GE CEO Immelt's 2007 Compensation: The Comedy Continues

It's nearly spring, and just about a year since the Wall Street Journal last published GE's disclosure of its underperforming CEO's, Jeff Immelt's most recent annual compensation. My post on his 2006 compensation may be found here. In that post, to reprise history, I wrote,

"So, the news today is that Immelt received $8.3MM in "salary and bonus."... that makes a total of roughly $23MM in cash Immelt has now managed to loot from his employer since late 2001, when he began his reign as a failing CEO at GE. If the firm meets certain (fairly low-ball, as I recall from earlier articles) revenue, earnings and cash generation targets, and meets some stock price performance relative to the S&P, Immelt will receive as much as $18.6MM in 2007.

Immelt's base salary was $3.3MM in 2006, to which was added, unbelievably, a cash bonus of $5MM,"citing Mr. Immelt's 'offensive portfolio moves' and GE's 15% earnings-per-share growth in 2006."

Offensive indeed. It's another black day for corporate governance and responsible boards of directors."

Did anything change this year?

Well, according to today's Wall Street Journal,

"Chairman and Chief Executive Jeffrey Immelt received a salary and bonus totaling $9.1 million last year, a 9.6% increase over 2006, but GE's board granted him less new equity than in the prior year.

In 2007, Mr. Immelt exercised 180,000 stock options that were about to expire and acquired 79,000 shares of previously restricted stock. Together, those shares were valued at $5.9 million; Mr. Immelt retained all the shares, except those used to pay taxes."

So, did GE's CEO do as well for his shareholders as they did for him, via the always-generous GE board?

This year, GE's stock price performance, and the S&P500 Index, are depicted in the Yahoo-sourced chart on the left. The company's share price peaked in October, finishing the past twelve months lower than it started, and effectively tied with the S&P.

For a longer-term perspective, I've included 2- and 5-year charts of the same two series in the next two Yahoo-sourced charts.

Looks like the shareholders lost in 2007- again. For one and two years, GE's share price tied and under ran the S&P's. Over five years, a much more fair time period, allowing for more variance in economic conditions, the index clearly and handsomely outperformed Immelt's pathetic leadership of the closed-ended-fund cum diversified industrial giant.

Of course, these are just price charts. How about total returns? How did GE do when dividends are included?

For this view, I went to my Compustat data and analyzed GE's performance on some of the key variables which I have found distinguish consistently superior from other large-cap firms. The nearby table may be enlarged by clicking on it to open it in a separate window.

In a word, GE's performance since Immelt took over in late 2001 has been anemic. Average annual revenue growth was just 3.4%, while NIAT has grown only 4.4% per anum, on average. GE's average annual total return for the period is a -2.4%, while the S&P's average annual total return for the same period is a healthy 9.5%, almost its long-term average of over 11%.

The same data, in chart form, appears here. Again, clicking on it will open it in a separate window for a better view.

The green and red lines representing, respectively, revenue and NIAT growth, display jagged, inconsistent paths. Total return for GE, while initially shadowing that of the S&P, departed downward precipitously in the past few years of Immelt's reign.

Once again, GE's board has shown gross insensitivity to the idea of corporate governance, paying Immelt more than $9MM in cash, while telling shareholders.

"GE spokesman Gary Sheffer said the board gave Mr. Immelt more cash and less equity because Mr. Immelt is already heavily invested in the company. Mr. Immelt owns 1.36 million shares and has options and restricted-share grants for millions more; he has pledged not to sell any shares while he leads the company."

Amazing, isn't it? As I have written in previous posts, when a CEO has been paid north of $10MM in cash, does anyone think he really cares what happens to the company's stock price anymore? Added to Immelt's prior $23MM of cash compensation, GE has now paid him over $30MM in just six years. He can't have spent or paid so much in taxes to not have at least $15MM remaining. Then there are the share grants.

So Immelt has underperformed the S&P500 for yet another year, and for the period in total during which he has been CEO. How does GE's board justify paying more than $15MM total compensation to a guy who can't outperform a passive index? According to the Journal article, by announcing,

"The board of directors' compensation committee stated it "believes Mr. Immelt performed very well in 2007," having met or exceeded targets for growth in GE's earnings from continuing operations, revenue and cash flow, among other targets. The board said his performance "in a difficult economic environment" helped the company keep risk at "acceptable levels" and maintain its triple-A bond rating.

The proxy said Mr. Immelt received $396,267 of "other compensation," including $260,980 for personal use of company aircraft."

I won't go on ranting about this clear example of corporate excess and pay for non-performance. You can read my earlier comments on Immelt's lush overcompensation by reading posts on this blog under the "Immelt" label.

For this post, I'll just restate my belief that Immelt is in a job that shouldn't exist, as CEO of a corporation that no longer has economic justification. Until GE is split apart by private equity firms, which looks less likely anytime soon in this credit environment, he'll continue to effectively steal literally tens of millions of dollars of compensation from his shareholders while providing absolutely no added value over what they would earn by simply buying the Vanguard S&P500 Index fund.