GM Management Takes Pay Cut

Reuters reports that General Motors' CEO, CFO, and product chief have all taken significant pay cuts as GM prepares to negotiate with the United Auto Workers Union. The CEO Rick Wagoner is taking a 25% cut to his base pay rate that means his actual pay will be reduced by over $600,000. Of course, most of his compensation already comes in the form of stock options and outright stock awards.

If this gesture is at all successful at securing the wage concessions that Wagoner will seek in his negotiations with the UAW, his personal payoff looks assured. He suggests that getting "positive operating cash flow is a top priority" - what an understatement. GM has lost $12 billion in the past two years even as it has cut 34,000 workers. That GM has just lost its crown as the world's number one automaker is beside the point - the company is in a death spiral.

GM needs to negotiate massive pay cuts for its remaining workers. Now that GM has cut back on its unprofitable fleet sales, there is significantly less work being done and workers should understand that the ultimate survival of the company is at stake. Of course, if the union agrees to big pay cuts and the company is saved, the preponderance of the benefits will flow to management. Wagoner has demonstrated to presiding over one of the great industrial collapses of the age isn't going to get him fired, so he will still be around to make good on his stock options.

Workers, on the other hand, aren't exactly leaving empty-handed. While the average blue-collar worker at GM isn't rich, he isn't even close to poor either. Looking at a gold-plated pension or six-figure buyout after years of above-market wages, most workers are mourning the end of a relative free ride rather than the end of their economic lives. They haven't made out as well as management, but in a broader perspective it is remarkable that they made out so well. The average GM workers didn't arrive with significant marketable skills and didn't for the most part develop them on the job. To the extent that GM produced better outcomes for everyone associated with the company than they could have achieved anywhere else, workers owe GM a great deal.

The whole pay cut kabuki makes for fascinating brinkmanship, but GM is going to continue hemorrhaging cash until it turns out significantly better products. Toyota is hitting its stride right now, and Detroit looks set for more pain.