More Complicated Than it Looks

I noted another story on the Detroit Free Press website wailing and gnashing about the CEO of General Motors asking for permission to offer larger compensation packages – mainly bonus and raise increases – to the management personnel at GM at the same time that he announced that hourly personnel will not be getting raises this year. Granted that this is the Free Press, and they’ve been running a bit left of center for as long as I’ve been paying attention to them; also granted that there’s a huge backlash against over-paid executives on any company that has ever received bailout money going on right now, and this is an easy way to gain readership and sell newspapers (both real and electronic). My first thought upon actually reading the story was that it’s really too bad that people will only look at the headline and not read this story – because the issue they’re describing isn’t nearly as simple as it looks…

First of all, it’s important to realize that until GM pays back its bailout money the CEO can’t increase the bonuses or raises being paid to anybody; the executives or the managers or the janitorial staff. Whether the executives at GM are really worth hanging onto, given that they managed to run what used to be the largest industrial firm in the world into bankruptcy, is debatable; however, the CEO believes that they’re actually better than anybody he could get to replace them, and it’s possible that he’s right. But right or wrong, without the approval of acting special master for executive compensation Pat Geoghegan, GM can’t act on the CEO’s wishes. The public statement that he would like to increase those incentive programs just gives the CEO an alibi for whatever happens as a result; if his executives do flee the company for higher wages elsewhere and this does turn out to have a negative effect on performance, he can point to this statement as proof that the resulting fiasco isn’t his fault…

In fact, if you bother to actually read the article, you’ll find a statement from a Treasury department spokesman to the effect that such requests are routine under the bailout program, and this one is not considered to be anything special. As for the hourly employees not getting an increase in base salary, this sounds very disturbing until you realize that all of the workers in question are unionized under the UAW, and their base salaries, raises and bonuses are collectively bargained for and established years in advance. If the UAW doesn’t feel its people are receiving appropriate salaries it can demand higher ones when its contract with GM expires next summer, or go out on strike to demand more, but there was never any realistic chance of any CEO randomly offering (or even requesting permission to offer) higher hourly wages just on a whim. The fact that the hourly personnel will not receive pay raises unless the union successfully negotiates one is a total non-story, and its inclusion here is entirely inflammatory…

So while this story sounds like a case of a greedy CEO planning to offer huge amounts of money to wealthy senior executives at the expense of hard-working blue-collar folks (whose labor actually makes the company possible), the truth is that this is just a case of one well-heeled hired gun covering his backside in the event of trouble, and none of it really means anything. It’s actually much more significant that the same article claims GM is well positioned relative to the global competition and may be able to become profitable again in a relatively short time. This would enable the company to pay back its Federal bail-out money, negotiate a mutually advantageous contract with the union, attract new stockholders, improve its credit rating, and go back to offering its executives the obscenely large bonuses they’ve come to expect…

It’s an outcome that would be good for the economy, the employees, the stockholders, and ultimately everyone who makes money by making, selling or financing cars. But I have to admit, it won’t do a thing for the Free Press or anybody else who makes a living selling newspapers…