Unions have blasted a $47m bonus secured by General Electric chief executive Larry Culp this month, after his pay package was rewritten earlier this year to reduce the risk that he would miss out on a windfall.
As Covid-19 vaccine hopes fuelled a stock market rally in November, GE’s shares went above $10 for the first time since March. Now, after 30 days of trading above $10, Mr Culp has locked in a bonus that will pay out at least $46.5m in 2024 at the earliest.
The bonus has unions seething and could ignite a broader backlash from GE investors. In August, GE rewrote Mr Culp’s 2018 pay plan so he could earn a bonus when shares traded above $10 rather than the original target of $19.
The new plan also preserves Mr Culp’s chances of scoring a maximum $230m bonus. But he now only needs to drive GE’s shares above $16.68 to reap the full amount rather than $31 as his 2018 plan intended.
The pay comes as GE’s aviation unit has cut 20 per cent of its workforce this year to improve margins.
Mr Culp’s $47m bonus “is absolutely outrageous”, said Carl Kennebrew, who heads a union representing GE workers under the AFL-CIO, the largest US union federation.
“How can GE justify this type of enormous bonus for its CEO, while workers, their families, and communities are suffering?” Mr Kennebrew said in a statement to the Financial Times.
When GE hired the former chief executive of Danaher in 2018 to turn around the historic conglomerate’s broad array of struggling businesses, Mr Culp’s pay was tied to his improving the share price, which had dramatically underperformed the market.
“It was a poor pay plan construction,” said Michael Varner, director of executive compensation research at CtW Investment Group, which represents union-sponsored US pension funds with more than $250bn of assets under management.
If, with Mr Culp’s original goals out of reach, “the company has to lower those goals, then what is the point? A lowering of goalposts is definitely highly problematic,” Mr Varner said.
“Amidst a significantly worse operating environment in 2020, the board acted to extend Larry’s employment agreement and replace his performance incentive,” GE said in a statement. “We believe having Larry at the helm of the company for a longer period of time is unquestionably to the benefit of all shareholders and stakeholders.”
Mr Culp made $24.6m in 2019, his first full year as GE’s chief executive.
Courtney Yu, director of research at Equilar, a pay data company, said it is rare for companies to change pay plan metrics without big extenuating circumstances such as this year’s Covid-19 pandemic.
“It is a lowering of targets which isn’t going to look great,” Mr Yu said.
An increasing number of companies this year have been changing annual or long-term incentive plans to make it easier for executives to get paid, even as their businesses have laid off workers.
Shareholder advisory service ISS said in October that it would consider recommending that investors vote against company directors or pay packages when bonus metrics are changed in the middle of multiyear plans. For pay plans beginning in 2020, only modest changes will be viewed favourably, ISS said.