I have questions about Larry Culp’s $47 million payday at General Electric Co.
GE last week hit the share performance threshold that triggers the first tier of a one-time equity grant for Culp that could ultimately amount to as much as $230 million, according to a Bloomberg News analysis. The bonus was originally set up when Culp was named chief executive officer in 2018. It was meant to reward the former Danaher Corp. CEO for taking on the stewardship of a company whose best days looked to be behind it and to incentivize him to follow through on a turnaround job that at times has seemed impossible. One of those times was earlier this year, when the pandemic engulfed the crown jewel aviation unit that had been the company’s salvation through years of woes in the gas turbine and insurance businesses. With this unprecedented and unpredictable event upending the first tangible signs of stabilization at GE, it felt fair to give Culp some more time to steer the company into a better direction. So in August, the company rejiggered the terms of the pay package.
GE’s board extended Culp’s contract through at least 2024 with an option for a one-year extension, giving him a few extra years for his turnaround efforts to yield results; fine. But it made the curious decision to also lower the stock performance thresholds. The trigger for the lowest tier of Culp’s pay package dropped to about $10 from nearly $19. As long as Culp could keep GE’s stock price in the $10 range for a month, he would lock in a payout of at least $47 million. In August, GE’s stock price was hovering around $6, so getting to $10 required a significant rally. But as I wrote at the time, considering Culp had five years to hit that target and the stock traded higher than that when he took over, it hardly felt aspirational enough to warrant a $47 million payday. It turns out Culp only needed four months, not five years, to hit the target after a furious fourth-quarter rally on vaccine optimism and an improving outlook for free cash flow.