General Electric

1. Aishwarya Divyashree Lokendra Nishant Siddharth Yash

3. INTRODUCTION:
• Jack Welch, former CEO, left the company in the year 2001.
• Jeffery Immelt has joined the organisation only 4 days before the disaster
of the twin tower.
• Immelt’s challenge:
• Slow growth period of GE
• Stock prices crashing
• Slipping reputation
• Criticism on “treating executives like royalties”
• Adversarial stockholder’s meetings.
• Immelt’s meeting with Warren Buffet.
• Compensation Committees concerns over changing Immelt’s compensation
package.
• Fall of Worldcom and Enron leading to criticism of EARNING
MANAGEMENT by GE.

4. HISTORY OF GE
• GE was formed by Thomas Alva Edison in 1878
originally called the Edison Electric Company.
• It merged with its rival Thomas-Houston Electric
Company in 1892 to form General Electric
Company.
• The first president was Charles A. Coffin.
• GE had the largest market capitalization of any
company in the world ($360 bn in Oct 2004).
• Company paid quarterly dividends to its 4 Mn
shareholders since 1899 and increased dividends
every year since 1975.

5. WELCH’S ERA VS IMMELT’S
A hero, a
legend and the
worlds greatest
business
leaders
Shift in GE from
bureaucracy to
a global
competitor
GE RANKING
an evidence of
his success
GE stocks
rising to
1155% in 16
years
Took a
SEVERANCE
PACKAGE in
addition to $9 Mn
pension and later
justified
Believed in
acquiring already
established firms
and sacking the
bottom 10%

6. Introduced in
Hardships
Long – Term
perspective of
an acquired
firm
Responsive to
stockholders
concern
Expanding the
size and scope of
financial
reporting
Splitting GE
capital in 4
separate
businesses.
Changed
shareholding
pattern and
increased number
of independent
directors

7. Organized the
company around 11
businesses
Sold low performing
insurance company
Did not believe in
job rotation
Believed more in
Research and
development
Bought cable channels,
water treatment comp.
security tech. and Enrons
wind power.
Focussed on long
term benefits

8. THE 11 BUSINESSES

9. GE’S BOARD AND COMPENSATION
COMMITTEE

10. EXECUTIVE PAY IN US
FROM 1990-2000 EXECUTIVES ENJOYED EXTRAVAGANT COMPENSATION
AFTER ECONOMIC SLOW DOWN IT BECAME A CONCERN
PAY WARS WERE ON RISE DESPITE OF POOR CONDITIONS
AVERAGE CEO PAYMENT INCREASED FROM BEING 42 - 282 TIMES
STOCK OPTION TO COMPENSATE EXECUTIVES WAS CITED AS MAIN REASON

11. Executive Compensation at GE
Executive
Compensation
Philosophy
Hire
Motivate
Retain
Executives
Reward
Compensation Elements
• Salary and bonus
• Stock options and
stock appreciation
rights
• Restricted stock units

12. PROS & CONS of Compensation Elements
Elements Pros Cons
Salary 1. Attract and retain Superior leaders.
2. Fixed income for the employees.
Have to offer extra perks to make salary
structure appealing.
Bonus 1. Reward exceptional performances.
2. Encourages to work hard.
3. Encourage employee loyalty.
4. Gives happiness to employees.
1. Difficult to administer.
2. Taken for granted and have
expectation for it irrespective of
profits.
Stock options and stock
appreciation rights(SARs)
1. Additional compensation in the form of
discounted stock purchases.
2. Cheaper & easier for the company rather
than paying cash.
3. Creates another group of investors buying
company’s shares.
1. Value of shares or options depend
upon the value company’s stock.
2. Decline in stock prices can leave
employees discouraged which will
lead to reduced productivity.
Restricted stock units 1. Acts as a golden handcuff.
2. Employers can issue RSUs without diluting
the share base.
3. Employers incur less administrative costs &
possibility of tax deferral.
1. Employees have to stay for a long
period of time to reap full benefits.
2. It do not offer voting rights.
3. It cannot pay dividends.
Long term performance award 1. Big motivator to increase productivity and
performance.
2. Creates competitive environment culture in
the company.
1. Employees might fall into illegal or
unethical practices.
2. Reduces risk taking abilities,
creativity & innovation.
3. Undermining collaboration & team
work.

13. CEO COMPENSATION
• Execution of strategy – long term investor
values
• Strong capital structure
• Solid financial results in a challenging
environment
• Making the company a leader in integrity,
transparency and corporate governance
• Leadership in growth initiatives
• Reorganising business to simplify operations
and strengthen relationship with customers
Reasons
for pay
increase:

14. FUTURE COMPENSATIONS
AND LONG TERM INCENTIVES
Performance share
units – awarded
only if performance
criteria are met
SARs and restricted
stock units – to
recognise unique
position of GE CEO
GE CEO needs no
retention
compensations
LTIP – long term
incentive
performance award
– $18.3 Million
250,000 share units
($7.5 Mn)
(1PSU=1share of GE
stock)
Year Salary Increase Bonus Increase
2000 $4 Million 6,75000 $ 12.7 Million 2.7 Million
Other annual compensation - $ 54,019 (personal – vehicle and
financial counselling)
3 Million Stock options, 8.5 Lakh RSU, Other compensation – 2.5 Mn

15. LTPA AND PSU
LTPA
• Granted to 1000 executives every 3 or more years
• Target levels are challenging
• Credited to employee in instalments annually but paid
at the end of 3 years
PSU
• They determine payouts that convert into shares of GE
stock only if the company achieves specified
performance goals

16. Annual Compensation $75,000
Meeting Fee $2000.
Charitable Award
Program.
Group Life and Accidental
Insurance $150,000
$18000 stock option grants.
1996-2003. worth $168,000
Board of Directors’ compensation at GE
Annual Compensation
$250,000
40% in cash and 60% in
deferred stock units
(DSUs).
On Termination.
Charitable Award
Program.
Liability insurance for each of
the directors.
From Jan 2003Prior to Jan 2003
Long Term Short Term

17. For 2003, A new compensation system designed to align directors’ interests with long term
interests of shareholders.
DSUs: paid in lump-sum cash or in equal payments over 10 years post leaving the
board.
Each director could recommend up to 5 charitable organizations that upon the
directors’ retirement or death would share among them a gift of $1 million.
Liability insurance for each of the directors.
Additional compensation: 10% Audit Director, 10% Management Director.
Board of Directors’ compensation at GE

18. THANK YOU!!!