It used to be conventional wisdom
in American business that “Generous Motors” offered the richest benefits around.
GM was an enormously rich company back in the 1950s and 1960s, and GM’s top
management used the company’s wealth to attract and retain talent.
Fast-forward 50 years, and the old
regime at GM has fallen into disarray. The rich benefits put in place decades
ago are now fading into history as the company grapples with the challenges
posed by an era of aggressive competition and globalization.
In one of the biggest blows to the
old regime, GM chairman Richard Wagoner, said GM will follow the lead of
corporate giants such as IBM and Verizon, and will change the way pension
benefits are calculated for active salaried employees hired before 1993.
said GM still is evaluating ways to restructure salaried pension benefits in the
“We have decided to substantially
alter the pension benefits for current
The announcement effectively ends
the defined-benefit pension plans at GM, which date back to the 1940s and 1950s.
Last year, GM also notified salaried employees that the company was no longer
making contributions to individual 401Ks.
Wagoner said the pension changes would not affect current retirees or surviving spouses who are drawing benefits from GM’s Salaried Retirement Program. However, GM is capping contributions to salaried retiree healthcare at 2006 levels, meaning retirees will share more of the costs in the future. The cap on healthcare benefits will take effect next January and will affect anyone eligible for benefits through GM’s salaried post-retirement healthcare.
A difficult decision?
“This is a difficult but necessary
decision and it was made only after the greatest deliberation,” said Wagoner.
“A number of other
Wagoner, however, ruled out for
now at least, an across-the-board pay cut for GM salaried employees, noting the
company is already paying market-level salaries to engineers and marketing
“These are difficult decisions
that involve sacrifices by our employees, stockholders, retirees, and the senior
leadership team,” Wagoner said. “However, we are confronting a dramatic change
in our industry and in the global competitive environment, and that requires us
to look for additional ways to reduce financial risk and improve our
competitiveness for the long term.”
Wagoner also said he believes the
cuts will survive any court challenge.
“We’re very comfortable these
things are permissible under the law,” he said.
“What we’re finding is most of the other countries that compete in the industrial sector have different benefit structure where a significant part of the costs are paid in national systems,” he said. “We’re now subject to global competition and we’re running against competitors that don’t have the same burdens,” he said.
The pension and healthcare plans of GM’s 350,000 blue-collar retirees are currently protected by union contracts that expire in 2007. They are certain to become a target of intense negotiations between the giant automaker and the UAW then.
Wagoner’s actions left little
doubt that he was trying to impress upon union members the need for GM to scale
back on past promises and commitments.
The changes follow months of turmoil at GM, which lost $8.6 billion in 2005 and in November announced plans to close nine manufacturing and assembly plants and eliminate 30,000 jobs by 2008.