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Finally, merit pay for auto workers?

The annual Detroit Auto Show opens to the public this weekend, and all week reporters attending the show's previews have been treating auto fans to news about the latest innovations and designs in the lineup of new cars.

But automakers aren't just planning to roll out new vehicles and features in 2011. They're also hoping to change decades of practice in the way they pay union employees. During a speech this week, General Motors CEO Daniel Akerson said he favors an "incentive-enhanced, variable pay system" for the company's union employees, The Wall Street Journal reported. Chrysler chief, Sergio Marchionne, followed up by saying, similarly, that "we need to somehow link the performance of the business to the workers."

Well, duh. It's hard to believe that in 2011 there are still major companies that don't have some kind of merit-based pay system--whether merely for annual raises, or for actual bonuses or profit sharing contributions--in place for all their employees. But it's true. While tying workers' compensation to the performance of the business has been one of the most widespread trends in management for years now, there are still places where seniority rules the day.

Of course, there's a reason for this. There are limits to how much you can really say someone assembling parts has an impact on the entire company's bottom line. Sure, such workers play an important role in quality, efficiency and speed to market, but there are so many ways their individual performance can be impeded by complex issues far beyond their control. It would be unfair to penalize them too much for mistakes made in marketing, economic forecasting or (in Detroit's case over the past few decades) just about everything else--from strategy to design and innovation to general management.

That doesn't mean something shouldn't change. Akerson and Marchionne, in conjunction with union leaders, will need to move carefully to make sure such a drastic shift--generations of auto workers have worked under the old rules--is made right. The Wall Street Journal reported that GM leaders have already been rationalizing the move by saying the bulk of their own pay is tied to performance. Such a defense will fall on deaf ears of workers who know how much executives make, and how much more their individual decisions can have an impact on the performance of the company. Rather than saying, "We're affected by it too," auto leaders should emphasize the critical role these workers' individual performance plays on the overall results of the company. And they should start small, tying a relatively minimal portion of union workers' pay to performance (or tying all of their pay to it, but in a minimal way).

The combined impact of these moves, if done right, could go a long way toward getting all company employees working for the same goal. A pay structure that only rewards seniority or job description does not do much to encourage people to work better, smarter and more efficiently on a day-to-day basis. Rather, it rewards people solely for sticking around. And as GM and Chrysler try to get out from under the government's investments, they will need their people--all of their people--to do a lot more than that.


Watch our interview with GM's Dan Akerson: Turning off American 'auto' pilot

By Jena McGregor

 |  January 14, 2011; 10:07 AM ET |  Category:  Bad leadership , CEO watch , Change management , Corporate leadership , Culture Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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MRPIKE and Timothy2ME hit the nail on the head. We in Italy know well what Marchionne is (and it is generally unprintable). Never think that he or anyone like him has the slightest idea what "merit" is for someone who works on an assembly line, or that they care what a normal person's life is like. His only thought is to make money for the shareholders, and he is doing it by reducing sick pay for people who do work that causes disabilities from repetitive movements. And why should this hard work be in any way linked to the performance of the company? Performance is based on innovation and investment and creativity in creating a product - not in how to shaft workers. And it is MANAGEMENT that is responsible for those parameters - and they are sadly lacking.

Posted by: lisamarie1 | January 19, 2011 10:47 AM

Mrpike and Tmoth2me said it excellently. And just to be clear, we in Italy know very well what Sergio Marchionne is (and most of it is unprintable). Never think that he or anyone like him has the slightest idea what "merit" is for somebody who works long hours on an asssembly line. He only cares about making money for shareholders and by doing it he is cutting down on sick pay for people who are doing work that leaves them with disabilities because of repetitive movements. And why should that hard work be linked to the company's performance?? Performance depends on innovation and investment and creative ideas from MANAGEMENT - none of which seem forthcoming. Italian workers' productivity is quite high. Fiat's troubles are certainly not due to them.

Posted by: lisamarie1 | January 19, 2011 8:44 AM

So, McGregor, you don't want to penalize auto workers "too much." Of course, a little bit is okay, though? Sure, unlike the company, the workers and their skills are replaceable. Just about everybody's doing it, so, duh, why not make it universal? Hunh.

Posted by: morphex | January 18, 2011 2:06 PM

The unions are ruining business in some parts of this country--period. While this author probably does not have "Real" experience with unions she does touch on a topic that is true. They do not deserve to be rewarded as a group. They do not all do the same jobs nor do they all work hard. I am from an area with a GM plant and have family and friends who work there.

They are always complaining about the laziness of some people, the drinking on the lines, the messing around, etc. These people are putting together cars that people put their children in. However, you can’t fire anyone because of the unions.

