Memo to Ford, GM and Chrysler: Follow Cisco CEO’s Lead
During the dot-com implosion, Cisco Systems CEO John Chambers took an unusual step that set the tone for appropriate, responsible executive leadership during bad economic times. Now, the executive leadership at Ford, General Motors and Chrysler should follow the example Chambers set back in 2002. Here’s why.
Amid the dot-com fallout, Chambers received a $1 salary in 2002. That’s right: One dollar. Chambers also declined his bonus and gave back 2 million in stock options that year, according to CNet.
Alas, auto industry executives haven’t set a similar example.
GM CEO Compensation
According to The Wall Street Journal:
“GM CEO Rick Wagoner got “a 33% raise for 2008 and equity compensation of at least $1.68 million for his performance in 2007, a year for which the auto maker reported a loss of $38.7 billion. The salary increase puts Mr. Wagoner’s salary for this year at $2.2 million, compared with $1.65 million in 2007.”
Moreover:
Mr. Wagoner was awarded 75,000 restricted stock units valued at $1.68 million, based on GM’s closing stock price in March. He was also given stock options representing 500,000 shares.
GM told the Journal that Wagoner’s total compensation is down sharply from $8.3 million in 2006.
The VAR Guy’s take: Yada, yada, yada. Why is this guy still running GM when the company is on the brink of collapse?
Ford CEO Compensation
According to the Journal, Ford CEO Alan Mulally received $2 million in base salary, a $4 million bonus and more than $11 million of stock and options in 2007. His base salary was unchanged over 2006. Mr. Mulally has earned nearly $50 million in compensation since taking the helm of the auto maker, according to The Wall Street Journal.
The VAR Guy’s Take: Sounds like Mulally runs Ford about as well as Ford runs the Detroit Lions. Pathetic. Somebody sack this guy.
Chrysler CEO Compensation
Less is known about Robert Nardelli’s CEO package at Chrysler LLC because the auto maker is privately held. The VAR Guy’s Take: Somebody dial Lee Iacocca. Fast.
The Bottom Line
The VAR Guy doesn’t know much about the auto industry, but the situation is pathetic. According to the Associated Press:
“The leaders of the Big Three automakers have painted a grim picture of their financial position. They burned through nearly $18 billion in cash reserves during the last quarter — about $7 billion at GM, almost $8 billion at Ford and $3 billion at Chrysler. GM and Chrysler have said they could collapse in weeks.”
If Chambers was running one of those companies, he would have declined his paycheck months ago.
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American CEOs are vastly overpaid. As an HR executive and compensation expert for over 30 years I can tell you that corporate executive pay is way out of line with reason compared to the salaries of other employees and to the salaries of European and Asian corporate executives. For comparison, Toyota’s CEO makes only $1 million a year in salary, and he runs his company a lot better than the CEOs of the Big 3 American auto companies. The problem? CEO and other top executive salaries are set the the commpensation committees of the Boards of Directors, which are dominated by an “old boys (and gals) club” of CEOs and CFOs from other companies. It’s corporate incest because they each serve on other boards which set those corporations executive salaries and stock options. It’s a “you scratch my back and I’ll scratch yours” world. They all belong to the same country clubs, ritzy health clubs, multi-million neigoborhoods or Manhatten apartments, go to dinner in the same over-priced restaurants, and vacation on each other’s yachts and play on the same golf courses. Most of them graduated from the same Ivy League or expensive private universities and many were classmates. It’s inbreeding and corruption of the worst sort. They are not only rewarded for pathetic performance via exorbitant salaries, but they are motivated to make huge profits on stock and stock options in the short term by driving up the stock price (often by laying off workers) which usually work in the long term to undermine the company success. It’s time that legal limits were set on corporate salaries that are geated to long term growth and profitability, and salaries are a function of a reasonable multiple of average employee salaries. And golden parachutes worth millions should be prohbited altogether.
Bob: The VAR Guy agrees with the vast majority of your points. You’ve got to wonder if the mess in Detroit and on Wall Street will force real change to the way companies are run.
I agree wholeheartly with Mr. williams. These same observations were made in the Harvard Review circa 1980’s and not much has change. But then: How many sports and entertainment personalities do you know of whose yearly salaries dwarfs those in the corporate world.And these are the salaries that we as spectators are paying them.
As the game says, ” LET THEM BURN “,
Or can we let the striking workers know the addresses of the CEO’s and turn a blind eye to the reprisals.
A little Range justice WILL work. Hot Tar and Feathers.
My next vehicle will be a Toyota or Nissan. I’m sick of the factory recalls, design flaws and lackluster performance.
Matt: The VAR Guy has multiple views on this one…
1. Management: They’ve got to go. Goodbye. They blew it.
2. Workers: The unions have got to get real. Swallow the bitter pill now and work with management ASAP. Trying to maintain legacy cost structures for the unions ain’t gonna work this time.
Imagine if the CEOs of Dell, Apple and HP all went to DC asking for money because they failed to compete and innovate vs. foreign competitors? In the hyper-competitive high-tech world, you live or die by cannibalizing your own products.
Detroit has been happy to see their market share decline — non-stop — for decades. Everyone is going to pay a price, in some way, for Detroit’s failures.
