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.

(Name of Registrant as Specified In Its Charter)

 

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          , 2010

 

Dear Fellow Stockholders:

 

On behalf of the Board of Directors, it is my pleasure to invite you to Dell’s 2010 Annual Meeting of Stockholders. The meeting will be held on Friday, July 16, 2010, at 8:00 a.m. Central Daylight Time, at the Dell Round Rock Campus, Building 2-East, Houston/Dallas conference rooms, 501 Dell Way, 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 2010 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 can be requested using one of the methods described in the materials.

 

You may visit www.dell.com/investor to access an interactive Fiscal 2010 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 21, 2010, 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 Proxy Statement is accompanied by the Annual Report on Form 10-K for Fiscal 2010.

 

On behalf of the Board of Directors:

 

Lawrence P. Tu, Secretary

 

          , 2010

 

We are pleased to offer a Webcast of Dell’s 2010 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.)

 

If you hold your shares through a broker or other nominee, the Securities and Exchange Commission has approved a New York Stock Exchange rule that changes the manner in which your vote on the election of directors will be handled at Dell’s 2010 annual meeting.

 

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. In the past, if you did not transmit your voting instructions before the annual meeting, your broker was allowed to vote on your behalf on the election of directors and other matters considered to be routine.

 

A New Rule for Stockholder Voting

 

Effective January 1, 2010, your broker will no longer be permitted to vote on your behalf on the election of directors 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 now 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. 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 this new rule or the proxy voting process in general, please contact the broker, bank or other financial institution where you hold your shares. The Securities and Exchange Commission 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 2010 Annual Meeting of Stockholders. This proxy statement and the related proxy form are being distributed to stockholders on or about June 7, 2010.

 

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 15, 2010.

 

Even if you submit 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 five 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 meeting is the election of directors. The directors 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, as listed below, for election at the annual meeting.

 

James W. Breyer		Donald J. Carty
Michael S. Dell		William H. Gray, III
Judy C. Lewent		Thomas W. Luce, III
Klaus S. Luft		Alex J. Mandl
Shantanu Narayen		Sam Nunn
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.

 

Mr. Narayen was appointed to the Dell Board in September 2009 upon the recommendation of a third party search firm and Mr. Perot, Jr., was appointed to the Board in December 2009 upon the recommendation of Mr. Luce and Mr. Dell.

 

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 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 he or she 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 remaining independent directors. In determining whether to accept or reject the resignation, or take other action, the Board may consider all factors it deems relevant. The Board will act on the tendered resignation, and will publicly disclose its decision and rationale, within 90 days following 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:

 

 

Set forth below is current biographical information about the persons who will make up the Board following the meeting, assuming election of the nominees named above, and the qualifications, experience and skills the Board considered in determining that each such person should serve as a director.

 

 

Corporate Governance

 

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

 

 

 

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

 

Board Leadership Structure — Dell’s Bylaws provide that the Chairman of the Board shall 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 Presiding Director elected by the majority of independent directors during an executive session. The Presiding Director has broad authority and responsibility to: (1) chair executive sessions of the independent directors; (2) confer with the members of the Board on meeting agendas; (3) advise on and, with the Chairman, set the agendas for Board meetings; (4) provide feedback to the Governance and Nominating Committee on the selection of committee chairs; (5) monitor and oversee corporate governance initiatives; (6) act as Chairman if Mr. Dell should have a conflict of interest; and (7) perform such other roles as are assigned by the Governance and Nominating Committee or the full Board of Directors.

 

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 Presiding 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 Dell given Mr. Dell’s in-depth knowledge of Dell’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 Presiding 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 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 specific areas of risk to the committees of the Board:

 

 

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 maintains 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 has oversight of the various risk assessment and monitoring and controls processes across the company, including an annual risk assessment process which 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.

 

Meetings and Attendance — During Fiscal 2010, the full Board met 8 times, the Audit Committee met 8 times, the Leadership Development and Compensation Committee met 7 times, the Finance Committee met 7 times, and the Governance and Nominating Committee met 3 times. 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.

 

It is Dell’s policy that each director is expected to attend the annual meeting of stockholders, and that policy has been incorporated into the Corporate Governance Principles. All directors then serving on the Board attended last year’s annual meeting, with the exception of Ms. Lewent.

Communicating with Directors — Stockholders may send communications to the Board as a whole, the independent directors as a group, any Board committee, the Presiding 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, and a description of those procedures can also be found at www.dell.com/boardofdirectors.

 

Mr. Dell is the only member of the Board who is also a Dell employee, and he does not receive any additional compensation for serving on the Board. This section describes the Fiscal 2010 compensation of our non-employee directors.

 

Annual Retainer Fee — Each non-employee director receives an annual retainer fee, which, during Fiscal 2010, was $75,000. The chair of the Audit Committee receives an additional annual retainer of $20,000; the chair of each of the other Board committees receives an additional annual retainer of $15,000; and the Presiding Director receives an additional annual retainer of $15,000 if he or she is not the chair of a Board committee. Each director can receive the retainer in cash, defer all or a portion of the retainer into a deferred compensation plan, or receive fair market value stock options or restricted stock units in lieu of cash. Amounts deferred into the deferred compensation plan 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 year (ending at the annual meeting of stockholders) and is payable at the first Board meeting attended by the new director (“New Director Retainer”).

 

Option and Stock Unit Awards — The non-employee directors are also eligible for 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 (a) no non-employee director may receive awards (not including awards in lieu of annual cash retainer) covering more than 50,000 shares of common stock in any year (other than the year the director joins the Board, when the limit is two times the normal annual limit), (b) the exercise price of any option cannot be less than the fair market value of the common stock on the date of grant, and (c) no option can become exercisable, and no restricted stock unit can 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 (“New Director Award”) that, prior to Fiscal 2011, was equal to two times the director annual long-term incentive award, and, effective beginning in Fiscal 2011, is equal to the director annual long-term incentive award prorated based on the remaining number of Board meetings during the year (ending at the annual meeting of stockholders).

