Detroit’s Big Three Seek Changes in Pay Structure for Hourly Employees

Sources:
WSJ: GM Rethinks Pay for Unionized Workers
WSJ: Merit-Pay Pressure on UAW Is Rising
FT: Carmakers in Drive on Performance Pay

Last week, during the Detroit auto show, General Motors (“GM”) executives brought up the issue of implementing a new, performance-based pay structure for the 118,000 hourly auto workers covered by union contracts. GM was joined with approval by Chrysler and Ford. The so-called “Big Three” (GM, Chrysler, and Ford) cite improved productivity and quality, greater flexibility in times of financial hardship, and stable competitiveness as the new pay structure’s ultimate goals. The timing of such discussions is hardly random considering that the union contracts are up this September.

Current contracts with the United Auto Workers (“UAW”) union already provide for profit-sharing bonuses, but the Big Three are certain that employee compensation could be closely linked not only to profitability, but also to other key metrics, such as vehicle quality and absenteeism. Somewhat surprisingly, UAW’s President Bob King pledged the union’s willingness to discuss such pay restructuring. King promised, however, that UAW’s primary focus during the negotiations would be to ensure the fair treatment of its members.

A merit-pay system would not be without disadvantages, warns Arthur Schwartz, a former GM labor negotiator. Both UAW and the Big Three, however, believe that they stand to gain from a revision of the pay structure. The car companies are confident that they would be able to hire more hourly unionized workers as a result of their increased profitability and competitiveness. And, of course, growing its member base has always been a top priority for UAW.

UAW’s bargaining position seems a bit weakened with respect to GM and Chrysler because the union promised no strikes until September 2015 as a condition of last year’s taxpayer-funded bailout of the two companies. Additionally, a union-controlled trust now owns considerable stakes in both GM and Chrysler, which accounts for UAW’s heightened interest in their profitability. Unlike GM and Chrysler, Ford did not need a taxpayer-funded bailout in 2010, and the car company does not have a no-strike agreement with UAW. Therefore, at least initially, the union appears to be in a better bargaining position during the upcoming negotiations with Ford. If UAW’s demands prove unreasonable, however, the company may rethink its plans to hire about 7,000 hourly unionized workers in the U.S. over the next two years.

Discussion Questions:

1. Are labor unions creatures of the past that have long outlived their purpose and utility?

2. Is UAW’s willingness to discuss a different pay structure with the Big Three signaling a permanent change in labor relations in the U.S.?