In a significant break with auto industry tradition, Ford said Tuesday that it plans to reduce the controversial cash bonuses it gives annually to its top executives and instead offer stock bonuses every five years tied to the long-term performance of the company.
In its annual proxy statement released Tuesday, Ford said it will ask its shareholders at the annual meeting next month to approve a new bonus plan designed to help eliminate the kind of short-term thinking that has plagued the auto industry for decades.
“The new plan will be designed to increase the emphasis on long-term results and enhancement of stock value,” Ford Chairman Donald E. Petersen said in a statement. “Over time, we plan to decrease emphasis on short-term bonuses.”
If the plan is approved, Ford will become the first major domestic auto maker to break the tradition of basing all bonuses on the previous year’s earnings and productivity and will join a growing list of manufacturing firms offering longer-term incentives.
Today, General Motors gives bonuses both in the form of cash and stock, but the awards are based solely on the performance of the company and the individual over the last year. Chrysler, which also uses the previous year’s data to determine bonuses, gives out all of its awards in cash.
Under the new Ford plan, the company’s top 75 officials would receive the bulk of their bonus payments every five years in the form of rights to company stock.
They would receive the cash dividends from the stock annually but would not be able to sell the securities until they retired. And, if they were to leave the firm prior to retirement, they would lose their stock rights.
The executives will continue to receive some cash bonuses each year, but Ford said those bonuses will be much smaller than they have been in the past.
In boom times, bonuses in the auto industry often have exceeded the base salaries paid to executives and frequently have stirred up controversy and the ire of union members.
Not Yet in Effect
The new plan was not yet in effect for 1985, but Ford did reveal in its proxy that Petersen was given a smaller bonus for the year than former Chairman Philip Caldwell received for 1984. Petersen was given a $900,000 bonus (in addition to his salary of $537,234) last year, compared to Caldwell’s bonus of $950,000 (on top of his salary of $630,625) for 1984.
Both GM and Chrysler plan to release their proxies, with information on 1985 bonus payments and salaries, later this month.