Will Mary Barra buck a trend in CEO compensation?
I should say at the outset that Mary Barra’s compensation is not an example of the gender wage gap, so I don’t have a bone to pick in that regard. Her compensation for 2014 could add up to over $14 million including stock awards, and that is higher than her male predecessor. I’m really just curious to see what she will do when the company’s executive compensation is determined later this spring.
There is drama afoot for reasons I will go into later. However, the moment brings up some long-held assumptions about how things work in the for-profit world. Actually, these may be just my long-held assumptions, so here they are:
- There may be less security in working for a company than a nonprofit entity, but the compensation tends to be higher.
- Because the bottom line is so important for companies, there is a higher risk of being fired for failure to perform.
- If the company is prospering, an outstanding employee can expect regular raises, a bonus, even profit sharing.
- Employee salaries may be negatively affected by a decline in profits.
- The compensation of CEOs is determined by their ability to increase profit and market share.
I expect you can already see some flaws in these assumptions. However, Ms. Barra and GM violated the fourth one last week in a very surprising way. In 2014, GM’s net income dropped 31% over the previous year. In spite of that fact, each blue-collar employee received a $2,000 bonus on top of $9,000 in profit sharing negotiated by their union. Employees were surprised and thrilled.
Now to a general summary of GM’s circumstances:
- It avoided bankruptcy in 2008 due to a government bailout that ultimately cost taxpayers $10 billion.
- An ignition switch defect, detected in 2001 but not addressed until 2014, has resulted in 51 deaths.
- To date, the recall of nearly 30 million vehicles and compensation for accident victims of this defect have cost GM almost $3 billion.
- Mary Barra became CEO of GM on January 1, 2014; she reportedly learned of the ignition switch defect two weeks later.
- An internal inquiry into the problem revealed “a pattern of incompetence and neglect,” Barra has stated.
What a mess, and how ironic that the need to clean it up has fallen into the lap of the first woman ever to be named CEO of a major automaker. Ms. Barra is unusual in many ways, actually, and over the next few months could participate in a decision that will raise her profile in a very interesting new way. That decision, in collaboration with her board of directors, will be about her own compensation and that of her management team.
Barra’s management style is reportedly inclusive, but she apparently led on the decision to give blue collar workers a bonus in spite of the company’s drop in net income. The ignition switch problem lay not with the employees who “punched the clock” in the plants, she concluded. The quality of their work was unquestioned. The fault lay with management. Soon after the internal inquiry cited above, she fired 15 people and disciplined another five.
Ms. Barra is an engineer, and her previous position was Executive Vice President of Global Product Development, Purchasing and Supply Chain. She is 53 years old and began working at GM as a student in 1980. The company must feel kind of like home to her. She is apparently known for her pursuit of consensus, her listening skills, and her approachability. A self-styled “nerd,” she is reportedly probing and methodical and does not haul around a big ego.
She sounds different, doesn’t she? A very grounded person in the world of CEOs, whose compensation is under the magnifying glass for contributing mightily to the growth of income disparity. Just as Ms. Barra moved into her new position, research was being published showing that CEO compensation relative to that of workers has risen from 20-to-1 in 1965 to 295-1 today. This is not because their productivity has skyrocketed; it is because of the way compensation now includes stock options. When the stock market is booming, CEOs can sell at enormous profit.
So things have been happening within GM and other corporations to skew underlying assumptions about how the for-profit world works. A trend has been afoot in CEO and executive compensation that will be on the table as the board of directors approaches a determination for 2015. Ms. Barra will have input in this matter. Is this trend right? Is it fair? Should it continue at GM, freighted as it is by the bailout and the tragic manufacturing error? Is this the moment to implement a course correction, a precedent that will pressure other corporations?
Journalists everywhere will be watching, and so will the business community in general. I don’t know what to expect. I don’t even know what to hope. It’s more complicated than I could ever imagine. I just wonder: What will Mary do?