The GM Bonus Bonanza

As a stockholder in General Motors – your stock was purchased against your will by politicians a couple of years ago – you’ll be glad to know that GM executives and workers are enjoying huge bonuses this year.  According to a Bloomberg News report, those bonuses will approach 50% of salary for top managers.

Most managers are getting 15 to 20 percent of their annual salary as a bonus.  Even the average salaried worker is looking to score $10,000.  General Motors stock is currently trading for a bit more than half of the level it would need to reach before the Treasury could cash taxpayers out of the company by selling off our shares, without taking a massive loss.

Chrysler is handing out bonuses too, despite losing $652 million last year.  Union workers are set to receive an average bonus of $750, which Bloomberg estimates as “1.3 percent of an hourly UAW worker’s annual pay.”

Republican senator Chuck Grassley is quoted as saying the payment of big bonuses by GM, after a fifty billion dollar taxpayer bailout, “sends a message that those in charge take shareholders, in this case the taxpayers, for a sucker.”  He thinks “the taxpayers should be repaid before bonuses go out.”

Union management has a rather different idea.  UAW president Bob King wants to “reclaim some of the $7,000 to $30,000 in concessions each worker gave up since 2005 to help the U.S. automakers survive.”  This would, of course, kill the auto companies again in fairly short order, requiring another massive taxpayer resurrection.  It would eliminate a lot of administrative overhead if every American taxpayer just cut a check directly to the UAW.  Alternatively, if you live in the warm South, you could volunteer your house as a summer retreat for union auto workers.

 The bonus payments come just as General Motors and Chrysler are preparing for new contract negotiations with the UAW.  As the Bloomberg piece notes, they obviously can’t resist union demands by crying poverty after shoving out millions in bonus payments to top management.  When a government-owned corporation negotiates with a powerful special interest that controls the current ruling party, every bit of lost resistance will end up costing taxpayers dearly. 

In a system of free enterprise, a corporation is free to pay its workers and management whatever it deems appropriate.  The stockholders are equally free to object, and if boated compensation leads to an unsustainable business model, the market will pass judgment and terminate the enterprise.  That is exactly what happened to General Motors… but politics overrode the judgment of the market, compelling taxpayers to subsidize the unsustainable business model. 

Divorced from market gravity, General Motors floats in a bizarre region of space where greedy managers and union bosses can forget all about the debt they owe American taxpayers, dump their bailout rocket boosters, and drift right back into the same deteriorating orbit.