GM Proposes End to Cash Bonuses, Offers Stock Plan

In a surprise move, General Motors moved Thursday to eliminate its executive bonus plan, which has been a repeated source of friction between labor and management at the giant auto maker.

Instead of its controversial cash bonus plan, which has been in place at GM since 1918, the company said it will ask shareholders to approve a modified stock option plan, to more closely tie executive compensation to the health of the world’s largest industrial corporation.

The action by GM’s board of directors comes one year after Ford broke with auto industry tradition by reducing the controversial cash bonuses it paid to its executives and provided for new stock bonuses tied to the long-term performance of the company.

GM Chairman Roger B. Smith said Thursday that the stock plan will “more closely relate incentive compensation with the enhancement of stockholder value” than did the cash bonus system. GM’s shareholders will vote on the proposed change at the company’s annual meeting May 22 in Detroit.

Still, GM’s bonuses in 1986 drew stiff criticism from the United Auto Workers after they were revealed in the company’s proxy statement Thursday.

Smith, who has been blamed by many industry analysts in recent months for GM’s mounting woes, received a total of $1,088,000 in compensation in 1986. That includes a bonus of $338,000 on top of a base salary of $750,000.

While Smith’s pay was down 8.6% from his 1985 total of $1.19 million--including $725,000 in salary and a bonus of $465,000--the UAW still complained that it was too much.

The union, which opens crucial nationwide contract talks with GM and Ford this summer, has been especially angered over GM’s paying executive bonuses during a year when production workers will receive nothing from the company’s profit-sharing program because of the sharp decline in GM’s earnings in 1986.

The world’s largest auto maker reported net income of $2.9 billion in 1986, down 32.9% from 1985.

“Workers who are witnessing massive plant closings, receiving no profit-sharing payouts and feeling tremendous pressures for cost savings at the shop-floor level are justifiably outraged that those most responsible for GM’s problems refuse to make significant sacrifices during this difficult period,” UAW President Owen Bieber and Vice President Donald Ephlin, director of the union’s GM department, said in a joint statement.

Meanwhile, industry analysts said that, by tying executive pay more closely to the company’s stock, and thus to corporate performance, the new GM compensation plan was a step in the right direction.

But UAW leaders, already preparing for this summer’s labor negotiations at GM, said the new plan will still give executives too much money in a year when the company is expected to take a hard line on the union’s demands for higher wages and improved job security.

“While the substitution of stock units for bonuses may relate future payouts for executives more to long-term trends, it does not go far enough,” Bieber and Ephlin complained.

“We regret to say we see more of the same--namely too much focus on keeping up with the corporate Joneses, and not enough attention to a realistic assessment of what any single individual’s contributions could possibly be worth.”