iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
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GE’s Immelt is a Loser, Who Wasted $45 Billion in Buybacks, And Left the Company With a $31 Billion Hole

This article is a corollary that describes everything that is wrong with corporate America — caitiffs basing decisions on share prices gains instead of the safety and security of its employees. In a way, it’s indicative of a larger civilizational struggle, one that juxtaposes the people against the elite.

For years, the CEO of GE had been ignoring GE’s ballooning pension deficit. When the financial crisis hit in 2008, there was little Immelt could do, other than right the ship. But in the years following, he should’ve deleveraged the company. Unlike all of his peers, GE’s balance sheet is fucking screwed, sporting a pension hole of $31 billion — blown out by an astounding $45 billion in buybacks in order to fend off hedge fund activist Nelson Peltz.

What loser looks like

Over the past 5 years, GE’s stock price rose by 70%, which sounds great until you realize it underperformed the S&P by 30% over the same time period.

Due to the low interest rate environment, GE’s pension fund, similar to other funds, only measurably worse, performed dreadfully.

The $31 billion shortfall is the largest in the S&P 500, and 50% more than any other company in the country.

Why would Immelt do such a stupid thing? Because his compensation was tethered to how well the share price performed. He’s walking away with a retirement package upwards of $200m. During his tenure at the company, Immelt made upwards of $30m per annum and upwards of $300m during his time at the company — based upon three criteria.

Operating cash flow
Return on capital compared to peers
Money returns to Investors via Dividends and Buybacks

Stock price performance was also a key factor in triggering stock options. In other words, Immelt’s decision to waste $45 billion in company share buybacks directly correlated with the amount of money he’d receive in compensation. He had a vested interest in doing this, as opposed to ensuring that the pensions of the 300,000 employees of GE were secure. No one on the GE board challenged him; and as a result, the company is on track for their pension hole to swell to $50 billion over the next decade. If the market should ever go down, that pension hole will grow in an exponential manner.

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7 comments

  1. roundwego

    Wakey wakey, crash time. Amazon buys whole foods as the upper middle class vaporizes. Unicorns will face reality aND realized they don’t actually exist they are temporary illusions like aol.

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  2. sarcrilege

    Jack Welch built GE’s equity, Immelt squandered it.

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    • derp

      Boo fucking hoo. Those assholes sat by and watched it happen cuz they were trading shares too. Fuck ’em.

      This is what they teach at business school now. Get what you can while you can and screw everyone else.

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  3. dcolella15

    A+ article Fly. It truly is sick to see the misalignment of management incentives, especially to this degree.

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  4. brvalentine

    He did exactly what he was hired to do, Destroy It!. Destruction is/has been a prerequisite for US based Corporations C-Level Execs and the Compensation to inflict such, is extremely rewarding. Golden~

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  5. metalleg

    I don’t blame him. I blame the board.

    I would do what he did if I was in his position under the same conditions. Not sure I would stretch it to the extent he did. I don’t need $300 million. I could live very nicely on $100 million so maybe I wouldn’t go as far as he did but the board should have expected nothing other than what they got.

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  6. samadamsvi

    China should buy GE and then they will own significant DOD contracts. It is the Amerikan way, right?

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