Shareholder groups protest General Electric's plan to lower bar for chief executive's $232m payout

Advisory groups Glass Lewis and ISS also support move to appoint an independent chairman

A GE building in Cincinatti, Ohio. The company's proposal to increase the size of chief executive Larry Culp's compensation at the same time as reducing share price targets has been criticised by shareholder advisory groups. Andrew Cenci/BloombergShow less

General Electric is facing a tussle at its annual meeting next month after two top shareholder advisory firms recommended a vote against chief executive Larry Culp’s revised pay package, which lowered the bar for him to eventually collect as much as $232 million.

Glass Lewis said it was “uncomfortable” with the plan that maintained Mr Culp’s maximum potential payout “in exchange for reduced shareholder value creation”. Its recommendation for the non-binding vote echoed the concerns of another proxy adviser, Institutional Shareholder Services, which also urged opposition to the pay plans.

“Mid-cycle adjustments to performance equity grants are generally considered to be problematic, particularly when the changes both increase the value of the award and decrease the performance level needed to earn it,” ISS said in its report.

The recommendations highlight growing unease over GE’s decision in August to essentially halve the share price targets needed for Mr Culp to qualify for an equity-based payout valued at as much as $232m by the end of his tenure. The revisions were made as part of a two-year contract extension to keep him at the helm through to 2024.

Glass Lewis and ISS also said they support a separate shareholder proposal for GE’s board of directors to be led by an independent chair, rather than the chairman-CEO arrangement in place for decades.

GE said it disagreed with those recommendations. The Boston-based maker of jet engines, power equipment and medical scanners plans to hold its annual meeting on May 4.

“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,” the company said in a statement.

GE shares fell 1.2 per cent to close at $13.39 in regular New York trading on Friday.

Mr Culp’s initial compensation plan included a one-time equity award worth a maximum of $232.5m if GE shares rose above $31. Under his revised contract, Mr Culp would earn the same value if the shares reached $16.68 on average for 30 consecutive trading days during his tenure.

The change came after GE shares plunged last year amid the coronavirus pandemic to the lowest levels since 1991. The shares stormed back in the second half, posting a big-enough gain for Mr Culp to qualify for an initial payout threshold under that plan. The rally has continued this year with about a 24 per cent gain through to Friday.