Auto bonuses come after lean years, but labor wants fat, too
Last week General Motors and Ford announced handsome rewards for their executives' 1983 performance. Roger Smith, chairman of GM, picked up $1.49 million in salary, bonus, and stock. Philip Caldwell, Ford's chairman, was awarded a total of $1.42 million.Skip to next paragraph
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The numbers sound dizzyingly high and may give ammunition to the auto workers in their coming contract renegotiations.
Expect more such sensations as announcements about executive compensation start rolling in from other industries. ''Bonuses are expected to be exceptionally large,'' says Daniel Glasner, a senior consultant at the Hay Group , a consulting firm which also specializes in compensation management. He expects that executives in the financial companies will have made out a bit better than those in the industrial sector.
Last year's bonuses will seem unusually large because bonus awards in 1982 were so skimpy, ''the lowest in at least 10 years,'' Mr. Glasner says. Many executives did without bonuses last year, sustaining salary cuts or freezes. (In many cases, though, the pain was eased when executives exercised stock options, ripe for returns in a bull market.)
Comprehensive compensation data for 1983 won't be available until early summer. But from what Sibson & Co. has observed so far, ''we think bonuses will be about 30 percent above what they were last year,'' says Donald Gough, managing principal of this consulting firm. The increases, however, won't represent any major historical leaps. ''They will be normal for a recovery.''
That's the way Mr. Gough also refers to the announcements coming out of Detroit. ''The (compensation) levels are really not out of line with historical levels'' in the auto industry, he explains. The auto companies have traditionally rewarded big in good times and cut back severely in bad.
Breaking it down, Mr. Smith at GM was awarded $625,000 in salary, $433,000 as a bonus, and $432,490 worth of stock. (The bonus, however, is paid over a period of three years.) Mr. Caldwell was essentially awarded $520,534 in salary and $ 900,000 in bonus.
''The initial impression is that we didn't use restraint'' in the awards, says GM spokesman William Winters. But the feeling at GM is that every bit is well deserved. ''It has been three years since the results of the company were good enough to merit bonuses for the executives - and two of those years were profitable,'' Mr. Winters explains. A total of $181.7 million was distributed among almost 6,000 high-ranking executives at GM for their performance last year.
Winters also points out that in figuring the bonus amount, the board of directors used a 1977 formula, not the current one, making the bonus pool lower than it otherwise would have been. GM was abiding by a letter it had sent to union management, promising not to use the latest formula during the current contract. Mr. Winters adds that if you look at Mr. Smith's total compensation, adjust it for inflation, and compare it with chief-executive compensation levels of the past 42 years, it is far from the highest.
The problem with the GM and Ford compensation packages is not the amount, compensation consultants say, but the message they convey. ''It was not a good union or public relations move,'' says Clifford Mittman, a vice-president of Towers Perrin Forster & Crosby, another consulting firm that deals with compensation issues.
Both auto companies face labor negotiations in September, and management would like nothing better than to keep a lid on wage increases. The bonuses, however, says Peter Laarman, a United Automobile Workers spokesman, send the message to the rank and file that the industry is healthy enough to restore labor givebacks. It also gives the false impression that Detroit doesn't really need Japanese import restrictions anymore, according to Mr. Laarman.
''Union leadership takes the view that the industry is not fundamentally healthy at this time and that we need to make more (progress), not necessarily through wage cuts, but through productivity improvement.
''But the union rank and file are going to say, 'Look, if Caldwell and Smith can dip so deeply and line their pockets, then why can't we get back everything and more?' I think union leadership is obligated to reflect the rank and file and I think we will (in September).''
Executive compensation will fan the flames of labor's demands this fall, but the real fuel is record profits, says labor economist Audrey Freeman. ''It's very hard, when such high profits are being reported, for union leadership to put the case (of competitiveness) to the members,'' she says. The bonuses will simply make it harder.