By Rachel Layne
Feb. 18 (Bloomberg) -- General Electric Co. said Chief Executive Officer Jeffrey Immelt waived a bonus and incentives worth at least $11.7 million for 2008 as a global recession and credit crisis undercut GE’s profit and share performance.
Immelt’s 2008 salary was $3.3 million, unchanged since 2005, Fairfield, Connecticut-based GE said today in its annual proxy filing. He declined a bonus and a three-year cash compensation award that the board’s compensation committee said he earned. In 2007, he received a $5.8 million bonus.
The chief executive “performed well in an extraordinarily tough business environment,” even while missing financial goals set a year ago, the committee wrote in the proxy. Immelt, who turns 53 tomorrow, has held the job since Sept. 7, 2001, and works without a contract.
GE lost 56 percent of its market value in 2008, trailing the 38 percent decline in the S&P 500 amid the worst economic conditions since the Great Depression. Immelt lowered his annual profit forecast twice during the year, and investors punished the stock as earnings declined at the GE Capital finance unit while credit markets seized and banks collapsed.
Immelt, writing today on the company’s GEReports.com Web site, said that while GE’s profit dropped 19 percent in 2008, it still outperformed the Standard & Poor’s 500 earnings decline of 35 percent. “That’s not the kind of outperformance we like, but it was still better than the broader market,” he wrote.
The board accepted Immelt’s proposal to decline the award and a bonus, reducing his cash compensation 64 percent from 2007, the proxy showed. His total compensation, including the value of some previously awarded grants, dropped 28 percent to $14.1 million, the proxy said.
GE rose 12 cents to $10.93 in New York Stock Exchange composite trading at 9:44 a.m. Yesterday, the stock closed at its lowest value since Nov. 7, 1995.
Profit from continuing operations in 2008 was $18.1 billion, including $8.6 billion from GE Capital. GE had record revenue in 2008 and profit, the third-highest in its history, “compared very favorably to S&P 500 earnings,” the committee wrote.
“Through his skilled leadership and decisive action, Mr. Immelt adapted the company to rapidly changing and deteriorating economic conditions that emerged after the goals were set.”
Under a 2004 grant, Immelt also got 125,000 shares of stock with a market value of $1.39 million tied to cash flow from operating activities, while the other half of the award tied to stock performance was canceled because GE fell short of that goal, the proxy said.
Dividend and Ratings
GE remains under pressure in 2009. S&P and Moody’s Investors Service are considering whether to lower GE’s debt ratings from the highest-possible AAA, and Immelt and the board say they are reviewing whether to maintain the level of the dividend in the year’s second half. A dividend cut would be GE’s first since at least 1940, according to New York Stock Exchange records.
Immelt’s decision to forgo the bonus and incentive pay comes amid tighter scrutiny from Congress and the Obama administration of banking and finance companies that have accepted federal bailout funds. While GE hasn’t taken financial-rescue money and predicts its finance business will remain profitable this year, Immelt said earlier this month that he would make sure his pay doesn’t put GE in a bad light.
“I have said publicly and privately, my compensation is never going to be an embarrassment to GE,” Immelt said at an event in New York on Feb. 5. “It’s going to be responsible” and “reflect the financial performance of the company.”
Chief Financial Officer Keith Sherin and Vice Chairman Michael Neal, who oversees GE Capital, each got bonuses that were 15 percent and 25 percent lower than in 2007, respectively, the proxy said. Both declined half their respective long-term performance award, turning down $2.6 million and $2.9 million respectively. The average bonus award for the top executives declined 19 percent from 2007, the committee said.
“It’s important that the board and I have the freedom to compensate our senior executives in a fair and reasonable way,” Immelt wrote on the Web site today.
Immelt purchased about 317,000 shares on the open market last year, excluding restricted stock or options, according to regulatory filings. Immelt, who has always exceeded a requirement to hold shares valued at six times his salary in stock, agreed in October to hold at least 90 percent of the shares he already owns as a condition of Warren Buffett’s Berkshire Hathaway Inc.’s investment in the company.
Moody’s said Jan. 27 it’s evaluating lowering the long-term debt rating for GE and GE Capital, a review that typically takes about 90 days. S&P said in December that GE had a 1-in-3 chance of losing its top rating over the next two years, and changed its outlook to “negative” from “stable.”
Immelt and the board in September and October shored up the company’s cash position by eliminating the share buyback, keeping the $1.24 annual dividend payout unchanged for the first time in more than three decades, and raising $15 billion from an equity sale, including the $3 billion in preferred stock to Berkshire.
The compensation committee cited the equity raise as one of Immelt’s “decisive” actions and noted last year’s retention of the AAA credit ratings for the company.
Immelt also received 150,000 performance share units that will vest in five years, half awardable if he meets the cash flow goals and half tied to the stock exceeding the S&P 500 performance, GE said in the proxy. They were valued under accounting rules at about $2 million.
Immelt hasn’t taken stock options since 2002, instead receiving all of his equity incentive compensation in the form of these performance-based units since 2003.
GE is the world’s biggest provider of power plant turbines, jet engines, medical imaging machines, locomotives, aircraft leasing and private label credit cards. Other businesses include real estate, appliances, lighting, corporate lending, equipment leasing, water treatment, security and NBC Universal television and media.
Among shareholder proposals is one to study the potential of breaking the company into four segments. The board recommended against the proposal, citing its ability to change the company’s business mix. Similar proposals have been made before.
Since 2003, GE has shed more than $50 billion in businesses and acquired more than $100 billion, the proxy said.
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