The Company pays each non-employee director an annual board retainer fee of $36,000, of which $26,000 is paid in cash and $10,000 is paid in deferred stock units issued under the Deferred Compensation Plan for Directors (the "Deferred Compensation Plan").
Additionally, the Company pays each non-employee director an annual committee retainer, for all committee service, of $10,000 for those who serve as chairman of a committee and $6,000 for those who do not. Each non-employee director receives a fee of $2,000 for each day on which he or she attends a Board of Directors meeting and a fee of $1,000 for attendance at one or more committee meetings on a day on which a Board meeting is not also held.
Directors may also elect to defer all or a portion of their cash retainers and fees to a cash-based account or to their Boeing stock unit account under the Deferred Compensation Plan.
The number of Boeing stock units credited to each director's account is the number of shares of Boeing common stock that could be purchased with the retainer or fee, based on the Fair Market Value of the stock as of the day on which the retainer or fee is earned. "Fair Market Value" for a single trading day is the mean of the high and low per share trading prices for Boeing common stock as reported in The Wall Street Journal for the New York Stock Exchange — Composite Transactions.
Boeing stock units earn the equivalent of dividends, which are credited as additional stock units. Directors do not have the right to vote or transfer Boeing stock units. Cash-based accounts earn interest. Amounts held for a director under the Deferred Compensation Plan are intended to be distributed after the director retires from the Board of Directors or otherwise terminates service on the Board. Boeing stock units will be distributed as shares of Boeing common stock.
The Company reimburses non-employee directors for actual travel and out-of-pocket expenses incurred in connection with service to the Company.
At the time of a non-employee director's first annual meeting, the director receives an initial option to purchase 1,500 shares of Boeing stock. After each subsequent annual meeting during the non-employee director's term, the director receives an option to purchase an additional 1,200 shares. The exercise price of an option is equal to the average of the Fair Market Values for the fifth through ninth business days following the date of grant. Options vest approximately one year after grant, provided the recipient remains a director. Options become exercisable in installments one, three, and five years after the date of grant.
Directors who are employees of the Company do not receive any compensation for their service as directors.
The retirement policy of the Board of Directors is as follows: (a) each director who is not an officer of the Company will resign permanently as a director at the annual meeting of shareholders following that director's 72nd birthday and (b) each director who is an officer of the Company will tender to the Organization and Nominating Committee a resignation as a director on the first to occur of the following: (i) the officer retires under The Boeing Company Employee Retirement Plan or (ii) the officer no longer fulfills a primary role in the Company, as determined by the Organization and Nominating Committee. In any case, such director will retire permanently as a director no later than the annual meeting of shareholders following that director's 72nd birthday. This policy applies without regard to whether a director has completed his or her term.
The Company does not provide any retirement benefits to non-employee directors.
The Board of Directors has standing Audit, Compensation, Finance, and Organization and Nominating Committees. Additionally, from time to time, the Board establishes special committees for specific purposes. The membership of the standing committees is usually determined at the organizational meeting of the Board in conjunction with the annual meeting of shareholders. Only independent directors currently serve on standing committees. The membership of the committees is as follows, with the chairman of each committee listed first:
The Audit Committee selects and engages the independent auditors. The committee reviews the audit plans and audit findings of both the independent auditors and the internal auditors, the independent auditors' opinion of the financial statements, and the internal auditors' reports on the effectiveness of internal controls. The committee also reviews the Company's compliance with laws, regulations, and Company policies relating to political contributions, sales consultants, and government affairs consultants; the Company's ethics and business conduct program; compliance with the principles of the Defense Industry Initiative on Business Ethics and Conduct; and the Company's annual disclosure documents. The committee monitors the adequacy and effectiveness of the Company's financial controls and financial reporting processes, meets with counsel as to significant pending and threatened litigation, and assesses the Company's risk management program. The Audit Committee held five meetings in 1997.
The Compensation Committee establishes and administers the Company's executive compensation plans. It sets policy for employee benefit programs and plans. The committee oversees administration of the employee retirement and various other benefit plans. The committee makes recommendations to the Board of Directors concerning the salaries of elected Company officers. The committee determines the number of performance shares and stock options awarded to certain officers of the Company and the terms and conditions on which they are granted. It administers the Incentive Compensation Plan, stock option plans, and deferred compensation plans. The Compensation Committee held seven meetings in 1997.
