UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
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[ ] Soliciting Material Pursuant to Section 240.14a-12
American Express Company
..................................................................
(Name of Registrant as Specified In Its Charter)
..................................................................
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[LOGO] AMERICAN EXPRESS COMPANY
American 200 VESEY STREET
Express/R/ NEW YORK, NEW YORK 10285
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
DATE............. Monday, April 28, 2003, at 10:00 a.m. Eastern Time
PLACE............ American Express Company
200 Vesey Street, 26th floor
New York, New York 10285
ITEMS OF BUSINESS (1) To elect directors.
(2) To ratify our selection of Ernst & Young LLP as our
independent auditors for 2003.
(3) To vote on a shareholder proposal relating to the
establishment of six-year term limits for directors.
(4) To vote on a shareholder proposal to prohibit any stock
options for senior management.
(5) To vote on a shareholder proposal calling for options to
be granted at the Company's highest historical stock
price and imposing a buyback provision on such options.
(6) To transact such other business that may properly come
before the meeting.
RECORD DATE...... You can vote if you are a shareholder of record on
February 28, 2003.
/s/ Stephen P. Norman
STEPHEN P. NORMAN
SECRETARY
March 11, 2003
TABLE OF CONTENTS
PAGE
----
General Information....................................................... 1
Voting Information........................................................ 1
Corporate Governance...................................................... 3
Report of the Audit Committee......................................... 6
Compensation of Directors................................................. 7
Ownership of Our Common Shares............................................ 9
Items to be Voted on by Shareholders...................................... 10
Item 1--Election of Directors......................................... 10
Item 2--Selection of Auditors......................................... 12
Item 3--Shareholder Proposal.......................................... 13
Item 4--Shareholder Proposal.......................................... 13
Item 5--Shareholder Proposal.......................................... 15
Executive Compensation.................................................... 16
Compensation and Benefits Committee Report on Executive Compensation.. 16
Certain Transactions...................................................... 29
Section 16(a) Beneficial Ownership Reporting Compliance................... 30
Directors and Officers Liability Insurance................................ 30
Requirements, Including Deadlines, for Submission of Proxy Proposals,
Nomination of Directors and Other Business of Shareholders.............. 31
Exhibit A--Audit Committee Charter........................................ 32
[LOGO] AMERICAN EXPRESS COMPANY
American 200 VESEY STREET
Express/R/ NEW YORK, NEW YORK 10285
March 11, 2003
PROXY STATEMENT
GENERAL INFORMATION
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We are providing these proxy materials to you in connection with the
solicitation of proxies by the Board of Directors of American Express Company
for the 2003 Annual Meeting of Shareholders and for any adjournment or
postponement of the Meeting. In this Proxy Statement, we refer to American
Express Company as "the Company," "we" or "us."
We are holding the Annual Meeting at 10:00 a.m. Eastern Time, on Monday,
April 28, 2003, at the Company's New York City headquarters and invite you to
attend in person. If you need special assistance at the Meeting because of a
disability, please call Stephen P. Norman, our Corporate Secretary, at (212)
640-5583.
The Company has arranged for live audio of the 2003 Annual Meeting to be
accessible to the general public on the Internet at
http://ir.americanexpress.com. A replay of the Meeting's audio webcast will
also be available at the same website address beginning on the same day.
We intend to mail this Proxy Statement and proxy card to shareholders
starting on or about March 14, 2003.
VOTING INFORMATION
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RECORD DATE
You may vote all shares that you owned as of February 28, 2003, which is the
record date for the Annual Meeting. On February 28, 2003, we had 1,304,650,222
common shares outstanding. Each common share is entitled to one vote on each
matter properly brought before the Meeting.
OWNERSHIP OF SHARES
You may own common shares (1) directly in your name as the shareholder of
record, which includes shares purchased through our Shareholder's Stock
Purchase Plan (Purchase Plan) and restricted share awards (RSAs) issued to
employees under our long-term incentive plans, or (2) indirectly through a
broker, bank or other holder of record, or (3) indirectly in the American
Express Company Stock Fund of our Incentive Savings Plan (ISP), the Employee
Stock Ownership Plan of Amex Canada, Inc., and the AEFA Stock Purchase Program.
If your shares are registered directly in your name, you are the holder of
record of these shares and we are sending these proxy materials directly to
you. As the holder of record, you have the right to give your proxy directly to
us, give your voting instructions by telephone or by the Internet or vote in
person at the Meeting. If you hold your shares in a brokerage account or
through a bank or other holder of record, you hold the shares in "street name,"
and your broker, bank or other holder of record is sending these proxy
materials to you. As a holder in street name, you have the right to direct your
broker, bank or other holder of record how to vote by filling out a voting
instruction form that accompanies your proxy materials. Regardless of how you
hold your shares, we invite you to attend the Meeting.
HOW TO VOTE
YOUR VOTE IS IMPORTANT. We encourage you to vote promptly. Internet and
telephone voting are available through 4:00 p.m. Eastern Time on Tuesday, April
22, 2003 for shares held in employee plans and through 4:00 p.m. Eastern Time
on Sunday, April 27, 2003 for all other shares. You may vote in one of the
following ways:
BY TELEPHONE. If you are located in the U.S., you can vote your shares by
calling the toll-free telephone number on your proxy card or in the
instructions that accompany your proxy materials. You may vote by telephone 24
hours a day. The telephone voting system has easy-to-follow instructions and
allows you to confirm that the system has properly recorded your votes. If you
vote by telephone, you do not need to return your proxy card.
BY INTERNET. You can also vote your shares by the Internet. Your proxy card
indicates the website you may access for Internet voting. You may vote by the
Internet 24 hours a day. As with telephone voting, you will be able to confirm
that the system has properly recorded your votes. If you are an owner in street
name, please follow the Internet voting instructions that accompany your proxy
materials. You may incur costs such as telephone and Internet access charges if
you vote by the Internet.
BY MAIL. If you are a holder of record, you can vote by marking, dating and
signing your proxy card and returning it by mail in the enclosed postage-paid
envelope. If you hold your shares in street name, please complete and mail the
voting instruction card.
AT THE ANNUAL MEETING. The way you vote your shares now will not limit your
right to change your vote at the Annual Meeting if you attend in person. If you
hold your shares in street name, you must obtain a proxy, executed in your
favor, from the holder of record if you wish to vote these shares at the
Meeting.
All shares that have been properly voted and not revoked will be voted at
the Meeting. If you sign and return your proxy card without any voting
instructions, your shares will be voted as the Board of Directors recommends.
REVOCATION OF PROXIES. You can revoke your proxy at any time before your
shares are voted if you (1) submit a written revocation to our Secretary, (2)
submit a later-dated proxy (or voting instructions if you hold shares in street
name), (3) provide subsequent telephone or Internet voting instructions or (4)
vote in person at the Meeting.
SHARES HELD UNDER PLANS
If you participate in the Purchase Plan, your proxy card shows the number of
shares enrolled in that plan as well as any shares you have acquired through
dividend reinvestment. If you participate in the ISP, the Employee Stock
Ownership Plan of Amex Canada, Inc., or the AEFA Stock Purchase Program, your
proxy card may include shares that the plan has credited to your account.
To allow sufficient time for the plan trustees to vote, the trustees must
receive your voting instructions by 4:00 p.m. Eastern Time on Tuesday, April
22, 2003. If the ISP trustee does not receive your instructions by that date,
the trustee will vote your shares in the same proportion of votes that the
trustee receives from other ISP participants. If the trustee for the Employee
Stock Ownership Plan of Amex Canada, Inc., or the broker holding shares in the
AEFA Stock Purchase Program do not receive your instructions by that date, they
will not vote your shares.
CONFIDENTIAL VOTING
We maintain the confidentiality of the votes of individual shareholders. We
do not disclose these votes to any member of management, except if we must
disclose them for legal reasons. However, if a shareholder writes a comment on
the proxy card, we will forward the comment to management. In reviewing the
comment, management may learn how the shareholder voted. In addition, the
Inspectors of Election and selected employees of our independent tabulating
agent may have access to individual votes in the normal course of counting and
verifying the vote.
QUORUM AND REQUIRED VOTE
QUORUM. We will have a quorum and will be able to conduct the business of
the Annual Meeting if the holders of a majority of the votes that shareholders
are entitled to cast are present at the Meeting, either in person or by proxy.
VOTES REQUIRED FOR PROPOSALS. To elect directors and adopt the other
proposals, the following proportion of votes is required:
. To elect the Directors, a plurality of the votes cast.
. To ratify the selection of our auditors, and to adopt the shareholder
proposals, the affirmative vote of a majority of the votes cast.
ROUTINE AND NON-ROUTINE PROPOSALS. New York Stock Exchange rules determine
whether proposals presented at shareholder meetings are routine or not routine.
If a proposal is routine, a broker or other entity holding shares for an owner
in street name may vote for the proposal without voting instructions from the
owner.
2
If a proposal is not routine, the broker or other entity may vote on the
proposal only if the owner has provided voting instructions. A broker non-vote
occurs when the broker or other entity is unable to vote on a proposal because
the proposal is not routine and the owner does not provide any instructions.
The New York Stock Exchange has informed us that the election of directors
and ratification of the selection of our auditors are routine items. The
Exchange has also informed us that the shareholder proposals are not routine
items.
HOW WE COUNT VOTES. In determining whether we have a quorum, we count
abstentions and broker non-votes as present and entitled to vote.
In counting votes on the proposals:
. We do not count abstentions or broker non-votes as votes cast for the
election of Directors, but we do count votes withheld for one or more
nominees as votes cast.
. We do not count abstentions as votes cast on our proposal to ratify the
selection of auditors or the shareholder proposals. We also do not count
broker non-votes as votes cast on these proposals. Therefore, abstentions
and broker non-votes will have no impact on the outcome of these proposals.
MULTIPLE SHAREHOLDERS SHARING THE SAME ADDRESS
In accordance with notices we previously sent to street-name shareholders
who share a single address, we are sending only one annual report and proxy
statement to that address unless we received contrary instructions from any
shareholder at that address. This practice, known as "householding," is
designed to reduce our printing and postage costs. However, if any shareholder
residing at such an address wishes to receive a separate copy of the 2002
Annual Report, or this proxy statement, or a separate annual report or proxy
statement in the future, they may telephone our Secretary, Stephen P. Norman,
at (212) 640-5583 or write to him at 200 Vesey Street, New York, New York
10285. If you are receiving multiple copies of our annual report and proxy
statement, you can request householding by contacting the Secretary in the same
manner.
COST OF PROXY SOLICITATION
We will pay the expenses of soliciting proxies. Our Directors, officers or
employees may solicit proxies for us in person, or by telephone, facsimile or
electronic transmission. We have hired Morrow & Co. to help us distribute and
solicit proxies. We will pay Morrow $17,500 plus expenses for these services.
CORPORATE GOVERNANCE
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Our business is managed by the Company's employees under the direction and
oversight of the Board of Directors. Except for Mr. Chenault, none of our Board
members is an employee of the Company. The Board limits membership of the Audit
Committee, Compensation and Benefits Committee and Nominating and Governance
Committee to independent non-employee Directors. We keep Board members informed
of our business through discussions with management, materials we provide to
them, visits to our offices and their participation in Board and Board
committee meetings.
The Board of Directors has adopted Corporate Governance Principles which,
along with the charters of the Board Committees and the Company's Code of
Conduct, provide the framework for the governance of the Company. A complete
copy of the Company's governance principles, the charters of the Board
Committees and the Code of Conduct may be found on the Company's Investor
Relations website at http://ir.americanexpress.com. The Audit Committee charter
is also attached as Exhibit A to this proxy statement.
The following is a summary of the Company's Corporate Governance Principles.
A significant majority of the Board of Directors shall consist of
independent, non-management directors who meet the criteria for independence
required by the New York Stock Exchange.
A director is independent if he or she does not have a material relationship
with the Company.
The Board has established the following guidelines to assist it in
determining director independence:
3
A director will not be considered independent if, within the last five years
(i) the director or an immediate family member was employed by the Company or a
subsidiary as an officer, (ii) the director or an immediate family member was
employed by the Company's auditor as partner or manager, or (iii) an executive
officer of the Company serves on the compensation committee of another company
that employs the director or an immediate family member of the director as an
officer.
The following relationships will be considered material:
. If a Company director is an executive officer of another company which
does business with the Company and the annual revenues derived from that
business exceed 1% of either company's total revenues.
. If a Company director is a director, officer or trustee of a charitable
organization and the Company's annual charitable contributions to the
organization (exclusive of gift-match payments) are greater than 1% of
the organization's total annual charitable receipts.
. If a Company director is a partner of or of counsel to a law firm that
performs substantial legal services to the Company on a regular basis.
. If a Company director is a partner, officer or employee of an investment
bank or consulting firm that performs substantial services to the
Company on a regular basis.
The Board of Directors has determined that as of January 27, 2003, nine of
the Company's 12 incumbent directors are independent under these guidelines:
Messrs. Akerson, Artzt, Bowen, Dolan, Johnson, Leschly, McGinn, Popoff and
Walter. The other two non-management directors, Ms. Barshefsky and Mr. Jordan,
continue to participate fully in the Board's activities and provide valuable
insights and advice.
Directors should be persons who have achieved prominence in their field and
who possess significant experience in areas of importance to the Company, such
as general management, finance, marketing, technology, law, international
business or public sector activities.
Directors should possess integrity, independence, energy, forthrightness,
analytical skills and commitment to devote the necessary time and attention to
the Company's affairs. Directors should possess a willingness to challenge and
stimulate management and the ability to work as part of a team in an
environment of trust.
The non-management directors shall meet periodically in executive session
without the Chief Executive Officer present.
The executive sessions of non-management directors shall be chaired by the
director who is the chairman of the Committee responsible for the issue being
discussed. General discussions, such as the review of the Company's overall
performance, may be chaired by a director chosen by the other directors, or may
be chaired by the longest serving member of the Board. The Board will schedule
three executive sessions of non-management directors each year. However, any
director may request additional executive sessions of non-management directors
to discuss any matter of concern.
Non-management directors shall have access to individual members of
management or to other employees of the Company on a confidential basis.
Directors are authorized to conduct independent investigations and to hire
outside consultants or experts at the Company's expense. Directors shall also
have access to Company records and files, and directors may contact other
directors without informing company management regarding the purpose or even
the fact of such contact.
