Agenda – GE to Overhaul Pay as Part of Turnaround Plan
December 19, 2017
By Melissa J. Anderson December 11, 2017
General Electric CEO John Flannery’s equity compensation will be composed solely of performance units under a new compensation program he described at a recent investors’ meeting. The new program will also eliminate cash awards for long-term performance for senior executives. The company is overhauling the structure of its executive compensation program in an effort to reduce complexity and focus business leaders more on the performance of their particular divisions as Flannery embarks on a turnaround plan.
“If you take this [in its] totality, [it’s a] a movement away from cash, a movement to equity, a movement away from complexity to simple metrics, and I think it’s an environment that’s just going to be much more aligned and rewarding [for our] team [and] shareholders,” Flannery said at the Nov. 14 meeting, according to a transcript provided by SeekingAlpha.
The new pay plan — which has not been disclosed in full — is a departure for GE, which currently relies heavily on cash incentive payments for both annual and long-term performance plans.
Under the current structure, annual bonus plans consist of four or five metrics based on company and business unit performance and pay out entirely in cash. The current program also includes a three-year long-term incentive plan award consisting of five company-performance metrics that also pays out entirely in cash. Finally, the equity component offers the CEO a mix of performance share units and options, while the CEO’s direct reports receive a mix of PSUs, restricted stock units and options. Other senior leaders receive the choice of options or RSUs.
“If I had to summarize the [current program], I summarize we’re seeing lots of metrics, lots of cash,” Flannery said.
Under the new plan, which targets 5,000 senior leaders at the company, the percentage of equity pay will increase from roughly 20% to roughly 50%, Flannery said at the meeting. Executives will be paid an annual equity grant composed of RSUs and options that will vest over three years, and PSUs that will vest based on three-year performance, according to the presentation.