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    U.S. Treasury Bites Labor at GM

    By Michael Maiello on Wed, 02/15/2012 - 4:41pm | Politics

    According to GM's last proxy, the U.S. government still owns 32% of the company.  So it's pretty sad to see that one the eve of reporting it largest ever annual profit ($8 billion) the company is freezing pay, cutting bonuses and ending pension benefits for salaried workers. Meanwhile, CEO Daniel Akerson's has been targeted to receive cash and stock worth $9 million a year.

    One of the unintended consequences of the financial crisis bailouts is that they have left the government in the position of working against its own interests.  Fannie Mae and Freddie Mac, for example, are in government receivership and being run to collect as much from foreclosures as possible, even though the government would be better off using the mortgage giants to bring the home foreclosure epidemic to an end by eating short term losses in exchange for the long-term gains provided by a healthy economy.

    The same is true at GM now.  The government should be demanding that GM treat its workers better than this.  The economy needs rising wages and secure pensions.  The U.S. Treasury, as the largest single equity holder of a publicly traded company, should not be letting management put the screws to its work force.

    But then, the auto bailouts were a bit rotten from the start.  The government wound up controlling a company that was suing California over its environmental regulations.  As controlling shareholders of Chrysler and GM, the Treasury did very little to reduce the massive pay gap between the C-level executives and the people who actually build the cars.  Heck, with Chrysler, Treasury handed the company over to Fiat (and Italy's ultrawealthy Agnelli family) for a song, effectively exporting assets and keeping the liabilities at home.  Clint Eastwood's Super Bowl commercial for Chrysler wasn't just ironic for its political statement, it was a weird way for Clint to do a Spaghetti Western.

    The banks, of course, we mostly just rescued and then sent on their way.  Instead of taking the opportunity afforded by our equity ownership of some of the largest banks to force them to act compassionately towards the citizens who bailed them out, we actually aided them in their collections efforts against ordinary people.

    Most of this is ancient history by now, but the GM story, which just broke today, makes it all relevant again.  Bailed out companies should be run for the public good.  That's the lesson that we haven't learned over the last four years.

     

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    Comments

    Howdy all...

    Thanks for the heads up on this Destor.

    In no way am I a defender of GM. Although the company is ending it's traditional pensions for it's salaried employees, it will be offering 401K plans to the some 26,000 US salaried employees as it has done with the rest of it's hourly wage-based workforce.

    To say that GM is "ending pension benefits for salaried workers" doesn't tell the whole story.

    Now if only the fat-cats were brought down to the level of benefits for the salaried employees we'd really be blown away...

    Just my take on this subject

    ~OGD~


    by oldenGoldenDecoy on Wed, 02/15/2012 - 7:51pm

    I'd expect GM to offer a 401k.  But to somebody who previously had a pension, a 401k is not a great trade unless the company offers generous matching.  In a 401k, the plan participant winds up paying all of the fees, bearing all of the investment risk and, absent the generous matching, is responsible for all of the savings.

    At least these people will still get the pension benefits accrued so far, but there's no promise that the 401k benefits will be worth what the pensions were.


    by Michael Maiello on Wed, 02/15/2012 - 9:02pm

    Oh well...

    There's no doubt that life's a gamble.

    ~OGD~


    by oldenGoldenDecoy on Wed, 02/15/2012 - 10:41pm

    Wasn't there some old saw about as GM goes so goes the nation or some such?

    9 million pales compared to Wall Street thugs.

    I witnessed this turn on the unions by dems and repubs in the microsphere.

    Grocery store unions would screw the younger employees; the veterens would hang on to all their goodies and continue to receive benefits and over pay and everything and the newer employees would be kept under the 32 hour limit (set by state for part time employees) and receive nada.

    There is a rational argument that at times, unions have overstepped their bounds although in this case the auto unions, I think, just sold out the newer workers in favor of the old.

    Now there is no one representing the worker/laborer; that is for sure.

