Bailout Recipients Rolling in Bonus Money

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U.S. NEWS | MARCH 8, 2011, 4:50 P.M. ET

Detroit Bonuses Go Right in the Bank
By KATE LINEBAUGH

DETROIT—Steve Dungan has a $5,000 bonus check on the way from Ford and a dream of vacationing in Ireland with his wife. But for now, the Dungans are staying put, and the money is going in the bank.

"It just doesn't seem to make a whole lot of sense to buy something big right now, unless it's something you need," said Mr. Dungan, 49 years old, who works at Ford Motor Co.'s axle plant in Sterling Heights, Mich.

The U.S. auto industry's return to profitability will put more than $400 million in bonuses in the pockets of unionized workers this year, the first big payout after a decade-long drought. But the economic impact of those payouts on Michigan and other auto communities is likely to be muted, with pent-up demand tempered by 10 years of piled-up obligations.

General Motors Co. is paying its 19,000 hourly employees in Michigan an average of $4,200 each. Ford's checks will average $5,000 for its 40,000 hourly employees, half of whom are in Michigan. Chrysler Group LLC, which is controlled by Italian auto maker Fiat SpA, isn't yet profitable, but paid hourly workers a performance award of roughly $750 on Feb. 11. Profit sharing is mandated by the union contract, though payouts this year exceeded the mandated formula. Salaried employees also receive bonuses.

In the past, generous annual bonuses helped fuel Michigan's leisure and construction industries, showing up at boat dealerships, home-theater showrooms and vacation spots "up north." This year, workers like Mr. Dungan have more modest plans, such as paying off debts or rebuilding savings.

"I've got two kids in college, so I'm not looking to buy any big-ticket items," said Mr. Dungan, who used to apply his bonuses to major home improvements. "We'll just put it in the bank."

Today's resurgent auto industry is a shadow of the one that soared in the 1960s and again in the late 1990s. In Michigan alone, employment in the automotive sector has contracted by two-thirds in just the past decade, and incomes are down. Over the past four years, average compensation for hourly workers has fallen by more than 25%, excluding overtime, which is currently infrequent. As a result, the industry has less power to pull the state's broader economy out of its long slump.

"Good news for the auto industry is still very good news for Michigan," said Charles Ballard, an economist at Michigan State University. "But it is not such a big deal as it would have been 30, 40 years ago."

At Fairlane Ford in Dearborn, near Ford headquarters, sales manager Eric Ryan said he expected only a slight uptick in sales. "Hopefully they utilize it getting a new vehicle sooner rather than later. But there are other obligations those people have as well," Mr. Ryan said. "You have to be realistic. I am a dealership in the state of Michigan."

A few miles away at Rosenau Powersports, general manager Charles Terrell said his business had contracted more than 70% in two years. He worries about sticker shock when old customers look to renew their fleets of motorcycles, all-terrain vehicles and snowmobiles.

"A line worker—a guy who puts a left door on a Ford Taurus—used to make $95,000 to $100,000 a year with overtime," Mr. Terrell said. "Now that guy is a $60,000-a-year guy. Does he have four toys? No. Now he has two."

Profits are certainly better for business than losses. Pete Beauregard, owner of Colony Marine in St. Clair Shores, said the industry's rebound improves overall consumer confidence. At Detroit's annual boat show in February, he said, sales doubled from a year ago; he credits about 25% of that to the auto comeback.

"Even if they are not a GM, Ford or Chrysler employee, so much feeds off of automotive here that the attitude of the purchaser is dependent on automotive," he said.

For Ford line worker Ron Anikewich, 36, the payout was particularly timely. His computer just crashed, so part of his bonus is earmarked for a new one. As for the rest, "I have a couple bills that I am planning to pay off," he said. "I'm deciding which ones."

Write to Kate Linebaugh at kate.linebaugh@wsj.com

http://online.wsj.com/article/SB1000...860200972.html

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Why are we not complaining about these bailout recipients getting fat bonus checks?

Sarcasm aside, I have been pretty surprised so far at the Detroit/UAW bailouts not being a total loss. In this respect, maybe they are the exception that proves the rule. But I've been increasingly inclined to see the 2008 bailouts as justifiable as long as we can figure out good ways to prevent the markets from assuming more bailouts are always possible.

I don't know, the auto industry bailout probably cost more money compared to its effect than the financial industry bailout. At the end of the day, the Big Three simply aren't crucial aspects of the US economy. They aren't 'too big to fail', and bankruptcy is a perfectly valid alternative. Sure, GMAC needed propping up, but did GM and Chrysler?

I have a lot of respect for Ford, here. They managed with relatively little assistance and are dealing with their financial problems the hard way, by paying back their loans, keeping costs down, and making cars people actually would buy. GM and Chrysler, on the other hand, have a much longer way to go, and that's after they managed to shed most of their debt. I'm not sure a bailout was worth the money or the moral hazard problem when it wasn't truly necessary.

The auto industry in America has done poorly not because of bad luck but because of chronically bad management - poor foresight in structuring union benefits, poor foresight in where to put R&D dollars for future cars, and poor financial management. Rewarding this with a bailout (while leaving the most responsible of the three companies in the worst financial position) is kinda backwards if it's not completely necessary.

Oh, wow. $5000.

Wake me when the bonus has reached more than 6 figures like it did for the banksters.

http://www.nytimes.com/2009/07/31/bu...1pay.html?_r=1

The point is that bonuses for individual hard work are common and usually deserved.

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Originally Posted by Khendraja'aro

Oh, wow. $5000.