 

Computer Hardware and Technical Support — Dell provides directors personal computers for their use both as a director and for personal use. Dell will also from time to time provide personal technical support to directors.

 

Other Benefits — Dell reimburses directors for their reasonable expenses associated with attending Board meetings and provides them with liability insurance coverage for their activities as directors.

Indemnification — Under our 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 do not increase the extent or scope of the indemnification provided, but do establish processes and procedures for indemnification claims.

 

Director Compensation During Fiscal 2010 — The following table sets forth the compensation paid to the non-employee directors in Fiscal 2010.

 

DIRECTOR COMPENSATION IN FISCAL 2010

 

 

 

 

 

 

 

 

 

The Audit Committee has selected PricewaterhouseCoopers LLP as our independent auditor for Fiscal 2011, and the Board is asking stockholders to ratify that selection. 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 2011.

 

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 2010 and Fiscal 2009 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 2011 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 permitted non-audit services. In cases where the Audit Committee’s pre-approval 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, and such pre-approvals are then communicated to the full Audit Committee.

 

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

 

In furtherance of Dell’s ongoing corporate governance initiatives, the Board has approved, and recommends that stockholders approve, amendments to Dell’s Certificate of Incorporation to eliminate the supermajority vote provisions in Articles Eighth and Ninth. The supermajority vote provisions require the affirmative vote of holders of at least 662/3% of Dell’s outstanding voting stock for the stockholders to alter, amend, adopt any provisions inconsistent with, or repeal specified provisions in the Certificate of Incorporation and Bylaws.

 

Following Dell’s 2009 annual meeting of stockholders, the Governance and Nominating Committee and the full Board engaged in a review of the merits of the supermajority vote provisions in Dell’s Certificate of Incorporation and Bylaws, taking into account a variety of perspectives. A stockholder proposal was presented in the proxy statement for last year’s annual meeting that requested the Board to take all steps necessary to eliminate from the Certificate of Incorporation and Bylaws all provisions that require more than a “simple majority vote” for stockholder approval of any matter. That proposal received a high level of support from Dell’s stockholders. The Board continues to believe that the supermajority vote provisions in the Certificate of Incorporation, which Dell’s stockholders approved at their 1991 annual meeting, provide protection against self-interested actions by one or more large stockholders and would encourage any person making an unsolicited bid for control of Dell to negotiate the terms of such a transaction with the Board. The Board recognizes, however, the growing sentiment of Dell’s stockholders, as expressed most recently at last year’s annual meeting, that the elimination of the supermajority vote provisions would increase the Board’s accountability to stockholders and increase the ability of stockholders to participate effectively in Dell’s corporate governance. In light of these considerations, and upon the recommendation of the Governance and Nominating Committee, the Board has determined that the elimination of the supermajority vote provisions would be in the best interests of Dell and its stockholders.

 

If the stockholders approve this proposal, the Board will approve an amendment to Dell’s Bylaws to eliminate the supermajority vote requirements in the Bylaws that conform to the supermajority vote provisions in the Certificate of Incorporation with respect to the required vote to amend certain provisions in the Bylaws. The supermajority vote provisions that would be eliminated as a result of these amendments to the Certificate of Incorporation and the related amendment to the Bylaws constitute all of the provisions in the Certificate of Incorporation and the Bylaws that require stockholder approval by more than the applicable majority vote prescribed or permitted by current Delaware corporation law.

 

If and when the amendments to the Certificate of Incorporation and Bylaws become effective, under current Delaware corporation law:

 

 

The Board recommends a vote “FOR” approval of the amendments to eliminate the supermajority vote provisions in the Certificate of Incorporation.

In accordance with Dell’s current Certificate of Incorporation and Bylaws, approval of this proposal requires the affirmative vote of holders of at least 662/3% of the common stock issued and outstanding as of the record date for the annual meeting.

 

Summary of Proposed Amendments

 

The proposed amendments to Articles Eighth and Ninth of the Certificate of Incorporation are set forth in Appendix A to this Proxy Statement, with deletions indicated by strikeouts. The following description of the current supermajority vote requirements in Articles Eighth and Ninth and the proposed amendments to those Articles are qualified in their entirety by reference to the text set forth in Appendix A. Dell urges stockholders to review this text carefully.

 

Proposed Amendment to Article Eighth — If this proposal is approved, Article Eighth of the Certificate of Incorporation will be amended to eliminate the requirement for a supermajority vote in order for the stockholders to alter, amend, adopt any provision inconsistent with, or repeal Article Eighth. Article Eighth provides that any action required or permitted to be taken by Dell’s stockholders must be effected at a duly called meeting of stockholders and may not be effected by any written consent in lieu of a meeting of stockholders. The implementation of the amendment would not modify or repeal the prohibition on stockholder action by written consent, which would remain in effect in accordance with its current terms.

 

Proposed Amendments to Article Ninth — If this proposal is approved, Article Ninth of the Certificate of Incorporation will be amended to eliminate provisions requiring a supermajority vote in order for the stockholders to alter, amend, adopt any provision inconsistent with, or repeal Article Ninth or any of the Bylaw provisions referred to in Article Ninth. The Bylaw provisions subject to the supermajority vote requirements of Article Ninth are summarized below:

 

 

Neither the proposed amendments to the Certificate of Incorporation, nor the conforming Bylaw amendments described above which the Board will approve if the stockholders approve this proposal, would modify or repeal any of the provisions in the Bylaws summarized above, other than the supermajority vote provision in Article IX of the Bylaws.

 

Implementation of Proposed Amendments

 

If this proposal is approved, the proposed amendments to Articles Eighth and Ninth of the Certificate of Incorporation will become effective upon the filing of a Certificate of Amendment to the Certificate of Incorporation with the Delaware Secretary of State. Dell intends to make this filing promptly after the annual meeting.

