General Electric shareholders issued a rare rebuke over the company’s compensation program for its top executives last year, including a one-time future payout to chief executive Larry Culp.
Nearly 58 percent of shares were voted against the 2020 executive compensation program, while 42 percent were voted in favor, according to preliminary results announced at the company’s annual meeting on Tuesday.
These so-called “say on pay” votes are advisory in nature and nonbinding. After the vote, a spokesman for GE’s board pledged that the directors would take the shareholders’ concerns into consideration as they evaluate the company’s executive compensation program in the future.
Shareholders were asked to vote on the compensation of the Boston-based company’s five top-paid executive positions, but the clear attention was on Culp and his $73 million pay package listed in the proxy that the company filed in March. That figure makes Culp one of the highest-paid public company chief executives on paper in 2020.
However, the number largely reflects shares in the company he could receive more than three years from now through a retention agreement the board provided Culp to stay at least through August 2024 to guide GE through its turnaround. That retention agreement will deliver Culp millions of GE shares if he stays for the full period.
The retention plan portion of Culp’s total compensation was valued at $57 million by GE in the proxy. Because nearly all of Culp’s reported $73 million in 2020 compensation will be in the form of GE shares, the precise value will depend on how well GE’s stock price fares.
GE established three benchmarks, based solely on stock performance, that will determine how many shares Culp will get if he stays through August 2024. The first benchmark — that the stock stays above $10 a share for 30 straight days — has already been reached, so Culp is guaranteed to receive 4.65 million shares. On the high end, if GE’s share price exceeds $16.68 for 30 straight days, Culp ultimately could receive nearly 14 million shares.
The retention plan has come under fire in recent weeks in large part because GE’s board last August considerably lowered the bar that GE’s stock needed to hit for Culp to receive the stock payouts, from the thresholds in his original employment agreement set in 2018 when he was hired as chief executive.
The CtW Investment Group, affiliated with the Change to Win union federation, wrote a letter on April 6 urging shareholders to vote against the 2020 executive compensation program. CtW has an ally at the jet engine plant in Lynn, where the IUE-CWA Local 201 represents about 1,200 workers.
Local 201 president Adam Kaszynski, who has been leading a crusade to persuade GE to increase its investment in the factory, said union members protested Culp’s pay by wearing stickers at the plant on Tuesday and by holding a banner outside GE’s Fort Point headquarters before the annual meeting began. (The banner mentioned a “$47 million bonus” for Culp, a reference to the 4.65 million shares that he is scheduled to receive because the stock has already cleared the $10 threshold.)
The IUE-CWA issued a statement on Tuesday, calling the compensation vote “a rare victory for the little guy against corporate greed.” And CtW called for GE’s board to renegotiate or rescind Culp’s retention plan.
“I admit it is a challenge,” said Michael Varner, who leads CtW’s executive compensation research. “Once something is already done, typically it’s not undone. [But] there’s very little excuse for a lowering of goals at this level, especially without a lowering of the payout opportunity.”
Influential proxy advisory firms ISS and Glass Lewis also sided with labor on this issue, offering separate recommendations to shareholders in mid-April to reject the compensation package. Their main beef: the GE board’s decision to essentially cut the stock price targets in half from Culp’s original employment agreement.
Board member Tom Horton defended the way the retention plan was structured. During the meeting on Tuesday, he said the performance thresholds reflected where GE’s stock was last summer, trading in the $6 range, with significant uncertainty posed by the COVID-19 pandemic. (It now trades consistently above $13 a share.) Horton said board members realized that the pandemic had delayed Culp’s turnaround plans for GE, particularly with regard to its once-high flying aviation business, and the much-lauded chief executive simply needed more time to pull it off.
“With the onset of the COVID-19 pandemic and the challenges that it has posed, it became abundantly clear to us as the board that GE’s transformation would take longer than planned,” Horton said during the annual meeting.
Horton noted that if GE’s stock price goes from where it was last August to the thresholds spelled out in Culp’s retention plan, that would represent an increase in the company’s market value of between $26 billion and $78 billion.
“If the maximum number of shares are earned in 2024, it will mean that all GE shareholders have benefited,” Horton said.
After the results of the vote were tallied, GE general counsel Mike Holston said that “while we are disappointed” in the preliminary results, GE will take those views into consideration going forward. A board spokesman later issued a statement saying directors will gather additional feedback from shareholders as they consider the vote outcome and evaluate the company’s executive compensation program in the future. The board said it remains confident that Culp’s continued leadership is in the long-term best interest of all shareholders.