I have a hate/love relationship with unions. Surprised I am somewhat sympathetic? Me too. But I saw an interview with Ron Gettelfinger (whom I despise) on CNN and he made the best point in support of unions I had ever heard (paraphrased):
Interviewer: How can you feel that the union employees should receive millions more?
Ron: Who should the millions go to? Last year they went to the CEO. Do you think he earned the $10 million bonus he received? When sales are shrinking and his company is about to go into bankruptcy?
The question is profit distribution and I want to you know what you think… Given three scenarios with varying cash flows, how would you divide the excess cash as bonuses if you had 1 CEO and 200,000 union workers? Does the CEO deserve the biggest gains and biggest losses? Should it be spread over the company? (I’ll answer in the comments to get it started.)
- Scenario 1: In a year of record profits, there is $50 million left over after all expenses (including salaries) are paid. How should it be divided?
- Scenario 2: In a year of record losses, there is $10 million left over.
- Scenario 3: In a year of standard profits, there is $30 million left over.
I understand that this is not totally plausible, but please play along. And yes, given the current state of the auto industry, they should have given the whole amount to R&D and paid off creditors for years… You can add qualifiers and other terms too if you want.
(Since the gov’t is expected to own 70% of GM (Gov’t Motors) after the bankruptcy, you can substitute Obama for CEO if you want 
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Last 3 posts by Eric B.
- Nassim Taleb on the Economy - June 25th, 2010
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I don’t have a huge problem with unions per se, my biggest thing is they protect crappy workers. No one can blame anyone for trying to get the highest salary and the best benefits, but when they file a lawsuit because an employee got fired for dealing drugs at work or they resist any layoffs, I have a problem with that. They should be working together with the long-term picture in mind, not the day to day stuff.
I think the profit distribution should happen before and after the huge profits are even made.
If you have solid workers that aren’t always trying to protect crappy workers, like Jason said above, your costs will be lower and you can charge a lower price for your cars. Consumers save money and, in turn, ensure your long-term success by continuing to buy your cars.
In good years, I think bonuses for everyone involved are appropriate. The largest chunk should still go to the people at the top navigating the company and to the salesmen moving the product. But those who receive the most in good years should also take the least in bad years. So I guess their compensation should be mostly tied to some form of net income. The workers assembling the cars and other administrative people should still get their salary without a bonus.
I’m still not sold on unions.
I really try not to be against unions but I can’t find an industry that has them as the primary labor force and is not in some state of crisis every other year… airlines, auto, teachers, sports, etc.
What? Teachers, you ask?
I am planning on posting about teacher and other union sponsored pension funds. I don’t think most people realize how much money has been lost by the pension fund managers.
Eric - I agree with your comment that those who take the biggest risks also should also get the biggest rewards AND losses. The key is to align the short term and long term. I think big bonuses are ok, but the contract needs to include a vehicle that allows for their retraction if it is later found that their efforts can be directly tied to a subsequent decline in profitability. There is a really good op-ed on this topic that ran today at http://tinyurl.com/qlvx33
I don’t see the issue as “Who should get the money?” I see it as, “Why is the government getting involved?” The investors own the company. If they want to throw millions at a CEO that doesn’t do any good for the company that’s their right. On the flip side, the employees can join a union if they choose to. But why is the government getting involved?
From what I have read and heard, despite all the stock options and pay for performance incentives, the size of a company usually determines the executive’s pay more than performance. That’s why Rick Waggoner was making so much money despite all the losses. One of the lawyer’s I work with is actually friends with him. He talked to him the other day and apparently he is enjoying his free time at his beach house in South Carolina.