The Company believes that each director should have a substantial personal
investment in the Company. A personal holding of 20,000 shares of the Company
is recommended for each director. Directors shall have five years to attain
their share ownership threshold.
The Company has established several means for shareholders or others to
communicate their concerns to the Board of Directors. If the concern relates to
the Company's financial statements, accounting practices or internal controls,
the concern should be submitted in writing to the Chairman of the Audit
Committee in care of the Company's Secretary at the Company's headquarters
address. If the concern relates to the Company's governance practices, business
ethics or corporate conduct, the concern may be submitted in writing to the
Chairman of the Nominating and Governance Committee in care of the Company's
Secretary at the Company's headquarters address. If the shareholder is unsure
as to which category his or her concern relates, he or she may communicate it
to any one of the independent directors in care of the Company's Secretary.
4
The Company's "whistleblower" policy prohibits the Company or any of its
employees from retaliating or taking any adverse action against anyone for
raising a concern. If a shareholder or employee nonetheless prefers to raise
his or her concern in a confidential or anonymous manner, the concern may be
directed to the Office of the Ombudsperson at the Company's headquarters or by
telephone at 1-800-297-1010. The Ombudsperson will refer the concern to the
appropriate independent director.
BOARD MEETINGS
During 2002, the Board of Directors met nine times. All our Directors
attended 75 percent or more of the meetings of the Board and Board committees
on which they served in 2002. Mr. Artzt will not be standing for reelection in
accordance with the Board's retirement policy.
This table lists our five committees, the Directors who currently serve on
them and the number of committee meetings held in 2002.
MEMBERSHIP ON BOARD COMMITTEES
NOMINATING
COMPENSATION AND PUBLIC
NAME AUDIT AND BENEFITS GOVERNANCE EXECUTIVE RESPONSIBILITY
-------------- ----- ------------ ---------- --------- --------------
Mr. Akerson C M M
---------------------------------------------------------------------
Mr. Artzt* M
---------------------------------------------------------------------
Ms. Barshefsky M
---------------------------------------------------------------------
Mr. Bowen M M C
---------------------------------------------------------------------
Mr. Chenault C
---------------------------------------------------------------------
Mr. Dolan M
---------------------------------------------------------------------
Mr. Johnson M M
---------------------------------------------------------------------
Mr. Jordan M
---------------------------------------------------------------------
Mr. Leschly C M
---------------------------------------------------------------------
Mr. McGinn M M M
---------------------------------------------------------------------
Mr. Popoff M C M M
---------------------------------------------------------------------
Mr. Walter M
---------------------------------------------------------------------
2002 Meetings 11 6 3 0 2
C = CHAIR
M = MEMBER
* = MR. ARTZT WILL BE RETIRING FROM THE BOARD ON APRIL 28, 2003.
COMPENSATION AND BENEFITS COMMITTEE
The Compensation and Benefits Committee has oversight responsibility for the
compensation and benefit programs for executive officers and other employees.
NOMINATING AND GOVERNANCE COMMITTEE
The Nominating and Governance Committee considers and recommends candidates
for election to the Board, advises the Board on Director compensation, oversees
the annual performance evaluations of the Board and Board Committees, advises
the Board on corporate governance matters and considers candidates for election
to the Board that shareholders recommend in accordance with the requirements we
provide on page 31.
EXECUTIVE COMMITTEE
The Executive Committee is authorized to meet instead of the full Board in
emergencies or in the interval between Board meetings.
5
PUBLIC RESPONSIBILITY COMMITTEE
The Public Responsibility Committee reviews our practices that affect the
communities in which we work and the public interest in general.
AUDIT COMMITTEE
The responsibilities of the Audit Committee are described in the committee
charter beginning on page 32 and in the following Report of the Audit Committee.
All members of the Audit Committee are independent Directors as defined by
the listing standards of the New York Stock Exchange and the Company's
Corporate Governance Principles. The Board has also determined that Messrs.
Akerson, Johnson and Walter meet the requirements for being "audit committee
financial experts" as defined by regulations of the Securities and Exchange
Commission adopted in January 2003.
REPORT OF THE AUDIT COMMITTEE
The role of the Audit Committee is to assist the Board of Directors in its
oversight of the Company's financial reporting process. Management has the
primary responsibility for the financial statements and the reporting process,
including the systems of internal controls. The independent auditors are
responsible for auditing the Company's financial statements and expressing an
opinion as to their conformity to accounting principles generally accepted in
the United States.
In the performance of its oversight function, the Audit Committee has
reviewed and discussed with management and the independent auditors the
Company's audited financial statements. The Audit Committee also has discussed
with the independent auditors the matters required to be discussed by Statement
on Auditing Standards No. 61 relating to communication with audit committees.
In addition, the Audit Committee has received from the independent auditors the
written disclosures and letter required by Independence Standards Board
Standard No. 1 relating to independence discussions with audit committees, has
discussed with the independent auditors their independence from the Company and
its management, and has considered whether the independent auditor's provision
of non-audit services to the Company is compatible with maintaining the
auditor's independence.
The Audit Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Audit
Committee meets with the internal and independent auditors, with and without
management present, to discuss the results of their examinations, their
evaluations of the Company's internal controls and the overall quality of the
Company's financial reporting. In addition, the Audit Committee met with the
Chief Executive Officer and Chief Financial Officer of the Company to discuss
the processes that they have undertaken to evaluate the accuracy and fair
presentation of the Company's financial statements and the effectiveness of the
Company's system of disclosure controls and procedures.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board has approved,
that the Company's audited financial statements be included in the Company's
2002 Annual Report to Shareholders and Annual Report on Form 10-K for the year
ended December 31, 2002 for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
Daniel F. Akerson, Chairman
Edwin L. Artzt
William G. Bowen
F. Ross Johnson
Richard A. McGinn
Robert D. Walter
6
COMPENSATION OF DIRECTORS
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CASH COMPENSATION
In 2002, we paid each non-employee Director compensation for Board service
as follows:
. an annual retainer of $64,000, which we reduce by $16,000 if the Director
does not attend at least 75 percent of our Board meetings and meetings of
the committees on which the Director serves;
. an annual retainer of $10,000 for a Director who is a committee
chairperson; and
. reimbursement of customary expenses for attending Board, committee and
shareholder meetings.
We do not pay Directors who are also our employees any additional
compensation for serving as a Director.
EQUITY COMPENSATION
We have two stock-related plans for our non-employee Directors that link a
portion of their compensation to our share price performance. These plans are
the Directors' Stock Option Plan and the Directors' Stock Plan.
DIRECTORS' STOCK OPTION PLAN. Under this plan, we made a 3,000-share stock
option grant to each non-employee Director on the date of the 2002 Annual
Meeting of Shareholders. The 2002 grant has these features:
. The exercise price is $43.09 per share, which was the market price of our
common shares on the date we made the grant.
. Directors may exercise the option for up to ten years.
. Directors may exercise one-third of the grant after one year, two-thirds
after two years and the full grant after three years.
. Directors may transfer the option to family members so long as the
Director remains responsible for the payment of taxes when the transferee
exercises the option.
This plan is due to expire on April 26, 2003 and will not be renewed.
DIRECTORS' STOCK PLAN. We make an annual grant of 600 common shares to each
non-employee Director for service in the prior year. In two instances we will
grant fewer than 600 shares: (1) we will grant 450 shares to any Director who
attends less than 75 percent of all Board and committee meetings in the prior
year and (2) we will grant 300 shares to any Director who joined the Board
after July 1 of the prior year. In January 2003 we granted 600 common shares to
each of ten Directors and 300 shares to Mr. Walter who was elected to the Board
after July 1, 2002. This plan was established in July 1997 and is scheduled to
expire in July 2007.
DEFERRED COMPENSATION PLAN
Non-employee Directors may elect to defer the receipt of their cash
compensation until a later date. Participating Directors may invest their
deferred amounts in two ways: (1) in a cash account that we value based on a
schedule linked to our return on equity or (2) in a common share equivalent
account that we value according to the performance of our common shares,
including reinvested dividends. Under either alternative, Directors will
receive cash payments and will not receive shares. Seven Directors currently
participate in the plan. On page 9 we show the number of common share
equivalent units we have credited thus far to the Directors who invest in the
stock account.
DIRECTORS STOCK EQUIVALENT UNITS
Beginning in April 2003, non-employee Directors will receive 1,000 Stock
Equivalent Units (SEU's) upon election or reelection at the Annual Meeting of
Shareholders. The SEU's will be held for the Director until retirement. Each
SEU will have a cash value equal to the value of one share of the Company's
common stock. Upon the Director's retirement, the accumulated SEU's will be
paid out in cash in an amount equal to the value of a corresponding number of
common shares plus reinvested dividends from the date of grant.
RETIREMENT BENEFITS
We offer no retirement benefits to non-employee Directors who began their
Board service after March 31, 1996. However, we pay a retirement benefit to
Directors who (1) began their Board service on or before March 31,
7
1996, (2) have served on our Board for at least five years and (3) have never
been our employees. The retirement benefit consists of a payment of $30,000 per
year for each year a Director served on the Board. We will not make payments
past a Director's death. We may provide retirement benefits to Directors who do
not qualify under this plan, but have never done so and have no plans to change
this practice. Six of the current Directors are eligible to receive retirement
benefits.
INSURANCE
We provide our non-employee Directors with group term life insurance
coverage of $50,000 and accidental death and dismemberment insurance coverage
of $300,000. Directors may purchase $50,000 of additional group term life
insurance. In 2002 four Directors purchased this additional insurance.
DIRECTORS' CHARITABLE AWARD PROGRAM
One way we promote charitable giving is through our Directors' Charitable
Award Program. Under this program we purchase life insurance on the lives of
participating Directors and advisors to the Board. We will receive a $1,000,000
benefit upon the death of a Director and $500,000 upon the death of an advisor.
We expect to donate one-half of the benefit to the American Express Foundation
for charitable purposes and one-half directly to the charitable organization
that the Director or advisor recommends. The program does not provide any
financial benefit to Directors or advisors and we bear only nominal cost in
running it. In addition, our donation of the death benefits to the Foundation
helps meet the Foundation's funding needs.
OTHER ARRANGEMENTS
Mr. Jordan is of counsel to the law firm of Akin, Gump, Strauss, Hauer &
Feld, L.L.P. Ms. Barshefsky is a partner of the law firm of Wilmer, Cutler &
Pickering. These firms provided legal services to us in 2002 at customary rates
and they continue to provide such services to us in 2003. Mr. Jordan is also a
Senior Managing Director of the investment banking firm of Lazard Freres & Co.
LLC, which the Company utilizes from time to time for investment banking and
financial advisory services.
8
OWNERSHIP OF OUR COMMON SHARES
--------------------------------------------------------------------------------
This table shows how many American Express common shares certain individuals
and entities beneficially owned on February 28, 2003. These individuals and
entities include: (1) owners of more than 5% of our outstanding common shares;
(2) our current Directors; (3) the five executive officers named in the summary
compensation table on page 21 and (4) all current Directors and executive
officers as a group. A person has beneficial ownership over shares if the
person has voting or investment power over the shares or the right to acquire
such power within 60 days. Investment power means the power to direct the sale
or other disposition of the shares. Each person has sole voting and investment
power over the shares, except as we describe below. The table also shows the
number of common share equivalent units we have credited to Directors under the
Deferred Compensation Plan.
NUMBER OF SHARES RIGHT TO COMMON SHARE PERCENT OF
NAME OWNED(3)(4) ACQUIRE(5) EQUIVALENTS CLASS(%)
---- ---------------- ---------- ------------ ----------
Warren Buffett,
Berkshire Hathaway Inc. and subsidiaries
1440 Kiewit Plaza
Omaha, NE 68131........................... 151,610,700(1) -- -- 11.44%
Davis Selected Advisers L.P.
2949 East Elvira Road, Suite 101
Tucson, AZ 85706.......................... 65,344,708(2) -- -- 5.01%
Daniel F. Akerson........................... 42,676 12,000 18,406 0.01%
Edwin L. Artzt.............................. 29,779 15,300 -- --
Charlene Barshefsky......................... 6,768 1,000 2,683 --
William G. Bowen............................ 40,996 15,000 -- --
Kenneth I. Chenault......................... 1,339,100 2,189,435 -- 0.27%
James M. Cracchiolo......................... 293,789 636,712 -- 0.07%
Gary L. Crittenden.......................... 109,584 150,000 -- 0.02%
Peter R. Dolan.............................. 8,003 1,000 2,296 --
Edward P. Gilligan.......................... 172,580 636,381 -- 0.06%
F. Ross Johnson............................. 69,670 24,420 -- 0.01%
Vernon E. Jordan, Jr........................ 38,367 15,000 44,294 0.01%
Alfred F. Kelly, Jr......................... 212,087 612,701 -- 0.06%
Jan Leschly................................. 74,176 15,000 5,268 0.01%
Richard A. McGinn........................... 10,590 9,000 -- --
Frank P. Popoff............................. 32,879 15,003 4,756 --
Robert D. Walter............................ 50,300 -- 945 --
All current Directors and executive officers
(23 individuals).......................... 4,144,279(6) 9,908,162 78,648 1.08%
--------
(1) Based on information Berkshire Hathaway Inc. (Berkshire) provided to us as
of December 31, 2002. Of the shares listed in the table, National Indemnity
Company beneficially owns 120,255,879 shares. National Indemnity is a
subsidiary of Berkshire. Mr. Buffett, Berkshire and the subsidiaries of
Berkshire share voting and investment power over the shares. Mr. Buffett,
his spouse and a trust for which Mr. Buffett is trustee own 33.5% of the
equity of Berkshire. As a result of this ownership position in Berkshire,
Mr. Buffett may be considered the beneficial owner of the shares that
Berkshire beneficially owns.
In 1995 we signed an agreement with Berkshire designed to ensure that
Berkshire's investment in our Company will always be passive. The agreement
remains in effect so long as Berkshire owns 10% or more of our voting
securities. Berkshire made similar commitments to the Board of Governors of
the Federal Reserve System. Berkshire and its subsidiaries have also agreed
to follow our Board of Directors' recommendation in voting Company common
shares they own so long as Mr. Chenault is our Chief Executive Officer and
Berkshire owns 5% or more of our voting securities. With certain
exceptions, Berkshire and its subsidiaries may not sell Company common
shares to any person who owns more than 5% of our voting securities or who
attempts to change the control of the Company.
