GM will restore the full salaries of management workers who were forced to take pay cuts last spring. Of course, because GM losses money and is relying on $50 billion in US loans to continue operating, the American taxpayer is covering the raises.
The salary cuts had ranged between 3% and 10%. As of September 1, the pay packages of several thousand staff members will be restored. It is estimated that the lower compensation was saving GM $50 million a year.
The action is a miscalculation. The Congressional Oversight Committee has already said that taxpayers are unlikely to get all of their investment in GM back. The fact that the largest car company in the US is not maintaining its belt tightening is a sign that the firm’s new board does not take the restructuring of the firm seriously.
One of the arguments that GM has made in restoring the pay is that it wants to keep compensation competitive with the other US auto firms. That is a spurious claim because the number of skilled auto executives who are out of work numbers in the thousands. The talent pool of former car management people is deep and these people are likely to work for what were once below market salaries.
The restructuring of GM started out with positive steps including the installation of a new board with significant management experience. The process has gone wrong quickly as GM is offering a sixty day program under which customers can turn in cars before they own them 60 days.
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