 

In addition, if this proposal is implemented, the Board will approve an amendment to Article IX of Dell’s Bylaws promptly after the annual meeting to eliminate the last sentence thereof containing the supermajority vote requirements that conform to the supermajority vote provision in Article Ninth of the Certificate of Incorporation. The applicable provision of Article IX of the Bylaws that will be eliminated provides, consistent with Article Ninth of the Certificate of Incorporation, that stockholders may not alter, amend, adopt any provision inconsistent with, or repeal any of the Bylaw provisions summarized above without a supermajority vote. Upon approval by the Board, the Bylaw amendment will become effective at the same time as the amendments to the Certificate of Incorporation.

 

The American Federation of State, County and Municipal Employees Pension Plan (the “AFSCME Pension Plan”), which has indicated that it beneficially owned 48,483 shares of Dell common stock at December 16, 2009, has requested that a proposal to amend Dell’s Bylaws to provide for the reimbursement of certain proxy expenses incurred in connection with a stockholder-proposed director nomination be presented for stockholder vote at an annual meeting. The proposal, along with the AFSCME Pension Plan’s supporting statement, is included verbatim below. The AFSCME Pension Plan’s request was submitted by Charles Jurgonis, Secretary of the AFSCME Pension Plan, 1625 L Street, N.W., Washington, D.C. 20036.

 

For the reasons set forth following the proposal and supporting statement, management disagrees with the AFSCME Pension Plan’s proposal and supporting statement. At last year’s annual meeting, AFSME Pension Plan submitted to stockholders substantially the same proposal, which received the affirmative vote of holders of 33.7% of the shares present or represented by proxy at that meeting.

 

The Board 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 or represented by proxy at the meeting and entitled to vote on the proposal.

The AFSCME Pension Plan Proposal and Supporting Statement

 

RESOLVED, that pursuant to section 109 of the Delaware General Corporation Law and Article IX of the bylaws of Dell Inc., stockholders of Dell hereby amend the bylaws to add the following Section 13 to Article III:

 

“The Board of Directors shall, consistent with its fiduciary duties, cause the Corporation to reimburse a stockholder or group of stockholders (together, the “Nominator”) for reasonable expenses (“Expenses”) incurred in connection with nominating one or more candidates in a contested election of directors to the corporation’s Board of Directors, including, without limitation, printing, mailing, legal, solicitation, travel, advertising and public relations expenses, so long as (a) the election of fewer than 50% of the directors to be elected is contested in the election, (b) one or more candidates nominated by the Nominator are elected to the Corporation’s board of directors, (c) stockholders are not permitted to cumulate their votes for directors, and (d) the election occurred, and the Expenses were incurred, after this bylaw’s adoption. The amount paid to a Nominator under this bylaw in respect of a contested election shall not exceed the amount expended by the Corporation in connection with such election.”

 

Supporting Statement

 

In our opinion, the power of stockholders to elect directors is the most important mechanism for ensuring that corporations are managed in stockholders’ interests. Some corporate law scholars posit that this power is supposed to act as a safety valve that justifies giving the board substantial discretion to manage the corporation’s business and affairs.

 

The safety valve is ineffective, however, unless there is a meaningful threat of director replacement. We do not believe such a threat currently exists at most U.S. public companies. Harvard Law School professor Lucian Bebchuck has estimated that there were only about 80 contested elections at U.S. public companies from 1996 through 2002 that did not seek to change control of the corporation.

 

The unavailability of reimbursement for director election campaign expenses for so-called “short-slates” — slates of director candidates that would not comprise a majority of the board, if elected — contributes to the scarcity of such contests. (Because the board approves payment of such expenses, as a practical matter they are reimbursed only when a majority of directors have been elected in a contest.) The proposed bylaw would provide reimbursement for reasonable expenses incurred in successful short slate efforts — but not contests aimed at changing control by ousting a majority or more of the board — with success defined as the election of at least one member of the short slate.

 

The bylaw would also cap reimbursable expenses at the amount expended by the company on the contested election. We believe that the amount spent by a dissident stockholder or group will rarely exceed the amount spent by the company, but the cap ensures that the availability of reimbursement does not create an incentive for wasteful spending.

 

We urge stockholders to vote for this proposal.

 

The AFSCME Pension Plan’s proposal would encourage proxy contests by requiring all of Dell’s stockholders to bear the expense of any one stockholder who seeks to elect candidates of its own choosing to the Board. The Board currently has the power to reimburse the proponent of a successful proxy contest for its expenses if the Board determines, in the exercise of its fiduciary duties, that the reimbursement is in the best interests of all stockholders and that the amounts

reimbursed are reasonable. By providing for mandatory reimbursement of proxy expenses, the proposal seeks to impose upon Dell the obligation to pay for the campaigns of opposition candidates regardless of their fitness or suitability, and irrespective of whether they would advance Dell’s business interests.

 

The Governance and Nominating Committee of the Board of Directors has the responsibility to identify and nominate qualified director candidates to serve on Dell’s Board of Directors. The committee has a defined procedure for individuals to recommend director candidates, which can be found below under “Additional Information — Director Nomination Process.” This process gives stockholders an opportunity to recommend director candidates to the Board and have their qualifications properly reviewed by the Governance and Nominating Committee.

 

Candidates nominated by individual stockholders are not subject to the director qualification standards described under “Additional Information — Director Nomination Process,” and their nomination may not be in the best interests of Dell and its stockholders. The Board believes that stockholders should pay their own proxy expenses to promote their candidates. Individual stockholders may desire to pursue their own interests and are free to nominate director candidates without regard to whether those candidates are committed to the long-term best interests of other Dell stockholders. The adoption of the AFSCME Pension Plan’s proposal could require Dell to fund a proxy contest of opposition candidates, regardless whether any or all of those candidates are qualified to serve as a director. The Board believes that this would not represent good corporate governance and would do little to further the interests of Dell or its stockholders.

