Stop GE From Goosing CEO Pay Through Share Buybacks

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According to last year's proxy statement, a substantial proportion of executive compensation for 2016 was based on performance targets, including earnings per share (EPS). 

We support performance metrics that align senior executive pay with long-term sustainable growth. However, using EPS ratios to calculate incentive pay at a time when GE is aggressively repurchasing its shares reduces that alignment, artificially boosting EPS and executive pay. 

In addition, research by Robert Ayres and Michael Olenick of INSEAD found “the more capital a business invests in buying its own stock, expressed as a ratio of capital invested in buybacks to current market capitalization, the less likely that company is to experience long-term growth in overall market value.” “GE has repurchased $114.6 billion of its own stock and has, at the end of Q1, 2016, a market capitalization of $253.25 billion, a ratio of 45%.” Secular Stagnation (Or Corporate Suicide?)

For more background on stock buybacks, watch two short videos featuring Robert Reich at https://youtu.be/5RiRUJuvEgI and William Lazonick at https://youtu.be/Sxn2Ru5MmJw.

Our Proposal

Our Proposal asks the board of directors to adopt a policy to not utilize "earnings per share" ("EPS") or financial ratios (return on assets or net assets or equity) in determining senior executive incentive compensation, unless the Board utilizes the number of outstanding shares on the beginning date of the performance period and excludes the effect of stock buybacks that may have occurred between that date and the end of the performance period. This policy is to be implemented without violating existing contractual obligations.

The purpose of the Proposal is to reduce the artificial impact of stock buybacks on senior executive pay, since buying back stock is generally correlated with reducing company productivity and artificially boosting pay.

GE's Opposition

GE’s opposition statement does not address these problems but argues, the Proposal would “unduly restrict“ the Compensation Committee’s ability to structure executive compensation arrangements to ensure “alignment” with “shareowners.”  However, most shareholders are not the short-term variety GE apparently wants to please. We are concerned with long-term growth and aligning pay with creating long-term sustainable value.

Companies often argue they build in the impact of share buybacks on executive pay. To us, that's a like saying we build in a certain amount of cheating. Share buybacks don't add long-term value. Why should they be allowed to boost short-term executive pay?

Conclusion 

GE executives should be incentivized to make General Electric more productive, not to goose the stock price temporarily through buy backs to benefit their own pay.

If you own shares in GE, vote in favor of Shareholder Proposal 3, “Deduct Impact of Stock Buybacks from Executive Pay” at or before the GE Annual Meeting on April 25, 2018. If you are invested in a mutual fund, use Real Impact Tracker. Ask your fund to vote for Shareholder Proposal 3, “Deduct Impact of Stock Buybacks from Executive Pay” at or before the GE Annual .

Disclaimer

This is not a solicitation of authority to vote your proxy. Please DO NOT send us your proxy card; we are not able to vote your proxies, nor does this communication contemplate such an event.



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