9
(2) Based on information contained in a report on Schedule 13F that Davis
Selected Advisers L.P. filed with the Securities and Exchange Commission,
which contained information as of December 31, 2002.
(3) This column includes shares held in employee benefit plan accounts on
February 28, 2003 as follows:
NUMBER OF SHARES
NAME IN PLAN ACCOUNTS
---- ----------------
K.I. Chenault................................ 16,664
J.M. Cracchiolo.............................. 4,544
G.L. Crittenden.............................. 84
E.P. Gilligan................................ 1,234
A.F. Kelly, Jr............................... 4,280
All current Directors and executive officers. 85,077
(4) Certain executive officers hold restricted shares which we include in this
column. The executive may vote the restricted shares, but may not sell or
transfer them during the restricted period. These restrictions lapse over a
period of years ending in 2007. The individuals in the table hold the
following number of restricted shares:
NUMBER OF
NAME RESTRICTED SHARES
---- -----------------
K.I. Chenault.......... 401,000
J.M. Cracchiolo........ 172,700
G.L. Crittenden........ 109,500
E.P. Gilligan.......... 132,200
A.F. Kelly, Jr......... 172,700
All executive officers. 1,570,500
(5) These are shares that may be acquired by exercising stock options.
(6) On February 28, 2003, our 23 Directors and executive officers beneficially
owned 14,052,441 shares, or about 1.08% of our outstanding shares. No
individual in the table beneficially owned more than 1% of our outstanding
shares.
ITEMS TO BE VOTED ON BY SHAREHOLDERS
--------------------------------------------------------------------------------
ITEM 1--ELECTION OF DIRECTORS
Our Board of Directors currently has 12 members. Each current Board member,
except for Mr. Artzt who is retiring, is standing for reelection, to hold
office until the next Annual Meeting of Shareholders. If during the year a
Director resigns or retires, the Board of Directors, with input from the
Nominating and Governance Committee, may elect another Director as a
replacement. The Board may add new members during the year based on a number of
factors, such as the size of the Board and the Board's desire to add fresh
perspectives or expertise.
The Board has appointed Gary L. Crittenden, Stephen P. Norman and Louise M.
Parent as the proxy committee who will vote your shares on your behalf. Their
names appear on the proxy card. These individuals intend to vote for the
election of each of the eleven nominees unless you indicate on the proxy card
or voting instructions that your vote is withheld from any or all of the
nominees. The telephone and Internet voting procedures will include
instructions on how to withhold your vote from any or all nominees. We expect
that each nominee will be able to serve if elected as a Director. However, if
any nominee is not able to serve, the persons named as proxies may vote for
another person.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THESE NOMINEES AS
DIRECTORS.
We describe below the principal occupation in italics and other information
about our nominees.
DANIEL F. AKERSON Director since 1995 Age 54
MANAGING DIRECTOR, THE CARLYLE GROUP, a private equity firm, March 2003
to present. Former Chairman and Chief Executive Officer, XO
Communications, Inc., a company that provides high-quality broad-band
communications services to businesses over local and long-haul fiber
optic facilities, January 2003 to February 2003. Chairman and Chief
Executive Officer, September 1999 to January 2003. Chairman and Chief
Executive Officer, Nextel Communications, Inc., a provider of
telecommunications services and equipment, March 1996 to August 1999.
Director, AOL Time Warner, Inc. XO Communications, Inc. filed a voluntary
petition under Chapter 11 of the U.S. Bankruptcy Code in June 2002, and
emerged from bankruptcy proceedings in January 2003.
10
CHARLENE BARSHEFSKY Director since 2001 Age 52
SENIOR INTERNATIONAL PARTNER, WILMER, CUTLER & PICKERING, attorneys,
Washington D.C., 2001 to present; United States Trade Representative and
Member of the President's Cabinet, 1997 to 2001. Director, The Estee
Lauder Companies Inc., Starwood Hotels & Resorts Worldwide, Inc. and
Idenix Pharmaceuticals, Inc. Member, Policy Advisory Board, Intel
Corporation.
WILLIAM G. BOWEN Director since 1988 Age 69
PRESIDENT, THE ANDREW W. MELLON FOUNDATION, a not-for-profit corporation
engaged in philanthropy, 1988 to present. Former President, Princeton
University. Director, Merck, Inc. Member, Board of Overseers, TIAA-CREF.
Chairman, JSTOR and Ithaka Harbors.
KENNETH I. CHENAULT Director since 1997 Age 51
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, AMERICAN EXPRESS COMPANY, April
2001 to present. Chief Executive Officer, January 2001 to April 2001.
President and Chief Operating Officer, February 1997 to January 2001.
Vice Chairman, January 1995 to February 1997. Director, American Express
Bank Ltd., International Business Machines Corporation, the National
Academy Foundation. Trustee, Mount Sinai NYU Medical Center and Health
System. Member, Dean's Advisory Board of Harvard Law School and Council
on Foreign Relations.
PETER R. DOLAN Director since 2001 Age 47
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, BRISTOL-MYERS SQUIBB COMPANY, a
pharmaceutical and health care products company, September 2001 to
present. President and Chief Executive Officer, May 2001 to September
2001, President, January 2000 to May 2001, Senior Vice President for
Strategy and Organizational Group Effectiveness, 1998 to January 2000,
President of the Pharmaceutical Group--Europe and Worldwide Consumer
Medicine, 1997 to 1998. Trustee, Tufts University. Member of the Board of
Managers, New York Botanical Garden.
F. ROSS JOHNSON Director since 1986 Age 71
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, RJM GROUP, a management advisory
and investment firm, 1989 to present. Director, Power Corporation of
Canada. Former Chairman, Economic Club of New York. Retired Chairman,
RJR/Nabisco, Inc.
VERNON E. JORDAN, JR Director since 1977 Age 67
SENIOR MANAGING DIRECTOR, LAZARD FRERES & CO. LLC, an investment banking
firm, January 2000 to present. Of counsel, Akin, Gump, Strauss, Hauer &
Feld, L.L.P., attorneys, Washington, D.C. and Dallas, Texas, January 2000
to present and Senior Partner, 1982 to 1999. Director, America Online
Latin America, Inc., Asbury Automotive, Inc., Callaway Golf Company,
Inc., Clear Channel Inc., Dow Jones & Company, Inc., J.C. Penney Company
Inc., Revlon Group, Inc., Sara Lee Corporation and Xerox Corporation.
Trustee, Howard University.
JAN LESCHLY Director since 1997 Age 62
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, CARE CAPITAL LLC, a private equity
firm, May 2000 to present. Chief Executive and Director, SmithKline
Beecham, a company that develops and markets pharmaceuticals and
over-the-counter medicines, 1994 to May 2000. Director, Viacom, Inc. and
The Maersk Group. Chairman, International Tennis Hall of Fame. Member,
Advisory Board of Daimler Chrysler and the Emory University Business
School Dean's Advisory Council.
RICHARD A. MCGINN Director since 1998 Age 56
PARTNER, RRE VENTURES, an investment advisory and venture capital firm,
August 2001 to present; Former Chairman and Chief Executive Officer,
Lucent Technologies, Inc., a company that develops and manufactures
communications systems and software, November 2000 to July 2001;
President, Chairman and Chief Executive Officer, 1996 to October 2000.
FRANK P. POPOFF Director since 1990 Age 67
FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER, THE DOW CHEMICAL COMPANY, a
company that produces chemicals and chemical products, December 2000 to
present; Chairman of the Board, 1995 to November 2000; Chief Executive
Officer, 1987 to 1995. Director, Qwest Communications International Inc.,
United Technologies Corp., Chemical Financial Corporation, Shin-Etsu
Chemical Co. Ltd. and Michigan Molecular Institute. Director Emeritus,
Indiana University Foundation. Member, American Chemical Society and The
Business Council.
11
ROBERT D. WALTER Director since 2002 Age 57
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, CARDINAL HEALTH, INC., a company
that provides products and services supporting the health care industry,
1979 to present. Director Viacom, Inc. Trustee, Battelle Memorial
Institute and Ohio University. Member, The Business Council.
ITEM 2--SELECTION OF AUDITORS
The Audit Committee of the Board of Directors has appointed Ernst & Young
LLP as our independent auditors for 2003. We are asking shareholders to ratify
the Committee's selection. Ernst & Young LLP or a predecessor firm has served
as our independent auditors since 1975. Ernst & Young LLP follows a policy of
rotating the partner in charge of the Company's audit every seven years. Other
partners and non-partner personnel are rotated on a periodic basis. Beginning
in 2004 the partner in charge of the Company's audit will be rotated every five
years.
In the event the shareholders fail to ratify the appointment, the Audit
Committee will consider it a direction to consider other auditors for the
subsequent year.
One or more representatives of Ernst & Young will be present at the Meeting
with the opportunity to make a statement if he or she desires to do so and will
be available to respond to appropriate questions.
AUDIT FEES
The aggregate fees billed or to be billed by Ernst & Young for each of the
last two fiscal years for professional services rendered for the audit of the
Company's annual financial statements, review of financial statements included
in the Company's Quarterly Reports on Form 10-Q and services that were provided
in connection with statutory and regulatory filings or engagements were $18.4
million for 2002 and $15.2 million for 2001.
AUDIT-RELATED FEES
The aggregate fees billed or to be billed by Ernst & Young in each of the
last two fiscal years for assurance and related services that were reasonably
related to the performance of the audit or review of the Company's financial
statements were $1 million for 2002 and $1.5 million for 2001. The nature of
the services performed for these fees included, among other things, employee
benefit plan audits, due diligence related to mergers, acquisitions and
divestitures, internal control reviews, attest services not required by statute
or regulation and consultations concerning financial accounting and reporting
matters not classified as audit.
TAX FEES
The aggregate fees billed by Ernst & Young in each of the last two fiscal
years for professional services rendered for tax compliance, tax advice,
expatriate tax services and tax planning were $6.2 million for 2002 and $3.7
million for 2001.
ALL OTHER FEES
The aggregate fees billed by Ernst & Young in each of the last two fiscal
years for products and services other than those reported in the three prior
categories were $700,000 for 2002 and $800,000 for 2001. The nature of the
other services performed included certain advisory services relating to
privacy, expatriates, insurance recovery and risk management services.
SERVICES TO ASSOCIATED ORGANIZATIONS
Ernst & Young also provided other services to associated organizations of
the Company that were charged directly to those organizations. These amounts
included $1.2 million for 2002 and $1 million for 2001 primarily for performing
the audits of exchange traded funds, alternative investment funds, common trust
funds and other investment vehicles.
12
POLICY ON PRE-APPROVAL OF RETENTION OF INDEPENDENT AUDITOR
The engagement of Ernst & Young for non-audit accounting and tax services
performed for the Company is limited to those instances in which such services
are considered integral to the audit services that it provides or in which
there is another compelling rationale for utilizing its services. Pursuant to
the requirements of the Sarbanes-Oxley Act of 2002, all audit and permitted
non-audit services to be performed by Ernst & Young require pre-approval by the
Audit Committee. Such pre-approval may be given by the chairman of the Audit
Committee in certain circumstances, with notice to the full Committee at its
next meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING RESOLUTION:
RESOLVED, that the appointment by the Audit Committee of the Board of
Directors of Ernst & Young LLP, independent auditors, to audit the accounts of
the Company and its subsidiaries for 2003 is ratified and approved.
ITEM 3--SHAREHOLDER PROPOSAL
Mrs. Evelyn Y. Davis, Suite 215, Watergate Office Building, 2600 Virginia
Avenue, N.W., Washington, D.C. 20037, record owner of 444 common shares, has
advised us that she plans to introduce the following resolution:
RESOLVED: "That the stockholders of American Express recommend that the
Board take the necessary steps so that future outside directors shall not
serve for more than six years."
REASONS: "The President of the U.S.A. has a term limit, so do Governors of
many states."
"Newer directors may bring in fresh outlooks and different approaches with
benefits to all shareholders."
"No director should be able to feel that his or her directorship is until
retirement."
"If you AGREE, please mark your proxy FOR this resolution."
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THIS PROPOSAL FOR THESE
REASONS:
The Board opposes the foregoing resolution because it believes term limits
unnecessarily curtail the useful tenure of Directors.
The Board believes that Directors become increasingly effective as their
knowledge of the Company's businesses and its officers and employees increases.
This is particularly true in the case of a large global corporation such as
American Express Company, which is engaged in a variety of businesses in
diverse locations around the world during a period of rapid technological and
competitive change. A term limit for Directors, especially a limit as short as
six years, needlessly deprives the shareholders and the Company of the benefits
of Directors' experience and knowledge at a time in their tenure when they are
becoming increasingly effective and productive.
Each Director is subject to reelection by the shareholders on an annual
basis. The Directors are not guaranteed a directorship until retirement. The
average tenure of the Company's 11 incumbent Director nominees is currently
nine years. Seven of the 11 have already served six or more years.
The Board believes that its mandatory retirement age of 72 is a preferable
means of assuring Director turnover and that the proponent's term limits would
deprive the Company of experienced oversight, promote excessive turnover of
Directors, and weaken the Company's system of governance.
ACCORDINGLY, YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
ITEM 4--SHAREHOLDER PROPOSAL
The American Federation of Labor and Congress of Industrial Organizations,
815 Sixteenth Street, N.W. Washington, D.C. 20006, record owner of 800 common
shares, has advised us that it plans to introduce the following resolution:
13
SHAREHOLDER PROPOSAL
RESOLVED: The shareholders of the American Express Company (the "Company")
urge the Board of Directors (the "Board") to adopt a policy prohibiting
future stock option grants to senior executives. The Board shall implement
this policy in a manner that does not violate any existing employment
agreement or equity compensation plan.
SUPPORTING STATEMENT
Since the accounting scandals at Enron, Worldcom, and other companies, the
role of stock options in executive compensation has come controversial.
Critics of stock options have argued that they can be a powerful incentive
for executives to manipulate earnings or engage in accounting fraud. By
timing their stock option exercises, executives can also inappropriately
trade on inside information.
Stock options provide incentives to executives that significantly differ
from the interests of shareholders. Stock option grants promise executives
all of the gain of share price increases with none of the risk of share
price declines. For this reason, they can encourage excessive risk taking by
executives. In contrast to direct stock holdings, stock options also
discourage executives from increasing dividends because option holders are
not entitled to dividends.
