target award based on performance against a three year cash flow from operations per share goal. After the three year cash flow from operations per share modifier is applied to the target award, the award will be adjusted plus or minus 50% based on achievement against a three year relative TSR ranking, measured based on Dell’s achievement relative to peer companies. All units earned will vest on the third anniversary of the grant date. The nonqualified stock options will continue to vest ratably over three years beginning on the first anniversary of the date of grant. Mr. Dell has not received an equity grant since 2005.

 

Fiscal 2011 Long-Term Incentive Results — In Fiscal 2011, Dell achieved cash flow from operations per share of $2.0 per share, which resulted in a performance modifier equal to 115% of target, so that 115% of one-third of the target number of PBUs awarded to an executive officer in March 2008 were earned and 115% of one-third of the target number of PBUs awarded to an executive officer in March 2009 and March 2010 were earned based on annual cash flow per shares metrics. Portions

of the awards, however, remain subject to performance modifiers relating to cash flow from operations per share from Fiscal 2010 through Fiscal 2012 and a performance modifier relating to three year relative TSR ranking from Fiscal 2011 through 2013, respectively.

 

2004 Leadership Edge Cash Retention Awards — In March 2004, the Committee implemented the Fiscal 2005 Top Talent Retention Plan, which included long-term cash engagement awards. This plan was intended to retain key succession candidates, recognize and reward sustained high levels of performance, and enhance long-term holding power for top talent. Mr. Felice is the only Named Executive Officer who received an award under this plan. Amounts earned under this plan in Fiscal 2009, 2010 and 2011 are reflected in the Summary Compensation Table below.

 

2007 Long-Term Cash Engagement Awards — In March 2006, the Committee implemented the 2007 Long-Term Cash Engagement Award Program. All executive officers employed at that time other than Mr. Dell were eligible for cash engagement awards under this program. This program, which provided for cash payments over four years, was intended to better balance Dell’s existing long-term compensation programs between cash and equity awards, and to enhance the overall retention value of the compensation. Mr. Felice and Mr. Bell are the only Named Executive Officers who received awards under this program. Amounts earned under this plan in Fiscal 2009, 2010 and 2011 are reflected in the Summary Compensation Table below.

 

Other Compensation Components

 

New Hire Packages — In an effort to build a world-class leadership team, Dell strives to offer competitive new hire packages. Dell considers the following items in developing and recommending executive officer new hire compensation packages to the Committee:

 

 

Mr. Rose was the only Named Executive Officer hired during Fiscal 2011. Mr. Rose’s new hire package included a sign-on bonus of $2,250,000 and 495,050 restricted stock units granted on the 15th day of the month following Mr. Rose’s hire date. The restricted stock units granted to Mr. Rose vest ratably over three years beginning on the first anniversary of the date of the awards. Of the restricted stock units, 198,020 represent a standard new hire grant subject to Dell’s standard terms and conditions, and 297,030 represent a special senior executive grant that allows for accelerated vesting due to involuntary termination other than terminations for cause. The special senior executive grant is utilized to compensate Mr. Rose for the value of unvested long-term incentives foregone by leaving his previous employer. Additionally, Mr. Rose’s new hire package allows for him to be reimbursed up to $10,000 for attorneys fees relating to the negotiation of his employment agreement with Dell. Mr. Rose also is eligible to participate in Dell’s executive relocation program, severance, and standard executive benefits and perquisites as described below.

 

Benefits and Perquisites

 

Dell executive officers are provided limited benefits and perquisites. While not a significant part of Dell’s executive officer compensation, the Committee believes that limited benefits and perquisites are a typical component of total remuneration for executives in industries similar to Dell’s and that providing such benefits is important to delivering a competitive package to attract and retain executive officers. Specific benefits and perquisites are described below.

 

Deferred Compensation Plan — Dell maintains a nonqualified deferred compensation plan that is available to all Dell executives. For a description of the terms of this plan, as well as information

about the account balances held by each of the Named Executive Officers, see “Other Benefit Plans — Deferred Compensation Plan” below.

 

Financial Counseling and Tax Preparation Services — Each executive officer is entitled to reimbursement of actual costs, up to $12,500 annually, for financial counseling services (including tax preparation). The Committee approved elimination of this perquisite following the 2011 calendar year.

 

Annual Physical — Dell pays for a comprehensive annual physical for each executive officer and his or her spouse or domestic partner and reimburses the executive officer’s travel and lodging costs, subject to an annual maximum payment of $5,000 per person.

 

Technical Support — Dell provides executive officers with computer technical support (personal and business) and, in some cases, certain home network equipment. The incremental cost of providing these services is limited to the cost of hardware provided and is insignificant.

 

Security — Dell provides executive officers with security services, including alarm installation and monitoring and, in some cases, certain home security upgrades pursuant to the recommendations of an independent security study. Prior to Fiscal 2010, the company provided personal, residential and business related security protection to Mr. Dell. Beginning in Fiscal 2010, the company provides Mr. Dell only with business related security protection.

 

Relocation Expenses — Dell maintains a general relocation policy under which the company provides reimbursement for certain relocation expenses to new employees and to any employee whose job function requires his or her relocation. Executive officers are eligible to participate in the general program but at higher benefit levels consistent with external market practice. The relocation expenses may include moving expenses, temporary housing expenses, transportation expenses and tax gross-ups on these payments. In limited instances, special provisions (such as shipment of additional household goods) may be made and approved by the CEO if the exception is under $50,000 per employee, per year, or by the Committee if the exception is $50,000 or more.

