Lessons in Inequality #42,767: Why Don’t GE’s Directors Get Fired?

14th October 2018 Off By binary
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Roger Lowenstein has a very good piece in the Post about GE’s hiring of a new CEO after the prior one served less than a year. According to Lowenstein, the new CEO’s contract will give him incentives worth $300 million over the next four years if he does well by the shareholders. He will walk away with $75 million if he does poorly. This follows the hiring of an inept CEO who was dumped in less than a year and long-term CEO Jeffrey Immelt, who pocketed hundreds of millions of dollars during his tenure while giving shareholders returns averaging 1.0 percent annually, according to Lowenstein.

This raises an obvious question, what the f**k is wrong with GE’s board? I haven’t looked at their forms, but I am quite certain these people get paid well over $100k a year and quite possibly over $200k for a job that requires perahps 200-300 hours a year of work. Their primary responsibility is picking top management and making sure that they don’t rip off the shareholders.

How could you possibly fail worse than GE’s board? This speaks to the incredible corruption of corporate governance. We have a system that allows CEOs and other top management to rip off shareholders. I have written about this one before (e.g. here and chapter 6 of Rigged) , but this is another striking example.

Look, I know the distribution of share ownership as well as anyone, but there are far more non-rich people who benefit from owning shares than from high CEO pay. More importantly, outlandish CEO pay has a huge impact on the overall pay structure. Think of what the labor market would look like if the CEO of GE was looking at pay of $2-3 million instead of $200 to $300 million?

Progressives should be worried about excessive CEO pay, and yes, rich shareholders are an ally in this story.

 

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