The Globe and Mail: Is Jeffrey Immelt bad for GE?

The Globe and Mail: Is Jeffrey Immelt bad for GE?
I would hardly want to go on the record as being an apologist for bloated executive compensation, especially when said compensation is out of line with shareholder value. But it seems to me that Brett Arends’ takedown of Jeffrey Immelt misses the point.

In an article on MarketWatch, Mr. Arends noted that Mr. Immelt took the helm of General Electric Co. (GE-N17.290.251.47%) nine years ago (hat tip: Abnormal Returns). Since then, GE’s share price has fallen to about $16 (U.S.) from $40. Even after factoring in dividends (which were slashed, by the way) shareholders are still down about 40 per cent. Factor in inflation, and they are down about 50 per cent.
For his troubles, Mr. Immelt has been compensated handsomely – and that’s the part that gets under Mr. Arends’ skin. He writes: “Since succeeding Jack Welch in 2001, Immelt has been paid a total of $28.2-million in salary and another $28.6-million in cash bonuses, for total payments of $56.8-million. That’s over nine years, and in addition to all his stock- and option-grant entitlements. It doesn’t end there. Along with all his cash payments, Immelt also has accumulated a remarkable pension fund worth $32-million. That would be enough to provide, say, a 60-year-old retiree with a lifetime income of $192,000 a month.”
It’s not a pretty assessment, and investors may easily conclude that General Electric is a stock to avoid. But what Mr. Arends fails to point out is that Mr. Immelt inherited a troubled stock market (following the dot-com crash) and a wobbling global economy (in 2007) in which to operate. Without him, would GE have fared considerably better?
It probably isn't fair to measure Mr. Immelt’s value to shareholders using GE’s share price as a yardstick. Even Warren Buffett would agree it may not be the best approach. In his latest letter to shareholders, Mr. Buffett actually brought up Mr. Immelt’s name as an example of why he doesn’t like to use changes in Berkshire Hathaway’s share price as a way to sum up the short-term success of the company (or its management, presumably). He writes:
“Year-to-year market prices can be extraordinarily erratic. Even evaluations covering as long as a decade can be greatly distorted by foolishly high or low prices at the beginning or end of the measurement period. Steve Ballmer, of Microsoft, and Jeff Immelt, of GE, can tell you about that problem, suffering as they do from the nosebleed prices at which their stocks traded when they were handed the managerial baton.”

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