Why Big Three Push $70 Per Hour Wage Fallacy

I was watching the news the other night when I heard Brian Williams read off of his teleprompter "retailers fear lower consumer spending will translate into sharply reduced 4th quarter earnings." This led into a two minute report from a mall somewhere about how sluggish holiday sales have been after Black Friday. Then a couple of commercials came on.

After the break, Williams then proceeded to read this tidbit off of his teleprompter, without a trace of irony - "reports indicate that the savings rate of the average American is lower than it has been at any time in the last thirty years" - nor a change in tone or cadence from his earlier pronouncement that consumers had to "start spending more" if retailers had any hope of staying in the black this year.

"Damn," I said to S., "looks like we just can't win - we should be saving and spending at the same time. No wonder people are losing their minds."

I was about to leave the room, reminded by these back to back statements why I didn't watch the news, when they switched to a story about the bailout talks on Capitol Hill between Congress and the Big Three automakers. The story was led by a snapshot of an assembly line overlaid with graphics that read "U.S. Autoworkers - $70/hour average wages".

I had to clench my teeth to keep from howling manically in outrage. After a couple of deep breaths, I said to S. "it's this kind of blatant bullshit reporting that gets me hot. Over $25 of that figure are costs that the corporations agreed to pay for benefits to old employees, costs that do not benefit the person who is working at all. Moreover, these companies have already set aside enough money to cover most of this cost. Do the news people just take the press packets and regurgitate them these days?"

EXCERPT from "Assembly Line" by Jonathan Cohn in The New Republic

According to Kristin Dziczek of the Center for Automative Research--who was my primary source for the figures you are about to read--average wages for workers at Chrysler, Ford, and General Motors were just $28 per hour as of 2007. That works out to a little less than $60,000 a year in gross income--hardly outrageous, particularly when you consider the physical demands of automobile assembly work and the skills most workers must acquire over the course of their careers.

More important, and contrary to what you may have heard, the wages aren't that much bigger than what Honda, Toyota, and other foreign manufacturers pay employees in their U.S. factories. While we can't be sure precisely how much those workers make, because the companies don't make the information public, the best estimates suggests the corresponding 2007 figure for these "transplants"--as the foreign-owned factories are known--was somewhere between $20 and $26 per hour, and most likely around $24 or $25. That would put average worker's annual salary at $52,000 a year.

I couldn't watch anymore.

Why are the corporate spin doctors pushing this $70 an hour narrative so hard? Because they know what I know - that if they don't get the airwaves filled with half truths first, someone might decide to start delving into the really juicy stories, the ones that involve the details of executive compensation packages.

Think about it - you've got the three CEO's from the automakers on TV all week - doesn't it strike you as odd that not one in-depth report on the details of their compensation arrangements has been broadcast by the major news outlets? That not one executive compensation specialist has been featured, with accompanying graphics that show U.S. auto execs incomes as compared to, say, the Japanese auto execs?

These are the real legacy costs, the ones that will get paid even if the ship sinks.

A few tidbits, gleaned from the Too Much Online, the website of the Council on International and Public Affairs, might give you a better sense of perspective on all this.

In the fiscal year that ended in March 2007, Toyota’s top 32 executives — a group that included CEO Katsuaki Watanabe — together pulled in $7.8 million in bonuses on top of salaries of $12.1 million. For the comparable period, one single GM exec, CEO Rick Wagoner, raked in $10.2 million.

Then again, it probably takes a lot more effort, ingenuity and know how to consistently lose market share, reduce profitability, and ignore consumer desire than it does to run a company successfully.

Back in 1984, to discourage the then-emerging golden parachute phenomenon, Congress stuck executives with a 20 percent tax penalty on any “change of control” termination pay that exceeded over three times an executive’s average pay for the previous five years.

These taxes can mount up quickly.

The really “gross” part: Most of these executives, explains this new RiskMetrics report, will not have to pay a penny of income tax on their severance windfalls. Their companies will pay the taxes for them.