Wake me when the bonus has reached more than 6 figures like it did for the banksters.

http://www.nytimes.com/2009/07/31/bu...1pay.html?_r=1

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You do realize that only the top performers got bonuses in the 7 figures; about 5k total employees throughout the financial system. If you want to look at the top of the auto firms, I'm sure they have much more generous bonus structures as well. IIRC I saw an article a day or two ago saying that a Ford exec had a $33 million bonus; the numbers for $5k bonuses apply to tens of thousands of hourly employees, probably working out to approximately 10% of their salary. That's a pretty generous bonus compared to most salaried professionals outside of the finance industry.

I don't really begrudge the auto workers a bonus if the company is doing well, no more than I begrudge someone in finance the same. What bothers me about both is that a bonus is an assumed part of the compensation package. My sister in law works on trading software for JP Morgan Chase, and their bonus is pretty much set in stone regardless of how the company is doing. Now, obviously she's not making millions - IIRC with her new London job she's still making less than $100k after bonus - but the assumption in both their Manhattan and London offices is that bonuses are part of compensation. Similarly, I think UAW would have a riot if they weren't all awarded bonuses.

My wife's company is at least a little better; they have a 'bonus pool' for workers that's calculated on the basis of how the company's books looked for the last year, and then it's roughly evenly distributed among the employees based on salary. This kinda makes sense since base salaries are raised on the basis of performance, but it still doesn't really award the best employees with a bigger bonus except indirectly. In an ideal world, IMO, a worker who performs above and beyond what's necessary in improving the company's bottom line should be awarded appropriately. It could be bringing in more clients, or coming up with a cost saving manufacturing method, or improving an algorithm or whatever - but if an employee made a material contribution that stands out, they should get rewarded. Why should the mediocre get bonuses, especially if they're largely the same as the superlative?

*shrugs* I think this is completely divorced from the question of the bailouts, though. I have a problem with the auto bailouts that has nothing to do with bonus structures, and while I don't like the way financial industry bonuses work, I still think the financial bailout was necessary.

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Originally Posted by Dreadnaught

The point is that bonuses for individual hard work are common and usually deserved.

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Great. And those guys at the conveyor belt don't work hard or what?

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Originally Posted by wiggin

You do realize that only the top performers got bonuses in the 7 figures; about 5k total employees throughout the financial system.

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However, the total of boni amounts to more than 50 times that what the auto industry paid out. And that's only 2009.

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Originally Posted by Khendraja'aro

However, the total of boni amounts to more than 50 times that what the auto industry paid out. And that's only 2009.

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The financial industry makes a lot more money than the auto industry. And also - source? I haven't seen comprehensive amounts set aside for bonuses across the auto industry this year. 2009 is also kind of cherry picking your data, since two auto companies were mostly owned by the government at the time, but the financial sector was already recovering.

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Originally Posted by wiggin

The financial industry makes a lot more money than the auto industry. And also - source? I haven't seen comprehensive amounts set aside for bonuses across the auto industry this year. 2009 is also kind of cherry picking your data, since two auto companies were mostly owned by the government at the time, but the financial sector was already recovering.

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It's in the article, you just have to read it. And I still think that this amount of money is not ethical. The point is: $5000 is not a lot of money. For a worker that's the wages for 1 or 2 months. For a banker that's... what? The earnings of several years? And "individual achievements", my ass.

I'm sorry but those amounts of money are hugely out of proportion. Especially if you consider that those guys share only the benefits and NONE of the risks. I mean, if those guys stuff that much money in their pocket when they win, then they should also pay out of their pocket if they lose. Because they're playing with money that's actually not their money.

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Originally Posted by Khendraja'aro

It's in the article, you just have to read it. And I still think that this amount of money is not ethical. The point is: $5000 is not a lot of money. For a worker that's the wages for 1 or 2 months. For a banker that's... what? The earnings of several years? And "individual achievements", my ass.

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Uh, no, that's just the hourly workers (the $400 million). The big bonuses go to execs and the like and aren't mentioned at all.

As for 'individual achievements', it's definitely the case that 'star' money managers and the like make much bigger bonuses than run of the mill bank employees. You're comparing apples and oranges - the low level bonuses paid in the auto industry to the star bonuses paid in the finance industry.

My main problem is that those top bankers were responsible for wrecking their banks and our economy, but still got a bonus. I don't mind a bonus for good performance, but if the bank had to be bailed out.. And it's a bit stupid that it's perfectly fine for the bailed out banks (so practically with tax payer money) to get huge bonuses, because the banks need to attract top talent to perform well, but teachers should not be paid properly because apparently you don't need good people becoming teachers?

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Originally Posted by wiggin

As for 'individual achievements', it's definitely the case that 'star' money managers and the like make much bigger bonuses than run of the mill bank employees. You're comparing apples and oranges - the low level bonuses paid in the auto industry to the star bonuses paid in the finance industry.

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Indeed. Working in IT for a global bank for the last 10 years, our team never received a bonus. Last year was the first time in 10 years we received one, and it was nowhere near as high as $5,000.

Since I moved from IT into Global Risk at the bank's central HQ in January, the typical bonuses received by the members of my new team are significantly higher.

I'm not entirely sure why this is. It seems within banks that the greater the fiscal responsibility of the work undertaken, the higher the bonus reward. Yet the people in IT at my equivalent managerial level don't work any less hard, and are on near enough equivalent pay. The only difference is that one works with software and hardware, and the other with money.

Funds managers, risk managers, money managers, futures traders etc, who can deal in shunting capital worth millions of dollars daily, all receive huge bonuses and shares options.

And then you get to the officers, executives and board members, who receive bonuses and options orders of magnitude higher than the money managers.