(Bloomberg) -- Larry Culp needed a mega-million do-over.
The pandemic was tanking General Electric Co. stock and pushing Culp’s big prize -- a $232 million equity windfall -- out of reach for the top executive.
Before long, he got his do-over: GE’s directors shifted the goal line for the haul by cutting his targets in half. In a stroke, the lucrative deal he’d secured in hardball negotiations two years earlier had become even more lucrative, enough to make him one of the highest-paid U.S. executives for 2020, according to the Bloomberg Pay Index.
Most shareholders weren’t happy, especially as GE’s stock has trailed the broader market since Culp took over in 2018. Despite pushback, the CEO’s deal remains intact and has now secured him shares currently worth around $124 million.
The story of how GE saved its CEO’s giant windfall is an extreme example of how hundreds of U.S. corporations looked out for their executives during the pandemic economy. They tweaked bonus conditions, letting bosses collect hundreds of millions in bonuses that otherwise would never have been paid out.
But perhaps no CEO benefited more than Culp.
At GE’s annual meeting this month, more than half of investors voted against the executive pay program in a non-binding referendum, an exceedingly rare result for a large U.S. company.
Some investors told the board that Culp’s Covid concession looked like a repricing -- an echo of corporate America’s freewheeling compensation practices two decades ago that sparked federal investigations and the ouster of dozens of bosses.
“It’s highly problematic,” said Michael Varner, head of compensation research at CtW Investment Group, which represents union pension funds with more than $250 billion in assets.
Culp’s tweak was included in a contract amendment that prolonged his tenure by two years to August 2024.
Thomas Horton, GE’s lead independent director, defended the decision at the May 4 annual meeting, saying it was the responsible thing to do. The lowered thresholds reflected the “significant uncertainty related to the pandemic at that time,” he said.
A GE spokeswoman said the award won’t pay out unless Culp stays his full term. She said in a statement that it’s “tied to producing results and only can be attained if the company delivers substantial value for shareholders and employees.”
The controversy centers on restricted shares Culp received when he took the job in 2018. The payout depended on how high he could get the stock’s average closing price over a 30-day stretch at any point during his tenure.
At the lower end -- $18.60 -- he’d cash in around $43 million. At the high end -- $31, where GE hadn’t traded since late 2016 -- he’d get $232 million. With his new contract, those thresholds were slashed to $10.01 on the low end and $16.68 on the high end. GE shares closed at $14.06 on Friday in New York.
Culp came to GE during a precarious time. A raft of issues -- toxic insurance holdings, troubles in its power-equipment division and a federal accounting probe -- had torpedoed the stock.
The executive had made his name at Danaher Corp., a Washington-based manufacturing conglomerate founded by two reclusive billionaire brothers. Hardly a household name, it’s highly regarded in industry circles for its operational prowess. He spent more than a decade as its CEO and retired in 2015 after having collected more than $300 million in cash and stock, with plans to fish and ski.
In April 2018, he was asked to join GE’s board. Six months later, CEO John Flannery was ousted and Culp took the reins.
Bruised by the plummeting share price and a recent scandal centering on ex-CEO Jeff Immelt’s jet travel, the board offered Culp a no-frills pay package worth about $25 million per year, according to people with knowledge of the matter, who asked for anonymity to discuss private information. The offer didn’t include a big upfront stock award.
Culp’s attorney sent a counteroffer so extreme that some recipients balked. Culp’s underlying message, the people said, was clear: Make it worth my while to take this job.
The parties settled on a middle-of-the-road option: an annual pay package worth $21.3 million, plus the award of restricted shares. The board sold it by saying Culp will only get rich if shareholders also win.
“Larry and I are very much working arm in arm in this endeavor,” Horton, the GE director who’s also chairman of the board committee that oversees executive pay and negotiated with Culp, told the Dallas Morning News in 2019. “He’s a first-class guy.”
Culp quickly got to work reorganizing the power division, selling off businesses and shoring up cash by slashing the dividend. By early 2020, the shares traded above $13. Then the pandemic struck and GE stock dropped to just $5.49, its lowest level in around three decades.
By the summer, Culp was privately souring on his pay package, according to one person with knowledge of the situation, asking not to be named.
Why should I be steering GE through all this, Culp asked an associate at the time, if I’m not getting rewarded for what I’m doing?
“These assertions are absolutely false,” a GE spokesperson said by email, saying Culp never complained about his pay.
The board offered to cut the price targets in return for a commitment to stay on until 2024. “There has been overwhelming support for Larry’s leadership” among investors, Horton said at the meeting.
Some investors were flummoxed by the move. GE stock rallied in the following months, erasing the loss suffered early on during the pandemic.
The two major proxy advisory firms blasted the board’s reasoning and BlackRock Inc., its third-biggest investor, said there was a clear misalignment between pay and performance.
“I don’t think they needed to do it to keep him,” said Tim McNamara, a vice chairman at executive recruiting firm Odgers Berndtson, who’s recruited hundreds of company bosses and owns GE stock.
At the May 4 meeting, almost 58% of GE’s investors voted against the package -- the company’s worst result since advisory pay votes were first held a decade ago.
The vote has no bearing on Culp’s pay deal. And with three years left on his contract, he has plenty of time to achieve the full payout.
Carol Bowie, the former head of Americas research at proxy adviser Institutional Shareholder Services, said senior executives rarely focus on the dollars and cents, but are more concerned with how they stack up against their peers.
“It’s not the money -- it’s the esteem,” Bowie said. “It helps them stand out.”
(Updates stock price in 14th paragraph)
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