Pay climbs for auto execs
Executives at the top U.S.-based auto companies received compensation
packages worth an average of $4.2 million in 2006, a year in which
two-thirds of their companies failed to post profits, according to a
Free Press analysis.
Rules for reporting executive compensation changed for this year's
filings, but a comparison of similar categories showed that total
compensation for these executives rose 22% from 2005 when the average
compensation was $3.5 million.
Ford Motor Co. chief executive Alan Mulally ranked first in the analysis
with a total compensation package of $39.1 million, which included an
$18.5-million bonus for leaving the Boeing Co. to take the top job at
the Dearborn-based automaker. Ford executives accounted for six of the
top 15 spots in the rankings, which looked at 80 executives for 14
publicly traded companies.
The compensation packages were awarded during a year when the domestic
auto industry experienced widespread layoffs and plant closures.
Financially strained companies and industries often have to pay more to
attract talented executives to what could be a risky, high-pressure
career move, experts say.
The pay raises, though, come as Ford, General Motors Corp. and the
Chrysler Group prepare for contract talks with the UAW. Many outside
analysts have predicted the companies, which are all losing money in
North America, will ask for wage and benefit concessions from UAW members.
Even before the talks have formally started, executive pay has created a
rift with workers, said Gerald Fischer, a 67-year-old Garden City
resident who retired from Ford last year as part of the company's
"It frustrates every average working man," Fischer said. "Every time we
see it we get upset. ... They're still being compensated and we're still
being asked to give back."
Ford said it provided the compensation packages because they were
critical to recruit and retain key executives. Like at most companies,
Ford's board of directors determined executive pay based on an analysis
of executive pay at other global, manufacturing firms, according to its
"We pay competitive wages to attract and keep the best and brightest
talent available," said Ford spokesman Tom Hoyt.
But the UAW says executive pay in the auto industry should be
scrutinized, especially following agreements by Ford and GM union
members to shoulder more of their health care costs to help the
companies save money. More than 70,000 hourly workers also agreed to
buyouts or early retirement packages.
"UAW members have made significant sacrifices to help auto industry
employers get back on track and remain competitive," UAW President Ron
Gettelfinger told the Free Press in a statement. "During a period of
plant closings, employment reductions, and other painful changes for
workers and communities, it's fair to ask whether executives are truly
adding value in proportion to any compensation increases they have
Gettelfinger made $208,000 in salary, benefits and expenses in 2005,
according to the most recent publicly available IRS filing for the UAW.
His compensation would have ranked at or near the bottom of the
corporate executive list in either year.
The Free Press analysis looked at reports filed by General Motors and
Ford as well as 12 suppliers with publicly traded stock. It included
salary, bonus, incentives, the fair market value of stock and options
granted in the year and other compensation, such as use of corporate
aircraft and company vehicles. The value of stock and option grants is
not guaranteed and could be higher or lower when the executive cashes
Executive pay in the auto industry was in line with pay at other public
companies, according to data compiled by Equilar Inc., a
California-based firm that specializes in executive compensation
analysis. Looking at just the CEOs, usually the highest-paid executives,
Equilar found a median CEO compensation for the auto industry of $7.1
million in 2006, compared to a median CEO pay of $8.5 million for public
companies in the Standard & Poor's 500 index.
The Free Press analysis looked at CEOs as well as other executives, such
as chief financial officers and vice presidents, who are listed in the
Johnson Controls Inc. chief executive John Barth ranked second overall
behind Mulally with a total compensation of $30.8 million in 2006. James
Padilla, who retired last year as Ford president and chief operating
officer, was third at $15.5 million.
The top five also included Johnson Controls executive vice president
Stephen Roell at $14.5 million and Eaton Corp. chief executive Alexander
Cutler at $12.1 million.
Milwaukee-based Johnson Controls and Cleveland-based Eaton, which both
have operating units outside of the automotive industry, posted
double-digit gains in profits and revenues in 2006.
Ford lost a company record $12.6 billion in 2006, compared to a
$1.4-billion profit in 2005. Every returning executive listed in Ford's
filing, except for Bill Ford, received more in total compensation in
2006 than in 2005.
Compensation experts caution against blanket statements about executive
pay and its relation to profits. Companies can lose money and still be
justified in pay increases if they hit targets moving the companies
toward financial stability, they say.
"If you're in a tough world and you didn't go bankrupt, maybe that's a
good thing," said Mark Watson, managing director of corporate governance
for New York-based Moody's Investors Service. "You look at the airline
industry and the auto industry. They must be struggling to keep talent.
They're under an enormous amount of stress and strain."
In particular, Mulally is a special case because he was lured away from
another company, said Peter Morici, a University of Maryland business
professor who follows the auto industry. But few U.S. auto executives
have shown that they deserve their pay packages, he said.
GM chief executive Rick Wagoner received $9.6 million in total
compensation in 2006, a 75% pay raise from 2005. GM lost $2 billion in
2006, compared to a $10.4 billion loss in 2005.
DaimlerChrysler AG chairman Dieter Zetsche received $10.3 million and
Chrysler Group CEO Tom LaSorda $5.2 million, counting phantom shares
granted by the company.
DaimlerChrysler was not included in the Free Press analysis because it
was not required by German reporting rules to provide comparable data on
2005 compensation. The overall company made $5 billion last year but the
Chrysler Group lost $680 million, after restatements for new accounting
rules."The reality is there is no accountability on CEO pay in the
automobile industry," Morici said. "These companies are going down the
drain and the boards are silent. ... In terms of the CEOs, they really
These compensation packages will make it more difficult for the
companies to win concessions from the UAW when contract talks start in
July, Morici said.
"The senior executives don't want to come down hard on the autoworkers
because if they did, they would have to come down hard on themselves,"
In the past year, executive compensation in the auto industry depended
heavily on stock and option awards, which experts point to as a positive
trend. Stock and option awards were, by far, the biggest component,
providing an average of $2.2 million, or about half of overall compensation.
Ford's Mulally received the most in stock and options with grants valued
at $19.6 million. Also in stock and option grants, Johnson Controls'
Barth was provided $17 million, Ford's Padilla $14 million and GM's
Wagoner $7.5 million.
A heavy weighting toward stock and options can be a good way to
compensate executives, said Charles Elson, chairman of the University of
Delaware's Weinberg Center for Corporate Governance. In order to make
money on those investments, the company's stock needs to do well, which
would also benefit shareholders.
"It aligns their interests with the company's interests," Elson said.
Whether it's stock and options or base salary, though, the increases to
this year's compensation packages are bad, said Fischer, the recent Ford
"We don't begrudge them their money because of their education and
background," Fischer said. "Don't get me wrong. But why do we have to
give up a buck an hour and they get a $2-million raise?"