Our Company allows executives to exercise a portion of their stock option
grants after just two years following their grant date. For this reason,
senior executives can gain substantial windfalls from the proceeds of their
stock option exercises even if the share price later falls under their
watch. Executives at our Company can also receive stock option "reloads" if
they use stock to cover the exercise price of their options.
We are concerned that our Company's annual stock option grants to senior
executives are excessive. In 2001, CEO Kenneth Chenault received stock
options with a grant date present value of $13.4 million. He also realized
$9.3 million in stock option exercises from previous grants.
Banning stock options for senior executives will decouple executive pay from
short-term price movements and the temptation for executives to
inappropriately manipulate our Company's stock price in order to exercise
their stock options. In our opinion, other forms of compensation, such as
restricted stock and long term incentive plans, will better focus senior
executives on building the sustained profitability of our Company.
Leading investors and regulators have questioned the appropriateness of
using stock options in executive compensation. Portfolio manager Bill
Miller, whose Legg Mason Value Trust is the only mutual fund to beat the S&P
500 Index 11 years in a row, has said "I support the banning of stock
options because anything that can be accomplished with options can be
accomplished by giving stock directly. And it has none of the downsides of
options."
Former Federal Reserve Chairman Paul Volker has stated that "Given both the
very large capricious element inherent in the returns from fixed price stock
options and the distorted incentives for management, I believe the use of
such options should be strongly discouraged for public companies. There are
far better alternatives for seeking and achieving an appropriate alignment
of shareholder and management interests."
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THIS PROPOSAL FOR THESE
REASONS:
The Board believes the foregoing proposal, which calls for a complete ban on
any stock options to senior executives, is unduly restrictive and extreme.
Many commentators have criticized the granting of excessive stock options
generally, but few have sought to ban them entirely. The proponent's total
prohibition on such grants to senior executives deprives the Company of needed
flexibility in designing effective incentives. When used appropriately, as the
Board believes they are at the Company, stock options can provide effective
incentives to management in alignment with shareholder interests.
The Company has taken a number of steps to further align its executive
compensation program with the interests of shareholders:
. Reduced the grant of stock options to executive officers. Overall, the
total grant of stock options and restricted stock awards to all employees
declined from 2.9% of outstanding shares in January 2002 to 1.1% of
outstanding shares in January 2003;
14
. Committed that it will not grant options below fair market value or
reprice them without shareholder approval;
. Adopted share ownership guidelines for senior management; and
. Decided to expense stock options beginning with the Company's 2003 grants.
Attracting, retaining and providing appropriate incentives to talented
senior executives is in the best interests of shareholders. The proponent's
complete prohibition deprives the Board of any ability to incorporate stock
options as part of a balanced and effective incentive program.
ACCORDINGLY, YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
ITEM 5--SHAREHOLDER PROPOSAL
Mr. Dennis Breuel, 1161 Ridgefield Ave., Point Pleasant, New Jersey 08742,
record owner of 1,410 common shares, has advised us that he plans to introduce
the following resolution:
Resolved: That the shareholders of American Express, assemble in annual
meeting in person and by proxy, hereby request that the Board of Directors
shall not issue any stock options to executive officers* lower than the
highest stock price of the company/1/ at the time of grant. The option shall
contain a buyback provision by the company. The Board of Directors shall
determine a reasonable return for a buyback price.
Reasons
1. The options are granted to be exercised over a period of several years.
The lengthy exercise period creates an exercise price with a substantial
discount, based on the time value of money
2. The option should allow for the corporation to buy back the option at a
price that is fair and reasonable for the executive. This policy would
allow for the company to reasonably determine the cost to the company
and avoid extreme compensation to the executive officers
The buyback price would be adjusted to allow for a reasonable return and
allow for proper expensing of the cost, if required on the income statement.
/1/ Adjusted for stock splits
* Terminology of Securities & Exchange letter of 1/16/03
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THIS PROPOSAL FOR THESE
REASONS:
The Board believes this proposal to grant options at only the highest
historical stock price and to impose a buyback provision would substantially
reduce the incentive value of options and impair the Company's ability to
attract and retain talented executives.
The Board believes that to be efficient, incentive awards must reflect
conditions at the time of grant. Options that are granted at a historical
rather than a current market price fail to provide incentives that are tied to
current conditions. For example, an option granted at the $63 highest
historical price of a Company share would provide little current incentive to
the recipient of an option grant made today. In addition, the proposal would
incorporate a buyback provision into such options, thereby capping the
appreciation that an executive officer may receive. This feature would further
reduce the value of the option.
The twin effects of both requiring all option grants to be made at the
highest historical stock price and capping their appreciation would reduce the
Company's ability to provide effective incentives that are aligned with
shareholders' interests.
As stated in the Board's response to Item 4, the Company has taken a number
of steps to further align its executive compensation program with the interests
of shareholders:
. Reduced the grant of stock options to executive officers. Overall, the
total grant of stock options and restricted stock awards to all employees
declined from 2.9% of outstanding shares in January 2002 to 1.1% of
outstanding shares in January 2003;
. Committed that it will not grant options below fair market value or
reprice them without shareholder approval;
15
. Adopted share ownership guidelines for senior management; and
. Decided to expense stock options beginning with the Company's 2003 grants.
By severely limiting the incentive value of stock options, the proponent's
proposal may require an increase in the number of options granted to maintain
competitive compensation. Such dilution of the Company's outstanding shares is
contrary to the interests of shareholders.
The Board of Directors believes that the changes called for in this proposal
would severely restrict the Board's ability to design balanced incentive
programs for senior management and are not in the shareholders' best interests.
ACCORDINGLY, YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
COMPENSATION AND BENEFITS COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee has overall responsibility for
executive officer compensation and other compensation and benefit programs for
key employees under its charter. No member of the Committee is an employee of
the Company or participates in any of its executive compensation programs. The
Committee considers data and input provided by independent compensation
consultants.
OBJECTIVES
The Company has designed its executive compensation programs to:
. attract, motivate and retain the most talented executives;
. link the financial interests of the Company's executives and its
shareholders; and
. provide rewards for behavior consistent with the Company's values.
To meet these objectives, the Committee considers objective and subjective
factors in making pay decisions for the twelve executive officers of the
Company and for reviewing compensation and benefit programs. These factors
range from competitive pay practices to its judgment of business and individual
performance.
EXECUTIVE OFFICER COMPENSATION PROGRAMS AND POLICIES
COMPENSATION GUIDELINES. The Committee sets executive compensation
guidelines for base salary, annual incentive and long-term incentive awards for
each executive officer position. The Committee uses three factors to set these
guidelines: (1) competitive pay practices, (2) job scope and responsibility,
and (3) the Company's need to attract, retain and reward executive talent. The
importance of each factor varies by individual. For 2002 the Committee reviewed
competitive pay practices at approximately 65 companies that compete with the
Company in business or for executive talent. The Standard & Poor's (S&P) 500
Index includes nearly all of these companies and the S&P Financial Index
includes approximately one third of these companies. When the Committee
approves compensation, it considers these guidelines, current competitive
market data and its judgment of Company, business unit and individual
performance as described below.
BASE SALARY. The Committee reviews possible merit increases in salary every
18 months or longer. During this review the Committee considers the
compensation guideline for the executive officer position and individual
performance. The Committee may also increase the base salary of executives who
are promoted or change jobs within the executive group or in special
circumstances. In support of cost reduction objectives, the Committee approved
a one-year 5% reduction in the salary payments otherwise payable during 2002 to
each executive officer.
ANNUAL INCENTIVE AWARDS. The Company's annual incentive award program
compensates executive officers for annual performance.
For 2002 the Company paid annual incentive awards to each of the executive
officers, including the Chief Executive Officer and the four other most highly
compensated executive officers. (In this Proxy Statement we
16
refer to these five executives as the named executives.) The Committee used its
judgment about each individual's annual goal and leadership performance to make
discretionary awards, giving equal weight to the goal and leadership categories.
The Committee evaluated progress toward goals in these areas that are
important for sustaining the Company's success:
. SHAREHOLDER VALUE (50% WEIGHT). Includes shareholder return, earnings
growth, revenue growth, return on equity and reengineering.
. CUSTOMER SATISFACTION (25% WEIGHT). Includes customer survey results,
expansion and retention of customer base and development of products and
services.
. EMPLOYEE SATISFACTION (25% WEIGHT). Includes employee survey results,
success in achieving long-term, world-class targets and retention of
talented employees.
The Committee evaluated leadership by considering a variety of factors, such
as innovation, strategic vision, customer focus, management effectiveness,
teamwork, integrity, diversity, developing others and managing change, without
assigning weights to these factors.
The Committee used similar criteria to evaluate the goal and leadership
performance of Mr. Chenault. The specific factors the Committee used to
evaluate Mr. Chenault's goal performance are described on pages 18-20. The
Committee did not assign weights to the goal categories in evaluating Mr.
Chenault's performance. In addition, the Committee evaluated his leadership
based on its judgment of his overall leadership of the senior management team
and the Company.
LONG-TERM INCENTIVE AWARDS. The Company's long-term incentive award program
rewards executive officers for Company, business unit and individual
performance over more than one year. In 2002 annual long-term awards included
stock option and Portfolio Grant (PG) awards. The Committee approved awards in
amounts that were consistent with compensation guidelines after reviewing the
incentive and retention value of outstanding stock option, PG and restricted
stock awards held by each executive officer.
STOCK OPTIONS. Ten-year stock options reward executive officers if the
Company's share price increases for all shareholders. Executives may
exercise one-third of the 2002 grant after one year, two-thirds after two
years and the full grant after three years.
PG AWARDS. The Committee granted PG-XIII awards in 2002 for executive
officers to link their interests to longer-term financial and shareholder
return performance. The PG awards are designed to preserve the Company's tax
deductions under the Million Dollar Cap as described on page 18. The awards
contain a formula based on the Company's 2002-2004 earnings per share
growth, revenue growth, average return on equity and total shareholder
return compared to the return of the S&P Financial Index. The Committee may
adjust downward the values produced by these performance measures based on
its judgment of Company, business unit and individual performance. To
receive payment, PG-XIII award holders must be employed by the Company
through the vesting and payment date in February 2005.
ADDITIONAL AWARDS. The Committee may in its judgment grant short- or
long-term awards for special contributions or job promotions, to attract new
hires to the Company, to retain executives or in special circumstances. In
January 2003 the Committee made cash awards to certain executive officers to
recognize their individual contributions to the Company's or business unit's
financial performance over the 2000-2002 period, taking into account the
economic environment and circumstances during the period and the level of the
PG payments to be made to the executive officers for such period. These awards
will vest and become payable in September 2003. The Committee also made
restricted stock awards to certain executive officers to recognize their
efforts in improving the Company's competitive position created over the past
two years despite unprecedented changes, including economic, competitive,
business model and other changes, and the impact of the events of September 11,
2001. These awards will vest in two equal installments after three and four
years for certain executive officers and in four equal annual installments
starting one year from the grant date for others.
DEFERRAL AND OTHER PROGRAMS. Under the annual Pay for Performance Deferral
Program, executives may defer receipt of part of their current compensation to
a later date. Each year the Company adds to or subtracts from the deferred
compensation value an amount based on a schedule linked to the Company's return
on equity. The Company also provides executive officers with pension, profit
sharing, incentive savings, life insurance,
17
perquisite and other benefits consistent with market practices. The reportable
value of these programs are shown on pages 21 and 22.
SHARE OWNERSHIP. The Company's share ownership policy requires approximately
150 senior officers, including executive officers, to meet share ownership
targets over time. The program includes these key features:
. Participants have a share ownership target based on a multiple of their
base salary, ranging from three times base salary for certain participants
to 20 times for Mr. Chenault.
. As an incentive to maximize shareholder value, a participant may count
toward his or her target the value of: owned shares, shares held in
employee benefit plans, 50% of the unrealized gain in stock options and
50% of the market value of restricted shares, with market value based on
the market price of the Company's common shares.
. The Company expects participants to meet their targets within five years
and to make pro rata progress each year.
DETRIMENTAL CONDUCT. To help protect the Company's competitive position,
approximately 625 officers, including executive officers, have signed
agreements that include a provision that requires them to forfeit compensation
they receive through stock option, restricted share and/or Portfolio Grant
awards if they engage in behavior that is detrimental to the Company for time
periods after certain employment terminations. Detrimental behavior covers
conduct such as working for certain competitors, soliciting customers or
employees after employment ends and disclosure of confidential information.
MILLION DOLLAR CAP. Current U.S. tax law has a $1,000,000 annual tax
deduction limit on compensation the Company pays to the Chief Executive Officer
and the four other most highly compensated executive officers. The limit does
not apply to "performance-based" compensation (as defined under the Internal
Revenue Code and related regulations). Compensation is performance-based if the
Company can pay it only if objective pre-established performance criteria set
by the Committee are met. The Committee may use its discretion to set actual
compensation below the maximum amount calculated by application of the Company
performance criteria.
The Committee's general policy is to structure compensation programs that
allow the Company to fully deduct the compensation under the Million Dollar Cap
requirements. The Committee also believes that the Company needs flexibility to
meet its incentive and retention objectives, even if the Company may not deduct
all of the compensation. The Company expects that the design of the 2002 stock
option and PG-XIII awards, the vesting of certain restricted stock in 2002 that
was in payment of a performance-based award and the vesting of PG-XI amounts in
2003 (except in certain new hire and promotion situations) will be treated as
performance-based and be deductible. The Company expects that the application
of the Million Dollar Cap requirements may limit the deductibility of certain
compensation resulting from the vesting in 2002 of certain restricted stock and
the payment in the future of certain cash awards made to the named executives
(described above under "Additional Awards").
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee made decisions about Mr. Chenault's 2002 compensation and
awards after reviewing performance and compensation with the full Board. The
Committee considered the Company's overall performance, as well as initiatives
taken to strengthen its overall competitive position despite the continued weak
economic and market conditions. The compensation decisions were in accordance
with the Company's objectives and included the following:
SALARY. The Committee did not change Mr. Chenault's annual base salary in
2002. In support of cost reduction objectives, the Committee approved a
one-year 5% reduction in salary payments otherwise payable during 2002.
ANNUAL INCENTIVE. The Committee approved a 2002 annual incentive award for
Mr. Chenault of $2,800,000. The Committee determined this award based on Mr.
Chenault's annual incentive award guideline, goal and leadership performance,
the Company's results and the economic and competitive environment in 2002.
