What do you do if you're an automaker that's teetering on the brink of disaster, that's so hard up it's offering its entire workforce bribes to quit, that's selling off everything but the gold-plated toilets in the executive suite just to keep afloat? Well, if you're Ford, you give everyone a bonus! The Detroit Free Press reports that FoMoCo is preparing to give bonuses to all its execs, salaried workers and the people who really do the work. Officially Ford says "no final decisions have been made," but they're just waiting on approval from the Board of Directors to make it so. The justification for giving bonuses even though they finished last year deep in the red? Ford "only" lost $2.7b in 2007 compared to the previous year's $12.6b hit. In other words, they sucked, but not as bad as they did before. There's no word on whether the bonuses will come before or after the workforce buyouts.
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This is insane, just insanity. I read in the Detroit newspaper on line this morning that each line worker may get a $500.00 bonus, for what I ask? Why don’t they pay down some debt with that money? Let me guess the excuse will be they need to give the excutives bonuses to stay at Ford. What is wrong with these people?
I’d be more than happy to lose money for Ford without a bonus.
John
“each line worker may get a $500.00 bonus, for what I ask?”
I’m glad you asked! See, if each line worker gets $500 then the top brass can each get several million. The top brass likes that idea.
Sunnyvale,Ca: I am afraid you may be correct. Therefore they deserve to go bankrupt.
Is it any wonder FoMoCo is near disaster???? When the company big shits and board of directors make this kind of dunderheaded decision it’s no wonder they are near disaster. Wonder what FoMoCo will do when they run out of things to sell??? They have already sold everything that isn’t nailed down. Maybe the mansions of the family will be next to go to the highest bidder???? And what will they do when the banks won’t extend their line of credit when the loan money dries up??? They won’t have anything left to mortage. Here’s an idea to save money: cut the pay of the company big shits and board of directors !!!!!!! Their pay seems to be far more than they are worth and for proof just look at FoMoCo’s finacial status. The Ford ship is sinking and sinking FAST so man the life boats NOW !!!!!!! Women and children first !!!
I think most FoMoCo’s finacial troubles are a direct result of THE FORD FAMILY calling most if NOT all the shots and doing a piss poor job of it at that !!!!!!!!!
Clearly we have a bunch of terrible businessmen here. Ford needs its workers to be motivated and committed. How do you do this? Bonuses. The total bonus pool might be, what, a few hundred million. That will keep the execs from jumping ship and getting more money elsewhere, it will keep effective managers in place in the corporate structure, and it will keep the line turning out better quality vehicles. Just keeping things going smoothly might mean saving a couple billion over the next two years.
The only bad thing about the bonus to line workers is that it isn’t meted out based on performance because the UAW doesn’t work that way. However, every salaried employee from paper pushers to Mulally will get something tailored to performance. Some will get nothing, I’m sure.
Fact is, you have to pay people like Mulally or Farley millions because they can take their business elsewhere and get paid more. And it’s not about giving a pittance to everyone so a few can get millions – it’s about giving everyone bonuses proportional to their contribution to the business and not leaving anyone out. Mulally deserves more than Joe in Avon Lake. It’s just the way it works at every company. I’m sure if the UAW had performance reviews, line bonuses could be thousands of dollars for some and 0 for others, and that might actually be more equitable.
This kind of thing goes on in any business. Quit acting so shocked. Pay down debt with extra cash instead of taking the tax credit for it? Are you crazy? There probably are people left and right wanting to jump ship.
As an employer you’ve also got to worry about employee retention. A nearly $10b improvement in the bottom line is pretty good. Yes, they do need to be in the black but, they aren’t going to do it if everyone is jumping ship. It would make sense to do it after the workforce buyouts. (Those are the ones you want out of the picture)Save all of your outrage for the next review on one of Ford’s “inferior” products.
RobertSD: “Clearly we have some terrible businessmen here”
I think not. How about this concept: When the company is making profits and not losing market share and has a debt load it can reasonably handle, then bonuses. You ment the executives and union workers are not compensated enough now? Then why did they take the jobs? Isn’t Ford trying to pay people to LEAVE? Ford has hocked essentially everything to stay in business, therefore they will hand out bonuses with borrowed money. Does that like smart people?
Meanwhile their stock just hit $6.40 a share and oil a hundred bucks a barrel.
Of course I do believe you are joking.
timoted: Ford is trying to get nearly everyone to leave, then why give them bonuses? If the excellent pay and benefits they have now is not enough to motivate them, then they should be gone. This definitely does not go on in any business. Under your theory, a $500.00 check will keep the line workers motivated, yeah right. Those are the people and excutives who have made the inferior products and caused the massive losses.
Yes, you pay down your debt, what a novel concept.
Not that I’m a K-car fan, but we need more Lee Iaooccas in this business.
Ford’s behavior is shameful.
