Immelt Continues Ruining GE

It's almost March, and time for GE to release information on compensation for its inept CEO, Jeff Immelt.

But, before I get to that topic, let me touch on some other ones mentioned in this weekend's edition of the Wall Street Journal, in the piece entitled "For GE's Immelt, Blue-Chip Blues."

In a longer article on the ailing conglomerate, these passages brought to mind a number of thoughts,

"There's a real drumbeat of negative sentiment out there," said Peter Sorrentino, a portfolio manager at Huntington Asset Advisors in Cincinnati, which owns GE shares. "I'm not sure it is legitimate." He said Mr. Immelt and other GE executives have been making strides in shrinking the company's riskier financial units and being transparent about company strategy.

In past years, half the company's profit came from financial services, which have been hit hard by losses and delinquencies during the credit crisis and economic downturn in the past 18 months. GE, one of the largest corporate-bond issuers, saw liquidity seize up last fall and had to use a government bond-guarantee program to issue bonds in recent months. It also had to sell commercial paper to the government last fall when such short-term funding markets dried up.

"You can't fault them," said Deane Dray, an analyst with FBR Capital Markets in New York. "If they had been asleep at the switch during this process, you can criticize them. But they have been pretty proactive."

When I read that last comment by Mr. Dray, I nearly fell off my chair in surprise. Beginning back with this post in August of 2006, fully two and a half years ago, I demonstrated why GE should have been broken up. I noted,

"On balance, GE has been, for the last 7 12-month periods, an inconsistently mediocre company. The slim margin of 2.5 percentage points of outperformance over the S&P is hardly worth the risk entailed by holding the company's stock for 7 years.

So, I ask again, for "what" exactly is GE "sized to perform for investors?" Certainly not returns.

No, I've come to the conclusion that GE is sized to provide highly compensated jobs for its senior managers, particularly Jeff Immelt."

To argue, now, that GE has been "proactive" about getting its house in order is simply wrong and naive. I'm not a sell-side analyst, nor a GE-only follower, and I was able to make a strong case over two years ago, when capital markets were healthy, for spinning GE's units into standalone entities.

Now, of course, it's too late. Every one of the needlessly- and pointlessly-diversified conglomerate's businesses is being tarred with the problems of the financial services units. Immelt can't sell his trash, because a) nobody wants it, and b) nobody could get financing if they did want his poor performers.

The nearby price chart for GE shows that Immelt has finally succeeded in making the equity a single-digit stock, with a closing price, last Friday, of $9.38, now down from a high of around $40 in late 2007. The next chart depicts the hapless conglomerate's slide as being far worse than that of the S&P500 Index.

Once again, Immelt has penalized GE shareholders for sticking with him since he assumed the mantle of misleadership from Jack Welch in late 2001.

Immelt waited far too long to do the sensible thing, splitting up the company. Now, shareholders are paying a price for this mistake.

Now, to King Jeff's pay package.

Of course, now being partially owned by the US government, Immelt doesn't want to attract additional ire from Washington. So he wisely chose to publicly beseech his board not to grant him his various planned bonuses.

High theatre for both him and the board, to show their contrition and public spirit. As the Journal reported recently,

"In addition to not receiving a bonus for 2008, Mr. Immelt also suggested -- and the board agreed -- that he forgo a special three-year, long-term incentive payout that would have totaled $11.7 million.

Mr. Immelt, 53 years old, earned $3.3 million in salary in 2008 and hasn't received a raise since 2005. He's also receiving a $2 million equity award.

That's a 61% decline from his compensation in 2007 of $13.81 million, which included salary, the $5.8 million bonus and equity award."

Boo hoo. A 61% decline from his 2007 compensation. If you read my prior posts concerning Immelt's total compensation as GE CEO to date, you will see that he could do with a few years of no pay, and still be overly-compensated for the immense damage he's caused his shareholders.

It's truly staggering to think, based on that second chart, that the GE board could give Immelt any sort of 'award,' not to mention the gross overpayment of $3.3MM, other than a kick out the door of the company's Fairfield, Connecticut's headquarters. Oh, and then toss a box of Jeff's belongings out after him.