General Electric

Annual Meeting: May 5, 2020

Larry Culp, the CEO of General Electric, had total disclosed compensation of $25,433,788 in 2019, an increase of over 50% from the prior year. His total cash compensation of $8,100,000 ($2,500,000 in salary and $5,600,000 in bonus) appears to be among the highest of the S&P 500 companies.

GE issued a supplemental proxy in defense of its compensation noting that, “During the first full year under new leadership GE stock significantly outperformed the S&P 500 and peers and key financial and operating milestones were achieved.” It fails to note that it underperformed the S&P 500 if you use a longer time frame, with among the lowest 5-year TSR. GE’s stock price today is about equal to what it was in April of 1991.

The company did note in that same document that the CEO had agreed to forego all of his salary and the head of Aviation Division had agreed to forego half of his salary for the remainder of 2020.

I’ve been using GE as an example of problematic executive pay for many years. Large pay packages have been defended because of the size of the company, leading to questions regarding whether acquisitions have been more in the interests of executives than shareholders. Such mergers cloud accounting and may even contributes to duplicitous accounting. Would things have been different at GE if execs had not been incentivized to achieve rapid growth and acquisitions? Someone should analyze how buybacks have contributed to excessive CEO wealth accumulation at GE over the years.

As discussion of buybacks increases in frequency, even those who support some buybacks use GE as a negative example. In his recent article, The Truth About Stock Buybacks, Jonathan Weber writes, ”GE has repeatedly engaged in large buyback programs, with the highest buyback pace occurring in 2016-2017, at a time when shares traded at up to $30. Right now, shares trade at $6.50, and there is no cash for buybacks. Spending billions on buybacks back then, when shares traded at four times the current price, clearly was a disastrous capital allocation decision.”

Over the years, a series of CEOs have made personal fortunes working at the company. Everybody wins – except GE shareholders, employees (large layoffs recently announced), and customers.