Leading by Example, GE's Jeff Immelt Takes a Pass on $12 Million in Compensation

Jeff Immelt, GE’s CEO, says he will forgo some $12 million in long-term performance pay, according to a report in the Financial Times this week. While his annual salary will be $3.3 million, the move means his cash compensation will drop 64% from the previous year – a period in which GE’s stock price fell 56%, the report notes.

Wharton accounting professor Wayne R. Guay, who has done research on executive compensation, noted in a recent Knowledge at Wharton article that there are a lot of public relations issues floating around executive pay. “Many companies have come forward needing assistance, and they can't afford to be giving the public a feeling that they're being excessive in any way, shape or form."

Public relations appear to be on Immelt’s mind. “My compensation is never going to be an embarrassment to GE,” he said this month, noting also that his compensation would reflect financial performance. Immelt’s statements coincide with the fact that General Electric’s stock price is down, it has been forced to lay off employees recently and it may well need to lay off more this year, Guay points out.

GE investors and some employees have been hit hard, and “a perception that the CEO is not suffering through these times can make matters worse by breeding resentment and a belief that the top executives are being irresponsible or overly greedy,” Guay said in an interview today. This can happen even when top executives have been doing a very good job in difficult times; without Immelt’s leadership, GE may well have done much worse, Guay added.

“Contrary to popular opinion, most CEOs do not have an obsessive short-term focus that drives them to extract as much compensation as possible from their firm in as short a period of time as possible,” Guay said. The reason: CEOs can hold much of their wealth in company stock and expect to be at the helm for years. When the stock price falls, the CEO loses personal wealth apart from annual compensation, and the value of Immelt’s holdings declined by tens of millions of dollars last year. CEOs also know that if they do a good job during difficult times and forgo some compensation, the board may compensate them appropriately when times are better.

Immelt “will continue to earn performance-based units, which may be converted into GE stock in five years if the group achieves certain goals on its cash and stock return,” according the Financial Times. The report also notes that GE Capital took part in two federal programs aimed at loosening credit markets but did not try to sell equity to the government.

 For more insight into executive pay, see CEOs and Market Woes: Is Poor Corporate Governance to Blame?