Paying off debt is downright un-American these days, from the Federal gov on down. What doesn’t add up to me is the simultaneous bonus/buyout position. Wouldn’t the buyout offers negate any retention benefits of the bonus package?
It’s just ridiculous to be giving senior management bonuses along with the rest of the staff – they’re well paid already, and they shouldn’t be compensated on the basis of one year of performance.
The other issue is opportunity cost. Let’s say the bonus pool is about $50M (probably a low guess). What does $50M get you? A new engine design? A mid-cycle interior or exterior refresh? Something else? Ford’s product offerings are not so strong that they should divert money away from design and engineering.
Handing out cash while the ship is sinking, smart bunch. I’m not sure what businesses you guys that defended this practice are in but all the businesses I have known or worked for didn’t give bonuses and raises when there wasn’t money to be given out. It’s called keeping the company out of debt and in the black or if your in the red charging towards the black not digging yourself deeper into the red. PeakVT is right this money is much needed in other areas of the company, product development, marketing, new powertrains, etc. They don’t need to be bribing the help while they are going broke, it’s not like they are starving. And if they wont stay without a fat bonus then they don’t need those greedy bastards who are probably the ones who helped get them into the situation they are in now.
I don’t think Farley came because he might get a bonus. The best theory I’ve read is that he might have a crack at CEO. Don’t know where Fields fits in on this. Mulally has already had his bonus. And where are all these super stars going if they quit Ford?
My view of Mulally is that there’s probably a good reason for this though.
As for whom to blame for all this over the years, it certainly has to be with the Ford bunch, in particular WCF I.
hltguy:
Corporations borrow by issuing bonds. Bonds can be replaced with new ones when they come due or expire. (it is a continuous cycle) This type of borrowing actually helps stimulate the economy by creating credit. If all large corporations like Ford, Chrysler and Chevrolet were to pay off all of their debts at once our economy would be in a worse state of affairs than it is now. I believe this concept has been taught and practiced for years with fairly good results when executed properly.
You’d be surprised how many people in today’s ecomonmy would appreciate an extra $500 especially if its part of the labor force you want to save.
It is really amazing how much people do not understand the dynamics of labor inside a company. Ford is trying to buy people out, so why hand out bonuses to retain? Well, it’s far more complex than that.
First, there are the salaried, non-union workers, none of which are currently eligible for buyouts. Bonuses retain them. Retention keeps Ford running smoothly at the operations level and helps save potentially billions over the next couple years.
Second, there are the unions, the ones who are eligible for buyouts. If you don’t offer bonuses while the rest of non-union labor gets it, they lose motivation, but they won’t quit of their own accord because they have no better paying job to go to. Not offering bonuses won’t get rid of them. Buyouts will, but you have to have both so you keep the remaining ones motivated to do a good job. Otherwise, you just have dead weight that you can’t fire because they aren’t doing terrible things, but you can’t keep motivated unless you give incentives along with the rest of the company. If you give nothing, it will likely cost you more in the long run than if you do.
The opportunity cost of forgoing debt payments the size of the bonus pool might be NPV of $150 million. The opportunity cost of investing the bonuses in new programs might be NPV $150 million. Let’s call it an even $500 million in “cost,” but that is a pretty high guess. Disruptions or poor performance in the workforce would likely cost Ford far more in the long run – likely a couple billion in NPV reflecting in program delays, operational inefficiencies and COQ in vehicle production. As a businessman, I’d take the bonus payout any day.
RobertSD:
As a businessman, I’d take the bonus payout any day.
Your logic is that of the bureaucrat, not a businessman. It’s probably a pretty good description of Ford’s thinking, though, but that’s the problem.
I tend to agree with RobertSD — to a point. Many companies base their bonuses on a combination of individual and company performance metrics. Given Ford’s dismal financial state, the company performance metrics ought to be set to the minimum (which might be zero), but if you deny your employees individual performance bonuses, your retention at the rank-and-file levels starts to become grim.
It’s entirely possible for individual salaried employees to really do an outstanding job even as the company itself is under-performing. If they don’t have P&L responsibility, the employee’s control over the company’s overall bottom line is pretty limited. If you’ve got somebody who’s busting their ass to get things done in a bad situation and you don’t recognize their performance, it sends two messages: (1) don’t bother doing an outstanding job, because there’s no reward for it and (2) the company is a sinking ship, and it’s time to flee.
I have no idea how Ford structures its bonus metrics, but the people with P&L responsibility really ought to have their bonuses far more tied to company performance, and when the company is in shitty shape, their bonuses should suffer. But there’s a big difference between not handing out cushy rewards to the fools in upper management who are actually supposed to be responsible for the bottom line and slapping the rank-and-file people.
Exactly which people are they trying to retain here? If they were to give out very targeted retention bonuses that may have some logic. Better yet, they should give out very targeted stock options. At the low, low price of Ford stock, the incentive to stay and triple it should be really motivating. The folks who need cash to stay aren’t worth keeping.