Academic

Automaker CEOs are back in Congress today pressing their case to receive $34 million in assistance from the federal government.   Part of their case apparently now includes an agreement to earn a $1 annual salary if the government provides such assistance.  The $1 salary issue arose the last time automaker executives were before Congress.  At that time, when members of Congress asked if the executives would agree to such a salary cut, there was resistance to the idea.  Now, those executives appear ready to accept the salary reduction in exchange for federal aid.  Watching the back and forth, I did wonder, why wasn?t such a reduction made a part of other bailout packages? 

1.       Is it that executive compensation is more excessive in the auto industry than in other industries?  Interestingly, a 2008 Forbes CEO Compensation Report for the 2007 fiscal year indicates that the compensation for FORD CEO Alan Mulally and GM CEO Richard Wagoner ranked 153 and 433 respectively.  Chrysler CEO Robert Nardelli already had agreed to a $1 yearly salary when he signed on with the company in 2007.  In this regard, many CEOs in other industries, including the troubled financial industry, make more than their automaker counterparts.

2.       Maybe, given the performance history of the automakers as contrasted with performance in some other industries, a greater concern exists that the compensation in the auto industry is not sufficiently linked to performance?

3.       Or perhaps the concern that CEOs in other industries would not be willing to work for such a low salary simply does not exist with respect to these executives, particularly given that they have now voluntarily agreed to the wage cut?

4.       Or maybe there is greater concern that the auto industry will not be able to pay back the federal funds?

5.       Or maybe it is just that there is greater precedent for the $1 salary in the auto industry to accept such a deal.  Indeed, we know that Lee Iaccoca made a similar gesture when he asked for help for Chrysler in the 1970s.  Yet CEO of companies in other industries, both profitable and floundering, have made similar gestures.  Apparently heads of some 32 companies have done so, including Apple CEO Steve Jobs and Yahoo?s Jerry Yang.

6.       To be sure, it could simply be that the behavior of executives in other bailed out firms have caused Congress to take a harder line with those currently seeking federal funds. 

To be sure, other bailout packages included limits on executive pay, but none are as drastic?at least symbolically so?as this one.  Then too, at least one company receiving federal funds has now incorporated the salary reduction.  Thus, AIG CEO Edward Libby recently agreed to cut his salary for 2008 and 2009 to $1 a year?no doubt in response to some of the outrage over that company?s spending behavior.  Hence, perhaps companies that look for federal funds in the future also can look forward to a salary cut.  And of course, many have pointed out that (a) even with salary cuts, sometimes executives continue to make money through stocks awards and other benefits, and (b) the salary cut does not impact or alter other potentially problematic spending practices at troubled companies and hence does not really respond to the larger issue.   Regardless, it does seem interesting that this $1 salary issue appears to have received the most traction with respect to auto industry executives.