Good afternoon,
This week, GE announced plans to finally leave the world of conglomerates.
Larry Culp – who had retired to the picturesque Eastern Shore town of Chestertown, MD after stepping down as CEO of a former mini conglomerate – agreed to take the reins of the legendary company in 2018.
Before taking charge, he negotiated a stock-laden compensation package that continues to draw fire.
After strengthening its finances and cutting costs, Culp and the GE board announced plans this week to split up the company into three pieces, aviation, health care, and power (electric generators, wind turbines, etc.)
Culp will head the aviation (jet engine) business, which has total sales that are a few billion dollars a year higher than those of Delaware-based DuPont Co.
GE, like DuPont, has had sold off a lot of businesses, including appliances and locomotives. Still, the stock price lagged, and pressure from activist stockholders increased.
The focus on the bottom line led GE to move decisively in cutting losses at its aviation unit.
Due to a sharp slowdown in passenger jet orders during the Covid-19 pandemic, the GE Aviation Newark site is apparently down to a skeleton crew after a big layoff. As a result, few vehicles are parked in its large solar panel carport.
One person who will profit from the GE spin-off is Culp.
The size of the pay package raises the question of whether CEOs like Culp and counterparts like DuPont’s Ed Breen add enough value to justify the compensation.
Breen fared well by co-engineering a deal that briefly combined Dow and DuPont. Then, the two companies went their separate ways while combining their agribusiness operations into Corteva.
Breen later returned to head a smaller DuPont after a disappointing financial performance following the Dow spin-off.
Breen first arrived at DuPont after walking away with an estimated $150 million from selling off Tyco, a troubled conglomerate, whose former CEO did jail time.
Breen’s compensation at DuPont has added to more than $30 million in the past couple of years.
One critic, writing for Marketwatch, believes things have gotten out of hand, at least in the case of GE.
Rosanna Weaver points out that one estimate puts Culp’s compensation package at more than $200 million.
The eye-popping figures raise the question of whether stock-based compensation packages encourage short-term actions rather than long-term performance.
Many will disagree, but there is something to be said for diversification, especially when it comes to cyclical businesses like jet engines.
Enjoy your weekend and check out links to today’s stories. – Doug Rainey, chief content officer.
