Tuesday, February 07, 2006


General Motors highly visible action of cutting its dividend and slashing salaries of senior executives was as much symbolic as it was effective in cutting cash flow. It was a PR statement to shareholders, employees, suppliers, customers and the world that the company is taking its turnaround seriously.

GM's executives aren't going to be hurt that much by the salary cuts. Recent research into executive compensation shows that it soared from 1993 through 2003 in both cash and equity remuneration. CEOs and top executive staff did well -- too well, some would contend. But that is partly the point. The board could not stand by and allow its top executives to be rewarded splendidly when GM is teetering. If they turn around General Motors and get it on a sustainable basis, they will get rewards that are much larger than those they have foregone. And, no one will mind all that much, except perhaps employees who will bear the brunt of cutbacks. From a PR perspective, GM's executives would be wise never to restore their pay to prior levels. That would forestall complaints from the union.

But that issue is in the future. There are plenty of hard times for General Motors before it sees a clear path. The opening salvo of symbolic action was effective. It caught everyone's attention.


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