GE Eases CEO’s Path to $230 Million Payout in Contract Extension

GE Eases CEO’s Path to $230 Million Payout in Contract Extension

August 20, 2020

General Electric Co.’s board extended Chief Executive Officer Larry Culp’s contract by two years after the coronavirus pandemic upended his plan to turn around the ailing industrial giant.

Culp will lead GE through at least August 2024 with the option for a one-year extension after that, the company said in a regulatoryfiling Thursday. The board also revised how Culp would be compensated, making it easier for him to take home as much as $230 million at the end of his contract.

The extension represents an endorsement of Culp’s revitalization strategy at GE even after the shares have tumbled this year as the pandemic gutted demand for the company’s jet engines, power equipment and medical scanners. The new contract also preserves a key stock-based piece of his compensation package after GE shares tumbled 44% this year this year, far worse than the 6.5% drop in a Standard & Poor’s index of U.S. industrial companies.

Since taking the reins in late 2018, Culp has slashed debt, sold assets and focused on turning around GE’s beleaguered gas turbine business, a major source of the company’s cash woes in recent years. His efforts caught on with Wall Street last year, as GE posted its biggest share-price gain since1982, back when Jack Welch was starting his tenure in the top job.

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“Larry has made significant progress in transforming GE’s operations and culture and is the right leader to drive GE’s long-term strategy,” lead director Tom Horton said in an emailed statement. “Larry’s compensation remains overwhelmingly tied to producing results for shareholders with nearly 90% of his annual pay at risk.”

GE was little changed at $6.28 after the close of regular trading in New York.

Last month, the Boston-based company reported double-digit declines in orders across all its industrial businesses for the second quarter. Revenue in its jet-engine business plunged 44% as the virus gutted air travel and dimmed the long-term outlook for aircraft sales.

“Covid-19 clearly put us back,” Culp said at the time. “It will take us a little longer, just because of what’s happened in aviation, in particular. But that said, I have more confidence today than I ever have that we’re going to see this transformation through.”

The pandemic also dealt Culp a personal blow by drastically reducing his chances at securing a big stock payout -- a fate the board remedied with his new contract.

Easier Payout

When Culp signed on to take the CEO job in 2018, the shares were worth about $12.40 apiece, less than half of where they’d traded two years earlier and far below their peak two decades ago. In a bid to push Culp to boost the stock price, the board put in place a big incentive.

If GE rose to $31 a share within a few years -- a 250% increase -- Culp would receive as many as 7.5 million shares, worth more than $230 million at that price. Under the terms of the award, he could earn a partial payout if the stock price increased at least 50% to $18.60, which would amount to tens of millions of dollars. If the price fell short of that threshold, he wouldn’t get any shares at all.

By February of this year, that lower threshold was still within striking distance. But as the pandemic worsened, GE plunged.

Culp’s new employment agreement cancels the old equity grant and replaces it with another that’s identical both in terms of size and structure -- but effectively halves the stock price targets.

Under the terms of the new award, Culp will earn his $230 million windfall if the shares reach $16.68 within a few years. If they only get to $13.34, which is roughly 10% above where they stood when he started as CEO, he will take home $124 million.

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