 

Furthermore, with the implementation of the new Securities and Exchange Commission rule that allows proxy material to be furnished over the Internet, stockholders will be able to nominate competing directors without the necessity of incurring much of the printing and mailing expense previously required for such a contest.

 

For these reasons, the Board of Directors strongly urges Dell stockholders to vote “AGAINST” the AFSCME Pension Plan’s proposal regarding the reimbursement of proxy expenses.

 

The AFL-CIO Reserve Fund (the “AFL-CIO Fund”), which has indicated that it beneficially owned 1,302 shares of Dell common stock at February 4, 2010, has requested that a proposal regarding an advisory vote on executive compensation be presented for stockholder vote at the annual meeting. The proposal, along with the AFL-CIO Fund’s supporting statement, is included verbatim below. The AFL-CIO Fund’s request was submitted by Daniel F. Pedrotty, Director of the Office of Investment of the American Federation of Labor and Congress of Industrial Organizations, 815 Sixteenth Street, N.W., Washington, D.C. 20006.

 

For the reasons set forth following the proposal and supporting statement, management disagrees with the AFL-CIO Fund’s proposal and supporting statement.

 

The Board of Directors recommends a vote “AGAINST” the AFL-CIO Fund’s proposal.

 

Approval of the AFL-CIO Fund’s 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.

 

The AFL-CIO Fund Proposal and Supporting Statement

 

RESOLVED, that stockholders of Dell Inc. recommend that the Board of Directors (the “Board”) adopt a policy requiring that the proxy statement for each annual meeting contain a proposal

submitted by and supported by the Board, seeking an advisory vote of shareholders to ratify the report of the Leadership Development and Compensation Committee and the senior executive compensation policies and practices described in the Compensation Discussion and Analysis section of the proxy statement.

 

The proposal submitted to stockholders should make clear that the vote is not binding and would not affect senior executive compensation that has been previously paid or awarded.

 

Supporting Statement

 

We believe that existing U.S. corporate governance standards do not give stockholders sufficient say on senior executive pay. In contrast, in the United Kingdom, public companies allow stockholders to cast an advisory vote on the “directors’ remuneration report,” which discloses executive compensation. In our opinion, a non-binding annual advisory vote gives stockholders a clear voice that could help shape senior executive compensation.

 

RiskMetrics Group, a proxy voting service, generally supports proposals to give stockholders an advisory vote on senior executive compensation. In its analysis of such proposals at other companies, RiskMetrics Group stated that: RiskMetrics encourages companies to allow shareholders to express their opinions of executive compensation practices by establishing an annual referendum process. An advisory vote on executive compensation is another step forward in enhancing board accountability.

 

U.S. stock exchange listing standards currently require stockholder approval of equity-based compensation plans; however those plans often only set broad parameters and give compensation committees wide latitude in making awards and establishing performance thresholds. We are concerned that stockholders do not have any voting mechanism to provide ongoing feedback on the application of those broad standards to individual pay packages.

 

Similarly, we are concerned that performance criteria that many companies submit for stockholder approval to take a tax deduction for executive compensation in excess of $1 million can be overly broad. We also believe that withholding votes from compensation committee members who are standing for reelection is a blunt and insufficient instrument for registering dissatisfaction with senior executive compensation decisions in the previous year.

 

Accordingly, we urge the Board to allow stockholders to express their opinion about senior executive compensation by establishing an annual referendum process. The results of such a vote could give the Board useful information about stockholders’ views on senior executive compensation, as reported each year, and would facilitate a constructive dialogue between stockholders and the Board.

 

We urge you to vote FOR this proposal.

 

Dell has a comprehensive, performance-based executive compensation program, emphasizing pay for performance in a competitive marketplace. In the section entitled “Executive Compensation” below, we have provided stockholders with complete information about our executive compensation programs, detailed disclosure regarding the amounts and types of compensation paid to our Named Executive Officers, and a comprehensive analysis of the objectives, practices and decision-making processes of our Leadership Development and Compensation Committee, which is composed entirely of independent directors. That committee, in establishing appropriate compensation plans and levels for Dell’s senior executives, seeks to reward both individual and company performance and takes into account the levels and forms of compensation necessary to recruit and retain talented executives.

It is widely expected that, within the year, Congress will pass new legislation requiring such a non-binding vote on executive compensation. Management believes it is in the best interest of Dell and its stockholders to await the legislation and not create our own policy only to possibly have to change the policy to match the new legislation.

 

Additionally, we actively engage our large stockholders on a full range of governance issues, including executive compensation, and we believe there are adequate means for all of our stockholders to advise management and the Board as a whole, the independent directors as a group, any Board committee, the Presiding Director or any other individual member of the Board of their views as described under “Proposal 1 — Election of Directors — Corporate Governance — Communicating with Directors.” Dell has instituted an investor relations blog, DellShares, and individual stockholders have the opportunity to ask questions of management at each annual meeting of stockholders. In all of these forums, stockholders can express any specific concerns they have regarding the management of the company, including concerns regarding executive compensation.

 

We believe that these methods of communication are much more effective for conveying stockholder opinions on our executive compensation than the backward-looking advisory vote suggested by the AFL-CIO Fund’s proposal. The advisory vote would not provide meaningful guidance, as the Leadership Development and Compensation Committee could not tell whether a disapproving advisory vote, if one should occur, would reflect concerns about the compensation of one or several executive officers, or all of them, or concerns about salary, bonus or equity awards, or concerns about the company’s overall compensation philosophy. It is likely, in fact, that stockholder approval or disapproval would be given for many different reasons and might reflect many different views, none of which would be communicated by the vote itself. If, in attempting to avoid a stockholder disapproval of our executive compensation practices, we are unable to maintain competitive compensation practices, we could be hampered in our ability to attract the talented executives we need and we could lose significant executive talent to other organizations.

 

Management believes in full and fair disclosure of the company’s compensation philosophy as well as the details of executive compensation, and makes every effort to encourage open communications with stockholders. In addition, the Board has adopted majority voting for the election of directors as well as a recoupment policy for executive compensation, as described under “Executive Compensation — Compensation Discussion and Analysis.” The proposal, if adopted, would not provide stockholders with any meaningful way to communicate specific concerns to the Board and would not accomplish its stated goals.

