Detroit’s Big 3: A Modest Proposal
Over the weekend, Becker and Posner took their respective shots at the UAW … and unions, in general.
I believe great value can be offered by unions of freelancers — e.g., common artisans whose pay is primarily derived from diverse but finite projects rather than from single-entity employers — but I tend to share Posner’s and Becker’s doubts about the role and value of other unions; namely, those that organize workers at companies that would probably (or already do) offer competitive wages and benefits, even in a non-union environment.
In short: Like Becker and Posner, I’m not an avid supporter of the UAW and its ilk. I am, however, an avid supporter of fair play, namely: If the major U.S. automakers seek union wage concessions, they should be willing to match or beat those concessions with executive-compensation adjustments.
To illustrate:
- Posner writes, “The total wage and benefit bill [excluding retirement benefits] for the Detroit automakers is about $55 per hour, compared to $45 for workers in the foreign-owned plants.” That appears to be consistent with FactCheck.org’s apples-to-apples estimate.
Asking the UAW to agree to a reduction of the hourly wage-and-benefit rate from $55 to $45 represents a cut of approximately 18%. In turn, if Detroit automakers ask union workers for an 18% cut, they should (at the very least) pledge a comparable cut in executive compensation. Let’s call it 20% for the purposes of this exercise.
Next, consider the core compensation (salary plus non-equity incentive plan comp) for the five top GM executives listed at this source. According to that source, those five executives collectively received core compensation of approximately $10.7 million in 2007. Adjusted downward by 20%, they would be collectively paid $8.6 million instead — saving the company around $2.1 million annually, while still allowing those five execs to earn an average of $1.7 million each in 12 months.
Granted, you could argue that it’s less onerous for an executive making $2.1 million per year to take a $400,000 pay cut than it is for a factory worker earning $60,000 per year to take a $12,000 pay cut — and thus, executive cuts should be greater than 20 percent, perhaps 30 or even 40 percent. (At a 40 percent cut, the five listed execs would make an average of $1.3 million per year.)
But even at a “mere” 20 percent cut for the execs, I think the workers would be a lot more willing to bargain, and the court of public opinion a lot more forgiving than it’s inclined to be right now.
Of course, if the Big 3 execs have already offered such cuts to their own compensation, or are planning to, I commend them. If not, I suspect they’ll quickly lose the PR battle in their efforts to negotiate UAW concessions. And once again, I say that as a non-fan of the latter.
2 Responses to “Detroit’s Big 3: A Modest Proposal”
Except of course the cut in exec salaries makes only a spiritual gesture to fixing the red ink whereas a reduction in the hourly rates for 100,000 workers actually has an impact on the bottom line that allows the companies to advance. Of course, I don't know how big a percentage of GM's wages are tied up in compensation for upper management. My understanding is that those guys get most of their money from stock which is taking a larger than 20% hit.
Yeah, like Becker and Posner don't just want a return to the good old days of no unions at all and no real American middle class. But that's right. They know that all business management is honest, trustworthy, compassionate and would never take advantage of the people who work for them. When I hear these arguments I think of the phrase “It can't happen here.” and what the Bush administration has “accomplished” while in office.