2002 FINANCIAL PERFORMANCE
. FINANCIAL MEASURES. The Company met most of its annual financial targets.
Both net income and diluted earnings per share rose significantly compared
with 2001 results (which reflected charges for high-yield
18
losses, restructuring and the impact of September 11th). Return on equity
for 2002 was 20.6%. Total revenues increased 5% due to greater discount
revenues, higher interest and dividend income, increased securitization
income, higher cardmember lending finance charge revenues and greater card
fees. These items were partially offset by lower management and
distribution fees, weaker travel revenues and reduced revenues in other
areas.
. SHAREHOLDER RETURN. Total shareholder return for 2002 increased 0.1%
relative to 2001, which, although flat, was better than the performance of
the market overall and most financial services companies. By comparison,
the Dow Jones Industrial Average declined 15%, the S&P 500 Index was down
22% and the S&P Financial Index was down 15%.
INITIATIVES TO STRENGTHEN BUSINESS
During 2002, Mr. Chenault and the senior management team continued to
strengthen the Company and set a strong foundation for future growth in its
core businesses in global payments and retail financial services by focusing
on issues identified in prior years. Major initiatives included:
. INCREASING THE FLEXIBILITY OF ITS BUSINESS MODELS IN ORDER TO MEET
FINANCIAL OBJECTIVES EVEN IN A SLOWER-GROWTH ECONOMY BY:
. Focusing on margin improvement and continuing to reengineer processes,
which led to improvements in operating expenses and provisions for
losses; reengineering efforts in 2002 delivered more than $1 billion in
benefits (among the factors driving these savings were a workforce
reduction of 13,400 positions, or 15% since the beginning of 2001, the
expansion of its global servicing network in lower cost markets, the
increased use of Six Sigma quality improvement methodology across the
organization, and the increasing shift of employee and customer services
and capabilities to the Internet);
. Utilizing part of the reengineering savings to fund investment spending
in business growth initiatives, such as the launch of new products and
marketing, customer acquisition and advertising efforts; and
. Continuing to diversify its cardmember spending base by reducing the
Company's reliance on the travel and entertainment sectors and expanding
its presence among merchants in the retail and everyday spending
categories.
. SUBSTANTIALLY IMPROVING ITS OVERALL RISK PROFILE BY:
. Increasing reserve coverage ratios in the card business;
. Improving the overall quality of the American Express Financial Advisors
(AEFA) owned investment portfolio and aligning the portfolio mix with
the business strategy;
. Shifting loan exposures at American Express Bank (AEB) from commercial
to consumer lending; and
. Intensifying its focus on control and compliance processes.
BUSINESS PERFORMANCE
The Company achieved several significant business accomplishments in its two
core businesses during 2002. Highlights of these accomplishments include:
. GLOBAL PAYMENTS BUSINESSES
. Adding a net total of 2.1 million cards in force, as well as increasing
card billed business (the total amount spent on American Express(R)
Cards) and worldwide lending balances;
. Launching competitive card products in the United States, including a
new suite of rewards charge cards and a cash rebate card, which together
accounted for almost 500,000 new cards in 2002 (mostly in the fourth
quarter);
. Strengthening the Company's already strong position in the small
business arena by creating a new sub-brand--OPEN: The Small Business
Network From American Express/SM/--and launching a host of new products,
services, online account management tools and partnerships;
. Introducing more than 100 new proprietary card products in 17 countries
outside the United States and signing eight partners to its Global
Network Services businesses;
. Delivering a number of key account signings in Corporate Services; and
. Expanding and diversifying the network of physical and online merchants
that accept the Company's cards around the world and continuing to
broaden the card spending base beyond the travel and entertainment
sectors.
19
. RETAIL FINANCIAL SERVICES BUSINESSES
. Strengthening AEFA's asset management capabilities and improving
investment performance;
. Launching 34 new products across AEFA's asset management, insurance and
annuity businesses, a major increase over prior years;
. Implementing AEFA's strategy to attract more affluent clients and to
increase asset gathering by launching the AMERICAN EXPRESS ONE/SM/
FINANCIAL ACCOUNT, which integrates U.S. clients' investing, banking,
lending and card relationships into a single account, as well as by
rolling out American Express Platinum Financial Services(R) across the
United States;
. Increasing the total number of AEFA clients by 2% and achieving a client
retention rate of 94%; and
. Delivering strong financial results at AEB, with significant volume
increases in the Private Banking, Personal Financial Services and
Financial Institutions businesses.
EMPLOYEES AND LEADERSHIP TALENT
. Results of the annual employee survey indicated that employee satisfaction
continued to improve during 2002 despite the distractions and challenges
caused by September 11 and the tough economic environment. The survey
measures employee perceptions in a number of areas, including employee
development, integrity, teamwork and customer focus. The Company also
received wide-ranging recognition as a top corporate employer around the
world and was cited for its successful return to its headquarters building
in lower Manhattan and its commitment to rebuilding the community in that
area.
. The Company continued to focus on improving the leadership capabilities of
its senior management and ensuring that appropriate talent exists within
the Company. It also undertook a number of initiatives to improve employee
recruitment and retention.
LONG-TERM INCENTIVE AWARDS. In January 2002, the Committee approved 540,000
nonqualified stock option shares and a PG-XIII award with a grant value of
$1,000,000 for Mr. Chenault, both of which were at his compensation guidelines.
In January 2003, the Committee certified and approved the financial and
shareholder return results and payout values for the PG-XI award granted in
2000, which had a 2000-2002 performance period. The Committee certified and
approved a payment of $228,960, which will vest and become payable in September
2003.
The Committee approved an additional cash award to Mr. Chenault in the
amount of $1,203,540, which was based on the Company's financial performance
and Mr. Chenault's individual performance and leadership over the 2000-2002
period. In determining such award, the Committee also considered the economic
environment and circumstances in which the Company operated during the
three-year period and reviewed the level of the PG payments to be made to Mr.
Chenault for such period. This award will vest and become payable in September
2003. The Committee approved 136,000 restricted shares for Mr. Chenault to
recognize the Company's improved competitive position created over the last two
years in a period of unprecedented change and disruption. These restricted
shares will vest in equal installments after three and four years from the
January 2003 grant date.
During 2002, the Company conducted a compensation review in light of a
number of developments including the Company's adoption of an accounting
standard (SFAS 123) for expensing the estimated value of stock option awards,
effective with January 2003 awards. As a result, the Committee approved a 2003
long-term incentive program that significantly reduces share usage compared
with the past and provides competitive total compensation opportunities. As one
of the changes under that program, in January 2003, the Committee approved
annual stock option shares that were reduced 10% compared with January 2002
stock option shares for Mr. Chenault and other executive officers (except for
two officers whose guidelines were changed to reflect job responsibilities) and
for other stock option recipients overall. These stock options have fair market
value exercise prices, become exercisable in four equal annual installments
starting one year from grant (compared with the three-year vesting schedule
used last year), and have ten-year terms.
COMPENSATION AND BENEFITS COMMITTEE
Jan Leschly, Chairman
Peter R. Dolan
Richard A. McGinn
Frank P. Popoff
20
This table contains information about compensation we paid or accrued to the
named executives in respect of 2002, 2001 and 2000:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------ --------------------------------
AWARDS PAYOUTS
--------------------- ----------
OTHER RESTRICTED OPTIONS/ LONG-TERM
NAME AND PRINCIPAL ANNUAL STOCK SARS INCENTIVE ALL OTHER
POSITION AT COMPEN- AWARDS (# SHARES) PAYOUTS COMPENSATION
DECEMBER 31, 2002 YEAR SALARY($) BONUS($)(1) SATION($)(2) ($)(3) (4)(5) ($)(6) ($)(7)
------------------ ---- ---------- ----------- ------------- ---------- ---------- ---------- ------------
K.I. Chenault........ 2002 $ 950,000 $2,800,000 $238,190 $4,545,120 862,074 $1,432,500 $418,803
Chairman and Chief 2001 1,000,000 2,218,000 231,720 8,253,200 895,177 2,722,913 58,243
Executive Officer 2000 700,000 2,880,000 236,475 0 577,089 1,972,500 392,606
A.F. Kelly, Jr....... 2002 451,250 910,000 85,924 2,178,984 207,396 1,168,500 38,465
Group President 2001 475,000 695,000 84,546 3,073,000 200,000 1,500,928 29,993
U.S. Consumer and 2000 443,077 900,000 84,989 2,657,500 266,104 783,750 46,167
Small Business
Services
J.M. Cracchiolo...... 2002 451,250 860,000 94,146 2,178,984 262,897 1,104,375 67,722
Group President 2001 475,000 710,000 90,782 3,073,000 200,000 1,500,928 27,350
Global Financial 2000 443,077 900,000 84,989 2,657,500 260,000 783,750 60,972
Services
G.L. Crittenden...... 2002 475,000 750,000 85,811 979,206 180,000 907,250 227,849
Executive Vice 2001 500,000 575,000 84,546 2,816,624 180,000 531,300 137,072
President and Chief 2000 292,308 685,000 84,989 0 180,000 0 76,964
Financial Officer
E.P. Gilligan........ 2002 403,750 750,000 85,850 1,146,306 201,381 984,000 69,312
Group President 2001 425,000 585,000 84,546 2,735,848 180,000 1,385,472 25,381
Global Corporate 2000 400,769 750,000 84,989 1,328,750 210,000 783,750 74,198
Services
--------
(1) The amounts in this column reflect cash payments under annual incentive
awards.
(2) These amounts reflect the cost of providing perquisites and other personal
benefits. SEC rules require us to break out each benefit that exceeds 25%
of the total we report for each named executive as follows:
LOCAL FLEXIBLE
TRAVEL PERQUISITE
NAME ALLOWANCE ALLOWANCE
---- --------- ----------
K.I. Chenault.. $84,661 --
A.F. Kelly, Jr. 30,000 $35,000
J.M. Cracchiolo 30,000 35,000
G.L. Crittenden 30,000 35,000
E.P. Gilligan.. 30,000 35,000
In addition, this column includes the following amounts for perquisites and
benefits that exceed 25% of the total reported for the named executive: for
Mr. Chenault, $60,555 for personal travel expenses; and for Mr. Cracchiolo,
$28,009 for tax payments.
(3) This column includes the grant date value of restricted share grants we
made as special performance or retention awards. The awards shown for 2002
(granted in January 2003) and 2001 contain financial performance measures
for vesting, which are designed to meet the requirements for tax deduction
by the Company. If the applicable financial performance measures required
for vesting are met: the 2002 awards vest in equal installments after three
and four years from the grant date; and the 2001 awards vest four years
from the grant date. The special retention awards made to Messrs. Kelly,
Cracchiolo and Gilligan in 2000 also contained financial performance
measures for vesting, as designed to meet the requirements for tax
deduction by the Company. These 2000 awards were cancelled as of December
31, 2001 when certain of these financial performance measures were not
achieved, and are not included in the table shown below. We value
restricted share awards in the table based on the closing price of the
Company's common shares on the New York Stock Exchange on the grant date.
We pay dividends on the restricted shares in the same way we pay them on
our common shares.
21
On December 31, 2002, the named executives held the restricted shares set
forth below. We valued them based on the closing price of $35.35 on December
31, 2002.
NUMBER OF VALUE ON
NAME RESTRICTED SHARES DECEMBER 31, 2002
---- ----------------- -----------------
K.I. Chenault.. 300,667 $10,628,578
A.F. Kelly, Jr. 117,500 4,153,625
J.M. Cracchiolo 117,500 4,153,625
G.L. Crittenden 80,200 2,835,070
E.P. Gilligan.. 107,900 3,814,265
(4) All shares in this and other tables have been adjusted to reflect the April
24, 2000 three-for-one stock split.
(5) These include annual, special and restoration stock option awards. For
Messrs. Kelly, Cracchiolo and Gilligan, we include retention and promotion
stock option grants made in 2000. For Messrs. Kelly, Cracchiolo and
Gilligan, certain of the special option grants made to them in 2000 vest in
equal installments after two, three and four years from the grant date, and
the other special option grants vest in equal installments after four, five
and six years from the grant date. For Mr. Crittenden, we include stock
option awards granted in 2000 as part of his new hire arrangements. One of
these awards vests in equal installments after two, three and four years
from the grant date, and the other of these awards vests in equal
installments after four, five and six years from the grant date. For Mr.
Chenault, we include a 2001 promotional stock option grant, which vests in
equal installments after four, five and six years from the grant date. We
describe all stock option grants made in 2002 in the table captioned
"Option Grants in 2002" on page 23.
(6) For 2002, these include the values of the Portfolio Grant XI awards (PG-XI
awards) granted in 2000, and cash awards granted in January 2003. The PG-XI
awards vest and become payable in September 2003. Each PG award has two
parts. The first part is the Financial Incentive Component, which accounts
for 60% of the target value of the award. We valued this part based on
earnings or earnings per share growth, revenue growth and average return on
equity for our business segments or for the entire Company over the
2000-2002 period. The second part is the Stock Incentive Component, which
accounts for 40% of the target value of the award. We valued this part
based on our total shareholder return compared to that of the S&P Financial
Index over the 2000-2002 period. The Company expects that PG-XI payments
will qualify as deductible, performance-based compensation under the
Million Dollar Cap requirements, except for certain promotional and new
hire awards.
The additional cash awards included in 2002 for Messrs. Chenault, Kelly,
Cracchiolo, and Gilligan were made based on, among other things, individual
and organizational performance over the 2000-2002 period, as well as an
assessment of the economic environment and circumstances in which the
Company operated during such period. The Company expects that these
additional awards, which will vest and become payable in September 2003,
may be subject to the tax deductibility limitations imposed by the Million
Dollar Cap requirements.
(7) The dollar value of the amounts in this column include the following:
EMPLOYER
CONTRIBUTIONS ABOVE-MARKET
UNDER EARNINGS ON VALUE OF
SAVINGS AND DEFERRED SPLIT-DOLLAR
NAME RELATED PLANS COMPENSATION LIFE INSURANCE
---- ------------- ------------ --------------
K.I. Chenault.. $70,399 $345,250 $ 829
A.F. Kelly, Jr. 33,249 4,862 354
J.M. Cracchiolo 33,249 26,456 8,017
G.L. Crittenden 37,998 68,527 21,324
E.P. Gilligan.. 29,749 39,230 333
In addition, this column includes the following amounts for other
compensation: for Mr. Chenault, a payment of $2,325 from a personal
investment in a limited partnership managed by a former subsidiary; and for
Mr. Crittenden, a new hire payment of $100,000 in each of 2001 and 2002.
