In Money and Markets December 7, 2018 article entitled “Appalling: GM CEO collects 22 million while cutting 15,000 jobs”, the issue of a company’s right to pay whatever salary they wish to whoever they wish regardless of performance is brought into question.
The premise of the article is a simple one: should General Motors CEO Mary Barra be allowed a 22 million dollar salary while she authorizes firing 15,000 of her employees?
The 22 million paycheck is 295 times higher than GM’s average employee wage. The perceived offense is amplified by the fact that the U.S. government bailed out GM with billions in taxpayer funds during the 2008 crisis and basically rescued it from an almost certain bankruptcy filing.
The outcry is both aisles wide with Democrats and Republicans alike calling “foul”.
The issue here is multi-faceted. To start with, this analyst was and still is against bailouts of any kind to for-profit enterprises.
It’s not what taxpayer funds are for. Additionally the “creative destruction” from businesses failing to survive whatever happens to them that causes them to assume the four feet up position of a bankruptcy is a natural progression of capitalism.
Basically, if a company succumbs to a chapter 7 or 11 filing, it SHOULD go away. It just wasn’t good enough to survive and that means it should be allowed to fail and make way for a better company to takes its place.
It’s the brutal but necessary world of competition and it makes for a better world in the process. Many won’t agree of course but an in-depth understanding of economics yield little argument in my opinion.
Another obvious sore spot in this whole thing is the enormous difference in what CEO Barra makes and what the average worker makes. A 295 multiple sounds egregious and maybe it is. Or maybe it isn’t.
Running a company like GM is a job suited for few people.
Like very few.
GM built plants in Mexico and China to turn more of a profit. In this analyst’s opinion, some of the blame falls on the unions and other vocal groups vying for more comps, more vacation and more freebies.
Also a fault are the “living wage’ proponents that advocate some sort of standard ought to be set for everyone as to the size of their paycheck. Nobody can seem to agree as to exactly how much that should be mind you, but the general belief is higher than many companies currently pay.
The prognostication of what happens when perks and wages are forced upon a company is easily detailed way in advance of what has now come to pass. Basically that these policies cause people to lose their jobs.
That it HAS come to pass is now the companies fault?
The phrase “we told you so” comes to mind.
Force higher costs on a for-profit company and it will flee to friendlier (and cheaper) shores. And so it has.
American activists and unions have pushed for higher wages and more perks and detractors warned it would cost American jobs. And now it has.
China and Mexico are trying to survive, grow and employ its populace and have little in the way of wage mandates, and therefore can build GM cars cheaper.
Since the monetary goal of private business is to enhance shareholder profit, one can hardly blame GM for wanting to build its cars wherever it can for the lowest cost. Keep in mind GM is not a charity but a business. Those calling for allowances to enhance the benefit of non-owners (employees) should reread the last sentence. Call me uncompassionate but stating fact doesn’t necessarily mean I support that fact and want people fired and no, I don’t agree with the move GM made.
But GM is a business, a shareholder business, and that makes its owners first and foremost on the ladder of preferred monetary enhancement. Sounds harsh but in the true sense of the word business, it is goal is that simple: make money for the owners.
Small or large business, the mission is the same.
Throw out that premise and you throw out the entire capitalistic system, and with it free will and choice, and although many might advocate such a thing, there is not a replacement system that maintains free will and individual liberty as succinctly.
Few understand that capitalism at its root is nothing more than two people agreeing to make a transaction freely and without outside interference. The rest of the capitalistic system and its machinations are just offshoots of this basic transaction.
That a shareholder owned, for-profit business elects to pay CEO Mary Barra a 22 million paycheck while laying off thousands may seem immoral, it’s the right of the company to do so.
Barra has one mission: make profits for shareholders. And in performing this mission, she has decided it is in the best interest of the shareholder to lay off workers.
So be it.
Complain and protest all you want, but you’ll be doing it from the unemployment line. Labor activists wanted higher wages and now you have no wages at all. Just like it was predicted.
Perhaps instead of scratching our head wondering how such a thing could come to pass, in reality, making what must have been a very difficult decision and knowing how much flak she would probably take for doing it, may be the reason she’s worth the paycheck.
This is not a solicitation to buy or sell any securities. This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 (530) 559-1214. SMC and Cambridge are not affiliated. His website is www.moneymanagementradio.com. California Insurance License # OL34249