A look into Jeffery Immelt’s Performance

Now that it looks like the Obama jobs plan is circling the porcelain bowl and with it, his “tax the rich” plan, I thought perhaps it was time to take a look at the compensation package for an American that is playing a big role in putting America back to work.  This is even more pertinent after his recent appearance on 60 Minutes, particularly in light of his quote "I want you to root for me."

 

Jeffrey Immelt, age 55, was appointed as CEO of General Electric in September of 2001.  He was appointed by President Obama as a member of his President’s Economic Recovery Advisory Board and in January 2011, he was appointed as the Chairman of Obama’s Council on Jobs and Competitiveness where he is otherwise known as Obama’s “Jobs Czar”.

 

To put things into perspective, let’s look at just how well GE stock has done since Mr. Immelt landed in the corner office:

 

 

A share that was trading in the $40 range when he took the reins has had a pretty good haircut with shares down to $16 and change, a drop of roughly 60 percent.  GE hit a record high of nearly $60 back in September 2000 in it’s pre-Immelt days and it’s been a pretty steady downhill ride from there.  If I was a shareholder, I’d certainly be none too pleased with GE’s performance.

 

Now let’s look at the important stuff.  How much has Mr. Immelt been compensated for this downhill ride?  For my source material, I’m using GE’s Notice of 2011 Annual Meeting and Proxy Statement.

 

Let’s start with his salary.  Here’s what he made in 2010:

 

 

Note the difference between his total compensation of $21,428,765 and his total realized compensation of a mere $5,845,124?  The difference is defined as "…Total compensation, as determined under applicable SEC rules, minus (2) the aggregate grant date fair value of 2010 stock option awards (as reflected in the Option Awards column), minus (3) the year-over-year change in pension value and nonqualified deferred compensation earnings (as reflected in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column), and plus (4) the value realized in 2010 from the vesting of RSUs or PSUs before payment of any applicable withholding taxes and brokerage commissions (as reflected in the 2010 Option Exercises and Stock Vested table on page 38), including the value realized from the payment of any dividend equivalents. In addition, Total Realized Compensation reflects any bonus actually paid in 2010, whereas Total compensation under the SEC rules reflects any bonus earned for 2010."  Got it?

 

To Mr. Immelt’s credit, and despite the fact that the executive team met or exceeded the performance objectives set by the Board of GE for fiscal 2010, his base salary has not increased since April 2005.  That said, in 2010 he did graciously accept the kind offer of a $4,000,000 cash bonus, the first time that he’s accepted a bonus since his last one in 2007.  How big was that bonus?  A rather cool $5,800,000, enough to feed a town of Americans for a good long time!  Oh yeah, before I forget, Mr. Immelt also accepted a special grant of 2,000,000 stock options in March 2010.  On the downside (and there is always a downside), in February 2011, the Board saw fit to cancel all of the performance share units (PSUs) that were granted to Mr. Immelt in 2006 because the cash from GE’s operations did not grow by an average of 10 percent per year over the 5 year period from 2006 to 2010 and total shareholder return had not met or exceeded that of the S&P 500 over the same period.  Poor fella.  You’ve got to feel for a down-and-outer, don’t you?

 

Because Mr. Immelt is so positive about GE’s future, he went so far as to purchase over 870,000 GE shares on the open market in the past 10 years.  To further show shareholders that he’s in it up to his knees just like the rest his us, he has not sold a single share, PSU or vested stock option since he became CEO.  Atta boy Jeffrey!  You’re just one of the guys.  Although, on second thought, perhaps its because the stock has been dropping for the past 10 years, could it?

 

Here’s a summary of Mr. Immelt’s compensation for the past 3 years:

 

 

Despite the lack of a raise, note that Mr. Immelt’s total compensation package rose by 116 percent from 2010, a raise that is just a tad more than the average American saw last year.

 

One item that I found particularly interesting in the Proxy Statement was Mr. Immelt’s "Other Compensation".  Here it is:

 

 

Notice – no contributions to life insurance but a tiny $8575 to the Employee Savings Plan, the company’s contribution of up to 3.5 percent of Mr. Immelt’s annual salary to his 401(k).  It’s the other rather larger number that I found interesting.  Was it an interest free loan to buy stock or something similar?  Wrong on all counts.  Here’s what it was:

 

 

Yup, he spent $381,234 using the "company bus" for "personal flight activity".  This includes such items as a portion of ongoing maintenance and repairs, fuel, travel expenses for the flight crew etcetera but does not include the cost of exterior paint, interior refurbishment and inspections.  Having accrued $381,234 in personal use of GE’s aircraft, it’s no wonder he didn’t need to lease a car like 3 other members of his executive team.  Why sully yourself in highway gridlock when you can fly the friendly skies!

 

Now let’s take a look at his Incentive Plan Awards:

 

 

Mr. Immelt was granted 2,000,000 shares at an exercise price of $16.11 on March 4th, 2010.  In three years, 50 percent of these options vest followed by the remainder on the fifth anniversary of issuance.  Further, he was granted a Non-Equity Incentive Plan Award between $2,475,000 and $6,600,000 based on whether or not the company meets its performance targets.

 

Here is a summary of Mr. Immelt’s outstanding Equity Awards:

 

 

Notice that other than his most recent options, Mr. Immelt is WELL out of the money on the remainder.  From the charts at the beginning of this posting, it looks very unlikely that many of his options will be worth a great deal unless GE does a 180 degree turnabout.

 

Last, let’s take a look at Mr. Immelt’s pension plan:

 

 

Over his 28 plus year history with GE, Mr. Immelt has accumulated just under $38,000,000 in pension benefits.  In another 5 years, Mr. Immelt can retire with full pension benefits.  I would imagine that he will never really need to actually collect his Social Security benefits but one never knows what expenses one might have in one’s post retirement years, does one?

 

It’s most reassuring to see that Mr. Immelt is just another one of "us".  I’d like to close with another quote from 60 Minutes when he was confronted by Ms. Stahl about GE’s rather low level of pay for its newly hired employees:

 

 "We have a range. When we go out and recruit, let’s say hire 1,000 people at between $15 and $17 an hour, we get 50,000 applicants. So I think you’ve gotta start somewhere and …but we want to hire more people…"

 

Mr. Immelt, thanks for reassuring us that you really want to hire Americans no matter how much it costs GE.  As you requested, we’re all rooting for you! 

 

Oh, and by the way, your personal use of the corporate wings would have paid the annual salary for 11 new employees working a 40 hour week at $16 an hour.

 

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