The other problem is that no one with a good idea or a company wants to move into an area and have to pay someone 70,000 a year to put together a part. So, you basically have a "few" people with jobs here at GM who make good money and the rest of the people are starving.

She didn't even mention the fact that these jobs are handed down for generations and they are almost impossible to get if you dad, mother or grandpa didn't work there. It's ridicules.

Posted by: youhavenoidea | January 18, 2011 1:46 PM

It is hard to believe that hard workers in any field don't "force" their union to embrace a reward system that pays performers more than non performers. This system will not be perfect, but it is much fairer than one size fits all. It's time for the top tier workers, teachers , firefighters, etc to step up!

Posted by: sarno | January 17, 2011 11:36 AM

To put this into context, large numbers of people on Wall Street have been getting merit pay for their success in trashing the American economy. The 14 Million Dollar Woman who heads TJX (parent company of Marshall's and TJ Max) has just "rewarded" the 4500 workers of one profitable division by closing it because they did not earn ENOUGH profit to satisfy her greed and selfishness. And massive numbers of "et ceteras."

Notoriously, the primary beneficiaries of improvements in the productivity of American workers have been corporate executives, with stockholders a distant second. Left far behind in the dust are consumers and non-executive employees.

Posted by: edallan | January 17, 2011 6:49 AM

Merit pay is the difference between a Madame and a Pimp. Piano Players are on salary.

Posted by: gannon_dick | January 16, 2011 10:11 PM

Considering that the unions almost destroyed Ford, GM and Chrysler with their "cradle to grave" contracts, they should be willing to do whatever it takes to keep as many jobs as possible. I think this writer is on the right track with the merit pay suggestion, and the unions might as well get used to the idea that the future of the auto industry will not be based on a "business as usual" model.

Posted by: camper3 | January 16, 2011 5:44 PM

Great. Now how about merit pay for CEOs? Or are the auto workers the ones who crashed the economy? And how about merit pay for Pravda stenographers, while we're at it?

Posted by: lambert_strether | January 16, 2011 3:09 PM

Amazing. An article that slams lower-level workers(who are supposedly not paid on "merit") and trumpets the beauty of the bonus system, without mentioning the massive failure of "merit-based" bonuses in finance?
We're going to apply the same bonus system used in finance to manufacturing? Why in the world would we ever do that? So we can destroy manufacturing quality?
We learned nothing from the catastrophic world-wide financial crash. Nothing. These same discredited ideas are recycled again and again and again, and it matters NOT if they work.
Look for a huge reduction in quality, as workers compete to churn out absolute garbage to earn a bonus. spreading the "bonus" quick-buck culture of Wall Street to manufacturing?
Why? So our manufacturing sector can implode like our finance sector did?

Posted by: kay5 | January 16, 2011 3:05 PM

Union members have been rewarded "just for sticking around" for generations.

I don't see them agreeing to link their pay to production or profits without a serious fight.

In the past, management was content to promise future benefits to aid today's profits, hoping that tomorrow would take care of itself.

Well, it's tomorrow.

Posted by: postfan1 | January 16, 2011 11:16 AM

Another "won't fly" attack on labor unions from Jena McGregor.

Posted by: terrybakee1 | January 16, 2011 8:57 AM

The GOP just hates unions no matter what they do. They prefer compliant wage slaves, and they're going to whine about anyone they can't exploit. Somehow executive salaries are never up for debate at these companies. Which basically goes to show that the arguments are being driven by a pile of greedy liars. This has nothing to do with math, and everything to do with greed and politics.

Posted by: Nymous | January 16, 2011 1:33 AM

I'm a retired salaried employee of General Motors and it is common knowledge we have had salaried merit pay and hourly "profit sharing" for decades. It started small and got smaller once the executives figured out the smaller it got the bigger bonus the executives got. The system was never credible. No matter how much the company made, there was always an excuse such as, the profits came from overseas, the profits came from the finance arm, etc...No one has a philosophical problem with sharing profits as a substantial part of your pay package. What we have a problem with is not being able to double our pay when executives double their pay and getting zero many years when the top leadership each rewarded themselves with millions.

Posted by: MrPike | January 15, 2011 7:25 PM

I'm a retired salaried employee of General Motors and it is common knowledge we have had salaried merit pay and hourly "profit sharing" for decades. It started small and got smaller once the executives figured out the smaller it got the bigger bonus the executives got. The system eas never credible. No matter how much the company made, there was always an excuse such as, the profits came from overseas, the profits came from the finance arm, etc...No one has a philosophical problem with sharing profits as a substantial part of your pay package. What we have a problem with is not being able to double our pay when executives double their pay and getting zero many years when the top leadership each rewarded themselves with millions.