22
This table contains information about stock option grants we made to the
named executives in 2002:
OPTION GRANTS IN 2002
INDIVIDUAL GRANTS
------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES PRICE EXPIRATION PRESENT
NAME GRANTED(#) IN 2002 ($/SH) DATE VALUE($)(3)
---- ---------- ---------- -------- ---------- -----------
K.I. Chenault.. 540,000(1) 1.35% $36.490 1/27/12 $6,301,800
322,074(2) 0.80 39.745 2/23/07 4,183,741
A.F. Kelly, Jr. 200,000(1) 0.50 36.490 1/27/12 2,334,000
3,354(2) 0.01 41.830 2/27/04 27,067
4,042(2) 0.01 41.830 2/26/05 42,118
J.M. Cracchiolo 200,000(1) 0.50 36.490 1/27/12 2,334,000
1,531(2) 0.00 39.510 10/24/03 7,808
2,097(2) 0.01 39.510 2/27/04 12,540
7,491(2) 0.02 39.510 7/24/04 52,287
24,396(2) 0.06 39.510 2/26/05 199,315
27,382(2) 0.07 39.510 2/25/06 274,368
G.L. Crittenden 180,000(1) 0.45 36.490 1/27/12 2,100,600
E.P. Gilligan.. 180,000(1) 0.45 36.490 1/27/12 2,100,600
4,286(2) 0.01 41.100 2/25/06 52,418
17,095(2) 0.04 41.100 2/23/07 239,159
--------
(1) We granted these non-qualified stock options on January 28, 2002 as part of
our annual award program. Each option has an exercise price per share equal
to the fair market value per common share on the grant date. The options
also have the restoration feature described in note (2) below. Executive
officers may transfer them to certain family members and entities for their
beneficial interest, subject to requirements or changes as determined by
the Company, including termination of this feature. Holders may exercise
one-third of their options after one year, two-thirds after two years, and
the full grant after three years, subject to award requirements. All
outstanding stock options may also become exercisable upon death,
disability termination, retirement or a change in control of the Company as
we describe on pages 27-29.
(2) These are restoration options that we granted when participants exercised
stock options that were outstanding for at least five years. The number of
restoration option shares we granted equals the number of shares that the
holder delivered to us as payment of the exercise price of the original
option plus the number of shares withheld to pay tax withholding. The
exercise price of the restoration option is the fair market value of a
Company common share on the date of its grant. The holder of a restoration
option may exercise it after six months from the grant date (but no later
than the original stock option's expiration date) if the holder is in
compliance with our stock ownership targets. For Mr. Chenault this date is
September 7, 2002. For Mr. Kelly, this date is November 10, 2002. For Mr.
Cracchiolo, this date is May 22, 2003. For Mr. Gilligan, this date is
November 1, 2002.
(3) These numbers show hypothetical values under a variation of the
Black-Scholes option pricing model. This model is a complicated
mathematical formula that makes assumptions about stock option features. A
number of these assumptions do not apply to the options we grant to our
executive officers and other employees. In particular, the model assumes
that holders can exercise stock options immediately and freely transfer
them. For these reasons, we caution that the values we show in the table
are theoretical and may not reflect the amounts that option holders will
realize. Whether an option holder realizes value and how much this value is
will depend on what our share price is relative to the exercise price. The
assumptions listed below and Black-Scholes values are consistent with the
assumptions we used to report stock option valuations in our 2002 Annual
Report to Shareholders. We expect to use the same method to expense the
fair value of stock options prospectively beginning with 2003 grants.
23
ASSUMPTIONS FOR VALUING JANUARY 2002 GRANTS:
. The exercise price is the same as our share price on the grant date.
. A 4.5-year life for each option. Based on recent experience, this is the
amount of time that passes before holders of our options exercise them.
. Expected dividend yield of 0.9%. This reflects the yield on the grant date.
. Expected stock price volatility of 33%. This reflects the most recent
volatility for the month-end stock prices of the Company's common shares
for the 54 months prior to the grant date.
. A risk-free rate of return of 4.3%. This reflects the return an investor
could expect in a risk-free investment with the same grant and expiration
date as our stock options. This is the yield on a zero-coupon bond on the
option grant date with a maturity date similar to the expected life of the
stock options.
ASSUMPTIONS FOR VALUING RESTORATION OPTIONS:
The values shown for the restoration stock options are based on the same
model above except that the assumptions reflect:
. The life for each restoration stock option is its remaining term.
. A risk-free rate of return ranging from 1.4% to 4.6%.
. Expected dividend yield of 0.8%.
This table contains information about stock option exercises by the named
executives during 2002 and unexercised options and stock appreciation rights
they held at the end of 2002:
AGGREGATED OPTION EXERCISES IN 2002 AND YEAR-END 2002 OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS OPTIONS/SARS
AT DECEMBER 31, 2002 AT DECEMBER 31, 2002(1)
------------------------- -------------------------
SHARES
ACQUIRED VALUE
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
---- ----------- ---------- ----------- ------------- ----------- -------------
K.I. Chenault.. 450,000 $7,919,550 1,572,768 2,845,000 $2,465,100 $ 7,830
A.F. Kelly, Jr. 14,443 459,013 340,766 728,534 1,279,073 509,734
J.M. Cracchiolo 125,739 3,061,315 364,777 791,431 990,681 348,846
G.L. Crittenden 0 0 30,000 510,000 0 0
E.P. Gilligan.. 32,500 666,473 416,381 728,000 1,760,876 1,328,756
--------
(1) We base this value on the $35.35 closing price of our common shares on the
New York Stock Exchange on December 31, 2002.
This table contains information about Portfolio Grant awards we made in 2002
to the named executives:
LONG-TERM INCENTIVE PLANS -- PG AWARDS IN 2002
ESTIMATED FUTURE PAYOUTS(1)
----------------------------------
PERFORMANCE
NAME AWARD PERIOD THRESHOLD($) TARGET($) MAXIMUM($)
---- ------- ----------- ------------ ---------- ----------
K.I. Chenault.... PG-XIII 2002-2004 $288,000 $1,500,000 $4,550,000
A.F. Kelly, Jr. . PG-XIII 2002-2004 136,800 712,500 2,161,250
J.M. Cracchiolo.. PG-XIII 2002-2004 136,800 712,500 2,161,250
G.L. Crittenden.. PG-XIII 2002-2004 136,800 712,500 2,161,250
E.P. Gilligan.... PG-XIII 2002-2004 115,200 600,000 1,820,000
--------
(1) We structured the PG awards in the table to qualify as performance-based
compensation under the Million Dollar Cap. As a consequence, the Committee
may adjust downward the formula values shown. The Committee will decide the
amount of any downward adjustment after it evaluates various factors such
as Company, business unit and individual performance over the 2002-2004
period.
24
PG awards link compensation to our financial and total shareholder return
performance. Each PG award consists of a Financial Incentive Component and a
Stock Incentive Component. The Financial Incentive Component represents 60%
of the target value of the award and earns value based on earnings per share
growth, revenue growth and average return on equity of the Company over the
2002-2004 period. The Financial Incentive Component will earn value if we
achieve at least a threshold level of performance on any of these financial
measures. The Stock Incentive Component represents 40% of the target value
of the award and earns value based on how our total shareholder return
compares to that of the S&P Financial Index over the 2002-2004 period. Total
shareholder return means share price appreciation plus dividends.
PERFORMANCE GRAPH
This graph compares the cumulative total shareholder return on our common
shares for the last five fiscal years with the total return on the S&P 500
Index and the S&P Financial Index over the same period. The graph shows the
growth of a $100 investment in our common shares, the S&P 500 Index and the S&P
Financial Index on December 31, 1997 and the reinvestment of all dividends.
COMPARISON OF FIVE-YEAR TOTAL RETURN
OF AMERICAN EXPRESS COMPANY COMMON SHARES,
S&P 500 INDEX AND S&P FINANCIAL INDEX
Cumulative Value of $100 Invested on December 31, 1997
[GRAPH]
American S&P 500 S&P Financial
Year-End data* Express Index Index
-------- -------- -------------
1997 $100.00 $100.00 $100.00
1998 $115.62 $128.58 $111.42
1999 $188.90 $155.63 $116.00
2000 $188.34 $141.46 $145.76
2001 $123.37 $124.66 $132.71
2002 $123.54 $ 97.12 $113.29
* Source: Bloomberg (returns compounded monthly)
SHARE PLANS
The following table provides summary information with respect to the
Company's equity compensation plans under which the Company's common shares may
be issued to employees or non-employees (such as Directors, consultants or
advisers). Information relating to employee stock purchase plans and employee
savings plans (such as 401(k) plans) is not included in the following table.
Information is provided separately in the aggregate for the Company's equity
compensation plans which have been approved by the Company's shareholders and
for the one plan that was not approved by shareholders.
25
EQUITY COMPENSATION PLAN INFORMATION
(A) (B) (C)
---------------------------------------------------------------------------------
Plan category Number of Weighted-average Number of
securities to be exercise price of securities
issued upon outstanding remaining
exercise of options, warrants available for
outstanding and rights future issuance
options, warrants under equity
and rights compensation
plans (excluding
securities
reflected in
column (a))
---------------------------------------------------------------------------------
Equity compensation 166,231,581 $37.54 84,665,642
plans approved by
shareholders
---------------------------------------------------------------------------------
Equity compensation 0 0 20,100
plans not approved
by shareholders
---------------------------------------------------------------------------------
Total 166,231,581 $37.54 84,685,742
The only equity compensation plan which has not been approved by the
Company's shareholders is the Directors' Stock Plan, which provides for an
annual grant of up to 600 common shares to each non-employee Director for
service in the prior year. This plan is more fully described on page 7 of this
proxy statement.
PENSION BENEFITS
We provide pension benefits under the American Express Retirement Plan and
the American Express Supplemental Retirement Plan.
AMERICAN EXPRESS RETIREMENT PLAN. We have a U.S. Retirement Plan that is
commonly referred to as a cash balance plan. Each payroll period, we credit
each participating employee with an amount equal to a percentage of the
employee's base salary we pay in that period. We also credit each employee with
a percentage of any annual bonus and certain other types of compensation we pay
at the time we pay the compensation. The percentage varies with the employee's
age and years of service. This table shows the percentages we use to determine
the amount of the credits:
SUM OF AGE PLUS
YEARS OF SERVICE APPLICABLE PERCENTAGE
---------------- ---------------------
Less than 35.. 2.50%
35-44......... 3.25
45-59......... 4.25
60-74......... 5.75
75-89......... 8.00
90 or more.... 10.00
On January 1, 2003 the sum of age plus years of service for the named
executives was as follows: Mr. Chenault: 74, Mr. Kelly: 61, Mr. Cracchiolo: 66,
Mr. Crittenden: 53 and Mr. Gilligan: 67.
The Plan credits participants with interest on their cash balances. The Plan
sets the interest rate each year based on an average of the interest rates for
various five-year U.S. Treasury Notes. The minimum interest rate is 5%. The
maximum rate is the lower of 10% or a specific rate set by the U.S. government
under the tax laws. For 2002 the interest rate was 5.0%, and for 2003 the rate
is 5.0%.
When the employee retires or terminates employment after completing five
years of service, the Plan will pay out the cash balance amounts. The Plan will
make these payments in the form and at the time the employee elects, including
payment in a single lump sum or as an annuity. An annuity obligates the Plan to
make payments in monthly installments over time, in amounts based on
assumptions we make as to life expectancy and the value of making payments in
the future. Employees may choose similar methods of payment for benefits they
earned before July 1, 1995.
26
SUPPLEMENTAL RETIREMENT PLAN. By meeting certain legal requirements, the
Retirement Plan provides a tax-advantaged way for us to provide retirement
benefits. However, U.S. tax law limits the amount of benefits we can provide an
employee as well as the amount of compensation that we can take into account
under the Retirement Plan. We make up for these lost benefits under our U.S.
Supplemental Retirement Plan.
FUNDED PENSION PLAN. Some of our employees, including Messrs. Chenault,
Cracchiolo and Gilligan, have earned retirement benefits under the U.S.
American Express Funded Pension Plan, a plan in effect until May 1985. We
purchased an annuity from an insurance company to fund benefits that these
employees may receive under this plan when they leave the Company or upon
reaching age 65.
PENSION TABLE. We set forth in the table below the amount we estimate we
will pay each year to the named executives as a single life annuity at age 65
under the Retirement Plan and the Supplemental Retirement Plan. Under a single
life annuity, when the employee dies we cease making payments. We break out
separately payments the insurance company will make under the Funded Pension
Plan. In deriving our estimated payments for the Retirement Plan and the
Supplemental Retirement Plan, we used these assumptions:
. We credit interest on account balances at the actual rate for all years
through 2003 and at 5% for 2004 and later years.
. We start paying retirement benefits to the executives at normal retirement
age (age 65) as a single life annuity based on an interest rate of 4.93%
and U.S. government-approved assumptions as to life expectancy.
. We continue to employ Messrs. Chenault, Kelly, Cracchiolo, Crittenden and
Gilligan until age 65 at their current base salaries and pay them annual
bonuses equal to their average bonus over the last five years. For Mr.
Crittenden, the average bonus is based on bonus amounts paid in 2001 and
2002.
RETIREMENT PLAN
AND SUPPLEMENTAL
RETIREMENT PLAN ANNUAL BENEFITS
ESTIMATED ANNUAL PAYABLE BY TOTAL ANNUAL
EXECUTIVE OFFICER BENEFITS INSURANCE COMPANY BENEFITS
----------------- ---------------- ----------------- ------------
K.I. Chenault... $715,443 $5,747 $721,190
A.F. Kelly, Jr.. 319,697 0 319,697
J.M. Cracchiolo. 381,286 1,739 383,025
G.L. Crittenden. 141,674 0 141,674
E.P. Gilligan... 355,467 1,779 357,246
SEVERANCE, CHANGE IN CONTROL AND OTHER ARRANGEMENTS
We have in place three types of compensation arrangements that we describe
in this section of the Proxy Statement: a uniform severance policy, change in
control policies and arrangements relating to death, disability and retirement.
UNIFORM SEVERANCE POLICY. We have a uniform severance policy that applies to
senior officers, including the named executives. Severance for executive
officers is subject to the approval of the Compensation and Benefits Committee.
