Big-Three Bonuses Will Cause a Big Flap

February 14th, 2011

GM contract signing

You all remember the auto company bailouts, right? So does the United Auto Workers union, whose 120,000 workers made concessions amounting to some $7,000 to $30,000 per worker (since year 2005) to keep those companies afloat.

Well, a new labor agreement is coming up this fall, and to celebrate the rebirth of their companies, the Big Three are giving huge bonuses to their salaried workers. GM’s 26,000 white-collar people will get 15-20 percent of their annual salary, and the top 260 will get up to 50 percent.

The 10,755 suits at Chrysler will get an average $10,000, “with a small group getting as much as half of their salary,” according to Bloomberg. Ford is looking to pay bonuses of 10 percent of base pay “to some salaried staff.”

Big Three manager

Big Three manager approves bonus

Hourly workers who build the cars on which the Big Three’s renewed profits depend are projected to get a $3,000 bonus at GM (5 percent on average), $5,000 at Ford (8.3 percent), and $750 at Chrysler (1.3 percent).

There are several issues here that are going to play out. Ford did not take public bailout money, but GM and Chrysler did, and neither company looks good in this bonus business.

First, the union will be very “cheesed off,” says one labor economist, because of the unfair split in compensation and the sacrifices workers have made for their parent companies. They will surely increase their contract demands, knowing there is more money in the pot. Are we entering another accelerating cycle of labor and management rewarding themselves with cost increases the market can’t bear?

Republican Senator Charles Grassley (Iowa) groused on Friday that “Since the taxpayers helped these companies out of bankruptcy, the taxpayers should be repaid before bonuses go out.” Many people are going to agree with that sentiment.

Neither Chrysler nor GM is out of the woods yet financially, and GM in particular has yet to prove itself in the U.S. market. Chrysler’s long-term position is even shakier. The only argument I’ve seen in favor of the bonuses is that you have to pay your top managers well to keep them from jumping ship.

But that’s an old canard, especially when the ship is still leaking.

Are the auto companies shooting themselves in the foot by giving out big bonuses to their salaried staff?

—jgoods

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