GE to Disclose Compensation Consultant's Work (Update1)
 

By Vineeta Anand

Dec. 28 (Bloomberg) -- General Electric Co., the world's second-largest company by market value, will go beyond a new federal disclosure rule on executive pay and tell shareholders for the first time the full extent of its compensation consultant's work for the company.

The decision followed talks with the AFL-CIO, GE spokesman Peter O'Toole said. The union federation is pressing companies for evidence that consultants are giving independent advice on executive pay. GE paid Chairman and Chief Executive Officer Jeffrey Immelt about $21 million in cash and stock for 2005.

``GE is setting a precedent that other companies should follow,'' said Dan Pedrotty, director of the office of investments at the American Federation of Labor and Congress of Industrial Organizations in Washington.

The disclosure by Fairfield, Connecticut-based GE may set a standard before next year's round of annual shareholder meetings. The U.S. Securities and Exchange Commission, prompted in part by investor criticism of executive pay and a stock- options scandal involving almost 200 companies, has already ordered fuller disclosure of pay and the role consultants play.

The GE board's compensation committee uses New York-based Frederic W. Cook & Co. as its pay consultant, O'Toole said. GE participates in Cook's survey of long-term incentive pay, which in turn is used by the compensation committee, he said.

Cook also at times advises GE's human resources department on market trends and on the company's broader pay programs, the spokesman said. Immelt wasn't involved in selecting Cook, O'Toole said.

Consultants' Use 'Limited'

``What Mr. Immelt has said is our use of compensation consultants is very limited, but as part of our new compensation consultants' disclosure, we would be prepared to disclose the information sought by the AFL-CIO,'' O'Toole said.

George Paulin, Cook's chief executive officer, said in an interview yesterday that it's his firm's policy to ``do no other work'' for a client ``without the consent of the compensation committee chair.''

GE declined to say how much it pays Cook for its work. Mark Borges, a principal and compensation consultant in the Washington office of Mercer Human Resource Consulting, said consultants typically charge $500 to $1,000 an hour. They usually charge little or nothing to companies that participate in executive-pay surveys, said Borges, a former SEC attorney.

Cook receives a fee of less than $5,000 from Pfizer Inc. for an executive-salary survey, the world's biggest drugmaker said in its 2006 proxy statement. Paulin advises the Pfizer board's compensation committee on executive pay and Cook does not advise management or receive other fees.

Pension Funds

The AFL-CIO and a group of pension funds sent similar requests to the 25 largest companies in the Standard & Poor's 500 Index in October, asking whether their pay adviser did other work for the company and whether they would adopt policies prohibiting such work. The groups said they were concerned about potential conflicts like those raised when accounting firms earned millions consulting for companies they audited.

The SEC rule that took effect Nov. 7 will require companies to identify the consultants hired by their compensation committees and describe their role in crafting executive and director pay packages.

The disclosure GE plans to include in shareholder packages for its April 2007 annual meeting will go further than the rule, which doesn't force a company to describe other work by the consultants or whether top executives helped select the adviser.

GE Disclosure

The AFL-CIO agreed to withdraw a formal shareholder proposal seeking the consultant information after GE agreed to disclose the Cook relationships.

Immelt criticized the high level of CEO pay packages as well as the role of compensation consultants in crafting them in a Nov. 3 interview with the Financial Times. ``I don't think consultants should be involved,'' he was quoted as saying.

The AFL-CIO, whose member unions hold more than $400 billion in pension funds, joined a dozen pension funds in writing other large companies, including Exxon Mobil Corp., the world's largest publicly traded company, and Microsoft Corp., the world's largest software maker.

Spokesman Dave Gardner said yesterday that the consultant working with Exxon's board does not do any other work for the Irving, Texas-based company. A spokesman for Redmond, Washington-based Microsoft declined to comment.

`Jeopardize Confidence'

The investors' Oct. 23 letter said, ``Multiple business relationships within a company may compromise the independence of a consultant's recommendation to the compensation committee and may jeopardize shareholder confidence.''

Among those signing the letter was Denise Nappier, Connecticut's state treasurer, who spearheaded the effort. A Nappier spokeswoman said 16 companies responded but declined to say how.

Union pension funds also have asked for fuller disclosure from New York-based Verizon Communications Inc. Chief Executive Ivan Seidenberg's $19.4 million pay package in 2005, a year in which the stock declined 25 percent, is an example of what's wrong with the current consulting business, the AFL-CIO's Pedrotty said. The New York Times reported last April that Verizon's consultant, Hewitt Associates, did other work for Verizon at the same time it advised on Seidenberg's pay.

Verizon spokesman Alberto Canal said yesterday that Hewitt doesn't provide the board with compensation services. ``There are no plans'' to use the board's current compensation consultant for ``any other purposes,'' he said.

Congress may introduce legislation next year that would give shareholders greater say over CEO pay.

``The problem of executive pay that is both greatly excessive and deliberately obscured is a grave one,'' Representative Barney Frank said yesterday in a statement.

Frank, the Massachusetts Democrat who will lead the House committee that oversees the SEC, said he will reintroduce legislation on executive pay that he drafted last year.

To contact the reporter on this story: Vineeta Anand in Washington at vanand1@bloomberg.net

Last Updated: December 28, 2006 12:08 EST