Under Pressure From Trian, GE Vows to Boost Industrial Profits -- 3rd Update
March 22 2017 - 4:03PM
Dow Jones News
By Thomas Gryta and David Benoit
General Electric Co. said it would double its planned cost cuts
in industrial operations over two years and more closely tie top
executives' bonuses to profit in its core business.
The changes outlined Wednesday follow discussions with activist
investor Trian Fund Management, which recently increased pressure
on the company and for the first time brought up whether it should
take a board seat, people familiar with the matter said. Instead,
the two sides agreed to detail the new financial targets, the
people said.
On Wednesday, GE said it would seek $17.2 billion in operating
profit in 2017 and plans to reduce its industrial expenses to $23.9
billion. It plans to cut another $1 billion in spending in 2018.
The new cost-cutting goal of $2 billion over two years is twice
that laid out by GE Chief Executive Jeff Immelt in a January
earnings conference call, when the company had pledged to find $1
billion in savings over two years.
Following talks with Trian, the GE board changed the bonus plan
for Mr. Immelt and those reporting directly to him so that the
amounts could be sweetened or reduced by as much as 20% depending
on whether profit and cost goals are reached. Last year, GE's
executive compensation plan paid only 80% of its target because the
company missed profit targets.
Trian said it was pleased with the new framework and that GE
should continue "simplifying and streamlining" its organization to
achieve financial goals. "We will continue to hold management
accountable to its commitments," Trian said.
The firm took a $2.5 billion stake in GE in late 2015 and had
expressed support for the company's plan to divest most of its
lending business and refocus on making jet engines, power turbines
and other heavy equipment. When it originally invested, Trian had
said it didn't need a board seat because GE was on the right path,
but the investor has been frustrated by missed profit goals, the
people said.
GE addressed a Trian concern by forecasting a spending target
instead of just promising $2 billion in cost cuts, the people said.
The spending figure is easy to track and will allow investors to
hold GE management accountable. That assuaged Trian that a board
seat wasn't needed for now, they added.
In recent years, the conglomerate has refocused on its
industrial businesses, shedding low-margin units like home
appliances and striking a big oil-and-gas deal with Baker Hughes
Inc. last fall. But analysts have recently warned the company is
unlikely to reach a long-term goal to deliver $2 a share in profit
in 2018.
To find more cost cuts, GE has been discussing new cost moves
since December. The cuts are focused on four areas, including
shrinking headquarters staff, centralizing information-technology
operations, reducing research spending and accelerating cuts in
discretionary spending like internal travel.
A GE spokeswoman declined to comment on how many jobs could be
affected. GE employed 104,000 people at the end of last year,
compared with 125,000 at the end of 2015.
Write to Thomas Gryta at thomas.gryta@wsj.com and David Benoit
at david.benoit@wsj.com
(END) Dow Jones Newswires
March 22, 2017 15:48 ET (19:48 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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