    What I like is the term 'entitlement'.

    What the hell does that mean?

    If you put in 35 years as a worker, why is SS all of a sudden an entitlement?

    If you put in 35 years as a teacher why are your benefits just entitlements?

    There are rational arguments concerning COLA's and such. We are told that we do not live in inflationary times--like the 70's.

    That's all I got.

    Nobody on cable so far has even touched upon the issues you bring up today.

     


    by Richard Day on Thu, 02/16/2012 - 7:32pm

    I'm stunned that people think we "don't live in inflationary times."  It's as if the people who say that have never paid a utility bill, or for gas, or bought milk.


    by Michael Maiello on Fri, 02/17/2012 - 10:22am

    Bacon and a number of meats have doubled in price in the last couple years.

    Eggs have doubled after their price fell about 4 years ago.

    Bread? Bread has doubled in price.

    Sugar doubled, wheat is up....

    And of course there is the gas pump price which could get the dems in real trouble.

    Yeah there is inflation. But I suppose computers and ipods...they all get cheaper. Although are they really cheaper when the monthly on-line bills come in?

    SSI and other payments went 3 years without COLA. How many folks on SSI have HD 72" TV panels?


    by Richard Day on Fri, 02/17/2012 - 11:32am

    How many folks on SSI have HD 72" TV panels?

    Ask Trope. He knows all about that stuff.


    by kyle flynn on Sat, 02/18/2012 - 3:00pm

    hahahahahaahahah


    by Richard Day on Sat, 02/18/2012 - 5:55pm

     

    Well our big deadlock breaker is to make government workers pay more for their pensions so we can fund unemployment insurance. (remember, Obama's always been into fed workers "sharing the sacrifice" - meaning "among themselves")

    And by extending the payroll tax "holiday" we're turning Social Security into an entitlement, so it can then come under the budget ax when needed. Republicans will of course have Democrats do the dirty work as some too-clever-by-far compromise.

    We are our worst enemy - ethics of the 1% with resources of the 99%, or perhaps that's too clever a formulation - "dumber than a bag of rocks". Yep, that'll do it.

    And as Forrest Gump wisely noted, sometimes you just don't have enough rocks.


    by PeraclesPlease on Fri, 02/17/2012 - 12:31am

    What's good about the payroll tax holiday is that it's pretty much the only tax cut out there that amounts to anything for working people, since the Social Security tax is flat and capped and thus the most regressive tax we have.  But, no doubt they will use this as an excuse to gut the whole thing in a few years.


    by Michael Maiello on Fri, 02/17/2012 - 10:22am

    Wasn't the informal understanding as to worker pay and benefits that when the company they work for is profitable or productivity improves, workers' compensation is "supposed" to rise more or less in tandem?  That such compensation increases are non-inflationary when they do not exceed productivity increases?  And, what is more, deserved, under the accepted rules of the game?  

    Is the obliteration or shredding of that informal understanding (if that's what it was; question whether in the absence of unions and a credible unionization threat would there have been any such understanding, informal or otherwise, during the heyday of the growth of the US middle class from roughly 1945-1973?) at the crux of the gross economic and political power imbalances we've arrived at?  

    If not a resurgent union movement, what other institutional force or forces could potentially restore some sort of power balance between most of the corporate and political decisionmaker classes and the working stiffs in this country?    

    Didn't Frederick Douglass get it just right, if we allow that for many of our fellow citizens, economic tyranny in our day--let's define for purposes of this point as arbitrary, unnecessary cuts to pay and benefits where companies or employers are performing well or are not compelled by revenue losses to make cuts somewhere--is more onerous than any political tyranny they experience?:

    Power concedes nothing without a demand. It never did and it never will. Find out just what any people will quietly submit to and you have found out the exact measure of injustice and wrong which will be imposed upon them, and these will continue till they are resisted with either words or blows, or both. The limits of tyrants are prescribed by the endurance of those whom they oppress.

