(Reuters) - General Electric Co (GE.N) will keep its focus on boosting its dividend and improving margins as it faces what Chief Executive Jeff Immelt expects to be an extended period of economic instability.
“We live in what most business commentators call a volatile world. I would argue that when the environment is continuously unstable, it is no longer volatile. Rather, we have entered a new economic era,” the head of the largest U.S. conglomerate said in his annual letter to shareholders. “It could remain this way for a long time.”
Over the past year shocks including Europe’s debt crisis and Japan’s nuclear disaster, as well as the uneven U.S. economic recovery, have hit both investor confidence and GE’s operations.
In the face of that uncertainty, the world’s largest maker of jet engines and electric turbines aims to cut its costs and to reverse a trend of outsourcing manufacturing operations in order to run its factories more efficiently.
Immelt received total compensation worth $21.6 million in 2011, which included an increase in the value of his pension. But the company held his combined salary and bonus steady at $7.3 million, according to a filing with U.S. Securities and Exchange Commission.
Immelt’s total compensation was worth 0.7 percent more than the 2010 level, though the increase was entirely due a rise in the value of his pension. Without that his total compensation would have declined.
The company’s compensation committee said in the filing that Immelt “performed well in 2011,” beating his targets on measures including GE’s overall revenue, GE Capital profit and per-share earnings but falling short the goal for the profitability of GE’s industrial arms.
The CEOs of some of GE’s peer companies saw their compensation rise last year. United Technologies Corp’s (UTX.N) Louis Chenevert’s total compensation rose 25.3 percent to $26.7 million, also boosted by an increase in the value of his pension. Honeywell International Inc’s (HON.N) David Cote’s reported compensation nearly doubled to $37.8 million — an increase that reflects a $19 million award from a long-term performance plan that was granted in 2011 and will be paid in 2012 and 2013.
GE plans to continue raising its quarterly dividend, which currently stands at 17 cents per share, and expects to have about $30 billion in available cash to put toward that goal, as well as to provide a cushion against economic shocks, over the next few years, said Immelt, who has run the Fairfield, Connecticut-based company since 2001.
“We have a dedicated focus on increasing the GE dividend in line with future earnings,” said Immelt. He reiterated GE’s focus on smallish takeovers, defined as targets worth $1 billion to $3 billion.
“Don’t look for any big deals in 2012,” the 56-year-old CEO said.
The company has one of the highest dividend yields, 3.57 percent, in the blue-chip Dow Jones industrial average .DJI, above its industrial peers United Tech and Caterpillar Inc (CAT.N).
The rise of middle classes in China, India and other emerging markets will not only present new markets for GE to sell its goods, but also change the way it makes them, said Immelt, who last year became a top adviser to President Barack Obama on jobs and the economy.
“In the last generation, GE and our industrial peers began a long-term trend to outsource our supply chain to other companies,” Immelt said. “This made sense in an era when labor was expensive and material was cheap. Today, our material costs are more important. So we have to control our supply chain to achieve long-term productivity.”
As an example, Immelt pointed to GE’s recent move to return appliance manufacturing from China and Mexico to a company-owned factory in Louisville, Kentucky. Employees there are working to cut the time it takes to build a refrigerator to three hours, compared with nine at some outside suppliers, Immelt said.
The company’s shares have lagged the broad U.S. stock market over Immelt’s tenure, and on Friday closed up 1 cent at $19.04 — less than half their $40.50 level before Immelt took on the CEO role. The shares’ long torpor has been investors’ main criticism of Immelt’s term as CEO.
Immelt noted that macroeconomic unrest as well as worries about the company’s large financial services arm, has left investors wary.
“Despite our growth, it was tough for GE to break away from investor concerns,” said Immelt, whose company reported 16 percent profit growth last year.
Reporting By Scott Malone; Editing by Gerald E. McCormick, Phil Berlowitz and Carol Bishopric