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January 26, 2007
Daniel Howes
Daniel Howes: One bonus plan for all employees is bold move
F ord Motor Co. and UAW leaders, in a revolutionary bid to put real money behind the "we're-on-the-same-team" slogan, are in discussions to create a single incentive plan to cover all U.S. Ford employees, according to three ranking sources close to the situation.
Likely to be presented to Ford's directors in March, the plan would pay each hourly worker "somewhere between $500 and $1,000" in advance of this summer's national contract talks and set common performance targets for all of Ford's 115,600 U.S. employees -- salaried and union.
If ratified, the plan would create an unprecedented model of mutual interest between the UAW and Detroit's automakers. It would mollify critics outraged that Ford is mulling whether to pay bonuses to salaried employees for hitting predetermined targets. And it would closely bind all employees to the company's competitiveness, striking a blow to the malignant us-vs.-them culture of Detroit.
It would be, in a word, brilliant.
How can talk of bonuses be justified when Ford on Thursday posted a $12.7 billion loss -- the largest in its 103-year history? The same way CEO Alan Mulally theoretically justified paying bonuses to salaried employees for 2006:
They helped achieve massive restructuring targets on cost-cutting, quality and customer satisfaction, the precursors to delivering profits and expanding market share. Without the hard work of all Ford folks, from Glass House offices and engineering cubicles to the factory floor, the Blue Oval is toast.
It's all about "inclusion," Mulally told The Detroit News, referring to his notion of team-building. "It's about everybody knowing the business realities, everybody knowing what our plan is to deal with it. The most important thing to our employees is that we're compensating them competitively -- our executives, our management, all of our employees."
And, it should be added, compensating them fairly. That Ford would be considering bonuses for salaried employees when union members approved health care concessions for retirees, saving Ford close to $1 billion annually; or when most of its locals approved "competitive operating agreements"; or when 38,000 hourly workers accepted buyouts -- all of them saving Ford big dough -- strikes many as unfair.
Treating all the same
"Our current agreement does not give" union members "a penny," one source familiar with the talks told me, because the United Auto Workers' profit-sharing plan pays out only when Ford books profits from its U.S. operations. "It feeds divisiveness. You take away all that stuff. You have one Ford team working for the same objective. If you're in the money, you all benefit."
The logic behind the plan, similar to ones used at Boeing and Xerox, is that union and salaried employees would benefit if the company achieves incremental improvements of 15 percent or more annually on predetermined targets. Those include cost, cash flow, quality and customer satisfaction, as well as profitability and market share.
Ford and UAW officials declined comment.
If agreed to by both sides in a memorandum of understanding, pending ratification in this year's contract, the deal likely would pressure General Motors Corp. and the Chrysler Group to follow suit. Currently, Ford has five separate incentive/bonus plans, Chrysler has four and GM has three.
"If they eliminated the bonus pool and said we're using the same bonus formula for everybody, that would be a sea change in Detroit," said Sean McAlinden, chief economist at the Center for Automotive Research. "It's a big fairness issue. Let's recognize productivity change, flexibility -- the whole shot -- not just profits."
Ford's 'better idea'
It would be hard to overstate how revolutionary a change like this would be. Union and salaried folks would share incentives to achieve the same goals and would be rewarded for hitting or exceeding them -- a reflection of Mulally's intent that everyone be on the same page.
In Ford's often petty culture, salaried employees might grumble that union members are being rewarded for their innovative engineering, design or purchasing decisions. There might be concerns among the rank and file that jettisoning the traditional union profit-sharing plan for a single unified incentive plan might shortchange them.
But how? By its own admission, Ford will not be profitable in the United States until 2009, meaning UAW members are likely to go half a decade or more without seeing any profit sharing.
Under the plan being discussed by Ford and the UAW, members would see a modest payout this year for last year's progress and likely additional payouts in the next few years -- money they would never see under their profit-sharing plan.
"You're not going to be getting the same payout," one source said, "but you'll be working towards the same metrics."
Yes, the CEO would reap a bigger reward than a 10-year veteran of the assembly line. But they'd both be reaping a reward according to the same criteria.
'Equal sacrifice, equal gain'
If nothing else, Ford's year-end earnings and the outlook for this year and next, detailed Thursday, show how difficult the automaker's road back is likely to be. The brutal truth is, there are no guarantees Mulally & Co. will succeed.
They have too much plant capacity and too many people. Too much of their business model rests on slow-selling SUVs and pickups and not enough on fuel-efficient cars, crossovers and gas-electric hybrids. And brands like Jaguar Cars continue to consume cash and deliver losses.
But Mulally has told associates he regards a unified incentive plan as a potential game-changer, a rallying point that "makes so much sense" and could help Ford emerge from its funk sooner.
Pursuing the deal in advance of this summer's bargaining with the UAW gives UAW President Ron Gettelfinger and Vice President Bob King some help in selling an agreement likely to offer slim pay raises, if any, and changes to health-care benefits.
"Perceived fairness costs a great deal of votes on any contract," McAlinden said. "Equal sacrifice is something that's printed above every work station at Ford. You've got to give the equal sacrifice -- or equal gain."
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