GE Executive Pay up for Review -- WSJ
October 24 2017 - 2:02AM
Dow Jones News
Potential changes could involve revised metrics to focus on more
short-term goals
By Ezequiel Minaya
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 24, 2017).
Executive compensation is one of the many things John Flannery
plans to shake up as he tightens the belt at General Electric Co.
But his options may be limited.
The new chief executive said Friday he was working with the
board "on comprehensive changes" to the company's compensation
plans to "better align the team with investors."
The company declined to elaborate on those plans. Executive
compensation at GE -- like many other large public companies --
generally comprises salary, cash bonus and long-term performance
awards, such as options and restricted stock. Pension benefits and
other perks, such as life insurance and aircraft use are also
included.
Setting compensation policy is the responsibility of independent
board members. But Mr. Flannery, who is also board chairman, will
have a strong hand in guiding policy changes.
"It's absolutely the board that makes that decision in the end,"
said Dan Marcec, director of content for research firm Equilar
Inc.
Ultimately, however, "Flannery is going to make some changes to
company strategy and as a result it wouldn't be surprising to see
performance measures change to align with that strategy," he
added.
Companies have increasingly tied performance-based pay to
long-term goals. Mr. Flannery could try to modify the metrics used
to determine compensation to achieve a more immediate impact, said
Steven Hall Sr., founding partner and managing director of
compensation consultancy Steven Hall & Partners.
"He may look to put in more of a short-term plan," he said.
"Those kinds of programs may not last a long time, but it may be
used to get things in focus."
The conglomerate already modified its bonus program for top
executives in March to tie pay more closely to specific performance
goals, including the level of cost reductions over the next year.
GE at the time said the changes came out of discussions with
activist investor Trian Fund Management, which had called for more
stringent targets.
The company also cut pay for Mr. Flannery's predecessor, Jeffrey
Immelt, by 35% to $21.3 million in 2016. Compensation for outgoing
finance chief Jeffrey Bornstein fell 25% to $9.9 million. The
conglomerate's compensation plan for executives paid out only 80%
of its target amounts.
But Mr. Flannery appears to be going deeper, aiming to exit $20
billion in business and shedding executive perks. When he took over
on Aug. 1, one of his first belt-tightening moves was to ground
GE's entire fleet of six business jets.
"If you want to know what a company goals are and where they are
heading look at their pay structure," said Mr. Marcec.
Still, compensation policies "aren't just thrown together," Mr.
Hall said. Pay packages can be bound by legal contracts and are
carefully calibrated to reflect comparable compensation at other
similar companies.
As for Mr. Flannery's pay, he will receive a base salary of $2
million, with a 2017 bonus targeted at 150% of that salary. The
amount of the bonus will be based on GE hitting "pre-established"
goals, including the cost reductions and "industrial operating
profit goals," according to a regulatory filing associated with Mr.
Flannery's promotion to CEO. Mr. Flannery's long-term performance
award for the 2016 to 2018 period will be paid out in stock instead
of cash.
Any changes to GE's compensation policies are likely to send a
strong signal to shareholders, Mr. Hall said.
"You have gotten a stock that has been challenged for a bunch of
years," he said. "Shareholders are going to want to see management
win only when shareholders also win."
Write to Ezequiel Minaya at ezequiel.minaya@wsj.com
(END) Dow Jones Newswires
October 24, 2017 02:47 ET (06:47 GMT)
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