GE GE Aerospace

Promise follows talks with activist investor; Trian Fund won't seek board seat -- for now

By Thomas Gryta and David Benoit 

General Electric Co. said it would double its planned cost cuts in industrial operations over two years and more closely tie top executives' bonuses to profit in its core business.

The changes outlined Wednesday follow discussions with activist investor Trian Fund Management, which recently increased pressure on the company and for the first time brought up whether it should take a board seat, people familiar with the matter said. Instead, the two sides agreed to detail the new financial targets, the people said.

On Wednesday, GE said it would seek $17.2 billion in operating profit in 2017, while reducing its industrial expenses by $1 billion to $23.9 billion. It plans to cut another $1 billion in 2018. The new cost-cutting total of $2 billion over two years is twice that laid out by GE Chief Executive Jeff Immelt in a January earnings conference call.

Following talks with Trian, the GE board changed the bonus plan for Mr. Immelt and those reporting directly to him so that the amounts could be sweetened or reduced by as much as 20% depending on whether profit and cost goals are reached. Last year, GE's executive compensation plan paid only 80% of the projected total 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. When it originally invested, Trian had said it didn't need a board seat because GE was on the right path, but the investor has been frustrated by missed profit goals, the people said.

GE addressed a Trian concern by setting a spending target for each year instead of just promising to seek out $2 billion in savings over two years, the people said. The spending targets will make it easier for investors to hold GE management accountable, and that assuaged Trian that a board seat wasn't needed for now, they added.

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 of delivering $2 a share in profit in 2018.

To find more cost cuts, GE has been discussing new 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.

Write to Thomas Gryta at thomas.gryta@wsj.com and David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

March 23, 2017 02:47 ET (06:47 GMT)

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