GE Compensation Moves Likely to Include More Performance-Based Changes

By Ezequiel Minaya Features Dow Jones Newswires

Executive compensation is one of the many things John Flannery plans to shake up as he tightens the belt at General Electric Co. But his options may be limited.

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The new chief executive said Friday he was working with the board "on comprehensive changes" to the company's compensation plans to "better align the team with investors."

The company declined to elaborate on those plans. Executive compensation at GE -- like many other large public companies -- is generally comprised of salary, cash bonus and long-term performance awards, such as options and restricted stock. Pension benefits and other perks, such as life insurance and aircraft use are also included.

Setting compensation policy is the responsibility of independent board members. But Mr. Flannery, who is also board chairman, will have a strong hand in guiding policy changes.

"It's absolutely the board that makes that decision in the end," said Dan Marcec, director of content for research firm Equilar Inc.

Ultimately, however, "Flannery is going to make some changes to company strategy and as a result it wouldn't be surprising to see performance measures change to align with that strategy," he added.

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Companies have increasingly tied performance-based pay to long-term goals. Mr. Flannery could try to modify the metrics used to determine compensation to achieve a more immediate impact, said Steven Hall Sr., founding partner and managing director of compensation consultancy Steven Hall & Partners.

"He may look to put in more of a short-term plan," he said. "Those kinds of programs may not last a long time, but it may be used to get things in focus."

The conglomerate already modified its bonus program for top executives in March to tie pay more closely to specific performance goals, including the level of cost reductions over the next year. GE at the time said the changes came out of discussions with activist investor Trian Fund Management, which had called for more stringent targets.

The company also cut pay for Mr. Flannery's predecessor, Jeffrey Immelt, by 35% to $21.3 million in 2016. Compensation for outgoing finance chief Jeffrey Bornstein fell 25% to $9.9 million. The conglomerate's compensation plan for executives paid out only 80% of its target amounts.

But Mr. Flannery appears to be going deeper, aiming to exit $20 billion in business and shedding executive perks. When he took over on Aug. 1, one of his first belt-tightening moves was to ground GE's entire fleet of six business jets.

"If you want to know what a company goals are and where they are heading look at their pay structure," said Mr. Marcec.

Still, compensation policies "aren't just thrown together," Mr. Hall said. Pay packages can be bound by legal contracts and are carefully calibrated to reflect comparable compensation at other similar companies.

As for Mr. Flannery's pay, he will receive a base salary of $2 million, with a 2017 bonus targeted at 150% of that salary. The amount of the bonus will be based on GE hitting "pre-established" goals, including the cost reductions and "industrial operating profit goals," according to a regulatory filing associated with Mr. Flannery's promotion to CEO. Mr. Flannery's long-term performance award for the 2016 to 2018 period will be paid out in stock instead of cash.

Any changes to GE's compensation policies are likely to send a strong signal to shareholders, Mr. Hall said.

"You have gotten a stock that has been challenged for a bunch of years," he said. "Shareholders are going to want to see management win only when shareholders also win."

Write to Ezequiel Minaya at ezequiel.minaya@wsj.com

(END) Dow Jones Newswires

October 23, 2017 05:44 ET (09:44 GMT)