Under Pressure From Trian, GE Vows to Boost Industrial Profits -- 2nd Update
March 22 2017 - 12:16PM
Dow Jones News
By Thomas Gryta
General Electric Co. promised to cut an additional $1 billion in
costs from its industrial operations over two years and to more
closely tie top executives' bonuses to profits in its core
business.
The changes outlined Wednesday follow discussions with activist
investor Trian Fund Management, which has been pressuring the
conglomerate to boost profits.
On Wednesday, GE said it would target $17.2 billion in operating
profit in 2017 and planned 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 is twice as much as laid out by GE
CEO Jeff Immelt in a January earnings conference call.
Following talks with Trian, the GE board changed the bonus plan
for Mr. Immelt and his direct reports so they could be sweetened or
reduced by as much as 20% based on whether the company reaches
those two profit and cost targets. 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. But recently Trian has been frustrated
by missed profit goals, according to people familiar with the
matter.
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 profits
in 2018.
To find more cost cuts, GE says it 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.
--Austen Hufford and Ted Mann contributed to this article.
Write to Thomas Gryta at thomas.gryta@wsj.com
(END) Dow Jones Newswires
March 22, 2017 12:01 ET (16:01 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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