On Thursday, shareholders of General Electric Co showed their displeasure over the company’s seemingly generous executive pay. As a result, GE will now cut CEO Larry Culp’s incentive grant by 67%.
Instead of a $15 annual equity incentive grant, Culp will only receive $5 million.
GE Shareholders Unhappy Over Executive Pay Rates
Shareholders fed up with extravagant pay raises of GE executives voted to reject Culp’s proposed compensation package. However, this rare rebuke over executive pay is non-binding.
In its annual proxy statement filed last Thursday, the conglomerate reported that Culp’s annual equity incentive grant for 2022 will now be $5 million instead of the original $15 million.
GE also reported that last year, Culp’s annual compensation was around $22 million. This is already down 69% from 2020, mainly due to a reduction in the number of stock awards.
Proxy Votes Against Executive Pay Rising As Shareholders Become More Active
Since last year, more and more shareholder proxy votes are speaking out against executive pay in many S&P 500 companies. Investors are now questioning executive pay raises based on “questionable practices and metrics”.
Many investors are calling out executives for setting easily-achievable targets and then cashing in. In particular, shareholder advocacy group As You Sow called out company executives that took advantage of the COVID-19 pandemic for setting easy targets that led to large bonuses.
Consequently, shareholder activism against excessive executive pay is rising. Among the S&P 500 companies, a record 16 companies voted to slash CEO and other executive pay rates.
More than half of investors in those 16 companies voted to withhold generous compensation increases. In comparison, only seven companies in 2019 voted to reject CEO bonus perks. In 2020, ten companies did the same.
GE CEO Larry Culp’s Contract Extended Until 2024
GE CEO Larry Culp was the target of investor ire this time. Part of his agreement to extend his contract to 2024 included canceling of old shares he previously received.
Instead, the company granted him new shares tied to lower financial targets. This compensation package involved scheduled payouts until 2024. As long as he hits the already-lowered targets, Culp’s bonuses can go up to $230 million.
When it was time to vote for Culp’s executive pay last year, 57.7% of GE shareholders rejected the pay deal. Proxy advisory firms complained that the executive pay package was too generous.
As a result, when the payout for his annual equity incentive grant came, his bonus came out to $5 million, or 67% lower than expected.
GE To Act Discrete In Determining CEO Bonuses
Chastised over the executive pay imbroglio, GE said in the proxy statement that the board gathered feedback from shareholders on the issue. The board also tried to address concerns related to compensation matters.
However, the board insists on its 2020 executive pay package for Culp. While defending the pay package, the board will not enter into a similar modification of the CEO’s pay package in the future.
It also promised to practice due discretion when determining executive perks and bonus pools.
Meanwhile, investors will be more than glad to bring up the subject again. The next GE annual shareholders meeting is set for later this May.
Watch CNBC Television’s news report that GE's Larry Culp is the highest paid CEO of 2020:
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