Executive Compensation at General Electric (A) Case Study Analysis
Environmental
Environmental factors are to be considered deeply as the world is moving towards the concept of go green. There are legal laws in many countries restricting the pollution created by industries and thus the firm needs to abide by the rules. The firm is a manufacturer of plastic products as well which is a great halt as the world is restricting plastic usage so the firm needs to work on alternatives.
Evaluation of GE Compensation Tools
This evaluation of the compensation tool is based on the separate analysis of each tool considered under the long-term rewards and includes other forms of extra rewards under compensation in terms of payments. It includes various tools salary, bonuses, LTIP, SARs, and RSU. This evaluation helps the organization to understand the performance rate of each executive inside the organization and the number of payments provide to them. This analysis is based on three consecutive years from 2011 to 2003.
Long-Term Compensation for GE’s Two Top Executive
According to the statement of the organization's long-term compensation in the fiscal year of 2003, present that the organization paid ($3 million) basic salary to Jeff with an extra cash bonus of ($ 4.325 million) consider an increase of (10.9%) from the year 2002. The board of committee and the organization present various reasons for paying an additional amount to Jeff because the execution strategy practices inside the organization to change the overall portfolio of the organization towards the long-term investors' value by increasing profit margin and generating high returns on equity. The action plan of Jeff makes the capital structure of the organization more strong and presents solid financial results under this serious global economic environment.
However, in the year 2003, the compensation committee changed the restricted stock options units (RSU) shift to the performance share units (PSU) (Reda, 2021). The details for the long-term incentive presented by Jeff consider an award to be paid about ($ 18.3 million) in 2006 for (LTIP). Now look over the comparison of salaries and bonuses between new appointed CEO with the previous CEO (Welch’s). The previous CEO get ($ 4,000,000) as a salary and bonuses of about ($12,700,000), which consider being an increase in the respective year of 1999. The other annual compensation is provided about ($54,019) with (3,000,000) common stocks considered to be practicable after his retirement.
Change Position from (RSU) to (Stock-based Options)
In the prior years from 2001, the organization implement and used stock options and RSU as part of the long-term compensation for their executive’s packages. This system is considered to provide rewards and allocate the (RSU and stock option) to those employees that perform effective practices and provide greater services to the organization. However, in the year 2003, the overall system of performance allocation and rewards providing is changed completely by Jeff as the new CEO of the organization and the top executive, which presents that the stock options are now considered only for the CEO of the organization and the top executives inside the organization. This implementation and changing action consider to create the potential for GE and help to improve the stock price of the organization because the stocks are now only held by the top executives.
Analysis of Jeff Pay Package’s
The overall system of the pay packages presented by the Jeff new CEO of the organization is not considered to base on the overall performance matrix because it is mostly focused on the employees and other executives to stay tuned with the organization in coming years. During this new pay system, there are other options are introduced at lower prices without looking over the protection of the shareholder's structures. This method is considered to raise a challenge and problem for the organization because it is not entirely associated with the stock options of the organization.
Recommendation
After determining the impact of the stock options under the compensation tool it considers to be an appropriate strategy for the organization that helps to increase the value of share prices and deal with the concerns of the shareholders. However, there is one factor that excludes under the implemented strategy, which ultimately impacts highly on the features of the shareholders. It can be reduced by implementing a new pay system for the organization that considers being best for the future possible practices that help to support the equity programs clearly and directly improve the performance system of GE and this change is just because of the argument raised from the shareholder's sides. However, if the organization ignores this fact and excludes it from changing strategy then it considers to be not performing business according to the standards and it highly impacts the pay increase of executives and the CEO of the organization.
Conclusion
The overall analysis of the case presents that the strategy implemented by Jeff presents a high potential for the organization and its impact highly on the stock options and stock-based incentives schemes under the evaluation of each tool of the compensation plan. The first impact is present that the growth of U.S Corporations by increasing the use of stock options for compensative executives. In this strategy implementation, the stock option is now considered for the long-term performances and it presents a highly impacted part in the compensation packages. The overall evaluation and examination present the use of stock options consider highly important under the plan of compensation tools........................
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