Chrysler’s Incentive-Based Pay Formula Promising

WARREN, MI – Expect performance-based bonuses to have a positive impact on Chrysler’s product quality, a noted industry expert says.

In lieu of a base-pay increase – something Chrysler workers have not seen since 2003 – a tentative agreement between the auto maker and the United Auto Workers union features:

Financial incentives will generate positive peer pressure on the shop floor, says Bruce Belzowski, assistant research scientist at the University of Michigan Transportation Research Institute.

Says Belzowski: “When (pay) starts being tied to bonuses, people start saying, ‘Why aren’t we making these bonuses? Because we aren’t hitting this metric. What adjustments do we have to make?’”

UAW President Bob King says negotiators sought pay hikes, but that money was never on the table. The union did not dig in its heels over the issue because “we didn’t want to increase fixed costs,” he adds.

Such a move might negatively impact Chrysler’s product-pricing strategy, a development that could erode the auto maker’s competitivenss.

“That would be a ‘lose’ for our membership,” King says during a news conference today after local-level UAW leaders voted to recommend ratification to the 3,000 rank-and-file Chrysler employees now charged with approving or rejecting the agreement.

General Holiefield, vice president in charge of the UAW’s Chrysler bargaining unit, says he expects workers will accept the deal. Voting likely will take about two weeks to complete, he adds.

On the quality front, “Chrysler products were weak in the past,” Holiefield concedes. But Fiat’s World Class Manufacturing system has changed the culture within the pentastar company. “It’s not a program, but a way of life,” he says.

While workers have individual responsibility for perks such as the attendance bonus, Belzowski rejects the notion that shared responsibility represented by plant-wide evaluations might foster resentment if some employees perceive that others are slacking off.

There will be daily opportunities to work on relationships and production problems, he tells WardsAuto.

“They’ll have meetings to talk about what they need to do to improve. The Japanese have been doing this for a long time.”

Belzowski praises the proposed attendance bonus, if only because it openly acknowledges the negative impact of absenteeism.

“It shows you that it’s an issue,” he says while admitting “it seems kind of odd that you would actually pay people for attendance.”

King is mum on precise plans for Chrysler’s $4.5 billion in product-related investment, saying the auto maker asked the union to exercise discretion to protect its competitive position.

Asked if UAW workers would assemble vehicles bearing the badges of Fiat, Alfa Romeo, Lancia or Maserati, King says only: “There are other vehicles that might have been built somewhere else in the world.”

A contract synopsis obtained by WardsAuto is consistent with previous WardsAuto reports indicating the Fiat-inspired C-U.S. Wide platform will support vehicle programs at Chrysler’s plants in Sterling Heights, MI, and Rockford, IL, which is known as Belvidere Assembly.

But contract language that describes warehousing operations under Chrysler’s Mopar division suggest the plausibility of Italian-brand production in the U.S.

“Based on the merger of Fiat and Chrysler, more work was acquired, such as the Magneti Mareli parts line distribution throughout the Mopar distribution network, and the warehousing of Fiat, Maserati and Alfa Romeo parts,” the document says.

Other deal highlights include wage hikes for second-tier workers now officially described as “new hires.”

To assist Chrysler through the recent economic meltdown, the UAW agreed to allow the auto maker to pay new hires a lesser wage – about $15 an hour – than tenured employees.

By the end of the proposed agreement, those workers stand to make $19.28 an hour.

The profit-sharing program also was aligned with the simpler formulas negotiated by the UAW at Ford and General Motors.

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