If we terminate the employment of the participating officer for any reason
generally other than misconduct or we and the officer terminate such employment
by mutual agreement, we will pay the officer severance over a period of two
years or less. To receive these payments, the officer must sign a severance
agreement that prohibits the officer from working for certain competitors,
soliciting business from our customers, attempting to hire our employees and
disclosing our confidential information. The officer must also agree to release
any claims against us.
The amount of severance that we would pay to each named executive is two
times base salary plus two times the amount of the last bonus that was paid as
of the date the executive is tendered a severance agreement by the Company.
During all or a part of the severance period, the officer's long-term incentive
awards continue to vest, and we will continue to offer coverage under certain
welfare and benefit plans.
CHANGE IN CONTROL POLICIES. We have designed our change in control policies
to help keep employees focused on their jobs during the uncertainty that
accompanies a change in control, to preserve benefits after a change in control
transaction and to help us attract and retain key talent. We originally adopted
these policies in 1994 and updated them in 2000. A change in control of the
Company generally includes these events: (1) any
27
person acquires 25% or more of our common shares or of voting securities, (2) a
majority of our Directors are replaced, (3) certain mergers, reorganizations,
consolidations, or sales of our assets, subject to consummation or (4)
shareholder approval of a liquidation or dissolution of the Company.
. SEVERANCE. We will pay the amount of severance that we would pay under the
uniform severance policy in a lump sum to senior officers, including the
named executives, if the officer's employment is terminated under certain
conditions within two years after a change in control. These conditions
include (1) a termination by us for any reason generally other than
willful misconduct or conviction of a felony or (2) a termination by the
officer for good reason. The officer would have good reason to terminate
his or her employment if we impose a reduction in base salary or position,
material reduction in the total value of annual incentive and long-term
incentive award opportunities, certain relocations of the officer's
workplace or duties materially inconsistent with prior duties. We refer to
any of these employment terminations as a "Covered Termination."
. PRO RATA BONUS. If a Covered Termination occurs within two years after a
change in control, we will pay participating officers, including the named
executives, a bonus for part of the year in which termination occurs. We
will base the amount of the pro rata bonus on the average of the prior two
annual incentive awards.
. KEY EXECUTIVE LIFE. If a Covered Termination occurs within two years after
a change in control, we will transfer to participating officers, including
the named executives, policies under our U.S. Key Executive Life Insurance
Plan. Each policy provides life insurance coverage equal to four times
annual base salary up to a maximum of $1,500,000. The officers may retain
the life insurance coverage or cash out any value in the policy.
. SUPPLEMENTAL RETIREMENT PLAN. We do not fund benefits under our
Supplemental Retirement Plan. However, upon a change in control, we will
fully fund benefits that participants have earned under the Supplemental
Retirement Plan.
If a Covered Termination occurs within one year after a change in
control, we will provide senior officers, including the named executives,
with an additional benefit under the Supplemental Retirement Plan. This
benefit will equal the additional amount we would provide to the officers
under the Retirement Plan if the officers had two additional years of
service and age under that plan. If a Covered Termination occurs between
one and two years after a change in control, we will use one additional
year of service and age to calculate the additional benefits.
If a Covered Termination occurs within one year after a change in
control, we will add two years of service to participants' actual service
when we determine whether profit sharing contributions we made to the
Supplemental Retirement Plan have vested. If the termination occurs
between one and two years after a change in control, we will add one year
of service.
. DEFERRED COMPENSATION PROGRAMS. Upon a change in control, we will credit
to participants' accounts under our U.S. deferred compensation programs
(including the Pay for Performance Deferral Program) two years of interest
based on the rate in effect for the year before the change in control. We
will also pay out all balances in these plans.
. STOCK OPTIONS AND RESTRICTED SHARES. Stock option and restricted share
awards that we issued to employees under our long-term incentive
compensation plans will immediately vest upon a change in control. If an
employee is terminated for reasons other than misconduct within two years
after a change in control, the employee will have up to an additional 90
days from termination to exercise stock options granted on and after
February 28, 2000.
. PORTFOLIO GRANTS. If a Covered Termination occurs within two years after a
change in control, Portfolio Grant awards under these plans will
immediately vest and we will pay a pro rata portion of the value of the
awards.
. BENEFITS. We will continue for up to two years our subsidy of U.S. medical
and dental benefits for employees who are terminated within two years
after a change in control.
. EXCISE TAX GROSS UP. Current U.S. tax laws generally (1) do not allow
companies to deduct from income certain compensation provided in
connection with a change in control that exceeds specified limits and
28
(2) impose a 20% excise tax on the individuals who receive such
compensation. We generally will pay to members of senior management,
including the named executives, an amount in cash if necessary to offset
this excise tax.
DEATH, DISABILITY AND RETIREMENT. These policies generally apply to stock
options, restricted share awards and Portfolio Grants that we issue to
employees under our long-term incentive compensation plans, upon certain types
of employment termination:
. DEATH OR DISABILITY. Upon death or disability, unvested stock options and
restricted shares will fully vest and Portfolio Grants will vest pro rata.
If a participant is age 60 or older with 10 or more years of service, all
or a portion of the remaining value of Portfolio Grants will vest.
Following death or disability, the holder (or the holder's estate) will
have up to five years to exercise vested stock options.
. RETIREMENT. Upon retirement (meaning age 55 or older with 10 or more years
of service), unvested restricted shares outstanding for more than two
years will fully or partially vest. Portfolio Grants outstanding for more
than one year will vest pro rata. If a participant is age 60 or older with
10 or more years of service, all or a portion of his or her unvested stock
options, restricted shares and Portfolio Grants that the participant would
have lost will also vest. Retirees may exercise vested stock options
through the end of their original term.
CERTAIN TRANSACTIONS
--------------------------------------------------------------------------------
SERVICE BY DIRECTORS AND OFFICERS
In the usual course of our business, we have transactions with many other
firms, including financial institutions. Some of the directors or officers of
these firms may also serve as directors or officers for us or our subsidiaries.
We carry out our transactions with these firms on customary terms. The
directors and officers who serve us, our subsidiaries or the other firms
involved may not have knowledge of these transactions.
TRANSACTIONS BETWEEN THE COMPANY AND OUR DIRECTORS AND OFFICERS
Our executive officers and Directors may take out loans from certain of our
subsidiaries on the same terms that these subsidiaries offer to the general
public. By way of example, American Express Centurion Bank may extend credit to
our Directors and executive officers under their Optima(R) Cards or Blue from
American Express/SM/. Our executive officers and Directors may engage in
similar transactions with certain subsidiaries in 2003. All indebtedness from
these transactions is in the ordinary course of our business and is
substantially on the same terms, including interest rates, in effect for
comparable transactions with other people. Such indebtedness involves normal
risks of collection and does not have features or terms that are unfavorable to
our subsidiaries.
Our executive officers and Directors may also have transactions with us or
our subsidiaries involving other goods and services, such as travel, insurance
and investment services. These transactions are also in the usual course of our
business and we provide them on terms that we offer to our employees generally.
CERTAIN EMPLOYEES
Occasionally we may have employees who are related to our executive officers
or Directors. We compensate these individuals consistent with our policies that
apply to all employees.
STOCK PURCHASE ASSISTANCE PLAN
Our Stock Purchase Assistance Plan (SPAP) was approved by shareholders in
1983, to provide full-recourse loans to enable certain of our senior officers
to purchase our common shares. As of August 2002, the Company decided to stop
issuing any new SPAP loans, although existing SPAP loans may remain
outstanding. During 2002 none of the named executives had any loan amounts
outstanding under SPAP. For all of our executive officers as a group, the
highest principal amount outstanding under SPAP during 2002 was $1.1 million.
As of February 28, 2003, no loan to any executive officer remained outstanding.
29
The purpose of SPAP loans was to enable participants to pay the exercise
price of stock options (as well as related taxes) or to buy common shares in
the open market. Participants were limited to a loan of 300% of their base
salary, must repay the loan within five years, and pledged common shares as
collateral, the value of which was at least 100% of the loan principal on the
date of the loan. Outstanding loans require interest to be paid quarterly at a
rate that is two percentage points below the prime lending rate of a major New
York City bank. Consequently, the remaining outstanding SPAP loans bear
interest at 2.25% per annum.
TRANSACTIONS WITH SIGNIFICANT SHAREHOLDERS
We have a number of ordinary course relationships with Berkshire Hathaway
Inc., Davis Selected Advisers L.P. (Davis), their affiliates, and companies in
which they have significant investments. Some of these companies are service
establishments that accept our charge and credit cards and pay our subsidiaries
fees when our customers use these cards. From time to time we may enter into
joint marketing or other relationships with one or more of these companies that
encourage our customers to apply for and use our cards. Our subsidiaries also
provide Corporate Card or travel services to some of these companies and these
companies pay fees to these subsidiaries. We or our subsidiaries may engage in
other commercial transactions with these companies and pay or receive fees in
these transactions. One of our subsidiaries has retained Davis to act as the
sole sub-advisor to one of the mutual funds sponsored by the financial advisory
services business of the Company. Davis is paid a fee for such services, the
amount and terms of which are consistent with practices within the fund
industry. Under the terms of its engagement, Davis is prohibited from making
investments in the securities of the Company or any of its subsidiaries for the
fund that Davis advises.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
--------------------------------------------------------------------------------
In preparing its 2002 year end reports of transactions in Company securities
by executive officers, the Secretary's Office noted that David C. House, an
executive officer of the Company, had purchased 718 Company shares on July 24,
2002 using cash that had accumulated in his brokerage account from dividends on
Company shares held in that account. Upon reviewing this transaction, the
Company determined that while essentially a reinvestment of dividends, this
transaction did not qualify for deferred reporting and should have been
reported on or before August 10, 2002. The transaction was subsequently
reported on a Form 4 dated January 27, 2003.
DIRECTORS AND OFFICERS LIABILITY INSURANCE
--------------------------------------------------------------------------------
We have an insurance policy that provides coverage for Directors and
officers liability and fiduciary liability arising from employee benefit plans
we sponsor. The directors and officers liability coverage provides that the
insurance carriers will (1) reimburse us when we are legally allowed to
indemnify our Directors and officers and (2) pay losses, including settlements,
judgments and legal fees, on behalf of our Directors and officers when we
cannot legally indemnify them. The fiduciary liability portion of the policy
covers Directors and employees who serve as fiduciaries for our employee
benefit plans. It covers losses from alleged breaches of fiduciary duty as
defined in the Employee Retirement Income Security Act of 1974. Vigilant
Insurance Company issued this policy, which is effective from November 30, 2000
to November 30, 2003. We expect to renew similar coverage at expiration. Gulf
Insurance Company and a consortium of other insurers led by AIG provide excess
coverage. We pay an annualized premium for these coverages of approximately
$1,064,000.
We also have a supplemental directors and officers liability insurance
policy that covers additional losses in cases where we are not legally
permitted to indemnify our Directors or officers. ACE Insurance Company Ltd.
issued this policy which is effective November 30, 2000 to November 30, 2003.
We expect to renew similar coverage at expiration. We pay an annualized premium
for this policy of $147,200.
We added another policy to the supplemental policy effective April 1, 2002
to November 30, 2003. This policy also covers additional losses where we are
not legally permitted to indemnify our Directors or officers. The additional
policy is led by Indian Harbor Insurance Company and followed by XL Insurance
Ltd., National Union Fire Insurance Company and Starr Excess International. We
expect to renew similar coverage at expiration and pay an annualized premium
for this policy of $821,250.
30
REQUIREMENTS, INCLUDING DEADLINES, FOR SUBMISSION
OF PROXY PROPOSALS, NOMINATION OF DIRECTORS
AND OTHER BUSINESS OF SHAREHOLDERS
--------------------------------------------------------------------------------
Under SEC rules, if a shareholder wants us to include a proposal in our
Proxy Statement and form of proxy
for the 2004 Annual Meeting of Shareholders, our Secretary must receive the
proposal at our principal executive offices by November 17, 2003.
Under our By-laws, and as SEC rules permit, shareholders must follow certain
procedures to nominate a person for election as a Director at an annual or
special meeting, or to introduce an item of business at an annual meeting.
Under these procedures, shareholders must submit the proposed nominee or item
of business by delivering a notice to the Secretary of the Company at our
principal executive offices. We must receive notice as follows:
. Normally we must receive notice of a shareholder's intention to introduce
a nomination or proposed item of business for an annual meeting not less
than 90 days nor more than 120 days before the first anniversary of the
prior year's meeting. Assuming that our 2003 Annual Meeting is held on
schedule, we must receive notice pertaining to the 2004 Annual Meeting no
earlier than December 30, 2003 and no later than January 29, 2004.
. However, if we hold the annual meeting on a date that is not within 30
days before or after such anniversary date, we must receive the notice no
later than ten days after the earlier of the date we first provide notice
of the meeting to shareholders or announce it publicly.
. If we hold a special meeting to elect Directors, we must receive a
shareholder's notice of intention to introduce a nomination no later than
ten days after the earlier of the date we first provide notice of the
meeting to shareholders or announce it publicly.
A notice of a proposed nomination must include certain information about the
shareholder and the nominee, as well as a written consent of the proposed
nominee to serve if elected. A notice of a proposed item of business must
include a description of and the reasons for bringing the proposed business to
the meeting, any material interest of the shareholder in the business and
certain other information about the shareholder.
The Board and our management have not received notice of and are not aware
of any business to come before the Annual Meeting other than the items we refer
to in this Proxy Statement. If any other matter comes before the Annual
Meeting, the persons on our proxy committee will use their best judgment in
voting the proxies.
* * * *
We have mailed our 2002 Annual Report to Shareholders in connection with
this proxy solicitation. IF YOU WOULD LIKE A COPY OF OUR 2002 FORM 10-K,
EXCLUDING CERTAIN EXHIBITS, PLEASE CONTACT STEPHEN P. NORMAN, SECRETARY,
AMERICAN EXPRESS COMPANY, 200 VESEY STREET, NEW YORK, NEW YORK 10285.
Please vote by telephone or the Internet or sign, date and return the
enclosed proxy or voting instruction form in the prepaid envelope. We encourage
you to attend the April 28, 2003 meeting. The Company will not require tickets
for admission to the meeting. However, to assure that attendance is limited to
shareholders, please bring with you some proof of American Express Company
common stock ownership, such as a current brokerage statement, and an
identification bearing a photograph. No cellular telephones or beepers will be
allowed in the meeting room.
