General Motors Corp. has announced that it will halve its dividend, slash the pay of top executives, and drastically cut some retiree benefits in another round of sweeping cuts designed to reduce costs and help turn around the slumping auto giant.
“These are difficult decisions that involve sacrifices by our employees, stockholders, retirees, and the senior leadership team,” said chairman and chief executive officer Rick Wagoner, in a statement. “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.”
The announcement follows even more drastic cuts at Ford Motor Co. Two weeks ago, Ford announced plans to eliminate 25,000 to 30,000 jobs and to idle 14 plants. And it comes the day after Jerome York, a former Chrysler Corp. CFO and the senior adviser to billionaire Kirk Kerkorian, agreed to join GM’s board.
In addition to cutting its dividend in half, to $1 per share, Wagoner said he will take a 50 percent reduction in salary. Vice chairmen John Devine, Bob Lutz, and Fritz Henderson will take a 30 percent cut, while executive vice president and general counsel Thomas Gottschalk will absorb a 10 percent reduction.
GM added that there were no annual or long-term cash incentive awards paid to its global executives for the 2005 performance year. “While our ‘pay-for-performance’ executive compensation system is already structured to significantly reduce total compensation when our business performance and stock price are underperforming, we all agreed that this is the right step to take at this time,” noted Wagoner.
General Motors also revised its health-care benefit plan for salaried retirees in the United States. The company expects to reduce its total liability by about $4.8 billion and its annual health-care expense by almost $900 million before tax.
Beginning January 1, 2007, the company will cap its contributions to this plan at the 2006 level. The changes also affect surviving spouses and eligible dependents. Salaried employees hired after January 1, 1993, are not eligible for retiree health-care benefits, so they are unaffected by these changes.
“This is a difficult but necessary decision, and it was made only after the greatest deliberation,” stated Wagoner, in a statement. “A number of other U.S. companies have already taken similar action in the face of these rising costs and increasing global competition. In particular, U.S. health-care costs continue to rise at high rates. When these benefits were conceived decades ago, no one could have foreseen the explosive cost inflation that we have been experiencing in recent years. These costs are simply not sustainable.”
GM added that next month it will announce details of a plan to “substantially alter” the pension benefits for current U.S. salaried employees. The company stated that it intends to freeze accrued benefits in the current plan and implement a new plan for future accruals which could include a defined contribution or cash balance plan. Wagoner said that the pension plan changes would not affect current retirees or surviving spouses who are drawing benefits from the company’s salaried retirement program.