GE - Exec Comp

GROUP 6

INTRODUCTION
2001: Jeff Immelt takes over the position of CEO from Jack Welch
Company deals with bad press; unhappy shareholders due to
Welchs generous severance package
2003: Warren advises Immelt to tie pay to performance; pushes
companies to expense options
2008: Immelts compensation changes from $9 million in stock
options and restricted stock options to:
$7.5 million worth of performance share units based on cash flow
and shareholder returns

INTRODUCTIO
N

1878
Founded by
Thomas Alva
Edison by the
name of Edison
Electric Light
Company
1892
Merger with
ThompsonHouston
Electric
Company.
2003
Over
300,000
employees
in 100
countries
2004
Largest market
capitalization in
the world.
($360 billion)
HISTORY
Jack Welch described as the worlds greatest business leader

Style: hard driving, imperial and self confident
Fostered a culture of intense competition, and introduced the
bell curve
Became legendary for making and breaking quarterly earning
targets for over 100 quarters in a row
Offered a large retention bonus in 1996, which he refused, but
used that opportunity to negotiate lifetime perks THE WELCH
ERA
Greatly impacted by the 9/11 incident:

GEs share price dropped
a loss of $80 billion in market capitalization
Scandals of fraud and mismanagement lead to:

Criticism of GEs financial disclosure practices
Track record of perfect earnings suspected
Welchs severance package made public in 2002; Package worth:

$9 million annual pension, $80,000 worth apartment, cars, aircrafts, etc.
damaged the integrity that GE held
IMMELT TAKES THE

REIGNS
Expanding the size and scope of financial

reporting
Splitting GE capital into 4 separate businesses to improve
transparency
Increasing the number and ratio of independent
directors on the board
Immelts
strategy
Expensing stock options which 35000

employees held: reducing 2003 net income by
$81 million
Requiring executives to hold stock equal to a
multiple of base salary
Requiring executives who exercised
options to hold resulting shares for
min 1 year
Reaffirming policy of not re-pricing
options
Appointing Presiding Director
Organizing the company around 11 businesses
based on what they could contribute to the
company
Plan to sell off low performing insurance companies
called Genworth and increase in acquisitions
April 2004: 15 directors, including 12 nonemployee directors, and 11

independent directors
2/3rd of all directors to be independent under the NYSE guidelines
Non employee directors to not serve on more than 2 boards in addition to GEs
Other directors to not serve on more than four other boards of public
companies
In 2004: 6 directors on GEs management development and compensation
committee
Management Development and Compensation

Committee at GE
Assists the board in developing and evaluating potential candidates for executive
positions, including the chief executive officer, and oversees the development of
executive succession plans.
Reviews and approves on an annual basis, the corporate goals and objectives with
respect to compensation for the chief executive officer.
Reviews and approves on an annual basis, the evaluation process and compensation
structure for the company's officers.
Reviews the company's equity incentive compensation and other stock-based plans
and recommends changes in such plans to the board as needed.
Reviews incentive compensation arrangements to confirm that incentive pay does
not encourage unnecessary risk taking and to review and discuss, at least annually,
the relationship between risk management policies and practices, corporate strategy
and senior executive compensation.
Maintains regular contact with the leadership of the company
Reviews and discusses with management, the company's Compensation Discussion
and Analysis (CD&A) and to recommend to the board that the CD&A be included in
Development and Compensation
the Companys annualManagement
report and proxy statement
Committee at GE
1990-2000: A study showed an

increase of 571% in CEO pay during
this period
282
Average CEO Pay
Strong reason for increase of the

pay: Stock options
GE voluntarily decided to expense
stock options.
Microsoft decided not to use them at
all.
IBM started using premium priced
options for its top 300 executives.
26
16
11
10
EXECUTIVE PAY IN
THE US
Compensation philosophy:
Salary and bonus,

stock options,
stock appreciation rights,
RSUs,
long term performance rewards
Salaries: For on going performance and bonus at the end

of the year, based on individual performance
ESOPs and SARs: Option to purchase one share of GE at
the grant date market price of GE shares (at the money
option). If issued after 2002, they were exercisable in 5
equal annual instalments beginning one year after the
grant date.
EXECUTIVE
COMPENSATION AT GE
RSUs:
Quarterly dividend equivalent payments on RSUs given to
executives
If granted after 2002: Restrictions on each 25% portion
lapsed each after 3,5,10 years after the grant, and
remaining on retirement
2003: GE replaces 40% of estimated values of ESOPs/SARs
with RSUs
Restrictions on these lapsed 50% after 3 years and 50%
after 5 years
Other compensation included:
EXECUTIVE
COMPENSATION AT GE
earnings from employee savings plan

deferred compensation
Immelt: 2003
Welch: 2000
Base salary: $3 million
Base salary: $4 million
Cash bonus: $4.325

million
Cash bonus: $12.7

million
LTIP: $18.3 million (to

be paid in 2006)
PSUs: $7.5 million
Benefits$54019
Stock options:
3,000,000
RSU: 850,000 (value:
$48 million on date of
grant)
Other COMPENSATION
compensation:
CEO
$2558119
AT
GE
Annual compensation of $250,000 to be paid in four quarterly instalments,

