General Electric, the manufacturing icon grappling with swooning profits and a Justice Department investigation, agreed to pay new CEO Lawrence Culp a base salary of $2.5 million a year, 25 percent more than his short-tenured predecessor.
Culp, who previously led Danaher Corp. and had served on Boston-based GE's board since April, was appointed Monday to succeed John Flannery as chairman and CEO. Flannery had succeeded Jeffrey Immelt in both roles only last year, and the conglomerate lost 58 percent of its market value during his tenure as he struggled to streamline the company and buoy cash flow after a large, ill-timed acquisition that predated his promotion.
GE, founded by Thomas Edison and once known for its wealth of consumer products and leadership-training aptitude, has floundered in the past decade. Its massive lending business, funded by short-term borrowing in the financial markets, threatened the company during the financial crisis and weighed on its stock price afterward. The subsequent wind-down of the unit in 2015, however, took away a buffer that had sheltered the company from fluctuations in industrial businesses from medical equipment to jet engines and locomotives. GE was unable to meet cash-generation targets in 2017 after a sharp downturn in the electrical-generation market following Immelt's $10 billion acquisition of France-based Alstom SA's power business.
The employment agreement for Flannery's successor provides for a bonus of as much as $3.75 million a year and stock awards of up to $15 million a year depending on the company's performance, GE said in a regulatory filing. The company's shares have climbed 17 percent to $13.18 since the appointment of Culp, who headed Danaher for 13 years in which its stock grew at five times the pace of the S&P 500 and sales in high-growth global markets increased 10-fold.
"High-performance culture, execution and strategy were hallmarks" of Danaher during Culp's tenure, said Steve Winoker, an analyst with Swiss lender UBS. While GE's challenges leave it in a very different position than Danaher, "we believe that CEO Culp will, at a minimum, re-baseline the company, drive execution and make long-term decisions that benefit the company and shareholders," he said.
The only original member of the Dow Jones Industrial Average still included in the 30-member blue chip index, GE was replaced in June by pharmacy chain Walgreens Boots Alliance.
A month later, the company said it had set aside $1.5 billion to cover potential fines in a Justice Department probe of high-risk mortgages handled by its lending business before the 2008 financial crisis. The move followed settlement talks with the Justice Department in March, and GE based the amount in part on past government assessments against other lenders, Chief Financial Officer Jamie Miller said on a quarterly earnings call at the time.
As recently as July, Flannery had reiterated a full-year profit target of as much as $1.07 a share, but GE said Monday it wouldn't meet that because of continuing weakness in its power business. The company also said it would probably write down the goodwill on that business by nearly $23 billion.
GE said in this week's regulatory filing that it would disclose severance payments to Flannery once they were finalized.