Making Sense of CEO Bonuses

When do you pay a bonus? If you're smart, you sign that check when you've had a clearly-defined goal within the power of the potential recipient to deliver, the behavior you reward strengthens the business, and you watch to see that what you wanted actually occurred. And there's some odd news on this front. At Merrill Lynch, CEO John Thain thinks he deserves a $10 million bonus for 2008. This would be riotously funny if it weren't so tragic and indicative of the problems often found in upper management. Merrill has lost $11.67 billion this year. So far. Thain's view? He deserves a bonus because he helped keep it from getting a lot worse.

It's not that there is no case to be made for Thain. He only took over last December, so literally has been cleaning up the messes of others, and pulled off the acquisition by Bank of America. And yet, the board noted that more successful Wall Street firms - or at least one, Goldman Sachs - aren't giving out bonuses, and that acquiring BofA and the public at large might not sit too calmly with a big payout when so much was lost.

When Mr. Thain landed at Merrill in late 2007, he received a $15 million cash signing bonus and a pay package that was valued from about $50 million to $120 million over a number of years.

Merrill shares were trading above $50 when he was hired, and his pay package was structured heavily toward his ability to increase the price by another $40 or more. Merrill's shares have fallen steadily this year, closing Friday at $13.04 in 4 p.m. New York Stock Exchange composite trading.

As much disaster as he may have averted, he clearly signed on to do something that a more realistic person might have said wasn't possible. If you're going to get big bucks, then you need to deliver big. And if he couldn't see where things were going as recently as a year ago, then maybe he wasn't so insightful after all. Or is the board punishing Thain because it's embarrassed at not having checked the stupidity of his predecessors?

I have a tad more sympathy for Toyota management, which is seeing its bonuses reduced as car sales slide off the road. The company had been doing marvelously well and is clearly caught in forces larger than human decision. But when things go bad, employees are always asked to tighten their belts. Making the same request of management seems only fair.

GM Tries Hiding Plane

The big three auto makers received scathing publicity when they used private jets to travel to Washington, D.C. so they could ask Congress for a public bailout of their companies, driven to the brink of fiscal death by inept management.

Representatives at the Nov. 19 House hearing, including Gary L. Ackerman, Democrat of New York, faulted Mr. Wagoner; Alan R. Mulally, the Ford Motor chief; and Robert L. Nardelli, the chief of Chrysler, for taking private jets to Washington to plead their case.

“Couldn’t you all have downgraded to first class?” Mr. Ackerman asked.

Critics of a federal aid package for G.M., Ford and Chrysler spotlighted the private jets as an example of why the companies did not deserve a bailout.

To keep such wasteful and arrogant activity from hitting the public spotlight happening again, General Motors for one decided to ... block the public's ability to track a plane it uses. Good lord, these people really will never learn, will they? Any bets on what they would do with bailout money? Do I hear waste it?

US Auto Makers Shoot Themselves in the Gas Tank

With market share slipping and the future generally looking drab, you'd think that US auto makers would decide that leading in what they would offer to consumers would be smart business. But New York Times reporting suggests that the CEOs of Chrysler, GM, and Ford - can't really call them the Big Three anymore - are pushing on Congress to undercut mandatory increases in fuel mileage:

The executives argued that the bill’s proposal to increase mileage requirements for cars and light trucks would be impossible to meet and would gravely damage the automobile industry.

It would increase the average mileage requirement for passenger cars to 35 miles a gallon by 2020, up from 27.5 miles a gallon now, and would apply to light trucks and sport utility vehicles as well.

So these business "leaders" are saying that they can't increase average gas mileage by 8 mpg in 13 years? Time and again I've heard CEOs bemoan how too many employees are negative and stuck in old thinking - not being positive. But you've got three engineering giants, even if not the three biggest, that are just giving up. To me it sounds like another case of corporate whining of how business is just too hard. Too bad. Think the Japanese and Koreans won't be at those numbers, or lower, within the same time frame? It's as though these executives are intent on commercial suicide. It doesn't matter whether the government is mandating this. Wake up, people! When gas prices keep hovering above $3/gallon in this country, it's the market that will be making the demands. But God forbid that these dinosaurs make a strong fight for their existence. Clearly the big problem is not in labor costs, but in trying to do business without imagination, daring, and resolve. Anyway, how much courage does it take to run out of a burning building?

Saturn Takes on Competition - in Its Own Dealerships

It takes confidence in your own products and services to run an advertising campaign that directly targets your competitors. But Saturn is going that one better. According to MediaPost.com, the company will have top competing sedans at their dealerships for comparative shopping. The program is to launch June 11, incorporating television and print advertising as well as direct mail and point-of-purchase materials.

Such a campaign is nervy and nerve-wracking. There is always that chance that someone says, "But these other products are better." Yet maybe it's not as dicey as all that. Edmunds.com says this about the Aura:

After years of producing forgettable cars, Saturn steps up its game and brings out the Aura. With its well-rounded personality and attractive design, the Aura finally gives Saturn a legitimate contender in the midsize family sedan segment.

The prices of the cars are roughly comparable, as are the features. But Saturn has a couple of built-in advantages. The division of GM is coming off a stretch of under-performing, so any improvement will appear magnified. Then there is the very act of challenging its competitors. Even if few consumers actually try out the other cars, they walk in thinking that the product has to be good, because they'll willing to show them side-by-side. And then the only salespeople around will be working for Saturn. This seems like one of the smartest marketing pushes I've seen in a long time: no unrelated hype, all customer focus.