The existence of a thriving middle class is what has distinguished the United States for the last sixty years. During my entire life, the middle class has been the backbone of American society, and has represented the American Dream to which most people in the world have aspired. Because of a wide base of American industry encompassing both manufacturing and knowledge work, requiring varying degrees of education from a high school diploma to trades training to college, Americans from all backgrounds have had a reasonable chance to enter or stay in the middle class.
All that is changing now, as more industry moves overseas in search of an ever-cheaper workforce, at the same time as executive pay moves further and further into the stratosphere, unrelated to performance.
Americans who took their middle-class lives are now in a constant fear about their jobs. Mr. Brilliant has seen his job outsourced to a consulting company. My own job is dependent on grant money. Instead of American workers wondering why the CEO of their employer is making 500 times the compensation of the average worker, they are instead bitter about the compensation given state workers; compensation that any organization which valued its employees would provide.
But American employers do not value their employees, and when a company is mismanaged, it's the employees that suffer. And when a major American company starts cutting wages and benefits while giving executives bonuses for running companies into the ground.
Exhibit A of American corporate mismanagement is the current mess at GM/Delphi.
Back in November, Delphi filed a restructuring plan that would give $500 million in stock options and bonuses to 600 managers -- the very same people who ran the company into the ground -- when the company emerges from bankruptcy.
Now, the company is seeking to break its union contracts, offering workers one-time $50,000 bonuses in exchange for taking a 35% pay cut in perpetuity. Would you want to take that deal? I don't think I would.
Hourly pay for Delphi workers would drop initially to $22 and then to $16.50 on Sept. 3, 2007. If GM doesn't help out, wages for long-time Delphi employees would fall to as low as $12. Healthcare benefits for retirees would be eliminated.
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Under Delphi's proposal, wages would fall to $22 on July 3 at the plants it wants to keep. Pay would drop again to the $16.50 level 14 months later. Hourly wages would remain at $22 at the plants Delphi wants to sell or close by Dec. 31, 2007. The union would negotiate with new owners on wages.
Miller, who took Delphia into bankruptcy Oct. 8, originally sought wages as low as $9.50 an hour.
''Delphi's new offer is far from a settlement, but it is a move away from the company's initial rhetoric, which did little but inflame a tough situation," said Harley Shaiken, a labor professor at the University of California at Berkeley.
The proposal would require workers to pay up to $3,000 a year per family for healthcare and eliminate a ''Jobs Bank" program that pays laid-off employees when they're not working.
Think about that: $12/hour. That's $480/week. That's just under $25K/year, before taxes. Lop off $3000 for healthcare, and you have gross pay of under $22K/year. Could YOU support your family on $22K/year, even scaling back your lifestyle significantly? Do YOU think it's fair for executives to receive bonuses when workers are being asked to take 35% pay cuts? Who makes the bad business decisions in these companies? It's not the workers, yet time and time again, it's workers who pay the price. And Delphi CEO Robert "Steve" Miller is an old hand at screwing over his employees:
Robert “Steve” Miller, Delphi's CEO, knows this drill well. He learned it at the feet of the original master, as an underling to former Chrysler CEO Lee Iacocca in the early 1980s.
Twenty years later, as CEO at the troubled Bethlehem Steel, Miller ran the game himself, at one point axing health coverage for 95,000 Bethlehem Steel retirees to help pretty the company up for sale.
At Delphi, Miller has upped the game's stakes. The executive bonus plan he wants approved amounts to the biggest and most nonsensical “Key Employee Compensation” plan ever to come before a federal judge.
What's so illogical here? Just this: Steve Miller has been traipsing around the country, ever since he became Delphi CEO last summer, demanding deep pay cuts for Delphi workers because, Miller argues, they make more than their foreign counterparts.
But Delphi's executives make far more than their foreign executive counterparts than Delphi workers make compared to theirs — and, for these executives, Miller wants not pay cuts, but over half a billion in bonuses.
American corporate executives, as a group, take home considerably more than foreign executives, and the contrasts within the global auto industry stand in particularly sharp relief.
Americans first saw just how sharp eight years ago when Chrysler merged into the German carmaker Daimler-Benz. At the time, Daimler-Benz bestrode the world auto market as a much more successful company than Chrysler, with higher sales than Chrysler, higher revenues, and higher profits.
Yet in the year before that merger, the Chrysler CEO took home six times more pay than the Daimler-Benz CEO, and the top five Chrysler executives collectively took home five times more than the top ten executives at Daimler-Benz.
Overall, according to the latest figures from the Towers Perrin research group, German executives now take home 42 percent of U.S. executive pay, Japanese executives only 20 percent.