Posted by: MrPike | January 15, 2011 7:23 PM

I'm a retired salaried employee of General Motors and it is common knowledge we have had salaried merit pay and hourly "profit sharing" for decades. It started small and got smaller once the executives figured out the smaller it got the bigger bonus the executives got. No one has a philosophical problem with sharing profits as a substantial part of your pay package. What we have a problem with is not being able to double our pay when executives double their pay and getting zero many years when the top leadership each rewarded themselves with millions.

Posted by: MrPike | January 15, 2011 7:19 PM

I'm a retired salaried employee of General Motors and it is common knowledge we have had salaried merit pay and hourly "profit sharing" for decades. It started small and got smaller once the executives figured out the smaller it got the bigger bonus the executives got. No one has a philosophical problem with sharing profits as a substantial part of your pay package. What we have a problem with is not being able to double our pay when executives double their pay and getting zero many years when the top leadership each rewarded themselves with millions.

Posted by: MrPike | January 15, 2011 7:18 PM

The column wasn't that long, but nonetheless, it should have included some anchors to reality, not just academic musings.

Does anyone really think the unions are going to tolerate differential pay for the same job? It's not happening.

Posted by: Curmudgeon10 | January 15, 2011 2:21 PM

All one has to do is look at the data on productivity and how profit increases due to increases in productivity were distributed to see where the problems are.

Posted by: timothy2me | January 15, 2011 10:47 AM

idiot author,,the auto workers for "decades "have given up their jobs ,,concessions of half their benefits and salaries and still are blamed for every poor management decision and product ,by the globalists that sell out their country and demand communist wage scales .Amusing that those "terrible " american cars of the past bring huge amounts of money at world wide collector car auctions.

Posted by: schmidt1 | January 15, 2011 9:24 AM

This is an absolutely atrocious column on "merit" pay, although McGregor softens its very rough edges by acknowledging that merit pay plans should "start small." The implicit understanding, then, is that they will get bigger.

Jena McGregor's assumption is that merit pay plans inherently cause workers to "work better, smarter and more efficiently on a day-to-day basis." But that is simply not the case, and it eviscerates the point she tries to make with the goofy "well, duh." comment that suggests all companies should, indeed, use merit pay (because it works).

McGregor would do well to tell readers the truth about merit pay plans. A good place to start is here, with Stanford business professor Jeffrey Pfeffer's March, 2007 testimony to Congress:
http://www.evidence-basedmanagement.com/research_practice/commentary/pfeffer_congressional_testimony_08mar2007.html

Or perhaps McGregor might discuss with readers the Theory X and Theory Y managements ideas of Douglas MacGregor. Or perhaps share with her readers the real-world practical application of those ideas. Here's a sample:
http://www.cbsnews.com/stories/2003/04/18/60minutes/main550102.shtml

Most merit pay plans are of the top-down, do-as-I-say philosophy. They don't work.

Worse, the last several years have documented well how perverted and damaging "merit" pay plans are, from plans that rewarded sales of toxic, collateralized securities to those that paid bonuses for mortgage volume, to those that gave executives bonuses and lavish perks even while company revenues and share prices tanked.

If this strand is actually about "leadership," then let focus on leadership that works.

Posted by: DrDemocracy | January 15, 2011 8:14 AM

worst writers

Posted by: 1bmffwb | January 14, 2011 10:23 PM

Union employees have contracts which were negotiated long ago. Management has always wanted pay to be based on the profitability of the company. If you look back over the last 15-20 years you will see that the employee would have lost income. Do you think the unions will agree to that now? I hear people talking about how shallow Sarah Palin is in her thinking. To put out an article this shallow, suggests the writer is not understanding of business. Jena McGregor may have a degree, but obviously she has had no success in business. Her article yesterday was attention getting, but again it was biased and off base on leadership. The Washington Post has the worse writers in the business.

Posted by: 1bmffwb | January 14, 2011 10:21 PM

I used to work for an elevator manufacturer. Before I left there, they had implemented a bonus system that was wildly skewed towards production workers, and not the "structural" worker (office, clerical, etc).

In short, the production worker would make more in bonuses than the structural worker whose division scored 100% in all areas of concern. Furthermore, my segment (Quality) would be working to decrease inefficiency, errors, etc, thereby increasing production efficiency, i.e. - production numbers would improve, thus increasing production bonus.

No one in our division was very happy.

Posted by: MichelleKinPA | January 14, 2011 1:20 PM

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