The CEO of General Electric is giving up his annual bonus and performance awards totalling $12 million.
Earlier this month, Immelt said: “My compensation is never going to be an embarrassment to GE. It’s going to be responsible; it’s going to be appropriate; it’s going to be transparent; and it’s going to reflect the financial performance of the company.”
The Financial Times broke the story and has the details:
He began to consider declining his annual bonus and long-term performance award last year after drawing criticism for missing profit guidance and failing to reverse a slump in GE’s stock price, the people said. While he has not always evaded scrutiny for GE’s results during his eight years at the helm, he is rarely singled out for excessive pay.
In 2002, as opposition to lavish corporate America’s stock-option awards began to mount, Mr Immelt opted for an equity-compensation plan that would pay him stock only if GE achieved predetermined goals.
He also owned about 1.6m shares at year end, more than 300 per cent above his required investment. He received his last salary rise in 2005….
Based on how GE fared in the last three years, Mr Immelt was entitled to a long-term performance cash award of almost $12m. He also stood to get an annual bonus, worth $5.8m in 2007.
The GE board agreed to keep Mr Immelt’s annual salary at $3.3m, the people said. All told the cash portion of his compensation will decline 64 per cent from a year ago. GE’s shares fell 56 per cent in 2008 and it reported net earnings of $17.4bn, a 22 per cent drop on 2007.
Translation: Immelt had exactly the kind of long-term incentive compensation structure that is always advocated by corporate good governance types. His performance award was based on three-years earnings but he had to give it up for PR reasons. This may create a perverse result of making other executives less likely to accept the kind of delayed gratification, long term bonus structures. Maybe Immelt should have taken the bonus for the good of corporate governance reforms.
In the short term, this is no doubt a good PR move by Immelt. But fearful investors may worry the CEO is telegraphing even worse results ahead.
GE didn’t take TARP money so it wouldn’t have fallen under the restrictions on compensation in the stimulus bill signed by Obama yesterday. Its finance arm, GE Capital, did participate in the FDIC’s loan guarantee program and the Federal Reserve’s commercial credit facility.