The Finance Committee reviews and makes recommendations concerning proposed dividend actions, current and projected capital requirements, and issuance of debt or equity securities. It reviews the Company's credit agreements and short-term investment policy. The committee also reviews the investment policies, administration, and performance of the trust investments of the Company's employee benefit plans. The Finance Committee held five meetings in 1997.
Organization and Nominating Committee
The Organization and Nominating Committee reviews and makes recommendations to the Board of Directors with respect to the responsibilities and functions of the Board and Board committees, and with respect to Board compensation. The committee makes recommendations to the Board of Directors concerning the composition and governance of the Board, including recommending candidates to fill vacancies on, or to be elected or reelected to, the Board. The committee will consider the names and qualifications of candidates for the Board submitted by shareholders in accordance with the procedures referred to on page * of this proxy statement. The committee oversees evaluation of the directors, Board committees and the Board. The committee also makes recommendations to the Board concerning candidates for election as Chief Executive Officer and other corporate officers. At least once each year, the committee reviews the performance of the Chief Executive Officer and the Company's plans for senior management succession. The Organization and Nominating Committee held six meetings in 1997.
During 1997, the Board of Directors held seven meetings and the committees described above held 23 meetings. Average attendance by incumbent directors at all such meetings was 99%. Each incumbent director attended at least 95% of the total number of Board and committee meetings he or she was eligible to attend.
The Company and its subsidiaries have transactions in the ordinary course of business with other corporations of which certain Boeing directors are executive officers. The Company does not consider the amounts involved in such transactions to be material in relation to its business and believes that such amounts are not material in relation to the business of such other corporations or the interests of the directors involved.
The Company has entered into a consulting agreement with Harold J. Haynes, who served as a member of the Company's Board of Directors from 1974 to 1982 and from 1984 until his retirement from the Board as of August 1, 1997. The agreement commenced August 1, 1997 and will end April 30, 1998. Under the terms of the agreement, Mr. Haynes provides consulting services to the Company. For these services, Mr. Haynes is paid $27,000 for each three-month period during the term of the agreement.
The Company has also entered into a consulting agreement with Frank A. Shrontz, who served as Chairman of the Company's Board of Directors from 1988 until his retirement on January 31, 1997 and was the Company's Chief Executive Officer from 1986 until 1996 and President from 1985 until 1988. Mr. Shrontz retired as a member of the Board as of August 1, 1997. The agreement commenced February 1, 1997 and, as amended on August 25, 1997, will end April 30, 1998. Under the terms of the agreement, Mr. Shrontz provides consulting and other services to the Company. For these services, Mr. Shrontz will be paid a total of $264,334 and will receive administrative support for his services performed under the consulting agreement.
McDonnell Douglas made a loan of $1,252,792 in 1997 to Michael M. Sears, now ISDS Executive Vice President and President of McDonnell Aircraft and Missile Systems, to facilitate the purchase of a residence in California. The loan accrued interest at 5% per annum. The loan has been repaid in full.
In 1997, the Company made deposits with taxing authorities on behalf of Harry C. Stonecipher, President and Chief Operating Officer and a member of the Board of Directors, and James F. Palmer, Senior Vice President and President of Shared Services Group, to cover excise and other tax liabilities on their income arising from the change of control of McDonnell Douglas. The deposits exceeded their tax liabilities in the respective amounts of $551,520 and $459,408. It is anticipated that these amounts will be fully repaid to the Company, without interest, in 1998.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors and certain of its officers to send reports of their ownership of Boeing stock and of changes in such ownership to the Securities and Exchange Commission (the "SEC") and the New York Stock Exchange. SEC regulations also require the Company to identify in this proxy statement any person subject to this requirement who failed to file any such report on a timely basis. Based solely on the Company's review of the copies of such reports it has received, the Company believes that all of its directors and officers complied with all reporting requirements applicable to them with respect to transactions during 1997.