CEO Larry Culp's Overhaul Of GE Will Make Him A Billionaire

Forbes

When Larry Culp stepped into the CEO role at General Electric in 2018, he was the first outsider to lead the iconic company. Founded by Thomas Edison in 1892, GE had morphed over more than a century into a sprawling conglomerate that was struggling under $135 billion in debt.  One of Culp’s predecessors had made a costly acquisition bet, investors had fled, and the company’s market cap had shrunk to $70 billion, down more than half a trillion dollars from August 2000, when it was the most valuable company in the world. Culp turned GE’s board down twice before accepting the CEO job, but ultimately extracted a multimillion-share incentive package linked to GE’s share price. At the time, CNBC’s Jim Cramer said it was “the best performance-oriented contract I’ve ever seen.”  Spoiler alert: It paid off.  Read the full story on Forbes: https://www.forbes.com/sites/sarahwhitmire/2024/03/31/general-electric-ceo-larry-culp-to-join-small-club-of-billionaire-executives/?sh=7902b57d449b  Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1  Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:  https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript  Stay Connected Forbes newsletters: https://newsletters.editorial.forbes.com Forbes on Facebook: http://fb.com/forbes Forbes Video on Twitter: http://www.twitter.com/forbes Forbes Video on Instagram: http://instagram.com/forbes More From Forbes:  http://forbes.com  Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.

Transcript

00:00 Here's your Forbes Daily Briefing for Monday, April 1st.

00:05 Today on Forbes, CEO Larry Culp's overhaul of GE will make him a billionaire.

00:13 Larry Culp has burnished his reputation as an industrial mastermind with his restructuring

00:17 of General Electric.

00:19 On Tuesday, GE's CEO will take the final step in a six-year process to break up the once-sprawling

00:25 conglomerate, splitting off the power business from its crown jewel aircraft engine division.

00:31 Wall Street is giving Culp a standing ovation, and he's getting rewarded handsomely.

00:37 After a 260% run-up in GE's stock price since the beginning of 2023, Culp has met the performance

00:43 goals to get the maximum payout from a rich long-term incentive package, 1.74 million

00:49 shares that are worth roughly $300 million at current prices.

00:54 Under the terms of the package, Culp could retire and walk away with the money this August.

00:59 But he's sticking around to run GE's aerospace business, the world's number one maker of

01:04 aircraft engines, as a standalone company, which will delay the date the shares vest

01:08 till August 2025.

01:11 Combined with the rest of his compensation from GE and the fortune he made previously

01:16 as CEO of the smaller industrial conglomerate, Danaher, the massive stock award will make

01:22 Culp a billionaire, Forbes estimates.

01:25 He'll join a small club of 15 U.S. chief executives who have amassed 10-figure fortunes.

01:32 Culp faced knotty challenges when he parachuted into GE as the first outsider to lead it.

01:37 The iconic company founded by Thomas Edison was foundering under $135 billion in debt

01:43 following the blow-up of the company's financial arm, GE Capital.

01:48 Former CEO Jeff Immelt's costly bet on bulking up in power by buying Alstom's turbine business

01:54 had failed, and investors had fled, with the company's market cap shrinking to $70 billion,

02:00 down more than half a trillion dollars from August 2000, when it was the most valuable

02:05 company in the world.

02:08 David Collis, a professor at Harvard Business School who's written case studies of GE and

02:12 Danaher, and has had Culp as a guest speaker in his classes, said, quote, "There's not

02:17 many people that have gone into a company, and particularly a company with a reputational

02:21 legacy like GE, with that list of things to deal with."

02:27 General Electric and Culp declined to comment on his compensation and net worth.

02:32 Culp's incentive pay outstrips most of his peers.

02:35 In 2022, the median value reported in financial filings by S&P 500 companies for their CEOs'

02:42 total compensation and unvested equity awards was $57 million, according to the data provider

02:48 Equilar.

02:49 For Culp, the comparable total reported by GE in 2022 was $175 million.

02:57 In 2023, it was $237 million.

03:02 In 2018, General Electric was in crisis when its board offered Culp the job of CEO.

03:08 It had soured on Immelt's successor, John Flannery, after only a year, reportedly frustrated

03:13 with his slow decision making.

03:15 Culp, who had joined the board the previous year, had earned a reputation as a details-focused

03:20 whiz at improving manufacturing efficiency at Danaher, which he led from 2001 to 2014.

03:27 Using a playbook inspired in part by the Jack Welch-era GE, Danaher's revenue and market

03:32 cap rose fivefold on his watch.

03:35 Culp, who turned the board down twice before accepting, extracted a multi-million share

03:40 incentive package linked to GE's share price.

03:44 At the time, CNBC's Jim Cramer said it was "the best performance-oriented contract I've

03:49 ever seen."

03:50 In the best case, if the stock rose 150% by 2022, he'd get shares worth at least $230

03:58 million.

04:00 At the low end, a 50% increase would net him shares worth roughly $45 million.

04:06 After the pandemic virtually froze air travel in 2020, and with it, demand for GE's aircraft

04:12 engines, Culp's turnaround efforts seem to have paid off.

04:16 Now a few years later, Wall Street seems happy.

04:19 Even after the steep climb in GE's share price, 14 of the 20 analysts who follow the company

04:24 rate the stock a buy, with just one recommending investors sell, according to Bloomberg.

04:30 Culp sharply reduced GE's debt, raising money by divesting units including its biopharma

04:35 and aircraft leasing businesses.

04:38 He preached a renewed focus on the customer and a philosophy of process optimization called

04:43 Lean, which is based in part on Toyota's vaunted Kaizen methods.

04:48 Culp has spent weeks at a time at GE factories, walking the floor with managers and engineers

04:53 as they sought to speed up workflows and eliminate inefficiencies.

04:58 For full coverage, check out Jeremy Bogaski's piece on Forbes.com.

05:04 This is Kieran Meadows from Forbes.

05:06 Thanks for tuning in.

05:07 [music]

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