But remember: People expected IBM to break up in the early 1990s amid massive losses, and a new CEO (Gerstner) from outside the industry bucked conventional wisdom and found a new path (IBM Global Services) to revive the company. Apple almost went bankrupt, and returning CEO Steve Jobs bucked conventional wisdom by signing a financial deal with MSFT. It allowed Apple’s Ramp;D team to stall for time, while ensuring MSFT supported Apple products.
The VAR Guy isn’t suggesting IT is the same as Detroit. But moving forward, Detroit has to act more like the IT industry: Cannibalize your own products. And disrupt the competition. And yes, outsource if you can find lower-cost talent elsewhere. Hate to write that last point. But it’s a global economy, folks.
Something has to be done about how much these ceo.s make and how they get bonuses. It is totally insane that a company can be failing but the top executives still make their money.
What is wrong with this. It seems like the only thing they know how to do is cut the workers jobs. If you add up all the money ceo’s have made in the last 5 years and have them give back at least half of what they made I’m sure there would be plenty of money to go around. I would work for a $1.00 because they already have millions in their pockets. I think all of these guys should be willing to invest there the money that they having been getting when others have to lose their jobs.
Kim: The VAR Guy has shifted positions ever-so-slightly since writing this blog entry. On the one hand, executives DO waive their contracts in Silicon Valley when times are difficult. But on the other, they really DO have control to make key staff decisions. Detroit CEOs often have their hands tied by unions, etc., and can’t move quickly, etc., without labor’s support.
The problem is there are no real “owners” running Detroit’s auto makers. Do you think Bill Gates, Larry Ellison, Steve Jobs, etc., would accept seeing their companies lose market share from the 1970s all the way to the present? Absolutely not.
Much like the energy crisis, Detroit’s problems were caused by decades of mismanagement. Zero percent financing in good economic times with low energy costs largely hid those problems.
The VAR Guy wishes the media would spend MORE time discussing the pros/cons of Detroit companies filing for bankruptcy. What’s the downside? What’s the potential upside? Why isn’t that an option being discussed far more vocally?
The CEOs of these and many other companies do not have pride in real survival and real growth in the companies they represent; they do not take responsibility and act more like “employees.” CEOs of companies like Apple, Google, Microsoft, etc., treat their companies like their own children and have pride in their growth; it is sort of like building your own boxcar, as appose to borrowing one.
How about a reformed system where the pay of the CEOs is based upon the SUCCESS of their company in terms of profit? Then, if the management is poor, the company doesn’t do well, then neither does the CEO. Performanced based salaries… wow! What a concept!
Aside from that, LET THEM FAIL. Someone will come along and restructure the company and take over. They will already know the path to failure. In fact, the only real downside to this is that there’s a good chance, the group that comes in and scoops up whats left of these companies might just be Honda or Toyota. Oh! What A Feeling!
Nothing has changed or has it.
I was educated as an Engineer in the 60’s born into a white collar (but clerk level) GM family. Wrote my MBA master thesis in 1975 entitled “Human Resource Management in a Recessionary Economy”. It was about taking outside contractors engaged on a large Ford Transmission Plant expansion back into the 11 or so internal trades respresented in the UAW.
Through a Professional Engineerng career and for the last 15 years as a Technical/Management consultant in the Call Center
Industry as a family partner in a company started by Lyn, my wife, 5 years earlier.
So I do not plan on retiring, the Michael DeBagies of the world are my kind of hero and the “it’s all about me, short term Wall Street results and non-tranparancy and greed that was unfortunately begun in the 60’s” are on my black list.
Staying current in this fast moving and no so progressive world has put me into a position of history and current involved at viewing may companies at Executive an Middle Managent level.
Agree with Bob “The CEOs of these Auto)and many other companies do not have pride in real survival and real growth in the companies they represent; they do not take responsibility and act more like “employees.”
THESE ARE LEGACY COMPANIES, RUN BY LEGACY PEOPLE, PROMOTING LEGACY PEOPLE amp; LEGACY PROCESSES AND PAYING THEMSELVES WITH OUT REAL PERFORMANCE CRITERIA.
I WAS BORN TO DISPISE THE JAPANESE AUTO COMPANIES(HOW OLD IS THAT THINKING?
Today I know the difference. The US Auto people are financial in background – they do not relate to customer and less to the employee -that is why Unions were needed then an now for the US companies. But it does not have to be that way.
The robberys of Wall Street have always been that and we know it but now they have taken it to another level. And they have help from Bush and Paulson big time.
Play back the 2003 tax break give thsoe with AGI’s greater than $1Million, $93,000 in breaks and the middle income folks $215. Only with a Republican Congress.
And that is the way the US Auto firms are run. I owned Cadillacs for years and new got a break on the next one. Even owned two Diesel Cadillacs-bad CRM and back short term product decisions.
Employees are too many doing meanial jobs without a feeling of ownerhip- no wonder the guys in the cornor office go ahead with that lack of customer and lack of employee feeling and lack of product feeling.
Like lawyer and accounts, if the marketing, sales, engineering, manufacturing and service people don’t do their jobs then there is not need of the lawyer or accounts.
What does a typlical US Auto company CEO and Board (another time on this) bring to the party?
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