2/07/2006

GM stepping up to the plate?

In a GM article I read today, I was honestly surprised to see that in addition to some other measures, GM was attempting to save costs by reducing dividends, and lowering their top execs' salaries. I am pleased to see that the BOD recognizes how crucial it is that they take some action. I found this topic to be interesting because the same issue came up in one of my classes the other day, and it struck me as odd that GM had not done more to try to salvage their company. Also, while shrinking top level salary is generally not at the top of managers' priority lists, it shows that the BOD are acting in the best interest of the GM company and its shareholders at large, rather than acting in the best interest of a minority group of top managers. While it remains to be seen whether these actions will make a dent in GM's financial woes, it does set a high profile example of what companies should do when they must nurse their bottom line back to health.

6 comments:

Dr. Tufte said...

Blake - your link needs to be more informative and needs to flow better in the text. This is a warning.

There are two parts to this move, cutting top salaries, and cutting dividends.

It's admirable to cut management salaries, but I wonder how much of this move is cosmetic. GM may be bloated, but are there enough people at the top of the pyramid for the cutting to make a dent?

I'm confused by the second move. The Board of Directors is supposed to act in the interest of shareholders, and yet they have cut their dividend. There are two sides to that argument: 1) firms shouldn't pay dividends when they aren't making money, and 2) stockholders may feel that dividends they are currently being paid are compensation for dividends that could have been paid in the past but were not. I have reservations on the second point because GM seems to have found a lot of stupid ways to spend their cash flow, so perhaps shareholders deserve a chance to milk it dry.

will said...

I agree that GM cutting top managment salaries is probably a move to make the company look better. As far as cutting dividends, I believe this will increase the companies working capital. Shareholders should know and expect when the company has a bad economic quarter dividends will be cut. It seems to me that the board of directors is looking out for their own good and not necessarily for the good of the company.

Boris said...

Personally, I’m glad I’m not a shareholder of GM. Not only have they made more negative press in the past decade then I care to mention, but they have not been making decisions that benefit the company. Labor relations are a nightmare, the recently cut dividends are, in my opinion, cheating shareholders of their investment, and the cropping of managers salaries is a move that was designed to make them look like their trying to do something ‘nice’ for the company. I personally hope to see a complete restructuring of the company – even if it takes bankruptcy. Something huge needs to change in order for GM to get back on its feet. Cutting a few salaries here and there is not going to be a drop in the reform bucket that GM needs to go through.

Dr. Tufte said...

Two solid comments ...

Ella said...

One of the big problems that GM has to deal with is negotiations with labor unions. If GM wants to cut jobs and salaries, the union's not going to go along with it if top managers are still getting raises and bonuses. Saving GM requires the Board of Directors and the labor unions to be on the same team. It may take a more decisive move than slashing salaries and dividends but these efforts are a start.

rico said...

I'm just pissed off because their efforts to increase revenue have caused more depreciation in their used car values. I tried to sell my truck about 3 months ago and it is worth $4000 less than six months ago. Because of the employee pricing and other deals like that, there is an oversupply of used vehicles that is decreasing prices.