General Electric (GE)

Proxy released 3/10/2015

Pay is up for Jeffrey Immelt at GE. Immelt’s base salary increased from $3.46 to $3.76 million, and his cash bonus and cash bonus each increased, his salary from $3.46 to $3.75 million, and his cash bonus 8% to $5.4 million. The bonus is based on compensation committee judgement rather than a formula. The value of stock awards is down though, and overall total disclosed pay would have been down slightly over-all – at $18,855,141 — were it not for the $18 million increase reported under “change in pension value and deferred compensation earnings.” The company is quick to point out that this figure is based on actuarial assumptions including new longer life expectancies. It is very true that this isn’t money he takes home this year, but Immelt’s total retirement package is very real. His pension is valued at over $72 million, with deferred compensation at over $10 million. So with total disclosed compensation of $37,250,774 Immelt takes an early lead for the highest paid CEO on our list.

Changes in performance shares: General Electric’s proxy statement illustrates an all too common problem with the pay for performance mantra: too often when performance targets aren’t met, performance metrics are changed. Because of failure to meet metrics prior awards were cancelled. Specifically, “In February 2015, all of the [Performance Share Units]PSUs granted to Mr. Immelt in 2009 (with a $2.3 million grant date fair value) and all of the stock options granted to Mr. Immelt in 2010 (with a $7.4 million grant date fair value) were cancelled under the terms of the grants because GE did not achieve the specified TSR and Industrial CFOA performance conditions.”

Given those failures the board made changes going forward. For example, the prior four grants of PSUs each included a measure to “meet or exceed S&P TSR” as one of the metrics. In awards for 2014 that metric is gone. The compensation committee says there is a relative TSR modifier, but in this grant the only metrics are tare total cash and operating margin. Also changed, the board has added a threshold performance level as well as a target, so there’s more gradation rather than an all or nothing payment (note the nothing payment of this year). Immelt will also receive new kinds of equity pay – in the past his equity was made up entirely of PSUs but now it includes stock options (500,000 shares this year). Finally, the performance share period was decreased from four years to three years. Shareholders who hope for a true long term focus may find this to be another reason to be concerned with the pay package at GE.