BOSTON General Electric Co said on Thursday it will stop paying its senior executives dividends on stock awards that have not yet vested, after investors urged the company to end the long-held perk.
The move, which affects only new stock awards and not old ones, comes amid growing scrutiny by shareholders of senior executive pay, which has been on the rise for years even as average Americans' salaries plateau. The dividends can add up to millions of dollars for executives with long tenure.
"The change is in response to investor feedback," GE spokesman Seth Martin said. He declined to elaborate.
GE's policy change affects only stock awards granted this year and beyond, the company disclosed this week in its annual proxy statement. That means some executives will continue to receive big dividend checks on stock awarded in previous years, but which has not vested.
Vice Chairman Keith Sherin, for example, will continue to receive dividends over the next decade on 191,250 shares of restricted stock that he doesn't own, or which is unvested, until his 65th birthday in 2023, according to GE disclosures.
GE had been paying dividends on unvested restricted stock for years. But the company was not able to say when the practice began.
While GE and other companies move away from paying dividends on unvested stock, Apple Inc is picking up where they left off, but with a twist. Executives at Apple accrue dividends on restricted stock, but don't get the payouts until shares vest, according to its latest proxy.
Four senior GE executives - Chief Financial Officer Jeffrey Bornstein and Vice Chairmen Daniel Heintzelman, John Rice and Keith Sherin - have a combined 1.04 million shares of unvested restricted stock, according to GE's latest proxy.
At GE's annual dividend payout of 88 cents a share, those executives in 2014 are in line to receive a combined $914,000 on stock they don't own.
"It's like you or me getting paid a dividend on GE stock that we're just thinking about buying," said Paul Hodgson, a corporate governance expert and a partner in BHJ Partners, in Camden, Maine.
Vesting or ownership of restricted stock is typically tied to time in service and meeting performance goals. U.S. companies use restricted stock to retain executives and to motivate them to do well.
The dividend payouts have not received as much attention as other forms of executive compensation. They pale in comparison to some of the big-ticket bonus and stock option awards that grab headlines.
Still, the dividends can amount to a handsome annuity that can extend over decades.
Just ask GE's Sherin.
In September 2003, for example, Sherin received 125,000 shares of restricted stock. A quarter of that award, or 31,250 shares, won't vest until Sherin turns 65 on November 15, 2023, according to U.S. regulatory filings.
That means Sherin is set to receive dividends for a total of about 20 years on stock he doesn't actually own. Since the initial award, he has received about $270,000 in dividend equivalents on those 31,250 shares of unvested stock, according to GE disclosures.
(Reporting by Tim McLaughlin; Editing by Richard Valdmanis and Jan Paschal)