March 21 (Bloomberg) -- U.S. automakers may seek to start providing as much as 15 percent of union workers’ compensation in performance bonuses and lump-sum payments, emulating how their Japanese counterparts and salaried employees are paid.
General Motors Co., Ford Motor Co. and Chrysler Group LLC may try to avoid granting annual raises to their 107,000 hourly employees as they negotiate new contracts with the United Auto Workers this year, said Sean McAlinden, chief economist for the Center for Automotive Research. Instead, the companies may offer bonuses totaling as much as $10,000 a year that would partially depend on meeting productivity and quality goals.
UAW President Bob King, who convenes the union’s bargaining convention in Detroit tomorrow, has said he is open to new forms of profit sharing. If workers agree to put more of their pay at risk, it could mark the biggest shift in compensation practices since former UAW President Walter Reuther won wage guarantees for laid-off autoworkers in the 1950s.
“Bob is on the cusp of setting a revolutionary new design for compensation in the auto industry,” said McAlinden, a former autoworker who is based in Ann Arbor, Michigan. “It fits with Bob’s goal of sharing in the success of the companies.”
The issue of variable pay may be discussed at the quadrennial bargaining convention, where more than 1,200 UAW officials will set strategy for this year’s contract talks. The UAW’s four-year agreements with GM, Ford and Chrysler expire in September. King didn’t respond to a request for comment.
King has said workers must be rewarded for the $7,000 to $30,000 in concessions they each made since 2005 to help the automakers survive. Workers gave up raises, bonuses and cost-of-living adjustments, and the UAW agreed to a two-tier wage system in which new hires earn about $14 an hour, half the amount paid to senior production workers.
UAW Vice President Jimmy Settles, who leads bargaining with Ford, said the union hopes to recover all it surrendered.
“We always look for everything -- plus,” he said March 17 at an event at a Ford factory in Wayne, Michigan. “We’re going to negotiate smart. We’re not going to cut our nose off and spite our faces.”
Neither King nor Settles condemned the $56.5 million stock award Ford granted Chief Executive Officer Alan Mulally this month for reviving the Dearborn, Michigan-based automaker, which earned $9.28 billion in the last two years after $30.1 billion in losses from 2006 through 2008.
“I’m going to look at it on the upside and say I know they compensated them very well at the top, so I feel that they’re going to compensate us at the bottom very well,” Settles said.
Ford this month paid its 40,600 hourly workers profit-sharing checks averaging $5,000, the most since 2000. GM, which earned $6.17 billion last year after reorganizing in bankruptcy in 2009, has said it will give record profit-sharing checks averaging $4,300 to its 45,000 hourly workers. Chrysler, which also reorganized in 2009 and lost $652 million last year, is paying its union workers an average bonus of $750.
“With these profit-sharing checks, it’s the hope of all three automakers that they are making a down payment on a more incentive-based pay system,” said Harley Shaiken, a labor professor at the University of California-Berkeley. “There’s nothing like that check to show that it can be done.”
Autoworkers may receive another check of as much as $5,000 in the second half of the year as a “signing bonus” to ratify a new contract with more performance-based pay, McAlinden said. The contracts may call for two such payments a year, one that is guaranteed and the other dependent upon profitability and workers achieving productivity and quality goals, he said.
Japanese autoworkers receive as much as 40 percent of their compensation in bonuses tied to performance, McAlinden said. Salaried workers at GM, Ford and Chrysler receive 10 percent to 15 percent of their pay in bonuses, he said.
“Our compensation, part of it, is variable, and really it’s paying against performance,” said Mark Fields, Ford’s president of the Americas, who received stock awards worth $4.66 million this month under Ford’s long-term incentive plan. “It all comes down to a discussion around what does it mean to be competitive? When you can be competitive in every element of your business, the business succeeds, and everybody should share in that.”
Jodi Tinson, a Chrysler spokeswoman, and Kim Carpenter, a GM spokeswoman, declined to comment.
It may be difficult to convince autoworkers who sacrificed raises to continue to forgo annual improvements to base pay in favor of bonuses, said Gary Chaison, a professor of industrial relations at Clark University in Worcester, Massachusetts.
“Western workers don’t like to have a significant part of their compensation depend upon something unpredictable,” Chaison said. “Workers want to know what they’re making in order to plan, and that requires predictability, while variable pay implies flexibility.”
King will be under pressure from workers to return to the old formula of annual raises, Chaison said. The UAW leader also will be pressed by the companies to keep labor rates competitive with Asian and European automakers.
“He’s got to walk a fine line,” Chaison said.
After enduring plant closings and job cuts for the last decade, workers are seeking stability and guarantees of new work coming into factories, the UAW’s Settles said.
“Our membership wants longevity,” Settles said. “We want long-term security, and we’re going to be trying to move toward that.”
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