 

For these reasons, the Board strongly urges Dell stockholders to vote “AGAINST” the AFL-CIO Fund’s proposal regarding an advisory vote on executive compensation.

 

Introduction

 

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

 

Dell’s compensation program is designed to attract the best people from a competitive industry and differentiate rewards according to performance 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 the 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.

 

Dell Strategy and the Economic Environment

 

Dell is focused on providing long-term value creation through the delivery of solutions that make technology more efficient, more accessible, and easy to use.

 

Dell seeks to grow revenue over the long-term while improving operating income and cash flow growth. During Fiscal 2010, Dell focused on improving its core business, shifting its portfolio to higher-margin and recurring revenue streams, and maintaining a balance of liquidity, profitability and growth. Dell has three primary components to its strategy:

 

 

Fiscal 2011 incentive plans will be 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 Leadership Development and Compensation Committee (the “LDCC”) 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, while balancing risk. The LDCC 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 2010 to manage the compensation of executive officers are discussed in more detail below.

 

Executive Officer Compensation

 

Process for Evaluating Chairman and Chief Executive Officer Performance

 

The LDCC discusses and makes all recommendations relating to the compensation of the Chairman and Chief Executive Officer in regular session without the Chairman and Chief Executive Officer present. In reviewing the compensation of the Chairman and Chief Executive Officer, the LDCC 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, and cash flow metrics as well as progress against strategic initiatives such as customer service, share growth, leadership, culture, ethics, integrity, and compensation of peer CEOs. Based on this review, the LDCC makes base salary, bonus, and long-term incentive recommendations subject to approval of the full Board.

 

Process for and Results of Evaluating Executive Officer Compensation (other than the Chairman and Chief Executive Officer)

 

Process — When making individual compensation decisions for executive officers, the LDCC 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 Chairman and Chief Executive Officer; the individual’s performance and experience; the individual’s historical compensation; comparisons to other executive officers (both those of the company and those of Dell’s peer group); and any retention concerns.

 

Compensation Consultants — The charter of the LDCC authorizes the LDCC to engage independent consultants at any time at the expense of the company. The LDCC did not engage a consultant during Fiscal 2010 for the purpose of advising or recommending the amount or form of director or executive compensation. The LDCC periodically evaluates the need to engage independent consultants for specific requirements and did engage an independent consultant in Fiscal 2010 to perform a risk assessment of Dell’s compensation practices and policies.

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.

 

The chart below is representative of the target overall pay mix for our Named Executive Officers, excluding Mr. Dell, who has not received any long-term incentives since Fiscal 2005, both at his request and because the LDCC agrees that his extensive current stock holdings strongly align him with other stockholders and provide him sufficient motivation to drive long-term company stock price performance.

 

Target Pay Mix Chart

 

 

Pay Mix — Because executive officers are in a position to directly influence the overall performance of the company, and in alignment with a highly-leveraged pay-for-performance philosophy, a significant portion of their compensation is delivered in the form of performance-dependent, short- and long-term incentive programs. 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 the desired competitive position for each element of pay as described in the “Market Positioning” section below. The mix of actual pay delivered may vary dramatically from the chart above based on level of achievement of bonus and long-term incentive award objectives as well as company stock price performance.

 

Competitive Market Assessment — The LDCC 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 LDCC compensation data for the top five most highly-paid executive officers from a list of targeted comparable companies as well as data for all executive officers from published compensation surveys. These compensation surveys include data on technology and general industry pay practices for each executive position 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 peer group for evaluating pay for the executive officers is based on those companies with which Dell competes for talent and companies similar in size, product mix and business results. The LDCC reviews and approves the peer group annually using an assessment of sales volumes, market capitalization, number of employees, product mix and business results. At the time of the peer group analysis, median annual revenue for the peer group was $40 billion and the median market

capitalization was $46 billion. The peer group used to evaluate executive pay practices during Fiscal 2010 consisted of the following 26 companies^a:

 

 

 

Market Positioning — The LDCC targets base salary and benefits at the median of competitive market practices and variable compensation opportunity (annual incentives and the grant value of long-term incentives) at the 75th percentile of the market for each component. The LDCC targets the 75th percentile of the peer group because it believes that the performance goals it establishes are aggressive and are significant challenges for management. The LDCC also believes that the 75th percentile opportunity level is justified because of the relative weighting of incentive or performance-based compensation to fixed compensation. In addition, the LDCC believes that above-average variable pay positioning attracts and retains the best executive talent in a highly competitive market. Furthermore, the LDCC believes that placing a higher emphasis on variable compensation controls fixed costs associated with base salary and benefits while simultaneously rewarding high performance through stretch performance objectives and meeting Dell’s recruitment and retention objectives. The actual target total compensation for each individual executive may be higher or lower than the targeted market position based on individual skills, experience, contribution, performance, internal equity, or other factors that the LDCC 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 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 market median levels, although each executive officer may have a base salary above or below the median of the market based on the LDCC’s judgment with respect to each executive officer’s responsibility, performance, experience and other factors, including any retention concerns, the individual’s historical compensation and internal equity considerations. In Fiscal 2010, the Named Executive Officer base salaries ranged from $585,000 to $950,000. During Fiscal 2010, the LDCC carefully considered the input and recommendations of Mr. Dell as Chairman and Chief Executive Officer when evaluating factors relative to the other executive officers in order to approve salary adjustments.

Results — Executive officer base salaries are generally at or slightly below the market median of Dell’s peers. However, as a result of the difficult market environment, none of Dell’s executive officers received salary increases during Fiscal 2010. 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 describes the salaries and percentage of salary increase for the Named Executive Officers in Fiscal 2010 and 2011. Due to timing of the pay increases and other payroll processes, the actual salary paid can vary from the chart below. Information on amounts actually earned by the Named Executive Officers in Fiscal 2008, 2009 and 2010 can be found in the Summary Compensation Table below.