I don't know if the same definition of wealth redistribution applies to the kind of free market capitalism to which the American captains of industry subscribe. But if my math serves me correctly, when a collective like a corporation, that is owned by millions of shareholders, including many of the people it employs, reduces the earnings of the collective to pay for the tax burden of an individual executive, that is an example of the redistribution of wealth that is so clear cut it could be used to illustrate a high school economics textbook.

The bailout legislation that Congress passed earlier this fall barely puts a dent into any of this. Under the bailout, execs whose companies get gobbled can still collect up to three times their recent average annual pay in severance — and, if their company “grosses up,” not have to worry about paying taxes on any of it.

Can you recall, just off the top of your head, anybody bailout executives other than the Big Three CEO's who have been asked to alter in any way their employment agreements with their "on the brink of failure" companies, the ones that couldn't go on another month without a quick multibillion dollar rescue?

I couldn't think of any either.

Corporate boards are rushing this fall to change how they measure executive “performance” — and the new yardsticks they’re adopting let execs claim they’re “performing” fine even if a company’s share price and profits are shrinking.
“With the stock market in tatters,” reports Financial Week, companies are “shunning such traditional incentive-pay factors as earnings per share.”
Among the new CEO performance yardsticks: easily manipulable measures like “customer satisfaction” or progress on meeting “environmental” standards.

I joked yesterday that "peeing straight" must be one of the new corporate metrics, because that's the only target these guys could possibly have been hitting. With performance yardsticks like "customer satisfaction" being considered, I guess "accurate waste elimination" can't be too far down on the list.

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Patricia Lanchester said...

HaHa. Thanx for the summary. I'm like you. I can't stand listening to the back-and-forth of misinformation on TV, so I tend to stay away from it. And since I don't read the paper enough either, I miss some important stuff. It's nice, as I read your blog, to get some clarity. In retrospect, imagine what kind of social economic system we could have had in this country decades ago (or even a century) if we'd known what we know now about those who control and manipulate from executive posturing. The game is really too big.

sjb said...

The Labor union workers get paid more to work on the car factory lines then any of the other country's auto factory workers. When this happens it drives up the cost of the vehicles significantly in the United States. Which is bad for companies and consumers both. CEOs and CFOs always get paid more then unskilled laborers because they must make executive decisions and incur greater stress then those workers who are unskilled or perform less skilled work. It would not make sense for CEO's to get paid the same as laborers because it is a more difficult job and no one would want to take on the responsibility of being a CEO if they were not rewarded for doing so. The labor unions have been hurting our nation and it is a main reason why so many of our jobs are now being outsourced to other countries. Other countries do not have these types of labor unions we have in the states which cause the cost of manufacturing to sky rocket. Omit unions and save US jobs. If the law of supply and demand take its course we will all be better off. I say let the corporations restructure so that they can reorganize without the unions.

Lew Scannon said...

Oh! Those poor stressed out executives! That repetitive stress disorder from sitting on their asses all day, not to mention the stress incurred when a line worker doesn't make rate. And when their company fails to perform, they have those nasty retention bonuses to deal with, unlike a line worker, who when they fail to perform, merely have to worry about keeping their job.
What is never discussed, is all the executive perks, such as the stress of having to eat sushi on corporate jets, to not having enough in their budgets to enjoy the finest beef tenderloin at their departmental Christmas party.

Brown Man said...

I wouldn't compare execs to line workers either, "sjb", but there is no logical way to support the current pay structure of these guys.

You can't train a person to be seven feet tall. But you can train a whole lot of people with above average learning capacity to be CEO's. There is nothing unique about decision making, which is why an exec in one industry can so easily move into another one at the same level.

You could cut the pay of corporate execs in every industry by 75% and most of them would still be rich.

The current climate is what happens when machismo meets unfettered access to the cookie jar.

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