 

Expatriate Benefits — Dell maintains a general expatriate policy under which employees sent on foreign assignments receive payments to cover housing, automobile, club memberships and other expenses, as well as tax equalization. Executive officers are eligible to participate in the general program but at higher benefit levels consistent with external market practice. In limited instances, special provisions may be made and approved by the CEO if the exception is under $50,000 per employee, per year, or by the Committee if the exception is $50,000 or more.

 

Spousal Travel Expenses — Dell pays for reasonable spousal travel expenses if the spousal travel is at the request of Dell to attend Dell sponsored events.

 

Other — The executive officers participate in Dell’s other benefit plans on the same terms as other employees. These plans include medical, dental, and life insurance benefits, and Dell’s 401(k) retirement savings plan. See “Other Benefit Plans” below.

 

Stock Ownership Guidelines

 

The Board has established stock ownership guidelines for directors and Dell’s executive officers to more closely link their interests with those of other Dell stockholders. Under these guidelines, non-employee directors must maintain ownership of Dell common stock with an aggregate value equal to at least 300% of their annual retainer, the CEO must maintain ownership of stock with an aggregate value equal to at least 500% of base salary, and all other executive officers must maintain ownership of stock with an aggregate value equal to at least 400% of base salary. Each individual has three years to attain the specified minimum ownership position once he or she has become subject to the guidelines. Unvested restricted stock, unvested RSUs and PBUs (earned) may be used to satisfy these minimum ownership requirements, but unexercised stock options and awards subject to a performance requirement may not. Dell believes these ownership guidelines to be in line with the prevalent ownership guidelines among peer companies.

Compliance with these guidelines is evaluated once each year. As of the most recent evaluation, which was conducted in February 2011, all directors and executive officers met their applicable ownership requirements.

 

Employment Agreements, Severance and Change-in-Control Arrangements

 

Substantially all Dell employees enter into a standard employment agreement upon commencement of employment. The standard employment agreement primarily addresses intellectual property and confidential and proprietary information matters and does not contain provisions regarding compensation or continued employment.

 

In September 2007, the Committee approved severance arrangements for the executive officers other than Mr. Dell. Under the agreements, if an executive officer’s employment is terminated without cause, the executive will receive a severance payment equal to 12 months’ base salary and target bonus. The agreements also obligate each executive officer to comply with certain noncompetition and nonsolicitation obligations for a period of 12 months following termination of employment.

 

The Committee has authority under the stock plans to issue awards with provisions that accelerate vesting and exercisability in the event of a change in control of Dell and to amend existing awards to provide for such acceleration. The Committee has not previously included and does not plan to include change-in-control acceleration provisions in any awards. The severance agreements provide important protection to the executive officers, are consistent with practice of the peer companies and are appropriate for attraction and retention of executive talent. More information on severance arrangements can be found below under “Other Benefit Plans — Certain Termination Benefits.”

 

Indemnification

 

Under Dell’s Certificate of Incorporation and Bylaws, Dell’s officers, included the Named Executive Officers, are entitled to indemnification from Dell to the fullest extent permitted by Delaware corporate law. Dell has entered into indemnification agreements with each of the Named Executive Officers. Those agreements establish processes for indemnification claims, but do not increase the extent or scope of the indemnification provided.

 

Recoupment Policy for Performance-Based Compensation

 

If Dell restates its reported financial results, the Board will review the bonus and other awards made to the executive officers based on financial results during the period subject to the restatement, and, to the extent practicable under applicable law, Dell will seek to recover or cancel any such awards which were awarded as a result of achieving performance targets that would not have been met under the restated financial results.

 

Other Factors Affecting Compensation

 

In establishing total compensation for the executive officers, the Committee considered the effect of Section 162(m) of the Internal Revenue Code, which limits the deductibility of compensation paid to each covered employee. Generally, Section 162(m) of the Internal Revenue Code prevents a company from receiving a federal income tax deduction for compensation paid to the chief executive officer and the next three most highly compensated officers (other than the chief financial officer) in excess of $1 million for any year, unless that compensation is performance-based. One of the requirements of “performance-based” compensation for purposes of Section 162(m) is that the compensation be paid pursuant to a plan that has been approved by the company’s stockholders. To the extent practical, the Committee intends to preserve deductibility, but may choose to provide compensation that is not deductible if necessary to attract, retain, and reward high-performing executives.

 

The Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on that review and those discussions, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Dell’s 2011 proxy statement and incorporated into Dell’s Annual Report on Form 10-K for the fiscal year ended January 28, 2011. This report is provided by the following independent directors, who constitute the Committee.

 

THE LEADERSHIP DEVELOPMENT AND COMPENSATION COMMITTEE

 

Jim Breyer
William H. Gray, III
Shantanu Narayen
Sam Nunn

 

No member of the Leadership Development and Compensation Committee is or has been an officer or employee of Dell, and no member of the Committee had any relationships requiring disclosure under Item 404 of the SEC’s Regulation S-K requiring disclosure of certain relationships and related-person transactions. None of Dell’s executive officers served on the board of directors or compensation committee (or other committee serving an equivalent function) of any other entity that has or has had one or more executive officers who served as a member of Dell’s Board or the Leadership Development and Compensation Committee during Fiscal 2011.

 

The following table summarizes the total compensation for Fiscal 2011, 2010 and 2009 for the following persons: Michael S. Dell (principal executive officer), Brian T. Gladden (principal financial officer), and, Paul D. Bell, Stephen J. Felice, and Ronald V. Rose (the three other most highly compensated individuals who were serving as executive officers at the end of Fiscal 2011). These persons are referred to as the “Named Executive Officers.”