 

 

Annual Incentive Bonus

 

Design — The annual incentive bonus plan is designed to align executive officer pay with short-term financial results that 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 objective or subjective standards as the LDCC shall determine to be appropriate.

 

Annual incentives for Fiscal 2010 were established and paid to executive officers, other than Mr. Dell and Mr. Altabef, under the Executive Annual Incentive Bonus Plan (EIBP). For a description of Mr. Altabef’s annual incentive for Fiscal 2010, see “Perot Systems Corporation” below. The EIPB 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 2010 at 0.10% of consolidated net income.

 

Within the 162(m) cap described above, the LDCC 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 Chairman and Chief Executive Officer, the LDCC deemed their potential impact on

company results as equally significant. Fiscal 2010 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 and the achievement of individual performance goals. For Mr. Garriques 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 LDCC may consider the potential payout number produced by the formula and any other objective or subjective factors it deems appropriate.

 

Corporate Bonus Formula^a

 

 

 

Corporate Performance Target — At the end of the year, the LDCC evaluates company performance against specific financial and strategic 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 2010, the single performance objective was Dell Adjusted Operating Income, which was included to measure absolute profitability of Dell’s operations. Adjusted Operating Income is not a financial measure prepared in accordance with United States generally accepted accounting principles (“GAAP”). As defined by Dell, “Adjusted Operating Income” is Dell’s externally reported operating income as adjusted to exclude costs relating to acquisitions, severance and facility actions. The LDCC selected Adjusted Operating Income as the single metric for overall corporate bonus funding because it aligned with the business strategy for Fiscal 2010. With heightened uncertainty in the external market environment going into Fiscal 2010, it was important to incentivize the executives to focus on preserving Adjusted Operating Income even as the external demand environment weakened considerably. The LDCC viewed this metric as the most critical driver of stockholder value creation for Fiscal 2010. This bonus metric was prorated within the ranges below based on the company’s internal performance goals, as follows:

 

Business Unit Bonus Formula^a

 

 

 

Business Unit Performance — Each of Dell’s four business units was assigned a performance scorecard with combinations of business unit revenue, Adjusted Operating Income, cash flow metrics, relative unit growth (based on IDC data), and enterprise product revenue goals, if applicable. The metrics were selected for each business unit to reflect the role that each unit was expected to play in contributing to overall Dell results for Fiscal 2010. Each metric was assigned a specific goal for each business unit although there were not specific weightings associated with these measures. Overall performance modifiers ranging from 0% to 200% of target are assigned to each business unit based on a subjective assessment of business results relative to goals. The plan is designed such that the overall bonus pool is funded based on corporate operating income performance. This pool is allocated across business units based on relative performance against scorecard performance goals. Dell does not publicly disclose the business plans or goals of its business units because that information is considered confidential business information. Accordingly, the business unit performance goals are not disclosed because the goals are based on business plans that, if publicly disclosed, would provide competitors and other third parties with insights into Dell’s planning process and strategies. Disclosure of this information would significantly impair Dell’s ability to compete effectively in the marketplace. The LDCC believes that the performance targets are challenging based on Dell’s historical performance and industry and market conditions. The probability of achieving these performance targets was substantially uncertain at the time the targets were set, however they were positioned to be aggressive.

 

Individual Performance — The LDCC, 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 2010, the following criteria were included:

 

 

The LDCC 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 falls short of or exceeds these criteria, payouts will fall below or above 100% subject to the 150% maximum. The LDCC believes that the performance objectives established for each of these individual performance criteria represent meaningful improvements for the organization and, therefore, are reasonably difficult to attain.

 

Results — For Fiscal 2010, Dell achieved Adjusted Operating Income of $2.9 billion, which fell between the threshold and target performance objectives established for the year. Based on this level of performance, the LDCC approved a Corporate bonus modifier of 77%, which resulted in a corporate funding modifier of 70% of target as well as a 10% high-performer pool. The purpose of the 10% high-performancer pool is to fund additional bonus payouts to high performers and ensure strong individual modifier differentiation between high performers and moderate performers. Based on a subjective assessment of business unit performance against business scorecards, funding

modifiers ranging from 56% to 80% of target were approved for each business unit. Business unit modifiers represented zero sum funding within the overall approved corporate funding modifier of 70%.

 

Individual modifiers and bonus amounts for the eligible Named Executive Officers are described below. In light of the challenging macro-economic environment, Mr. Dell requested that the Board approve no bonus payout for him for Fiscal 2010 and, although the Board felt that Mr. Dell’s individual performance throughout the year was strong, it granted his request.

 

 

 

Perot Systems Corporation — Mr. Altabef is the former Chief Executive Officer of Perot Systems Corporation and joined Dell in November 2009 as a result of Dell’s acquisition of Perot Systems. Mr. Altabef’s Fiscal 2010 bonus payout was calculated using the short-term incentive program adopted by Perot Systems and performance was evaluated using the data from the first three completed fiscal quarters of Perot Systems prior to the closing of the acquisition. In determining Perot Systems’ performance, Dell compared diluted earnings per share to target diluted earnings per share to make the initial bonus adjustment, then increased the result by 5% for each secondary factor that exceeded the specified range and decreased the result by 5% for each secondary factor that was less than the specified range. No adjustment was made for performance within the range for a secondary factor. As its secondary metrics, the incentive plan used revenue, free cash flow (a non-GAAP financial measure which was calculated by subtracting capital expenditures from operating cash flow), first year contract value of new contracts signed, and total contract value of new contracts signed. Performance was evaluated against specific performance targets set at the beginning of the year and those results modify the bonus payout to 0% to 300% of the target (subject to the possible application of the other modifiers included in the formula).

