Layoffs On The Line, Bonuses In The Executive Suite

Who says there's no peace dividend? Twenty-five top executives of General Dynamics Corp., the nation's No. 2 defense contractor, have booked $18 million in incentive bonuses in just the past six months. Not bad for a company that's even now dismissing thousands of workers in order to better position itself in what Chief Executive William A. Anders admits is "a nongrowth market."

GD's "Gain/Sharing" executive compensation plan, which became controversial last May when shareholders approved it, gives the 25 top managers bonuses equal to predetermined multiples of their salaries for every 10-point jump above the $25.56 price of GD's shares on Feb. 15. Back in May, the GD execs pocketed about $6 million, an amount equal to their salaries. Now, with GD's share price closing on Oct. 8 above $45.56 for the 10th straight day, the group will be able to look forward to an additional $12 million in bonuses. GD executives say the payments are just rewards for raising the stock price.

PLENTY OF CASH. What has sent GD's stock soaring like one of the Atlas rockets the company builds? Investors relish the fact that GD's cash position is growing rapidly. That's thanks in part to the furlough of 13% of its work force this year and slashes in other spending. Company-funded research and development outlays in the first half of 1991 fell 36% below year-earlier levels. GD President James R. Mellor says that capital spending through 1995 will be $1 billion less than planned only a year ago. "We embarked on this course because we realized the new realities of the defense business and that defense spending is going to go down," explains Mellor. "It's absolutely a part of our strategy to stay ahead of the power curve."

As a result of its cutbacks, GD expects to enjoy a cash hoard of almost $600 million by yearend, a kitty most Wall Streeters hadn't expected GD to amass for at least another year. And investors have cheered since Anders last month announced that GD's cash over the next few years will be so far beyond what the company needs that "we have decided that `excess' cash will be returned to the shareholders." Although the company hasn't decided how or when it will do that, GD is considering a buyback of stock, a boost in the regular dividend, or a fat onetime payout.

BLOODLETTING. Less sanguine are GD's 86,000 employees, who have seen their ranks thinned by 12,000 since last Christmas as Anders has rushed to shrink the company faster than the declining U. S. defense budget. And with Pentagon spending ripe for further cuts after the 1992 elections, that bloodletting likely won't be over anytime soon.

No wonder, then, that the timing of GD's executive bonuses has miffed many line workers unsure of their futures. "Why is there just Gain/Sharing for the 25--most of them relative newcomers--while people who have worked in the trenches for many years are losing their jobs?" fumes Dean L. Girardot, GD coordinator for the International Association of Machinists, which represents production workers at plants in Texas and California. Adds Graef S. Crystal, a pay expert at the University of California, Berkeley and a former GD compensation executive: "This ill-conceived plan smacks of the Marie Antoinette school of management."

Despite the lure of a near-term payout, there are still plenty of long-term worries for investors. Kemper Securities Group analyst Lawrence M. Harris predicts the company's operating earnings will run about flat for the next five years. In Congress, he notes, "defense has moved from being the sacred cow of the early 1980s to the cash cow of the early 1990s." And Prudential Securities Inc.'s Paul H. Nisbet frets that if GD goes through with plans to distribute its cash hoard, "it may have to forgo future opportunities that require heavy investment." Unlike its nervous employees, GD execs don't have to wait.

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