Big Three Exec Pay Will Be An Issue in Bailout

Posted by: David Kiley on November 18, 2008

Senate Banking Committee chairman Chris Dodd told CEOs of the Big Three automakers today during auto industry bailout hearings that their compensation will be an issue for lawmakers who will deliberate whether or not to lend them $25 billion or more in the coming weeks.

Dodd asked the CEOs, after telling them it was unlikely that there would be positive action on any loan program this week, to examine what symbolic measures they are willing to offer up to the public and to members of Congress who oppose bailing out the auto industry.

Dodd singled out the $210 million golden parachute that Chrysler CEO Bob Nardelli received when he left Home Depot before taking over as CEO of Chrysler. “I can’t tell you how many times my constituents come up to me and talk to me about this.” When they read, Dodd said, that the executives of failing companies are making these multi-million contracts and simultaneously asking for tax payer money, it infuriates them.”

Nardelli said Chrysler may fall below the cash liquidity it needs to operate by the end of the year.

Ford CEO Alan Mulally said that bonuses were cut at Ford. But Dodd singled out the CEO’s $28 million pay in 2007.

Wagoner offered to Montana Senator Jon Tester that he had taken a 50% paycut. What he left out was that his total compensation has gone up up the last three years through grants from the board over which he serves as chairman. Wagoner’s pay was $5.5 million in 2005, $10.2 million in 2006 and $15.7 million in 2007. So, quite literally, the worse GM does, the more Wagoner has earned.

Ford CEO Mulally famously earned $39.1 million in 2006 for four months work. In 2007, he earned $21.7 million.

Reader Comments

Steven Montess

November 19, 2008 12:45 AM

The three Auto Makers looking to be bailed out is absurd, and criminal. Their problems are self inflated, and well designed to cry wolf at a time the economy is at its worst. For God sakes car makers are glorified car salesmen , they deal in trickery, lies and desperate measures to con people out of their money. I can’t believe America can be so stupid, I thought it was time for change. I that we as a people said good by to stupid when we elected Oboma. From Steven Montes Business Owner for over 20 years at Montes Orthopedic.

Paul (Vw)

November 19, 2008 7:52 AM

Executive pay at this point is hardly an issue to get stuck on...if things are as bad as the Detroit 3 allege.

UrbanGirl

November 21, 2008 10:06 AM

My husband is a car salesman. He's always been honest whenever a customer asked, "Is that a good deal?" There were times he sold a car below sticker price to help a friend. Money was never an issue til now.
Currently, he works for Honda and is struggling real bad. Managers, execs, and CEOs still makes a decent check from his hard work; while we're nickle and diming through this hard time!
I sure would like to see a share of those CEOs' paycheck.

melissa

November 25, 2008 12:54 PM

The proposed bail out of the “big three” U.S. Automobile manufacturers is a shocking notion particularly since this is Chrysler’s second trip to the bail out circus. In a free market corporations are suppose to prosper when successful and they are suppose to fail under poor leadership and poor adaptability to market trends. It is this survival of the successful that drive the free market and intervention creates a moral hazard. Let’s help these companies fail, and fail properly by providing the appropriate safety net for their employees.

It appears the Auto Executives have not been paying attention to their own industry. The revenue focus in 2008 has not been on who has better revenue - but which company has fewer losses. Not a model the U.S. taxpayers should be buying into.

The economy, changes in accounting rules, negotiations with labor unions, changes in employee benefits offered, and increase in prices of commodities (energy, steel) and changing environmental based laws are greatly impacting the profitability of this industry. But the big three seem to be the only ones not to have noticed.

The U.S. auto markets are struggling to meet the demands of the new economy and the new consumer. To meet these demands they need to develop programs that: reduced carbon footprint from manufacturing, reduced fossil fuel usage by the products they sell, base product recycling (recycling of metals/plastics), toxic recovery programs for used vehicles and parts (i.e. batteries). For long term viability and sustainability these companies need to reduce their “carbon footprint” and become more environmentally friendly while staying economically viable. The U.S. manufacturers have not yet adopted programs that allow them to meet these requirements while some of their international competitors are well on their way.

The U.S. based manufacturers at a frank disadvantage compared to the international based manufacturers who can often obtain cheaper labor thereby reducing cost of goods sold. According to the Ford Motor Company 2006 Annual Report another trend affecting the industry is a 15% average excess production capacity in the US and Europe. U.S. and Europe represent the largest mature markets for automobiles. While U.S. manufacturers have been in the process of reducing capacity by reducing production, selling subsidies, and closing plants; several Asian owned manufacturers (i.e. Honda, Toyota) have increased their U.S. based production capabilities to improve market share.

Failure might be the best option to save this industry. And make no mistake the U.S. needs large scale manufacturing capabilities on U.S. soil if for no other reason than national security. But, the U.S. needs companies that are successful in today’s economy, not hanging on the threads and organizational structures of the past. Bankruptcy could afford the Big Three the ability to reorganize their corporate vision and structure and delivery models. It would also afford them an opportunity to establish more sustainable relationship with the Unions, and parts distributors giving them a chance to be viable going forward.

If our tax dollars are needed to bail out these companies---let’s fix the hole in the boat at the same time, not just bail water for 10 years. These companies need to fail but they need to do so gracefully so their employees have a soft landing---that is the better use of our tax dollars. Let’s help these companies fail.

Post a comment

 

About

Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

BW Mall - Sponsored Links

Buy a link now!