Wednesday, November 12, 2008

GM in trouble?

Check out what they're paying their CEO...


nathan2209 said...

And this doesn't have anything to do with exorbitant wages and benefits plans that have been extorted out of GM for last 50 years?

If mandating high salaries and guaranteeing lavish benefits can produce prosperity, we should just set the federal minimum wage at $100 an hour and we can all be rich. It doesn't work that way. Just as it was time for the mortgage industry to correct itself, it is time for the GM house of cards to fall.

Sergey Solyanik said...

Without taking the position on whether GM should fail or not, I'd like to point out that European auto workers get the same amount of money, and better benefits (incidentally, paid by the government), and they are doing just fine.

So I doubt that it is the benefits that sink GM.

When I buy the car, the price is but one of many decision points. If GM cars were $3000 cheaper, I doubt I would buy them any way. Why would you buy crap at any cost?

GM's (and generally, US automakers) problems are design, quality, and innovation. The responsibility for these lies primarily with the corporate leadership.

And, again, taking Europe and Japan as examples, it looks like if you pay the leadership less, it works better.

BTW, if you're tempted to respond with the standard "market determines the compensation" phrase, hold off. CEO's salary is determined by the board (which the CEO hires), not the market.

What you right-wingers imagine as capitalism does not exist in the US for quite a while now, if it ever did exist :-)...

nathan2209 said...

I agree that corporate compensation is determined in a rather incestuous way. I would never advocate a ceiling on compensation, but I could support rules that give stockholders a way to approve/veto executive pay. I believe in choice. If a bunch of stockholders want to pay someone millions of dollars to lead their company, that should be fine. This is supposed to be a free country. Freedom of association, freedom to collectively hold capital, and freedom to manage it as you see fit. I can see how improved stockholder control over compensation is a boon to this freedom.

But GM is not in a free market economy. It operates under a heavy regulatory burden and heavily regulated labor market. Oddly enough, GM has been forced into a position where it's CEO has to advocate increased socialism in order to survive. It has no alternative but to ask government to bail them out via direct loans, nationalization of healthcare, and nationalization of pensions. It cannot survive otherwise. Two solutions: double down on the road to socialism or allow the failing structure to collapse.

I have long been a student of human nature. Freedom of choice and decentralized economies produce the most innovation with the most efficiency in the long run. Government does have a proper role in regulating excesses, but too much tinkering will always produce too many unintended side effects. That said, I realize that we can view history and stack the deck however we want (my blog : here for example)