Monday, April 28, 2008

GM lays off Janesville workers, raises CEO pay

A day after General Motors (GM) announced it was giving Chief Executive Officer Rick Wagoner's a 41% raise to $14.4 million, the company announced that it will layoff 3,400 employees, including 750 at its assembly plant in Janesville.

Last year GM lost a record $38.7 billion.

Its decision to almost double Wagoner's pay demonstrates again that CEO pay has no relationship to corporate performance!

Newspaper reports suggested in classic Orwellian language that Wagoner had earned his increased millions because he "persuaded 34, 000 union workers to leave and negotiated a contract that trims pay for future workers in half."

Saying GM persuaded long time employees to leave GM is like saying a bank robber persuaded a teller to hand over the cash.

Louis Uchitelle whose seminal work on layoffs and their social costs, "The Disposable Americans," writes: "...layoffs must clearly be seen as a crisis...between 3.3 and 5.9 percent of all full time workers at least twenty years of age were permanently laid off every two years between 1981 and 2001...Hidden layoffs-disguised as retirements, buyouts, temp work and contract work-increase that already significant percentage."

Dr. Kim Cameron, an organizational psychologist at the University of Michigan who attempts to help corporate managers carry out layoffs benignly, has written that no matter how sophisticated the techniques, there is no balm: layoffs are destructive psychologically for the individuals who lose their jobs and undermine long-run corporate performance.

The prevailing wisdom among mainstream economists is that America's "flexible labor markets" give it a competitive advantage over Europe and Japan with their greater emphasis on job security. The Milwaukee Journal's conservative columnist and corporate apologist, Patrick McIlheran, recently parroted this view which ignores the importance of social capital-the trust, communications, value and productivity generated by people working together and valuing each others' contributions.

There is growing evidence that while layoffs might boost short term profits and stock prices, they actually undermine long term corporate performance. As Dr. Cameron argues:" Corporate downsizing remains the most pervasive yet unsuccessful organizational improvement strategy in the 1990 business world."

For more than a decade Wisconsin's manufacturing companies have had difficulty expanding beacuse of a shortage of skilled workers. One reason potential workers have shunned manufacturing employment, despite its high pay, is that they fear the frequency and financial instability of layoffs.

GM, whose market share has declined for decades, has repeatedly restructured because it had too much manufacturing capacity. It has closed plants and eliminated jobs as foreign owned manufacturers built non-union plants (transplants) throughout the U.S. and produced more innovative, higher quality vehicles. Can anybody say Prius?

Just three years ago, in 2005 GM announced plans to close or reduce operations at 12 North American plants and lay off 30,000 employees, 25% of its North American workforce.

The United Auto Workers whose membership and leverage has declined as the Big Three eliminated jobs and spun off suppliers was successful in bargaining an unprecedented severance package for its laid-off GM members. The packages were the result of hard nosed collective bargaining by the UAW, not CEO persuasion.

Wagoner has presided over record losses, declining market share and the destruction of thousands of family supporting jobs. To reward him with a 41% increase while he lays off even more employees is nothing less than obscene.

5 comments:

John P said...

Mike:

I am so sick of the greed by some of these CEO's, and upper management at some of these companies. As I have said before I am a conservative, but this issue has nothing to do with that. I believe that if management is asking workers to take a pay cut, then they should also, maybe even a bit more. The CEO of GM should be ashamed of himself. How can you increase your pay, while you have people being laid off. I am no socialist, but this is not right. Mr. Waggnor, should take the lead, maybe even for symbolic purposes and take a large decrease in pay. I own a GMC truck, and I will be in the market for a new one soon and I will think twice before GM again. One of the reasons I bought it was because it was made at the Janesville plant.

Jack Lohman said...

John, I can’t believe you are saying that, but I agree 100% with you. The problem is the failure of congress to pass adequate shareholder protection regulations, which if present, would require shareholders to approve CEO salaries and mandate that only shareholders can nominate board members. And the must block the incestuous relationship between CEOs and buddy board members. However, we’re now getting into leftwing territory.

John P said...

Jack:

I do not know why you cannot believe what I am saying? People have the misconception that being conservative means that you care about the rich more, that is not true. I really do not care about the rich, I stand for low taxes, limited government, and personal freedom and responsibility. Regarding CEO's pay, they should be paid what the market will bear, however, if the company that they are in charge of is not performing, and are laying off people, there is no way that the CEO deserves a raise or a bonus. That is just in sane. CEO's I believe should be paid a generous base salary ($1 million or so a year) and have a highly incentive based performance based bonus system. Not just based on profits, but on many different factors.

If I was an owner of a company or a CEO and I asked good loyal employees to take a pay cut or to forgo raises, then I for sure would not take one.

I truly believe that the problem with todays large companies is that in America we are investor driven. Companies are under constant pressure to increase their stock price to please investors. My gosh, we are all told that we should be earning at least a 8-10% return on our investments per year. This is what we expect. Rich people are not the only investor, 401(k) owners are investors too.

I am luke warm to your shareholder approval of CEO pay, I think that this is micromanaging, I also think it would backfire in the long run. Most shareholders are not educated enough and would be motivated by jealousy. However, all CEO pay and perks need to be disclosed better and there has to be more independence between the board of directors and the CEO.

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