Shares of General Electric (GE) are rising after the company entered into a compensation agreement with H. Lawrence Culp Jr., its newly-appointed chairman, and chief executive officer.
COMPENSATION DEAL: In a regulatory filing on Thursday, General Electric announced it entered into a deal with Culp with a four-year term, which includes a base salary of $2.5M per year, a target annual bonus opportunity at 150% of base salary and annual equity awards in the form of performance share units that will have grant date fair values of $15M beginning in 2019. In addition, the agreement includes a one-time inducement award of PSUs that will pay out as a number of GE shares ranging from 2.5M to 7.5M shares, based on a GE stock price appreciation target ranging from 50% to 150% using the highest average closing price over 30 consecutive trading days during the four-year period, with no payout for stock price appreciation of less than 50%. Culp will also receive a cash severance in an amount equal to two times the sum of his base salary and target annual bonus opportunity in the event that his employment is terminated by the company without cause or by him for good reason. Under the agreement, Culp could receive $21.3M in annual compensation and earn shares worth over $200M if he manages to turn around the company’s stock slump.
EXECUTIVE COMMENTARY: “Larry is a proven executive with a long track record of superior execution, and the board’s package to attract Larry is overwhelmingly tied to performance”, the company said in a statement to Bloomberg. “Nearly 90% of his annual pay will be at risk”.
WHAT’S NOTABLE: On Monday, GE announced that Culp had been named chairman and CEO, succeeding John Flannery, who resigned September 30. In addition, the company stated that while its businesses other than Power are “generally performing consistently with previous guidance,” the company will fall short of previously indicated guidance for free cash flow and earnings per share for 2018 due to weaker performance in the GE Power business. GE expects to take a non-cash goodwill impairment charge related to the GE Power business that will likely be as much as the approximately $23B current goodwill balance for the business. GE previously forecast the fiscal year 2018 EPS at the low end of its $1.00-$1.07 range. The current EPS consensus is 92c.