/s/ Kenneth I. Chenault
KENNETH I. CHENAULT Chairman
and Chief Executive Officer
31
EXHIBIT A
AMERICAN EXPRESS COMPANY
AUDIT COMMITTEE CHARTER
--------------------------------------------------------------------------------
PURPOSE
The Committee is responsible for assisting the Board of Directors in its
oversight responsibilities relating to (i) the integrity of the Company's
financial statements and financial reporting process; (ii) internal and
external auditing, including the qualifications and independence of the outside
auditor and the performance of the Company's internal audit services function;
(iii) the integrity of the Company's systems of internal accounting and
financial controls; (iv) legal and regulatory compliance and (v) the
performance of the other Committee functions set forth in this charter.
In discharging its responsibilities, the Committee is not itself responsible
for the planning or conduct of audits or for any determination that the
Company's financial statements and disclosures are complete and accurate or are
in accordance with generally accepted accounting principles and applicable
rules and regulations. This is the responsibility of the Company's management
and the outside auditor.
ORGANIZATION
The Committee shall be comprised of at least three directors. The members of
the Committee shall be appointed by the Board and shall meet the independence,
experience and expertise requirements of the New York Stock Exchange listing
rules and applicable law.
No member of the Committee shall simultaneously serve on the audit
committees of more than two other public companies.
The Committee shall meet at least four times per year, or more frequently as
circumstances require, and shall make regular reports to the Board on the
Committee's activities.
The Committee shall meet periodically with management, with the General
Auditor and with the outside auditor in separate executive sessions.
The Committee is empowered to conduct its own investigations into issues
related to its responsibilities and to retain independent legal, accounting or
other advisors to advise the Committee.
The Company shall provide for appropriate funding, as determined by the
Committee in its capacity as a committee of the Board, for payment of
compensation to the outside auditor employed by the Company for the purpose of
rendering or issuing an audit report and to any advisors employed by the
Committee.
The Committee shall review and reassess the adequacy of the Committee
charter at least annually, and recommend any changes to the Board for approval.
The Committee shall evaluate its performance on an annual basis and
establish criteria for such evaluation. The results of the annual evaluation
will be discussed with the full Board.
RESPONSIBILITIES
In carrying out its responsibilities, the Committee:
. Has sole authority to appoint or replace the outside auditor, who shall
report directly to the Committee.
. Is directly responsible for the compensation and oversight of the work of
the outside auditor.
. Pre-approves all auditing services and permitted non-audit services
(including the fees and terms thereof) to be performed for the Company by
the outside auditor, and considers whether the provision of permitted
non-audit services by the outside auditor is compatible with maintaining
the auditor's independence.
. Reviews and evaluates the qualifications, performance and independence of
the Company's outside auditor at least annually, receives periodic reports
from the outside auditor regarding the auditor's independence, discusses
such reports with the outside auditor, and if so determined by the
Committee, takes appropriate action to satisfy itself of the independence
of the auditor.
. Consults with management and the Company's General Auditor and obtains and
reviews a report by the outside auditor describing such auditor's internal
quality-control procedures, material issues raised by its
32
most recent internal quality control review, or peer review (if
applicable), or by any inquiry or investigation by governmental or
professional authorities for the preceding five years and the response of
the outside auditor, reviews all relationships between the outside auditor
and the Company, and assures the regular rotation of the lead audit
partner and the reviewing partner of the outside auditor as required by
law.
. Reviews and concurs in the appointment and replacement of the Company's
General Auditor and reviews with the Internal Audit Department its
responsibilities, budget and staffing.
. Reviews the significant reports to management prepared by the Internal
Audit Department, or summaries thereof, and management's responses and
periodically reviews the experience and qualifications of the senior
members of the Internal Audit Department and the quality control
procedures of the Internal Audit Department.
. Discusses with the General Auditor and the outside auditor the overall
scope and plans for their respective audits, including the adequacy of
staffing and other factors that may affect the effectiveness and
timeliness of such audits.
FINANCIAL STATEMENTS AND DISCLOSURE
. Reviews and discusses with management and the outside auditor the annual
audited financial statements and other financial information to be
included in the Company's Annual Report on Form 10-K, including
management's and/or the outside auditor's judgment about the quality, not
just acceptability, of accounting principles, the reasonableness of
significant judgments, the clarity of the disclosures in the financial
statements and the adequacy of internal controls.
. Discusses the results of the annual audit and any other matters required
to be communicated to the Committee by the outside auditor under generally
accepted auditing standards, applicable law or listing standards,
including matters required to be discussed by Statement on Auditing
Standards No. 61.
. Reviews with the outside auditor any management letter provided by the
outside auditor and the Company's response and any problems or
difficulties the outside auditor may have encountered in connection with
the annual audit or otherwise.
. Recommends to the Board, based on the reviews and discussions with
management and the outside auditor described above, whether the annual
audited financial statements should be included in the Company's Form 10-K
Annual Report.
. Reviews and discusses with the outside auditor any accounting or auditing
issues on which the national office of the outside auditor was consulted.
. Reviews with management and the outside auditor the Company's quarterly
financial information to be included in the Company's Quarterly Reports on
Form 10-Q.
. Reviews and discusses with management the Company's earnings press
releases, including the use of "pro forma" or "adjusted" non-GAAP
information, as well as financial information and earnings guidance
provided to analysts and ratings agencies.
. Discusses with management, the internal auditor and the outside auditor
the adequacy and effectiveness of internal controls.
. Reviews with the Chief Executive Officer and the Chief Financial Officer
the Company's disclosure controls and procedures and reviews periodically,
but in no event less frequently than quarterly, management's conclusions
about the efficacy of such disclosure controls and procedures.
. Reviews analyses prepared by management and/or the outside auditor setting
forth significant financial reporting issues or judgments made in
connection with the financial statements, including analyses of the
effects of alternative GAAP methods on the financial statements.
. Reviews at least quarterly reports from the outside auditor on the
following matters;
. all critical accounting policies and practices to be used;
. all alternative treatments of financial information within generally
accepted accounting principles that have been discussed with management,
ramifications of the use of such alternative disclosures and treatments
and the treatment preferred by the outside auditor; and
33
. other material written communications between the outside auditor and
management, such as any management letter or schedule of unadjusted
differences.
COMPLIANCE OVERSIGHT
. Receives reports on the Company's compliance program, including a review
of the distribution of and compliance with the Company's Code of Conduct.
. Approves the Audit Committee report required to be included in the
Company's annual proxy statement.
. Discusses with management, the General Auditor and the outside auditor the
Company's major risk exposures.
. Reviews with management and the outside auditor (if appropriate)
significant legal and regulatory exposures, including any regulatory
inquiries or concerns regarding the Company's financial statements and
accounting policies.
. Approves guidelines for the Company's hiring of former employees of the
outside auditor who participated in any capacity in the audit of the
Company.
. Obtains from the outside auditor assurance that the auditor is not aware
of any matters required to be reported under Section 10A(b) of the
Securities Exchange Act of 1934.
. Establishes procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters and the confidential, anonymous
submission by employees of the Company of concerns regarding questionable
accounting or auditing matters.
. Considers such other matters, as the Board or Committee deems appropriate.
FINANCE AND RISK MANAGEMENT
. Has oversight of the investing of the Company's funds, reviews the
parameters of the various portfolios and investment activities and
considers strategies in view of expectations as to general economic and
market conditions.
. Shall review with management on a regular basis the liquidity, capital
needs and allocations of capital of the Company and its subsidiaries,
review the Company's funding and risk management activities, consider the
Company's external dividend policy, and be consulted, on a pre-fact basis
where practical, on the financial aspects of major divestitures and
acquisitions, major capital commitments, major borrowings, and on proposed
issuances of equity and non-routine debt securities, whether privately or
publicly distributed.
34
DIRECTIONS TO THE 2003 ANNUAL MEETING OF
SHAREHOLDERS OF
AMERICAN EXPRESS COMPANY
Our world headquarters is the site of the 2003 Annual Meeting of
Shareholders. We are located at 200 Vesey Street on the west side of Lower
Manhattan in the World Financial Center.
BY SUBWAY
Take any of these subway lines: the A, C, E, N, R or the 1, 2, 3, 4, 5 or 9
trains. All of these trains stop near the World Financial Center. The World
Financial Center is located across the Westside Highway (also known as West
Street) on the Hudson River. Our building is on the north side of the Winter
Garden in the World Financial Center.
BY CAR OR TAXI
Go south on the Westside Highway in lower Manhattan. Come into the World
Financial Center by turning west on either Murray Street or Vesey Street. Go to
the main entrance of our building, located at the corner of Vesey Street and
the Westside Highway.
This Statement is printed with soy ink on recycled paper.
[LOGO]
STATEMENT OF DIFFERENCES
The service mark symbol shall be expressed as ...................... '/SM/'
The registered trademark symbol shall be expressed as .............. '/R/'
APPENDIX I
--------------------------------------------------------------------------------
[AMERICAN AMERICAN EXPRESS COMPANY
EXPRESS PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
LOGO] FOR ANNUAL MEETING ON APRIL 28, 2003
P The undersigned hereby appoints Gary L. Crittenden, Stephen P. Norman and
Louise M. Parent, or any of them, proxies or proxy, with full power of
R substitution, to vote all common shares of American Express Company which
the undersigned is entitled to vote at the Annual Meeting of Shareholders
O to be held at the Company's headquarters, 200 Vesey Street, 26th Floor,
New York, New York 10285, on April 28, 2003 at 10:00 A.M., Eastern Time,
X and at any adjournment(s) of the Meeting, as indicated on the reverse side
of this proxy card with respect to the proposals set forth in the Proxy
Y Statement, and in their discretion upon any matter that may properly come
before the Meeting or any adjournment(s) of the Meeting. The undersigned
hereby revokes any proxies submitted previously.
To ensure timely receipt of your vote and to help the Company reduce costs, you
are encouraged to submit your voting instructions by Internet or by telephone:
simply follow the instructions on the reverse side of this card.
If you choose to submit your voting instructions by mail, just mark, sign and
date this proxy card on the reverse side and return it promptly in the envelope
provided. You do not need to mark any boxes if you wish to vote as the Board of
Directors recommends.
(continued and to be dated and signed on other side)
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ADDRESS CHANGE/COMMENTS (Mark the corresponding box on the reverse side)
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FOLD AND DETACH HERE
NOTICE TO EMPLOYEES PARTICIPATING IN THE AMERICAN EXPRESS INCENTIVE SAVINGS
PLAN, THE EMPLOYEE STOCK OWNERSHIP PLAN OF AMEX CANADA, INC., OR THE AEFA
STOCK PURCHASE PROGRAM:
This proxy card indicates the approximate number of whole shares credited to
your account in one or more of the Plans named above as of February 14, 2003.
These shares will be voted as you instruct if your proxy card, telephone, or
Internet voting instructions are received on or before April 22, 2003, by Mellon
Investor Services LLC, which is acting on behalf of the Trustees of these three
Plans.
If Mellon Investor Services LLC does NOT receive your voting instructions by
April 22, 2003, the following conditions will apply: the ISP Trustee will vote
your Plan shares in the same proportion as it votes all other shares in the Plan
for which it has received timely voting instructions; the Trustee of the ESOP of
Amex Canada and the broker holding shares in the AEFA Stock Purchase Program
will not vote your shares.
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This proxy, when properly executed, will be voted in the manner indicated by
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the undersigned shareholder. If no voting instructions are indicated, this
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proxy will be voted FOR Items 1 and 2 and AGAINST Items 3, 4 and 5.
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Please Mark Here [ ]
for Address
Change or
Comments
SEE REVERSE SIDE
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The Board of Directors recommends a vote FOR Items 1 and 2 and
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AGAINST Items 3, 4 and 5.
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ITEM 1 - Election of FOR WITHHOLD
Directors. ALL FROM ALL
NOMINEES NOMINEES
[ ] [ ]
Nominees:
(01) D.F. Akerson (02) C. Barshefsky (03) W.G. Bowen
(04) K.I. Chenault (05) P.R. Dolan (06) F.R. Johnson
(07) V.E. Jordan, Jr. (08) J. Leschly (09) R.A. McGinn
(10) F.P. Popoff (11) R.D. Walter
FOR the slate, except vote WITHHELD from the following nominee(s):
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ITEM 2 - Proposal to ratify selection of Ernst & Young LLP as Independent
Auditors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
ITEM 3 - Shareholder proposal to establish six-year term limits for directors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
ITEM 4 - Shareholder proposal to prohibit any stock options for senior
management.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
ITEM 5 - Shareholder proposal calling for options to be granted at the
Company's highest historical stock price and imposing a buyback
provision on such options.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
I consent to view all future Proxy Statements and Annual Reports online; please
do not mail paper copies to me. [ ]
Signature________________________ Signature_______________________
Date_____________
NOTE: Please sign as name appears printed above. Joint owners should each sign.
When signing as attorney, executor, administrator, corporate officer, trustee or
guardian, please give full title.
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FOLD AND DETACH HERE
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING ARE AVAILABLE THROUGH 4PM EASTERN TIME
ON TUESDAY, APRIL 22, 2003 FOR SHARES HELD IN EMPLOYEE PLANS
AND THROUGH 4PM EASTERN TIME ON SUNDAY, APRIL 27, 2003 FOR ALL OTHER SHARES.
YOUR INTERNET OR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO
VOTE YOUR SHARES IN THE SAME MANNER AS IF YOU MARKED,
SIGNED AND RETURNED YOUR PROXY CARD.
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INTERNET
http://www.proxyvoting.com/axp
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Use the Internet to vote your proxy. Have your proxy card in hand when you
access the web site. You will be prompted to enter your control number, located
in the box below, to create and submit an electronic ballot.
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OR
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TELEPHONE
1-866-546-3510
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Use any touch-tone telephone to vote your proxy. Have your proxy card in hand
when you call. You will be prompted to enter your control number, located in the
box below, and then follow the directions given.
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OR
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MAIL
Mark, sign and date your proxy card and return it in the enclosed postage-paid
envelope.
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IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE, YOU DO NOT
NEED TO MAIL BACK YOUR PROXY CARD.
YOU CAN VIEW THE ANNUAL REPORT AND PROXY STATEMENT ON THE INTERNET
AT WWW.ONLINEPROXY.COM/AMEX
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