My Crystal Ball and the GE Proxy

For a couple of sad, sad months, I was a shareholder of General Electric.  I bought it intiitally to hold for a day because I thought it was oversold, but I ended up holding it for over a month.  I was right on the day and wrong on the month.  If I learned anything, it was not to make a trade into an investment.

The stock ended up being a huge disappointment - its value plummeted and I didn't have the moxy to sell.  I knew the stock was going to continue to go down; I knew I was going to lose money but I didn't want to realize the loss.  Finally, I realized that I was trading emotionally and bit the bullet.  I lost more money on my GE holding than I've ever lost on any other trade.  I learned 2 things:

1)  Don't be emotional.  Realize your loss and shut up.  The loss is already there so stop pretending like it's not

2) Never make a trade into an investment.

The story is just beginning though, because I just got GE's proxy statment in the mail.  I had the shares on the date necessary such that I get a vote (or 251) at GE's annual shareholder meeting. I was looking at the proxy statement earlier today, and you won't believe what I read!  A precatory shareholder proposal suggesting that dividends not be paid out to GE executives on unvested stock.  That's exactly what I wrote about 1.2 weeks ago!  It was made my a pension fund.  Here's the text of the proposal:

"RESOLVED, that the shareowners request that the Board of Directors of General Electric (“Company”) adopt a policy that the Company will no longer pay dividends or equivalent payments to senior executives of the Company for shares they do not own."

Two important things to note:

1)  Jeffery Immelt, CEO of GE, does not get dividend payments on restricted stock he owns.  He gets dividends only when that stock becomes unrestricted (I don't know if the dividends accumulate while the stock is restricted and are paid when the restrictions lapse).  Anyway, this isn't the case for the other executives.  Note in the text of the statement of support that Intel and MSFT don't pay dividends for unvested stock.

2)  The company recommends I vote against the proposal. 

This is awesome!  I can't believe an issue I spotted ended up being on the proxy statement just a week later. 

Here is a portio of the statement of support:

In response to this proposal in the 2007 Proxy Statement, the proxy statement declared that Mr. Immelt, starting in
September 2006, would only accumulate dividend equivalents if he earns the shares, and that payments would be
made (without interest) upon full ownership. However, for other senior executives, it stated that the goal of providing
“dividend equivalent payments is to mirror the income generation associated with stock ownership” and asserted that
the current practice was “competitive.”
In our opinion, the limited change in Company policy for Mr. Immelt is insufficient. For the CEO, it continues to
undermine the principle of pay for performance because payment is made on shares that are not owned. For other top
officers, there has been no change in the practice of awarding dividends or dividend equivalents on shares not owned.
According to the Wall Street Journal report noted above, several leading companies, such as Intel and Microsoft,
“never pay dividends” before full ownership rights have been earned. If the Management Development and
Compensation Committee believes that current executives are underpaid in the absence of “phantom dividends” or
dividend equivalent payments, we believe it should increase other components in compensation packages.
In our view, contingent pay should be truly contingent. We agree with Paul Hodgson at the Corporate Library, who
has stated that dividends on performance shares are “stealth compensation.”
We urge shareholders to vote for this proposal.

I can't wait to vote my proxy!

Comments

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