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GE boss faces revolt over bonus as shareholder adviser bares its teeth

General Electric is heading for a showdown over a $47m bonus for its chief executive Larry Culp, after the two largest shareholder advisers recommended investors vote against the pay package in protest at the decision to relax his performance targets.

Rewriting the bonus plan last year after the pandemic hit GE shares was “problematic”, Institutional Shareholder Services wrote in a report circulated to investors of the industrial conglomerate this week. Glass Lewis, the second-largest US proxy adviser, said on Friday that Culp’s new bonus target “does not reflect clearly exceptional share price performance.”

Its voting recommendation comes as corporate America heads into annual meeting season, with executive pay in particular focus. ISS has also advised investors to vote against compensation plans at AT&T, the media and telecoms group, Wells Fargo, the bank, and healthcare giant Johnson & Johnson.

At a low point for GE shares in August, the board extended Culp’s contract and rewrote the terms of the bonus plan, which was tied to share price targets. It reduced the stock price at which the chief executive would earn bonus shares and nearly doubled the amount of stock he would receive.

Since then, the stock market has recovered to set new records and GE shares rebounded sharply, too, to the point that Culp had locked in the bonus by late 2020. The share award — worth $47m in November and currently valued at $62m — will vest in 2024 at the earliest if he stays with the company.

The bonus could also yet swell in size. If GE’s share price remains above $13.34 for 30 consecutive days, Culp could earn more stock worth $124m. GE shares were trading around $13.50 on Thursday. The revised plan also preserves Culp’s chances of scoring a maximum $230m bonus. 

“The lowering of goals without adjusting the payout opportunity is viewed as problematic”, ISS said in advising a “no” vote on pay. ISS and Glass Lewis also recommended GE shareholders vote to separate Culp’s roles as chair of the board and chief executive.

Both proxy advisers said shareholders should support the re-election of all of GE’s board members, however, including Culp. 

The recommendations are influential because they are followed by many institutional investors without large corporate governance teams of their own.

Already this year, the coffee chain Starbucks and the pharmacy group Walgreens Boots Alliance have lost shareholder votes on executive pay after ISS recommended against their bonus plans.

GE said it disagreed with ISS’s recommendations. “We value the feedback and views of our shareholders, and we will continue to engage with many of them on a range of topics, including executive compensation,” it said.

In January, Culp told the Financial Times that agreeing to the board’s request to extend his contract in the midst of the pandemic “required a bit of soul-searching on my part, given what I’d agreed to initially”.

“I didn’t take a salary last year once Covid hit. I think we all sacrificed,” he said.

GE’s annual meeting is on May 4.

Contentious votes are due at three other S&P 500 companies before the end of this month.

The bonuses for J&J executives are not justified because the company has provided too little information about litigation expenses, including $4bn of charges to cover cases related to its sale of opioids, ISS has said.

The advisory group has also raised concerns about the structure of bonus plans for executives at AT&T and Wells Fargo.