Managers at Delphi, the bankrupt automotive parts maker, have agreed to an unusual “equivalence of sacrifice” clause in a new labour contract extracting wage and benefit concessions from the group’s unionised workforce.
The principle that senior executives should share in the pain of blue-collar workers sets an important precedent ahead of upcoming contract talks at the three troubled Detroit-based carmakers, General Motors, Ford Motor and Chrysler.
Ford’s chief executive, Alan Mulally, came under particular scrutiny over his $28.2m compensation package last year, when the company posted a $12.7bn loss.
According to a memorandum of understanding reached last Friday between Delphi, the United Auto Workers’ union and GM, the parts maker’s former parent and biggest customer, the provision will “ensure that sacrifices by UAW-represented employees are reflected in the pay and benefit practices of all non-represented employees”.
Gary Chaison, industrial relations professor at Clark University in Massachusetts, said that the provision is “more symbolic than anything else, but the symbolism is very important”.
He said he had never heard of such a provision being included in a US labour contract. UAW members at Delphi are due to vote later this week on whether to ratify the deal.
Equivalence of sacrifice has been a source of friction between Delphi’s management and unions since the company filed for court protection in October 2005. Ron Gettelfinger, UAW president, last year described Delphi’s chief executive, Steve Miller, and other managers as “a bunch of hogs slopping at a trough that's full of money”.
In an earlier effort to assuage the unions, 20 senior Delphi executives took pay cuts of 10-20 per cent. Mr Miller agreed to reduce his own pay from $1.5m a year to a nominal $1. He did, however, pocket a $3m signing bonus after joining the company in July 2005. GM’s directors and senior executives also agreed to pay cuts last year.
Investors responded to the Delphi deal Monday by pushing up GM shares by 2.5 per cent in early trading to $36.30, approaching the recent high of $37.24.
Robert Barry, analyst at Goldman Sachs, upgraded GM on the grounds that UAW members appear to be increasingly amenable to wage and benefit cuts as part of the Detroit motor industry’s restructuring. Mr Barry cautioned, however, that GM remained challenged in the long-term by vehicle volume, mix and pricing pressures.
The new Delphi contract provides for a cut in unionised workers’ base pay from $27.44 to $16.23 an hour. The pain will be softened for existing workers with lump-sum payments of up to $105,000 each. The company is also offering buy-out and retirement packages of up to $140,000 a worker.