WASHINGTON -- General Electric Co. Chairman and Chief Executive Jeffrey Immelt declined a 2008 bonus and millions of dollars in performance awards, saying Wednesday that the company's falling profits and plummeting share price prompted him to forgo the payments.
The Fairfield, Conn.-based conglomerate, which makes everything from locomotives to household appliances, said in a filing with the Securities and Exchange Commission that Immelt will not receive his $11.7 million long-term performance award. Immelt received no bonus and his base salary of $3.3 million was flat with his 2007 paycheck. In 2007, GE paid Immelt a $5.8 million bonus.
The pay decisions, which the board made at Immelt's request, come after painful year for GE as the economy sank into a deeper recession and the financial crisis intensified. Earnings dropped 22 percent, company profit targets were missed, a restructuring of the GE's lending unit began, and shares lost more than half their value.
"Earnings came in well below where we expected. The broad equity markets, and GE's stock price, declined significantly in 2008. In these circumstances, I recommended to GE's board of directors that I not receive a bonus for 2008," Immelt said in a statement.
And the company continues to face challenges. Many investors believe GE will be forced to cut its dividend, now forecast at $1.24 per share for the year, if it can't generate enough cash flow to maintain the quarterly payouts. GE has said it will pay half the dividend but will evaluate whether to pay the remainder.
And the company risks losing its critical "AAA" credit rating this year because of GE Capital's woes. Ratings agencies Moody's Investors Service and Standard & Poor's are both reviewing their top ratings for GE this year. GE's stock, down another 33 percent so far in 2009, is trading at levels not seen since the mid-1990s.
The news from one of the world's largest companies comes as corporations start divulging executive pay packages in annual proxy statements filed ahead of shareholder meetings. Chief executives at ailing banks like Morgan Stanley, Citigroup and Merrill Lynch have already said they will pass up 2008 bonuses because of massive losses, layoffs and dismal corporate performance.
But although GE struggled last year, the company said 2008 was still its third best earnings year in history. Immelt could have made a case for a bonus and performance pay, said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. But he likely realized the bad public relations of taking such monies, especially as GE faces another tough year.
"He could make a credible argument for keeping it, but the long-term goodwill he gets with investors is wise," said Elson.
Others say Immelt and GE could have been more proactive. Peter Sorrentino, senior portfolio manager of Huntington Asset Advisors, said GE should have made the announcement much earlier when its troubles intensified. GE is one of the largest of Huntington's industrial stock holdings.
"This is something I would have thought we would have seen last summer when everything else was falling apart," he said.
Immelt missed all six of the performance targets that GE's board set for him last year on metrics like revenue, earnings and return on capital. But GE's board compensation committee gave weight to the steps he took to guide the company during the crisis.
That included raising $15 billion from investors like Warren Buffett's Berkshire Hathaway, reducing finance unit GE Capital's reliance on risky debt, and a restructuring to reduce the company's size. The board also noted that Immelt bought 317,000 shares of GE stock last year, even as its value crumbled.
GE's board "believes that he performed well in an extraordinarily tough business environment," the company wrote in its proxy statement.
Chief Financial Officer Keith Sherin and Michael Neal, chief executive of GE Capital, received 2008 bonuses 15 percent and 25 percent below their prior-year payments, respectively. The two executives both declined half the amount earned under their long-term performance awards, which means a $2.6 million reduction in Sherin's payment and a $2.9 million reduction in Neal's payment.
On average, GE reduced the size of its executive bonuses by 19 percent during 2008.
GE has generally performed well in recent years on tying executive pay to company performance, said Timothy Smith, senior vice president at Walden Asset Management, which has sponsored proposals giving shareholders a say on executive compensation. The Boston-based group is co-sponsoring a proposal calling on GE to allow shareholders to cast advisory votes on executive pay, though GE opposes the measure.
"This is good corporate governance," Smith said of GE's announcement on Immelt's pay.
Immelt's total 2008 compensation was $5.7 million, down from the $14.2 million he received from GE in 2007. The total includes his base pay, $372,000 worth of perks and benefits that included $189,449 for use of company planes, and $2 million for equity awards.
The AP's calculations of total pay includes salary, bonus, incentives, perks, above-market returns on deferred compensation and the estimated value of stock options and awards granted during the year. The calculations exclude changes in the present value of pension benefits, and they sometimes differ from totals companies list in the summary compensation table of proxy statements filed with the SEC.
Shares of GE were up 9 cents to $10.90 in afternoon trading.