 

 

Perot achieved earnings per share of $0.97, which was above the target performance objective of $0.95. Based on this level of performance, the LDCC approved a primary bonus modifier of 108.33%. Two of the secondary metrics fell within the target range, one exceeded target and one fell below target, resulting in a 100% modifier for the secondary metric.

 

Mr. Altabef’s individual performance is judged primarily on Perot Systems Corporation’s overall performance against the corporate targets and his success in the continued development and execution of the business strategy, the quality of its services, the development of the workforce, succession planning, and his leadership in maintaining and promoting the business and culture. Mr. Ross Perot Jr., Perot Systems Corporation’s former Chairman and current Dell Board member, recommended, and the LDCC approved, Mr. Altabef’s individual modifier (120%) based on a subjective assessment of his individual performance against the above described factors.

 

Mr. Altabef received one additional month of incentive compensation ($73,123) to reflect a 13-month performance period as Dell’s fiscal year-end was January 29, 2010 compared to the Perot Systems Corporation’s fiscal year-end of December 31, 2009.

Mr. Altabef will begin participating in Dell EIBP, as described above, in Fiscal 2011.

 

Long-Term Incentives

 

Design — Long-term incentives 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.

 

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 occasionally necessary to make up 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 as needed to retain key individuals, including executive officers.

 

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

 

 

Fiscal 2010 Long-Term Incentive Awards — In awarding long-term incentives, the LDCC considers level of responsibility, prior experience and achievement of individual performance criteria, as well as the compensation practices of the peer group of companies used to evaluate total compensation. In addition, the LDCC considers past grants to the executives, as well as current equity holdings. The objective is to provide executive officers (other than the Chairman and Chief Executive Officer) with above-average long-term incentive award opportunities targeted at the 75th percentile of peer practices for on-going, annual awards. The long-term incentive program is designed to provide for significant upside potential and downside risk, due to the fact that if Dell’s stockholder returns exceed industry norms, actual gains will exceed industry norms. Conversely, the actual value of the award may drop substantially when company goals are missed or stockholder returns underperform industry norms.

 

In Fiscal 2010, the LDCC established annual target long-term equity incentive opportunities (based on estimated value at grant and granted in combinations of stock options, PBUs and RSUs) for each eligible executive officer. Except for Mr. Garriques, who was not eligible to receive an annual stock option grant or PBU grant due to his special long-term incentive arrangement described below, Mr. Altabef, who was not yet a Dell employee, and Mr. Dell, who does not receive long-term incentives, the LDCC established the mix of Fiscal 2010 executive officer long-term incentive awards

at 50% stock options and 50% PBUs. This mix was considered appropriate to balance the need to retain executive officers with the need to motivate financial and stock price performance and enhance their 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 is divided by the closing stock price 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 stock price 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 performance period. PBU awards granted in Fiscal 2010 vest 100% on the third anniversary of the date of grant.

 

Attainment of performance goals established for Fiscal 2010 affects one-third of the PBUs granted in March 2007, one-third of the PBUs granted in March 2008, and one-third of the PBUs granted in March 2009. The table below provides threshold, target and maximum performance levels and the percentage of targeted performance based units earned at these levels. The percentage of units earned is prorated within the ranges below based on the performance level.

 

 

PBUs granted in March 2009 are also subject to a performance modifier ranging from 50% to 150% of the units earned from the three one-year performance periods based on cash flow from operations per share performance in fiscal years 2010 through 2012. The target cash flow from operations per share for this period is $5.25. The threshold cash flow from operations per share is $4.00, resulting in a 50% performance modifier, and to receive the maximum performance modifier, cash flow from operations per share must reach $6.50. The performance metrics for the Fiscal 2010 PBU grant were selected because the LDCC views these metrics as the most critical drivers of long-term value creation for Dell stockholders.

 

In lieu of the annual grants described above, as part of his employment offer in Fiscal 2008, Mr. Garriques received an annual long-term equity incentive grant each year in the form of RSUs equal to 600% of the corresponding year’s annual base salary, vesting ratably over three years. Mr. Garriques’ annual RSU grant was scheduled to continue through Fiscal 2012, but as described in the “Employment Agreements, Severance and Change-in-Control Arrangements” section below, beginning in Fiscal 2011 Mr. Garriques no longer receives his guaranteed annual restricted stock unit grant.

 

Fiscal 2010 Long-Term Incentive Results — In Fiscal 2010, Dell achieved Adjusted Operating Income of $2.9 billion, which resulted in a performance modifier equal to 93% of target, so that 93% of one-third of the target number of PBUs awarded to an executive officer in March 2007 and March 2008 were earned and 93% of one-third of the target number of PBUs awarded to an executive officer in March 2009 were earned subject to the cash flow from operations per share performance modifier in Fiscal 2010 through 2012.

 

Communications Solutions Long-Term Incentive Plan — Beginning for Fiscal 2011, the LDCC approved a special long-term incentive design for the Communications Solutions leadership based

on performance targets specific to the Communications Solutions team. This plan is intended to create an entrepreneurial focus among the Communications Solutions leadership team and incent them to create a strong and stable long-term business for Dell. In lieu of Dell’s standard Fiscal 2011 long-term incentive award, eligible executives will receive a PBU award with a performance range of 0% to 400% of target. Total award value will depend on meeting minimum revenue, minimum Adjusted Operating Income and minimum cumulative adjusted operating income targets for Fiscal 2013, 2014 and 2015. The foregoing performance metrics were selected for this business unit because they are the critical measures in building a healthy and sustainable business that will drive superior returns for Dell stockholders. Participants earn 100% of target for meeting goals in one of three years, 250% of target for meeting goals in two of three years, and 400% of target for meeting goals in all three years. Awards are paid out as each performance milestone is achieved. Dell believes that both the longer-term nature of the plan and the higher risk-reward trade-off relative to the standard Dell PBU plan are both necessary elements to ensure that the Communications Solutions leadership team is properly motivated to establish this new long-term business for Dell. Mr. Garriques is the only Named Executive Officer eligible for this long-term incentive. All other executive officers (other than Mr. Dell) will participate in Dell’s standard long-term incentives for Fiscal Year 2011.