40% in cash and 60% in DSUs. DSUs would be paid out in lump-sum cash
or in equal payments over 10 years beginning a year after director has left
the board
Additional compensation: 10% of $250,000 annual retainer given to
directors serving on the audit or management development and
compensation committees
Each director could recommend upto 5 organizations that would share a
charity of $1 million on death or retirement of the director; and $100,000
would be given every year to an institution of higher learning approved by
GE
Liability insurance
Directors waived their right to receive a final grant of stock options that
was due to them under the old plan
GEDSUs
BOARD
OFyear
DIRECTORS
Pension rights replaced with
payable one
after leaving the
company
COMPENSATION
The federal securities laws require clear, concise and understandable

disclosure about compensation paid to CEOs, CFOs and certain other highranking executive officers of public companies.
In the annual proxy statement, a company must disclose information
concerning the amount and type of compensation paid to its chief
executive officer, chief financial officer and the three other most highly
compensated executive officers.
A company also must disclose the criteria used in reaching executive
compensation decisions and the relationship between the company's
executive compensation practices and corporate performance.
The decision by a company regarding the amount and type of
compensation to give an executive officer is a business decision and is not
within the jurisdiction of the SEC.
WHAT DOES SEC

SAY?
Act says the board of directors of every listed company and such
other class or classes of companies shall constitute the Nomination
and Remuneration Committee. The committee should ensure the
relationship of remuneration to performance is clear and meeting
appropriate performance benchmarks.
10% of
net profits
(if
Payable
Remuneration of managers for every
public
company
has tomonthly
be or as a
Managing director or
5% of net profits for one more than one such
specified percentage of
disclosed.
whole-time
director
such director
director) for all the
the net profits or as a
directors put together
Any other director
1% of the net profits if the

company has appointed a
managing or whole-time
director or a manager
Manager
5% of net profits
combination of both
Payable monthly, quarterly
3% of the net profits in other
or annually with central
case (i.e. when the company
government approval or by
does not have any managing
way of commission if the
or whole- time director or a
special resolution authorizes
manager)
such payment
Payable monthly or a
specified percentage of the
net profits or a combination
of both
WHAT DOES COMPANIES

ACT SAY?
WHAT DOES COMPANIES

ACT SAY?
Source:
Economic
Policy
Institute
CHANGE IN CEO
COMPENSATION
70
60
50
40
30
20
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
GE SHARE PRICES OVER

THE YEARS
SEC Total
40,000,000
35,000,000
30,000,000
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
0
IMMELTS COMPENSATION OVER

THE YEARS
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
500
400
300
200
change in salary
change in share value
100
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
0
2014
-100
-200
IMMELTS COMPENSATION
VS GE
SHARE PRICES
DIRECTORS:
2014
EXECUTIVE PAY AT GE
2014
SUMMARY
COMPENSATION 2014
As part of a deal to keep the Vice Chairman from joining a competitor for an
unusually long three years, the conglomerate has agreed to pay Mr. John
Krenicki $89,000 a month until 2022.
The package is worth at least $28.3 million. That includes $14.8 million
worth of stock options and restricted stock units and a projected 2012
bonus equivalent to $2.8 million.
March 10, 2015: 24/7 Wall St. would like to make one point here before
automatically bashing executive pay. Lets consider people who run the
nations most powerful companies versus the nations topreality TV
stars.Who generates more value for the economy and society?
General Electric is one of the most important companies in the country and
in the world. The company counts more than 300,000 employees, and
revenue in 2014 was over $148 billion.
The Kardashians just received a contract for $100 million.
Does high executive compensation sound off the charts now?
IN THE NEW
THANK YOU
GROUP 6
ARPIT BAJAJ HR007
NIRUPAM KRITIKA HR029
KAMAKSHI MATHUR HR030
SATISH MUDALIAR HR036
MANNAT NARULA HR037
VRUSHALI PATIL HR040
SHUBHANKER SAXENA HR045

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GROUP 6

Jack Welch described as the worlds greatest business leader

Greatly impacted by the 9/11 incident:

Scandals of fraud and mismanagement lead to:

Welchs severance package made public in 2002; Package worth:

IMMELT TAKES THE

Expanding the size and scope of financial

Expensing stock options which 35000

April 2004: 15 directors, including 12 nonemployee directors, and 11

Management Development and Compensation

1990-2000: A study showed an

Average CEO Pay

Strong reason for increase of the

Salary and bonus,

Salaries: For on going performance and bonus at the end

earnings from employee savings plan

Base salary: $3 million

Base salary: $4 million

Cash bonus: $4.325

Cash bonus: $12.7

LTIP: $18.3 million (to

Annual compensation of $250,000 to be paid in four quarterly instalments,

The federal securities laws require clear, concise and understandable

WHAT DOES SEC

Any other director

1% of the net profits if the

WHAT DOES COMPANIES

WHAT DOES COMPANIES

GE SHARE PRICES OVER

IMMELTS COMPENSATION OVER

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