General Electric Co. said it would cut management bonuses if the company fails to meet certain financial targets, as CEO Jeffrey Immelt vowed to cut costs after stepped-up talks with activist investor Nelson Peltz.
Executive payouts will drop 20% if the company doesn't meet its target for $17.2 billion in industrial operating profit this year and falls short of a new goal of lowering "base costs" by $1 billion, to $23.9 billion. GE also set a cost objective of $22.9 billion for next year.
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Immelt adopted the goals following talks with Peltz's Trian Fund Management, which took a stake in GE in 2015 after the company slimmed down lending operations to refocus on making jet engines, gas turbines and oilfield equipment. A rally fueled by Immelt's shift fizzled last year, leaving investors with returns that trailed the S&P 500 Index.
"We will continue to hold management accountable to its commitments," Trian said in a statement. "Over the past month, Trian has intensified its dialogue with senior management regarding new initiatives to help ensure that GE can meet its financial commitments."
The fund owns about 67 million shares in GE, with a market value of about $2 billion. GE dropped 5.5% during the 12 months ended Tuesday while the S&P 500 Index advanced 14%.
"You have a very large shareholder who is exerting some influence," said Jeff Windau, an analyst with Edward Jones. "That is positive for the story of managing their costs, which I think GE always does, but obviously it puts a little bit more of a spotlight on it."
GE will boost 2017 cash bonuses 20% from what would otherwise be payable to managers if the company achieves both the profit and cost targets. If only one of the goals is met, bonuses will be unchanged.
GE jumped the most in four months on March 10 after a Fox Business report that Peltz was unhappy with the company's recent performance, potentially putting pressure on Immelt to step down. Trian, which doesn't have a seat on GE's board, has called for the company to cut costs and take a disciplined approach to acquisitions.
Immelt's compensation fell 35% last year to $21.3 million.
"No matter how we cut it, GE had a rough 2016, largely on oil & gas headwinds and weak powergen," Scott Davis, an analyst at Barclays Plc, said in a report March 20. "But GE certainly did not earn any prizes for execution overall."
Bloomberg News
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