 

2004 Leadership Edge Cash Retention Awards — In March 2004, the LDCC 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 2008, 2009 and 2010 are reflected in the Summary Compensation Table below.

 

2007 Long-Term Cash Engagement Awards  — In March 2006, the LDCC 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 package and was payable in cash over four years . Mr. Felice is the only Named Executive Officer who received an award under this program. Amounts earned under this plan in Fiscal 2008, 2009 and 2010 are reflected in the Summary Compensation Table below.

 

Perot Systems Conversion Awards and Retention Awards — To ensure the retention of Mr. Altabef after the close of the Perot Systems Corporation acquisition, he was awarded two separate RSU grants. The first grant is a conversion award of 683,205 shares. The conversion award (valued at approximately $10,000,000) vests ratably over three years beginning on the first anniversary of the date of grant. Rather than allow his unvested Perot Systems options and RSUs to accelerate and pay out upon the close of the transaction, Dell negotiated with Mr. Altabef a conversion of approximately $5,000,000 of the unvested equity into Dell RSUs at a 2 to 1 ratio. If Mr. Altabef is involuntarily terminated other than for cause or is constructively terminated for specified reasons, he will receive full award acceleration. If he terminates voluntarily or involuntarily for cause, he will forfeit all of the unvested RSUs. The portion of the award representing value in addition to the unvested Perot Systems equity ($5,000,000) is subject to clawback.

 

The second award of 462,646 RSUs was a retention award, valued at $6,750,000. The retention award value was determined based on a competitive new hire grant and was intended to create significant holding power, as Mr. Altabef is critical to the success of the transaction and ongoing integration. The retention award vests ratably over four years. The award contains all of the standard Dell terms and conditions, including those terms and conditions governing the effect of termination of employment and the clawback of award amounts. See “Employment Agreements, Severance and Change-in-Control Arrangements” below for additional detail.

As a result of these grants, Mr. Altabef did not receive the standard annual PBU and option grants in Fiscal 2011.

 

Other Compensation Components

 

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

 

 

Other than Mr. Altabef, who joined Dell as a result of Perot Systems’ acquisition by Dell, none of the Named Executive Officers were hired during Fiscal 2010. Mr. Altabef was not eligible for a new hire package, but received the long-term incentives described above under “Perot Systems Conversion Awards and Retention Awards.”

 

Benefits and Perquisites

 

Dell executive officers are provided limited benefits and perquisites. While not a significant part of executive officer compensation, the LDCC 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 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).

 

Annual Physical — Dell pays for a comprehensive annual physical for each executive officer and his or her spouse or domestic partner and reimburses associated travel and lodging costs, all subject to an annual maximum 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. In prior years, Dell provided personal, residential and business related security protection to Mr. Dell. Effective for Fiscal 2010, Dell will only provide Mr. Dell 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 LDCC if the exception is $50,000 or more.

 

Expatriate Benefits — Dell maintains a general expatriate policy under which employees sent on expatriate 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 LDCC if the exception is $50,000 or more.

 

DirectLife Physical Activity Program — Dell offered a four month pilot program to all executives to participate in a program that provides a DirectLife Activity Monitor to track and achieve physical activity goals. The program offers activity coaching online or by telephone. Upon completion of the four month pilot program, executives have the option to continue the program at their own expense.

 

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 Chairman and Chief Executive Officer 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, 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 last evaluation in February 2010, 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 LDCC approved standard severance arrangements for the executive officers other than Mr. Dell. Under the standard 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.

 

Mr. Garriques entered into separate severance arrangements with the company upon commencement of his employment in February 2007. The agreement provided that if Mr. Garriques

was terminated before January 31, 2012, without cause, or resigns before that date with good reason, he would receive the following cash severance compensation:

 

 

At the beginning of Fiscal 2010, Mr. Garriques was the only executive officer with a special severance and long-term incentive arrangement in place. In an effort to standardize executive officer arrangements, Dell and Mr. Garriques entered into a Retention Bonus, Merger and Modification agreement effective March 9, 2009 (the “Modification Agreement”). Under the terms of the Modification Agreement, Mr. Garriques received a $1,000,000 cash payment and accelerated vesting of the remaining $1,000,000 of his new hire long-term cash award (otherwise scheduled to vest in February 2010) in exchange for termination of both his special severance arrangement (described above) and his guaranteed annual restricted stock unit grant (described under “Long-Term Incentives” above). As a result of the Modification Agreement, Mr. Garriques is now subject to Dell’s standard severance plan.

 

The LDCC 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 LDCC 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.”

 

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 LDCC 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 LDCC 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 LDCC has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on that review and those discussions, the LDCC recommended to the Board

of Directors that the Compensation Discussion and Analysis be included in Dell’s 2010 proxy statement and incorporated into Dell’s Annual Report on Form 10-K for the fiscal year ended January 29, 2010. This report is provided by the following independent directors, who comprise the Committee.

 

Leadership Development and Compensation Committee Interlocks and Insider Participation

 

No member of the LDCC is or has been an officer or employee of Dell, and no member of the LDCC had any relationships requiring disclosure under Item 404 of Regulation S-K, the rules of the Securities and Exchange Commission 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 the Dell’s Board or the LDCC during Fiscal 2010.

 

The following table summarizes the total compensation for Fiscal 2010, 2009 and 2008 for the following persons: Michael S. Dell (principal executive officer), Brian T. Gladden (principal financial officer), and Peter A. Altabef, Ronald G. Garriques, and Stephen J. Felice (the three other most highly compensated individuals who were serving as executive officers at the end of Fiscal 2010). These persons are referred to as the “Named Executive Officers.”

 

 

 

 

 

 

 

The following table sets forth certain information about plan-based awards that were made to the Named Executive Officers during Fiscal 2010. For more information about the plans under which these awards were granted, see the “Compensation Discussion and Analysis” above.