Executive Compensation and Corporate Strategy at General Dynamics
Harvard Business School Working Paper Series 94-064
Posted: 20 Dec 1998
Date Written: April 1994
In 1991, defense contractor General Dynamics (GD) adopted an objective of creating shareholder value through downsizing, restructuring, and exit. Facilitating GD's strategy were a new management team and compensation plans that tied executive pay to shareholder wealth creation. The plans became highly controversial as GD's executives reaped rewards amid announcements of layoffs and plant closings. By December 1993, shareholders had realized gains approaching $5 billion, representing a three-year return of 440%. The lessons from the study are applicable not only in firms in the defense industry, but also in firms in a growing number of declining industries saddled with excess capacity.
JEL Classification: G32, J31, J33
Suggested Citation: Suggested Citation