Show Them the Money

Back when I was in fifth grade I vividly remember my history teacher extolling the virtues of American industrial might. He practically bragged that American workers were the highest paid in the world. One of the most important lessons drilled into my little head was that when Henry Ford instituted the $5 work day he helped create a middle class that could finally afford to buy the very products it made.

Today, of course, we don't brag about paying the highest wages. Just the opposite, the auto industry now does everything in its power to keep labor costs as low as it can. In fact, in the labor negotiations currently under way, General Motors Corp., Ford Motor Co. and DaimlerChrysler Corp. are trying to convince the United Auto Workers union to more broadly accept the concept of two-tier wages, where new hires are paid substantially less than their brothers and sisters who are already on the line. I'll bet they don't brag about that in history class!

Sure, car companies have got to keep their labor costs as low as possible. New cars are still too expensive, and the industry knocks its brains out just to earn a measly 5% profit. But automakers need to change their thinking. They ought to re-figure how to achieve their goal. Instead of trying to keep a lid on hourly wages, they should offer lucrative incentives to get their workforce to boost productivity. After all, it sure has worked for management.

One of the greatest changes in this business during the 1990s has been the handsome compensation packages that boards of directors have dangled in front of their management. "Give us big gains in shareholder value," the contract reads, "and we'll give you bonuses beyond your wildest dreams." That's why Bob Eaton earned $63 million by shaking hands with Juergen Schrempp to merge Chrysler with Daimler-Benz. This is why Alex Trotman retired from Ford last year with $71 million in total compensation.

These guys aren't just making good money, they're making rock-star wages.

The quid pro quo, of course, is that their shareholders are making much better returns.

There are two ways to reduce labor costs. One is to cut hourly wages, the other is to boost productivity. While automakers are always struggling to improve their manufacturing efficiency, it's almost always a fight with the union, which never wants to see a company make more cars with fewer workers.

But automakers have never really tried to entice their hourly workers to greatly boost productivity with lucrative incentives. Instead, they play a little game with the union called the "annual improvement factor," which assumes that productivity increases by 3% each year whether it does or not. So the workers get a 3% raise. Big deal.

I'm willing to bet that what works for management will work for labor. If the goal is to lower labor costs, then reward labor for achieving that goal. Pay workers bonuses for achieving 5%, or 8% or 10% improvements in productivity. And don't even make it an issue in the contract negotiations. Just give it to them! There may be elements in the UAW that will try to stand in the way, but they'll be bowled over by people beating a path to a higher standard of living.

Sooner or later the UAW is going to have to face reality. No matter what it does, there are going to be fewer and fewer jobs in manufacturing.

One hundred years ago, 80% of American workers were involved in agriculture.

Today, thanks to mechanization and bio-engineering, less than 3% work on farms, yet produce enough to practically feed the world. The same is happening to manufacturing. Thanks to automation and modular design, we need fewer people to build cars.

Instead of concentrating on trying to preserve existing jobs - a losing proposition - the UAW should concentrate on transferring wealth to those more efficient jobs that remain. In other words, don't fight GM's "Yellowstone" project, get the company to reward the remaining workers with a good chunk of the productivity savings.

The beauty of tying pay to productivity is that it rewards those who most deserve it. Productivity can be measured by plant, by department, by line, by work team, by worker. It's better than profit sharing because with profit sharing the people who sit on their hands get as much as everyone else.

The key, of course, is to make the rewards worthwhile and immediate.

There's nothing like the prospect of a big, fat paycheck to get people to drop their unproductive habits and grab at new ideas. Experience has shown me that the people in the plants all know how to make their job simpler, easier and better. All you have to do is show them the money.