NEWS ANALYSIS : General Motors Defends Its Executive Pay Plan
General Motors insisted Wednesday, with support from an unlikely corner, that its executive pay plan is “relatively modest” and closely tracks the financial performance of the company, which lost $4.5 billion in 1991.
If so, GM Chairman Robert C. Stempel will take a big pay cut when the company discloses later this month how it rewarded its executives for 1991, the worst year in its history.
As expected, the company said it will award no bonuses or other extra pay.
Stempel’s counterparts at Ford Motor Co. and Chrysler Corp. should have similar tales of woe when their annual proxy statements are published next week. Ford lost $2.3 billion last year and Chrysler $795 million.
GM says that more than most companies, its executive pay is tied to the company’s performance. Among the top 50 executives in recent years, 40% to 60% of pay--not counting stock options--has been at risk, GM says. The company has paid no bonus in five of the past 12 years.
“We have a much greater than average upside potential than other companies, but that’s more than offset by the large downside potential,” said Paul Novas, GM’s director of executive compensation.
GM spoke up in anticipation that the seasonal disclosure of executive salaries will bring fresh public criticism of the auto industry. The company summoned reporters to a briefing Wednesday on how it pays its 3,800 top executives.
American auto companies are at the center of the current firestorm over the the pay levels of U.S. corporate executives because they are paid so much more, but are doing so much worse, than their counterparts from Japan.
But a leading executive-compensation expert and sharp critic of corporate practices, Graef S. Crystal of UC Berkeley’s Haas School of Business, said GM’s pay plan is one of the best he has seen at correlating with corporate performance.
Crystal also said Stempel, at $2.1 million for 1990, and Ford Chairman Harold O. Poling at $1.7 million were both underpaid, at least compared to other U.S. corporate executives.
By contrast, he said, Chrysler boss Lee A. Iacocca’s $4.5 million far exceeded his market value.
Crystal compared their 1990 pay packages to those of 459 other CEOs, taking into account the companies’ size and return on shareholder investment.
Whatever GM executives were paid in 1991, the company figures to undergo another round of criticism when the latest pay levels are made public, and GM is hoping to minimize the damage.
“It’s nice to make these guys the bully boys, but the fact is the auto companies, which had by far the highest-paid executives in the 1950s, have allowed their pay to drift down in percentage terms since then,” Crystal said. “They’re actually good guys.”
