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  3. Memo to Wagoner, Mulally, Nardelli, et al Need Loans? Cut Your Salaries


DETROIT - In March, I criticized General Motors for restoring CEO/chairman Rick Wagoner's $2.2-million base salary for 2008. What timing. In 2005, the GM board cut it in half to $1.1 million (the company hasn't posted a profit since '04). Wagoner earned less in '06 and '07, a base salary of $825,000. So far, there's been no indication Wagoner's salary has been cut back since car sales took a nosedive earlier this year.

On November 6, GM's Wagoner, Ford Motor Company's Alan Mulally, and Chrysler LLC's Bob Nardelli went to Washington to beg for loan guarantees to see them through a 2009 that will be even worse than 2008. I've been ambivalent about this request. And I find it harder to justify for a private company like Chrysler, which by definition has access to some private equity, than for public GM and Ford, with their public balance sheets.

President-elect Obama indicated on Friday that he's receptive to adding the Detroit Three to the $700-billion financial industry handouts. He wants the lame-duck 110th Congress to prepare a bill he could sign during his first days in office.

So what concessions should the auto industry give to procure loan guarantees?

You've guessed it: executive salary cuts.

With plant closings and thousands of layoffs, Wagoner should have given up a chunk of his $2.2 million by now. I'm sure Wagoner, Mulally, Nardelli, and their top subordinates could get by on less than $250,000 per year, and even take advantage of Obama's proposed middle-class tax cut.

Another concession, suggested by 2953 Analytics' Jim Hall, is a two-tiered Corporate Average Fuel Economy standard, perhaps for the years between the interim 2011-15 standards and the 2020 standard of 35 mpg. If you take a federal loan guarantee, you need to add x-mpg to the standard. Seems fair, relatively simple, and better than giving the federal government shares in GM, Ford, and privately owned Chrysler.

Executive salary caps provide an even simpler incentive. Wagoner, Mulally, and Nardelli would be able to restore their multi-million-dollar salaries only after they pay off the loans.