Many companies have come under scrutiny for their head-scratching behavior amidst the financial downturn, specifically those that lay-off thousands of employees while their leadership accepts ever increasing, multi-million dollar bonuses. At the same time, however, there are many companies that haven’t made as dramatic of headlines for the way their leadership has voluntarily given up annual compensation to empathize with company employees during economic hardship.
Jeff Immelt of General Electric is the most recent of the latter bunch—Immelt recently waived a $12 million bonus. This isn’t the first time that Immelt has foregone bonuses amidst GE’s current, relative slump. As the Financial Times points out, in 2002 Immelt voluntarily entered into an equity-compensation plan based on performance-based goals of the company.
The $12 million that Immelt waived was part of this performance based pay.
Commentary: Another example of how GE does things right, beginning with a strong tone from the top. These days there are too many stories of banks such as AIG, Northern Trust and others lavishly spending money after accepting bailout dollars. It’s refreshing to hear stories such as this, and follow leaders such as Immelt that consistently set the right example for others.
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May 1st, 2009 at 12:57 pm
In a 2/13/09 NY Times article entitled “Jack Welch and the Lone Ranger Theory” ( http://economix.blogs.nytimes.com/2009/02/13/jack-welch-and-the-lone-ranger-theory/ ), there is a quote from a Mark J.Perry, economist, blog post entitled “Maybe CEOs Like Jack Welch Are Underpaid?” ( http://mjperry.blogspot.com/2008/01/maybe-ceos-like-jack-welch-are.html ) that says: “When Jack Welch became General Electric’s CEO in 1981, the company was worth about $14 billion. Through hiring and firing, buying and selling decisions, Welch turned the company around and when he retired 20 years later, GE was worth nearly $500 billion. What’s a CEO worth for such an achievement? If Welch was paid a measly one-half of a percent of GE’s increase in value, his total compensation would have come to nearly $2.5 billion, instead of the few hundred million that he actually received.
Bottom Line: You could probably make a stronger case that Jack Welch was underpaid and exploited by his shareholders GE’s Board of Directors than making a case that he was overpaid as a CEO.” This general concept agrees with my basic feelings of “Pay For Performance”, and my test results.
However, a 1/2/08 comment on that same Mark J. Perry’s blog post by “Walt G” ( http://mjperry.blogspot.com/2008/01/maybe-ceos-like-jack-welch-are.html#c4857147728783248245 ) says: “The premise of pay for performance is negated when there isn’t any positive performance (golden parachutes). If the CEO is taking credit and PAY for things when they are going well (whether he or she is actually the reason), then, let the CEO take the blame and NO PAY when things are going poorly (whether he or she is actually to blame).” I like that concept because it brings into play the higher concepts of Charity and Integrity. Why wouldn’t a financially successful CEO who will probably never be a “beggar in the streets” agree to temporarily reduce his/her total earnings to $1.00 per month or even per year? He’d still have his “perks”, but that charitable show of goodwill, and self sacrifice, would actually be the best PR that he could do to sell himself to the next large corporation he’ll work for. It would prove his love of what he does for a living, while giving back to one of the compainies who made that CEO well off. It would, also, help change the current negative press about “CEO Compenstion” into positive press. Plus, that money saved by the corporation could be reinvested wisely in some way as to try to increase sales! Now THAT would be showing CHARITY and “INTEGRITY”(most looked up word for the 2005 Mirriam-Webster Online Dictionary).