For every step General Electric Co. takes toward overhauling its culture, it seems to take a step back.
The troubled industrial conglomerate kicked off the week by announcing that UBS Group AG analyst Steven Winoker would become the head of its investor relations team. Winoker will replace Todd Ernst, who joined only six months ago from Raytheon Co. This change was needed; GE’s communications with investors have been sorely lacking of late. Winoker, who previously worked for Honeywell International Inc. and United Technologies Corp., is well-respected and should lend more credibility to GE’s messaging.
This being GE, however, the company followed this smart move with the confounding disclosure of a $2 million annual salary for John Rice, the 39-year company veteran it brought out of retirement to chair the gas-turbine business. My reaction? You have got to be kidding me.
That’s nearly twice the median salary for CEOs at companies in the Standard & Poor’s 500 Index, and not too far off from the $2.5 million new CEO Larry Culp is receiving. Just for the record, John Rice isn’t CEO; he isn’t even a full-time employee. And while a $2 million pay award is minuscule compared with GE’s estimated $100 billion liabilities, those extra millions add up. It’s this kind of thing that’s left GE — the supposed champion of the by-the-numbers Six Sigma strategy — with such a bloated cost structure. Fixing GE is about much more than simply cutting expenses or selling off assets, after all. For the recovery to stick, the company has to attack the cultural rot that allowed it to go from corporate icon to cautionary tale. And on this front, GE just can’t seem to get out of its own way.Rice’s hiring in and of itself was perplexing; he may not have been as personally responsible for the company’s deterioration as CEO Jeff Immelt or the asleep-at-the-wheel board, but it’s hard to argue he wasn’t part of or at least blind to the problems. He spent the last seven years of his tenure running GE’s Global Growth Organization, whose primary purpose was to win business in emerging markets, the geographical source of many of the weakly priced contracts that contributed to the collapse of the power unit’s margins. It was the type of overpaid, figurehead job that Culp’s predecessor John Flannery didn’t have much patience for as he tried to inject more rigor into the board and top ranks. Rice announced his retirement in October 2017, the same day as fellow vice chair Beth Comstock, who served as head of business innovations and was a champion of GE’s poorly executed foray into software.
I was willing to acknowledge that Rice may have valuable institutional knowledge that would aid Culp in his efforts to revive the power unit, having served at one point as head of GE’s energy businesses. But Rice had already been awarded $63 million in salary and bonuses from 2006 to 2017, according to GE’s proxy filings. That’s before accounting for pension or stock-based compensation; data for his salary and bonus prior to 2006 wasn’t available.
Call me crazy, but one might think that Rice could forgo a salary this go-around and take only stock-based compensation. That would be unusual, but wealthy executives whose companies are in a much better financial position sometimes agree to take just $1 in annual pay as an article of good faith.
I don’t fault Rice for accepting a rich salary; I fault GE for giving it to him. It’s enough to make you wonder whether GE has learned much of anything from its humbling experience.