Thursday, October 13, 2011

Jeffrey Immelt and how the one percent lives

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.


  1. . . . and the EnergySmart GE lightbulbs are still made in China. But there is a glimmer of hope: they are now packaged in easy-to-access recyclable cardbord and no longer in the stiff non-recyclable plastic. . .

  2. This is only the tip of the Iceberg !!!

  3. GREAT piece! Thanks for putting all this info together to shine a light on a corporate cockroach!

  4. Not to cast you into a mold you may or may not prefer--perhaps you would care to comment on this--but I wonder if any of your research has made it into the database, if any, of Occupy Wall Street. These are hard data; mass movements tend to run along romantic, utopian lines. Is there any point of intersection that you know of?

  5. Bo

    I'd be happy if this type of hard data was widespread among the movement. This type of information should be the foundation of why things, as they are, are no longer acceptable to our society.

    Thanks and please pass along the information. That's why I posted it!

  6. A regular Oskar Schindler this guy...

  7. And his company never finished the clean up of the pcb pollution they dump in the Hudson river:

    Educate. Spread the word.

  8. Wall Street is a confidence trick, a dazzling edifice built on paper promises, gambling, bets and speculation. Wall Street doesn’t manufacture or produce anything. The Wall Street however attractive it may appear is built on paper. Wall Street only gambles and bets and speculates.
    Modern day bank robbers are at Wall Street but they wear grey suits and not masks. Speculators, propagandists and financiers of Wall Street are given some unfair advantage over the average consumers and taxpayers and the cumulative effect of the people watching selfishness prevail over the public interest has been an undermining of the public’s trust in the present US government. There’s no question the Wall Street is rigged against the average consumers and taxpayers. The Wall Street has a lot more information. Wall Street jerry-rig the system so that Wall Street always win. If the Wall Street loses trillions, the US Treasury will bail the Wall Street out so it can go back and do it again.
    50 trillion dollars in global wealth was erased between September 2007 and March 2009, including 7 trillion dollars in the US stock market, 6 trillion dollars in the US housing market, 8 trillion dollars in the US retirement and household wealth, 2 trillion dollars in the US individual retirement accounts, 2 trillion dollars in the US traditional defined benefit plans and 3 trillion dollars in the US nonpension assets.
    There are trillions dollars of new money taken again from Americans to make deals and hand out outrageous bonuses. And when these trillions run out Wall Street will come back for more until the dollar becomes junk. The value of the US dollar declined very significantly during the last 70 years. The value of the US dollar in 1940 was worth 2,000% more than the value of the US dollar now.
    The top 6 US banks had assets of less than one fifth of US GDP in 1995. Now they have two third of US GDP. The financial crisis was created by the biggest US banks to consolidate power. The big banks became stronger as a result of the bailout by the US Treasury. The big banks are turning that increased economic clout into more political power.
    Oligarchy is the political power based on economic power. And it’s the rise of the Wall Street in economic terms, that it’d turn into political power. And Wall Street then feed that back into more deregulation, more opportunities to go out and take reckless risks and capture trillions of dollars.
    Wall Street only has the lobbyists. Since the heads of Wall Street and their representatives are afraid because they don’t have the substance or the arguments, they will not come out and debate with the people who occupy the Wall Street.
    The political and economical leadership of the US has chosed to cartel profits and transformed the US economy to serve the colluding and unlawful oligarchy. The US banks are borrowing money at near zero interest from the US government, then lending it back to the US government at even mere fractions higher interest than they are paying. The net interest margin made by the US banks by lending the money back to the US federal government in the first 6 months of 2011 is 210 billion dollars.
    Due to the oligarchs’ rapacious looting and their purchase of a politically protected luxurious lifestyle, the people of the US are on the road to permanent serfdom under a police state. The democracy was not given to the people of the US on a platter. It is not theirs for all time, irrespective of their efforts. Either people of the US organize and they find political leadership to take this on, or they are going to be in deep trouble.

    --Nalliah Thayabharan

  9. Simple solution,,,dont buy anything GE makes. The reason the jobless claims are down is because most applying for them have run out of the benefit time period. Also to be noted, GE does not pay any federal taxes even though the make a profit thats unheard of.

  10. This excessive compensation for a 10 year track record of poor performance is what you get when the SEC permit a situation where the CEO is also the Chairman of the board. Who is providing executive oversight and looking after the interests of the shareholder?

  11. @Nalliah, who writes "Wall Street doesn’t manufacture or produce anything"

    True "wall street" is not a producer or manufacturer of goods, they provide a service. Services, a growing industry in the US is what will keep our GDP at the levels it needs to be in the next decade. This in turn will create jobs, for millions of US citizens.

    @A Politcal Junkie

    CEO performance as well as compensation is not correlated to share price, and rightly so. Just because GE common stock has declined while Immelt has been CEO does not mean he had anything to do with it. In late 2008 when the stock tanked, it was not because of Immelts actions, but general market movement, and a global sell off.

    Lastly, I agree that large banks have become far too large for the overall good of the certain economies, but banking is an inherent part of the global economy and will be forever.