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General Electric: Value Play or Stay Away?

BOSTON ( TheStreet) -- General Electric (GE - Get Report), the world's largest conglomerate with products ranging from light bulbs to turbines, has been rocked by controversies and dogged by slow growth during the tenure of Chief Executive Officer Jeffrey Immelt, dividing investors on whether the company's stock is a buy or sell.

>>GE Beats Estimates, Raises Dividend

Albert Meyer, manager of the Mirzam Capital Appreciation Fund (MIRZX), recalls a client who owned GE shares in 2007. Meyer's investment strategy shuns companies that have egregious executive compensation programs, so he dug into pay plans for Immelt and other executives. What Meyer found astounded him.
Jeff Immelt, CEO of General Electric

"GE exists for the benefit of the executives and the directors," Meyer says. "The four executives I looked at received and realized total compensation of roughly $30 million a year during a time when the stock price declined and underperformed the S&P 500. Immelt totally underperformed and totally missed expectations."

Meyer made the right move for his client, as GE shares are down more than 45% since the beginning of 2007, before the financial crisis that crushed GE Capital, one of the company's many business units. While the finance unit has stabilized in recent quarters after Immelt shrunk it, GE's reputation has been tarnished in other ways.

In March, the earthquake and subsequent tsunami in Japan brought new criticism to GE's design of nuclear reactors at the crippled Fukushima power plant. That same month, The New York Times reported that despite earning more than $14 billion in profit last year, GE received a tax benefit and didn't owe taxes for 2010. That's as unemployment was stuck at nearly 10% after 8 million Americans lost their jobs in the recession.

And earlier this week, GE disclosed in a regulatory filing that it would more closely tie options granted to Immelt last year to performance metrics. This came after GE shareholders "expressed the view that additional performance conditions should be applied to Mr. Immelt's 2010 stock option award," according to the filing with the Securities and Exchange Commission. One of the conditions Immelt agreed to would see 50% of the 2 million granted stock options vest only if GE's total returns meet or exceed that of the S&P 500 over the same period.

"The whole option thing is so crooked. It's so absurd," Meyer contends. "They should have performance linked to United Technologies (UTX - Get Report), Berkshire Hathaway (BRK-A) or another big conglomerate. The S&P 500 is mediocrity. Being above average is easy. A guy who takes that kind of money with such performance tells me he has bought into this whole culture."

GE spokesperson Anne Eisele disagreed with the characterization that the company's compensation plans were egregious.
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