    Has anything changed since then to make him less correct?   The Obama Administration gets blamed sometimes for not fixing things it has limited, or no, ability to fix.  Couldn't it make this situation you write about right, at least?  If it wanted to?  If it were committed to the middle class, as it presents itself in its campaign appeals?


    by AmericanDreamer on Fri, 02/17/2012 - 2:23pm

    The line, so it goes, is that despite record profits the company didn't meet other financial metrics.  But so far as I can tell, those all had to do with cost cutting in the European ops, which means that workers here are suffering for management's inability to bring down costs at Opel.  Maybe they should divest Opel and give the proceeds from the sale to the US workers.

    Obama's chance was when the government owned a majority of the company.  Still, as a one third shareholder, it should have enough influence to block these pay cuts to the very people who turned GM around.


    by Michael Maiello on Fri, 02/17/2012 - 3:04pm

    And I guess I should add that the problem here is that the government wants GM to get its stock price up over $50 so it can sell its stake at a profit and not take a loss on the bailout.  It's silly policy.  Far better for Treasury to take a loss now for better long run economic results.


    by Michael Maiello on Fri, 02/17/2012 - 3:05pm

    It would be interesting to calculate the multiplier stimulative effect of various types of compensation increases for the workers, versus the loss to the Treasury of selling the shares before it wants to.  The number of eyes that see yahoo news blips must be huge--I've seen a few lately that are referencing how well GM is doing and I think one suggesting that the Detroit area is doing better.  Of course my opinion of yahoo news teasers is that they are about as accurate a description of what is in the article itself as...well, fill in the blank among items for sale at your local grocery store's checkout magazine rack.  Even if former tpmcafe nice guy Andrew Golis is still there.  (I'm sure Andrew doesn't do the teasers.  :<))


    by AmericanDreamer on Fri, 02/17/2012 - 3:50pm

    This is a broader question than your post addresses, but are you aware of any empirical work that has been done that shows a relationship between share price increases and information becoming available that workforce and/or worker compensation cuts will be made? 

     


    by AmericanDreamer on Fri, 02/17/2012 - 4:00pm

    Depressingly, no.  I looked on SSRN.com but the academics only seem to be interested in executive comp and stock performance, not total worker comp or compensation costs.


    This paper makes the (kind of obvious) argument that layoffs in general have a negative effect on stock prices (because they tend to show that a company is in trouble) but that layoffs as part of a planned restructuring can have a positive effect.

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=952768

    As to your other point above, about the multiplier effect of higher worker salaries vs. the Treasury taking a loss on its GM stock -- it might not really even be an issue, despite what I said before.  It's not like the Treasury can be forced to sell.  It doesn't face a margin call.  Why can't it wait another 5 years?  Or even 10?  Does it really need to get out of GM stock faster than the U.S. got out of Iraq?


    by Michael Maiello on Fri, 02/17/2012 - 4:37pm

    Thanks much.  Marjorie Kelly, in her book The Divine Right of Capital, maintains that the doctrine of shareholder supremacy, whereby corporate managers have a fiduciary responsibility to maximize shareholder return, combined with the treatment on corporate balance sheets of worker pay and benefits as, of course, costs (often the largest single line item) it's pretty clear that workers' economic security interests are often not going to fare well.  

    Kelly started off believing in a philanthropic approach to social change before concluding that within the U.S. system, the above dynamics create a basic structural problem that requires addressing, by making shareholder interests one among a number of other interests--including communities, workers, environmental protection--corporate governance may or must take into consideration in their decisions.  To the extent the legal system makes corporate decisionmaking 'all about the shareholders' the kind of destructive and probably unsustainable dynamics, along many dimensions, that we've seen in this country seem inevitable.  A society that wants to become healthy and sustainable needs a more balanced approach than we have now.


    by AmericanDreamer on Fri, 02/17/2012 - 5:09pm

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