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GE Ties Bonuses to New Targets as Key Shareholder Pressures Immelt

March 22, 2017
Recent conversations between GE and key shareholder Nelson Peltz and his Trian Fund Management have prompted the company to cut management bonuses if financial targets are missed.

General Electric Co. said it would cut management bonuses if it fails to meet financial targets adopted after talks with activist investor Nelson Peltz.

Executive payouts will drop 20% if the company can’t generate $17.2 billion in industrial operating profit this year and lower a measure of “base costs” by $1 billion to $23.9 billion. GE also set a cost objective of $22.9 billion for next year.

CEO Jeffrey Immelt adopted the goals after pressure from Peltz’s Trian Fund Management, which took a stake in GE in 2015 after the company slimmed down lending operations to refocus on making jet engines, gas turbines and oilfield equipment. The shares dropped 5.5% during the 12 months ended Tuesday while the S&P 500 Index advanced 14%.

“We will continue to hold management accountable to its commitments,” Trian said in a statement. “Over the past month, Trian has intensified its dialogue with senior management regarding new initiatives to help ensure that GE can meet its financial commitments.”

The fund owns about 67 million shares in GE, with a market value of about $2 billion.

“You have a very large shareholder who is exerting some influence,” said Jeff Windau, an analyst with Edward Jones. “That is positive for the story of managing their costs, which I think GE always does, but obviously it puts a little bit more of a spotlight on it.”

GE jumped the most in four months on March 10 after a Fox Business report that Peltz was unhappy with the company’s recent performance, potentially putting pressure on Immelt to step down. Trian, which doesn’t have a seat on GE’s board, had called for the Boston-based company to cut costs and take a disciplined approach to acquisitions.

Immelt’s compensation fell 35% last year to $21.3 million.

By Thomas Black and Devin Banerjee

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