(Bloomberg Gadfly) -- Scrapping executive bonuses was the least General Electric Co. could do, but it's nevertheless a step in the right direction.
Past and present top leaders of the embattled industrial conglomerate -- with the exception of David Joyce, head of the crown jewel aviation unit -- won't receive a bonus for 2017, GE said Monday. Considering the year brought a dramatic earnings miss, a more than $100 billion reduction in GE's market value and only the second dividend cut since the Great Depression, this seems apt. GE also canceled stock-based performance grants from 2015 after failing to meet most of its goals. And CEO John Flannery will get 47 percent less in salary than predecessor Jeff Immelt.
GE's executives aren't going hungry, of course. Even without the bonus, Flannery will receive $9 million in total compensation for 2017. That's 157 times what a median employee at the company earned -- excluding employees retained from acquisitions and countries that make up less than 5 percent of the workforce. And while it's a lower payout than it might have been otherwise, the $8.1 million Immelt received for 2017 is still going to sting. Many of GE's current problems can be traced back to his mismanagement of the company, and yet he hasn't taken any public responsibility, leaving the dirty work for Flannery.
The (still) big numbers will grab the headlines, but Flannery deserves credit for following through on his pledge to hold executives more accountable and revamp GE's compensation structure. That pronouncement was one of the few bright spots in an otherwise uninspiring November investor day, where Flannery was meant to lay out his vision for turning this fallen American icon around. It sometimes seems like Flannery has one foot stuck in the past, and he's struggled to get the messaging right with investors as the company keeps unearthing new challenges like a $15 billion reserve shortfall and an SEC investigation. With these compensation changes, he finally seems to have struck the right chord.
GE is attempting to prioritize equity payouts and closer ties to investors with the elimination of its cash-based long-term performance award program at the conclusion of the current cycle in 2018. It's simplifying its bonus program by tying payouts to just two metrics -- earnings and cash. Previously, there were five financial performance guideposts with additional modifiers and strategic goals for the CEO and direct reports. Unlike GE's efforts to "streamline" its earnings metrics with a new set of nebulous numbers, this actually does seem simplified, and focuses on the financial goals investors care most about right now.
It remains to be seen whether this compensation overhaul actually does incentivize better performance at GE. Remember that agreement GE brokered with Trian Fund Management last year to tie bonuses more closely to financial targets? There was no specific penalty from that accord because even though executives fell well short of the profit goals, they exceeded the targeted $1 billion in cost cuts. Point being, it's hard to get compensation plans right. It's even more challenging at GE, where executives are battling a challenged power market, the prospect of more charges at GE Capital, the uncertain outcome of the SEC investigation and the risk of a goodwill writedown on the company's Alstom SA deal.
There's still a long grind ahead before we can ascertain what the new GE is going to look and act like. But there are some signs of change. For the moment at least, let's enjoy them.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Brooke Sutherland is a Bloomberg Gadfly columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.
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