Delphi and Steve Miller never talk about executive pay differentials like these, of course. They base their case for a half-billion-plus in executive bonuses on the same faulty assumptions that have encouraged the explosion of executive pay in the United States over the last three decades.
The two most basic of these assumptions: first, that within the modern corporation only executives create value, and, second, that executives only create this value if they get awarded enough incentives to do so.
In Delphi proposed “Key Employee Compensation” plan, the only “key” employees identified happen to be executives. Nobody else at Delphi apparently matters to the company's future.
Outside of the 500 or so executives the Delphi plan earmarks for bonuses, none of the 24,000 workers the United Auto Workers union represents at Delphi will get to share in the bonus bonanza the company has proposed, no matter how well Delphi should do.
But doesn't Delphi, as a struggling bankrupt company, also need “high performance” from its workers? And if the company does need “high performance” from all its employees, not just those who sit in executive suites, how will rewarding executives with multi-millions while penalizing workers with pay cuts encourage that needed “high performance”?
In fact, Delphi's bonus plan isn't going to encourage “high performance” from anyone, even executives. The bonuses Delphi has proposed don't give executives an incentive to help the company survive and thrive. The bonuses, instead, give executives a incentive to cut and run.
Under the Delphi bonus plan, for instance, CEO Steve Miller's top four executive deputies will receive $3.1 million in annual salary, plus another $8.9 million in what Delphi calls “emergence cash bonus” should the company's assets get sold.
That gives these executives a powerful incentive to sell the company quickly — and no incentive at all to try to drive a hard bargain.
The Delphi plan also promises company executives additional bonuses in the form of stock shares and options. Delphi's chief operating officer, Rodney O'Neal, is slated to receive $1,150,000 in basic salary. If Delphi's stock price should triple, he'll take home an additional $17.5 million.
That gives Delphi execs like O'Neal an awesome incentive to make only those moves likely to fatten the company's quarterly bottom line, the short-term number that determines how Wall Street feels about a stock.
This same stock bonus gives Delphi executives a powerful reason to avoid making the investments that could help make Delphi a viable company down the road. Why, after all, invest in employee training or research and development — investments critical to Delphi's long-term prospects — when these investments will just mean lower quarterly profits, and a lower share price, in the here and now?
For the last 20 years, the increasingly beleaguered middle class has been trained to look down the economic ladder for scapegoats. During the Reagan years, Republicans trained Americans to equate "government spending" with "welfare." Instead of looking upwards at how executives were raking in piles of cash, Americans looked down on those who were down on their luck, insisting that "those people" just didn't want to work. Later, during the 1990's, middle class white collar job Americans turned up their noses, often justifiably so, at unions.
My own experiences with unions exemplifies how often they can stand in the worker's way as much if not more than fighting for them. When I was in high school, I worked at a supermarket and was part of a union. One summer when I was working there while on vacation from college, the union went on strike. I ended up spending my summer not being paid, on a picket line, which I had to do if I wanted to ever work there again. Later on, a few years after I graduated college, I was a Newspaper Guild member at a financial publishing company. My boss wanted to promote me into a management position, which would be a non-Guild job. The union not only fought my promotion (and won), they wouldn't allow me to be promoted and replaced with a new hire that WOULD be in the union. My only choice if I wanted to advance was to move to a non-union department, which I did.
So unions as they are currently configured are not a panacea either. But that doesn't change the fact that while Americans are looking downward at the guy in front of them at the Kroger with the food stamp card, or at the illegal immigrants who seem to be everyone's obsession this week as a distraction from the revelations that George Bush knew damn well he was going to war on a lie; the executives running American corporations are robbing them blind to stuff their own pockets.
Meanwhile, here's the kind of stellar management that Delphi workers are getting from General Motors: The company is ramping up production of big SUVs just in time for the summer driving season:
GM will build as many as 12,000 more Tahoes, GMC Yukons and Cadillac Escalades than originally planned this year at plants in Arlington, Texas; Janesville, Wisconsin; and Silao, Mexico, GM spokesman Dan Flores said yesterday. Flores wouldn't say how many of the SUVs Detroit-based GM, the world's largest automaker, plans to build in 2006.
``GM is kind of betting the ranch that they can sell SUVs in an environment of $2.50-a-gallon gasoline,'' said David Healy, a Burnham Securities Inc. analyst in Sierra Vista, Arizona. He estimates the company makes a pretax profit of about $15,000 on each of the trucks.
GM had losses of $10.6 billion in 2005 as its U.S. sales declined and its share of the U.S. market fell to a record low. Chief Executive Officer Rick Wagoner sped up the introduction of the redesigned trucks in the past year, saying their success was critical to the company's future.
And just as an aside, the price of crude oil was up 3.7% just in the last week.
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