This blog contains posts and comments written by students in Dr. Tufte's economics classes at Southern Utah University.
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.
Subscribe to:
Post Comments (Atom)
3 comments:
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.
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.
Two solid comments ...
Post a Comment