General Electric executives Jack Welch and Jeffrey Immelt took more than half a billion dollars in ... [+]
Both former CEO's of General Electric Co. (NYSE: GE) should pay back their combined half-a-billion severance packages to restore their reputations. Jack Welsh was awarded $417 million dollars when he parachuted out of the company in 2001 and Jeff Immelt should do the same with the $211 million he took in 2017.
That’s according to The Edge (who source underperforming companies for activist involvement, Special Situations and Spinoffs), stating that the 130-year-old GE is as close to collapse as it’s ever been thanks to the legacy of systemic weakness left by 83-year-old Welch and his 63-year-old successor Immelt.
Welch’s almost half-a-billion dollar payout (worth $600 million today) is believed to have been the largest severance package ever paid to any CEO in the history of corporate America.
Ex-GE CEO Jack Welch should pay back the $417 million he got when he retired.
In November 2000, Welch selected Jeff Immelt as his successor, and later insisted, “My success will be determined by how well my successor grows [the company] in the next 20 years.”
Both men earned hundreds of millions of dollars from GE in both salary and benefits, and when Immelt retired in 2017, he was paid $211 million. Given Welch’s admission that he would be judged on his chosen successor’s record, returning their severance packages would be a positive move given the dire state of the company now.
The Edge says GE’s new CEO Larry Culp has a massive fight on his hands as he struggles with the $105.8 billion debt he’s inherited, and the futures of 20,000 salaried U.S. employees who have had their pensions frozen.
GE CEO Larry Culp took over the company in October 2018 and has attempted a turnaround.
Even as dividends have been cut, a legitimate turnaround is still a long way off. Despite the appearance of GE taking the bull by the horns by announcing power plant closures, putting their subprime mortgage business into bankruptcy and detailing massive layoffs in America and Europe (including more than 1,000 US corporate jobs and thousands more in factories in France, England, and Switzerland), the future still does not look good.
Just last month, Culp was highly optimistic, revealing, “There’s still a lot to do, it is a reset year. But net-net, we’re pretty encouraged, I’m confident that in 2020, and in 2021, we’ll see meaningfully better performance for GE as a whole.”
However, sentiment dropped again after J.P. Morgan analyst Stephen Tusa issued a negative outlook and insisted GE’s core business earnings (before interest and taxes) are falling 10% short of the estimates it made in March.
"This is not in-line performance, [few other companies have] missed EBIT by this degree this year, and no one guided as late as March," Tusa wrote.
According to The Edge’s research, GE’s market price has dropped 52.4% from $23.74 on January 2, 2001 to $11.29 in November 2019. Its overall market capitalization has reduced from $433.5 billion to $98.6 billion during the same period, a drop of -77.3%.
The Edge also sees pension funds are dumping the stock in droves, selling 18,150,255 shares in GE since January 2019. The majority of these funds belong to public sector workers like teachers and state employees, signalling this could be the tip of a very deeply submerged iceberg.
Pension funds that have dropped GE from their portfolios since January 2019.
GE plans to freeze its U.S. GE Pension Plan for approximately 20,000 employees with salaried benefits, and U.S. Supplementary Pension benefits for approximately 700 employees who became executives before 2011, effective January 1, 2021.
The fact that GE is freezing its pension plan shows just how desperate things are for Culp, who left it up to Kevin Cox, GE’s chief human resources officer to deliver the horrific news.
He said, “Returning GE to a position of strength has required us to make several difficult decisions, and the decision to freeze the pension is no exception. We carefully weighed market trends and our strategic priority to improve our financial position with the impact to our employees. We are committed to helping our employees through this transition.”
GE is still drawing comparisons to the contagion that was Enron, and despite Culp’s best attempts to salvage the company’s reputation, the road will be a difficult one - especially among employees who have been treated abysmally.
Culp’s three-year plan to turn the behemoth around seems almost impossible, but he deserves admiration because he’s inherited a poisoned chalice from Welch and Immelt, who should feel deeply embarrassed for what they have done to one of America’s once-great companies.
This Thursday (November 21), The Edge is hosting another of its investing ideas conferences, Why Your Investments Should Have a Catalyst, from 7:45 AM – 12:45 PM EST at the Penn Club of New York. The event is being held to support the Alzheimer's Association USA and the limited-space tickets can be bought with a discretionary donation. Reserve your ticket here.
