Delphi - Greed Gone Wild

Middle-class employment has been taking a beating for some time now. First it was the steel companies going bankrupt, then it moved to the airlines, and now the automotive sector is experiencing the angst. Delphi is the latest corporate casualty. The company recently filed bankruptcy and asked workers to cut their pay from $25 an hour to $9 an hour, but it appears that management will not be sharing in the sacrifice.

Jonathan Tasini at Working Life had a great post recently about the Delphi situation which paints management in a very unflattering, greedy, obscene light – deservedly so in my opinion.

This morning there is a terrific column by Gretchen Morgenson in the Sunday Business section of The New York Times... Turns out, surprise, that the executives have made sure that they are protected while workers bear the entire brunt of the company's financial crisis. And they do so without making any recognition that THEY may have been responsible for the company's demise. As Morgenson points out, the company has lost $6.3 billion in the last seven quarters and is being investigated by the Securities and Exchange Commission for its accounting practices. No matter, as Morgenson points out:

...how the money stacks up. The salaries first: even accounting for the pay cuts, the top four executives at Delphi, not counting Mr. Miller, would receive a total of $3.1 million a year.

Then come incentive bonuses, to be awarded by using a new and unimproved performance hurdle at the company: earnings before interest, taxes, depreciation, amortization and restructuring costs...

The incentive bonus program, to be divided among an unspecified number of Delphi executives, has an estimated cost of $21.5 million for the first six months, Watson Wyatt said. That amount equals the entire compensation paid for all of last year to Toyota's 33 top executives, a group that oversees a highly profitable company in the automotive business...

But wait, there's more. An additional $88 million in cash would go to Delphi's top 500 employees when it emerged from bankruptcy proceedings or if the company's assets were sold. The top four executives - again, excluding Mr. Miller - would receive a total of $8.9 million of this, or 10.1 percent...

There’s quite a bit more, read it for yourself, but the bottom line is this:

Add to this a severance program under which 21 officers would receive 18 months of salary and target bonuses, 89 senior managers would get a year of pay and target bonuses and 373 executives would receive a year's salary. If all of the executives were terminated and took their severance, the cost to Delphi would be $145.5 million, the filing estimated. If 30 percent left, the cost would be $30.5 million.

What do the hourly employees get? Either a pay cut of nearly 60% or the unemployment line. There’s also the very real possibility the company may dump their pension program on the government, which means thousands of workers will lose a large portion of their pensions.

Tasini calls management vile, but I think he is being too kind. If all people prosper when a company does well – and top executives get the largest share of the pie – then shouldn’t all people sacrifice proportionately when a company fails? Corporate America has it turned upside down: Management should be sacrificing the most since they reap the largest rewards - not the little guy - but also because ultimately their decisions make or break the company.