BW: BMW Links Exec Pay to Line Workers
This BusinessWeek article is very light on details, but I find BMW's concept of creating a consistent compensation policy among all levels of its workforce interesting. Personally I think the most logical scenario for any bonus or salary increase is for it to be tied to overall company performance. Hopefully that's what BMW is doing for all its employees - not tied to stock price, mind you, but another, truer measure of the company's health. Do you think other companies might emulate BMW's compensation policy?
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It's tough to speculate without the details, I know, but I like the general concept here that they don't want their managers to be perceived as carpet baggers who are reaping big salaries while the workers suffer or might get laid off.
ReplyDeleteOn the other hand, I do think it's true that the decisions the upper management make do a lot more to affect BMW's profits and future growth than the line workers.
PS - this was partially an excuse to post a photo of the M3, which I think is an awesome car. Notwithstanding the fact that the 328i is the most ubiquitous car in Los Angeles (seriously), I think the M3 has enough styling cues to set it apart and look good. Apparently it drives wonderfully too, though I've never had the privelige.
ReplyDeleteI think a big problem is that the compensation structure between different types of employees varies. Line workers make the vast majority of their pay in salary, so it is easy to calculate a 6% bonus. Salesmen will be working mostly on commission and may have a very small salary. Executives may push for a contract that pays a (relatively) modest salary, say a few hundred thousand dollars, with the stipulation that if they meet certain performance marks, they may get a very large bonus, say over $1 Million. If you want to offer executives the same 6% bonus and have their pay be similar, you would have to give them a salary of over $1 Million and a bonus of under a hundred thousand. Executives by nature tend to be more aggressive and riskier, especially with their own pay, since they have the confidence to believe in their own abilities.
ReplyDeleteAaron, what you describe sounds reasonable. I don't really see that as a "big problem"... the basic tenet is that if the company does well you want that success to be shared in some way (even if it's small) amongst all levels.
ReplyDeleteThe more important piece is that if the company does poorly, you do NOT want to be paying big bonus $ to executives under some guaranteed bonus arrangement. From what I've read a majority of executive bonuses are getting paid despite massive failings of their companies. The Buffett biography that Scott recommended has lots of examples of this from Wall Street back in the 80s, and in the recent crisis it didn't seem any different.
I think that scenario for BMW would be a big problem and create more friction between workers at differnet levels than the success scenario.