General Electric Executive Compensation

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Executive Compensation at General Electric 1. What were the components of Jeff Immelt’s compensation plan in 2002 and 2003 prior to the changes introduced in the fall of 2003? Prior to changes introduced in the fall of 2003 the components of Jeff Immelt’s compensation plan were: In 2002 he received $9 million in stock options and restricted stock units, $3 million (base salary) + $3.900 million (bonus) in cash. In 2003 it was planned that he would receive 250,000 performance share units worth $7.5 million. 2. How much cash did Immelt receive in 2003? What part of that was awarded subjectively? What advantages do you think a subjective award can have over a prespecified performance-based award scheme? In 2003 Jeffrey Immelt received a total of 7403435 in annual compensation as well as 4176576 worth of exercised SAR’s, totaling 11580011 of cash. Out of that, 4.325 million (cash bonus) came as subjective compensation. Both, subjective award and a prespecified performance-based award schemes have their upsides and downsides. But in one particular aspect, a subjective award has an advantage. Imagine a manager, who knows that things are not going to be good this year for the company. An absence of a performance-based scheme makes manager to think how to avoid further losses and motivates him to be very cautious about the decisions he makes. There is no certainty that he will not get a bonus (as very recent history tells). On the other hand, if there is a prespecified performance-based award, a manager will most likely gamble for resurrection. He has nothing else to lose (when all of his compensation is tied up to the PSU). Another advantage of a subjective award is that it will be easier to hire a manager. No one knows how the economy will perform in the nearest future. It will be hard to find a manager who will be betting his compensation on the

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