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Flip Flop Position Paper #2:
Addressing the Delphi Mess
By Robert E. Martin
For the investors of Delphi, recently they were able to view the contortions performed by compensation consultants trying to justify the monster executive pay packages proposed for the beleaguered company.
While asking for sacrifices from workers,
retirees, creditors and former shareholders, Delphi's lawyers,
Skadden, Arps, Slate, Meagher & Flom and its compensation
consultant, Watson Wyatt outlined 'incentive plans' for the
company's top 500 Executives recently.
The Watson Wyatt plan - 35 pages in
all - was filed with the bankruptcy court overseeing the Delphi case in
New York. Accompanying the plan was a brief from Delphi's lawyers
arguing that the company's managers must be "appropriately incentivized
to maximize the financial performance" of the company.
Delphi, which has 185,000 employees,
argues that its woes are a result of high union wages, a fiercely
competitive industry and rising commodity prices. The company plans to
turn itself around, according to its lawyers, by improving its
manufacturing and "eliminating noncompetitive legacy liabilities and
burdensome restrictions under current labor agreements."
Put in plain English, that means dumping its pension liabilities on American taxpayers and cutting its workers' wages and retirees' health and life insurance.
As Gretchen Morgenson recently wrote
in The New York Times, "Workers at Delphi earn good money - $26
to $30 an hour in many cases. And the company is bizarrely forced to pay
4,000 current workers who no longer have jobs. But when a company
jettisons a pension that is under funded by $11 billion,
according to the Pension Benefit "Guaranty Corporation" and proposes
cuts of up to two-thirds in workers' pay and deep reductions in retiree
benefits, you would think that its executives might want to share the
pain. You would, however, be mostly wrong."
While Delphi's Chief Executive, Robert
S. Miller, has accepted annual compensation of $1 starting Jan. 1st,
and many high ranking officials have agreed to take a 10-20% cut in
salary, the mountain of money that will remain on the Delphi executives'
table if the plan goes through makes those give-ups look meager.
Interestingly, nowhere in the plan
filings does Delphi concede that mismanagement in the executive suite
had anything to do with its problems. Never mind that Delphi accounting
practices are under investigation by the Securities and Exchange
Commission or that the company has recorded losses of $6.3 billion in
the last seven quarters.
And pay no attention to the fact that the
company itself has turned up accounting irregularities from 2000 to 2003
relating to its dealings with suppliers like EDS. One effect of the
irregularities was to enhance Delphi's earnings.
All of these facts are irrelevant to the
matter at hand: taking care of those at the top. And how the money
stacks up. The salaries first: even accounting for the pay cuts, the top
four executives at Delphi, not counting Mr. Miller, would receive a
total of $3.1 million a year.
The incentive bonus program, to be divided
among an unspecified number of Delphi executives, has an estimated cost
of $21.5 million for the first six months. That amount equals the
entire compensation paid for all of last year to "Toyota's" 33 top
executives, a group that oversees a highly profitable company in the
automotive business.
An additional $88 million in cash
would go to Delphi's top 500 employees when it emerged from bankruptcy
proceedings or if the company's assets were sold. The top four
executives - again, excluding Mr. Miller - would receive a total of
$8.9 million of this, or 10.1 percent.
Add to this a severance program under which
21 officers would receive 18 months of salary and target bonuses,
89 senior managers would get a year of pay and target bonuses and
373 executives would receive a year's salary. If all of the
executives were terminated and took their severance, the cost to Delphi
would be $145.5 million, the filing estimated. If 30 percent
left, the cost would be $30.5 million.
The Problem & Solution
Does anybody remember Ross Perot? While Republicans & Democrats were getting behind the idea of NAFTA, In the 10 years since its passage, millions of American jobs have been lost, threatening entire industries that were once bedrocks of this country.
Nearly three million manufacturing jobs
have been lost since 2001 and in 2004 the U.S. had a record $162
billion deficit on goods trade with China.
When you look at 'flip-flops', eliminating
tariffs and allowing companies to exploit foreign labor has destroyed
entire American industries while resulting in the highest American trade
deficit ever.
Obviously, NAFTA has not done what
supporters claimed it would; therefore, perhaps leaders, politicians,
and corporate executives should look at re-thinking the very notion of
the operation.
Perhaps rather than developing SUV's,
Hummers, and expensive modes of transportation at a time when rising
fuel costs leave everybody burning a hole in their collective
pocketbook, the funds proposed for these executives should go into
encouraging technologies that would make Delphi and General
Motors cutting edge companies for the future?
Fuel cells and hybrid vehicles are
certainly one significant direction, but what about the whole notion of
Mass Transportation? Michigan, like many communities, once had a
thriving passenger rail system moving from town to town. With the
advent of the automobile and cheap gas, mass transit dwindled and died a
very slow death.
Now is the time to rethink it. If
monorails and mass transit systems could be constructed for congested
cities facing similar economic problems throughout the United States,
imagine the 'fresh markets' and revenue streams it would open right here
at home! It might sound absurd, but is certainly no more far-fetched
than the Executive Compensation Package currently being advanced.
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