GE Brings Executive Comp Changes To Life

September 18, 2003 ( - General Electric Co. (GE) has announced changes to the equity part of CEO Jeff Immelt's compensation, tying it to the company's ability to meet cash generation goals and stock returns equal to or better than the broader market.

The move comes as part of a broader overall move by the conglomerate to link executive compensation to the company’s performance. Each September stock option grants are made to several hundred senior GE executives to provide incentives for retention and superior performance. However this year’s grant, which took place on September 12, awards a combination of stock options (60%) and restricted stock units (40%), according to a Reuters report.

In Immelt’s case, his performance share units, 250,000 shares, vest at the end of five years, and half of the units will convert to GE shares. Yet, for the conversion to take place, GE’s cash flow from operating activities must have grown an average of 10% or more per year over the period and GE’s total shareholder return must meet or exceed the Standard & Poor’s 500 Index over the period.

If one or both of the criteria are not met, the associated performance units will be canceled. Additionally, during the performance period, Immelt will receive regular cash payments on each unit equal to GE’s quarterly share dividend.

Comparatively, in 2002, Immelt’s annual equity grant was 1 million stock options, vesting in equal parts over five years, with a present value of $8.4 million.

Executive Comp Changes

Earlier in the year, the nation’s largest public pension fund, theCalifornia Public Employees’ Retirement System (CalPERS) sent a letter to the company’s top 500 shareholders requesting a move toward performance options in executive compensation at GE.“Performance-based options will ensure that executives get payouts for true outperformance and not simply by keeping a seat warm during a rising market. We believe this provides greater incentive for long-term superior performance and better alignment of interests for shareowners,” said Sean Harrigan, President of CalPERS Board of Administration (See CalPERS Calls For Performance Options at GE ).

Executive compensation at GE has undergone a radical transformation in the last years in response to a growing number of protests raised byinstitutional shareholders and activist retirees about compensation practices (See A Lightbulb Goes On: Should pension fund performance “count”? ).In February, the company announced pension income would no longer be influencing incentive compensation (SeeGE Reworks Executive Compensation Structure) and then in April two additional executive compensation measures – shareholder approval for severance agreements and poison-pill anti-takeover measures – were narrowly defeated by shareholders (See GE Shareholders Reject Executive Compensation Proposals ).