Why Mulally and Ford deserve their payday at the Ford Motor Company:
It is pretty difficult NOT to notice the remarkable turnaround that has taken place at the Ford Motor Company over the past 4 to 5 years. They faced significant challenges from a liquidity perspective and they had to put their famous Ford Blue Oval logo up as collateral to acquire sufficient cash to support them through a very difficult restructure and turnaround.
It is almost impossible to imagine how perilous it was as Bill Ford began the difficult task. He accepted a salary of $1 per year for an extended period of time and brought in an outside CEO named Alan Mulally. It is NOT beyond the realms of possibility that without that massive intervention, that Ford could now be foreign owned. Maybe by a Chinese company similar to Geely Auto, that now owns Volvo. How about that for a scary thought? An American icon under foreign ownership!
It is undeniable that ALL the stakeholders within the Ford business Eco-System contributed to the success AND made significant sacrifices. The main stakeholders were: The UAW, the employees, retirees, management, the suppliers, the existing bond holders, the dealers and the loyal faithful customers.
Now the company has enjoyed some great recent success. Bill Ford and Mulally have gotten performance reward via restricted stock and people are castigating and complaining that Mulally has been excessively compensated.
Market Value Increase:
Take a look at the increase in the value of the Ford Motor Company from 2008 to 2011 as measured by the company market capitalization. The graph shows over 1000% increase or an increase of $51.26 Billion. A one percent share of that would be $512M. Mullally was recently awarded restricted stock worth $56M, in addition to his salary, as compensation for the stellar turnaround. There was massive risk involved for all, including Alan Mulally. Yet he and Bill Ford only got their recent compensation AFTER they delivered the results not before. It is pay for performance in action.
Comparison to other CEO’s and other Companies:
Many CEO’s have ownership stakes of a company that are usually in the low single digits of percentages with a few exceptions for companies such as Microsoft, Oracle, Google where the founders retained significantly higher stakes. This can drive significant increases in net worth when performance is good. Let’s look at another great US brand, Apple. It’s CEO, Steve Job’s returned essentially as a hired professional CEO and his net worth is currently approximately $8 Billion. If we look a little deeper at Apple and perform an employment level comparison between Apple and Ford we find that Apple has approximately 50,000 Vs Ford’s 150,000. Ford undoubtedly contributes more to the working and middle class of America than Apple. All Apple’s manufacturing is done in Asia (predominantly China) so it touches much fewer of the working and middle class population. Ford while expanding in the China market is much more committed to manufacturing in the US, a place that needs it desperately. Ford appears proud of their US presence and appears committed to it. If we began to compare Ford to the banking industry this article would go on forever and paint a very favorable picture of Ford. The compensations paid to banking executives when compared to the little creation of anything of value, no contribution to the fabric of working/middle class society and absolutely no personal risk is completely out of line. These CEO’s brought the entire financial system to the brink of collapse, took government (taxpayer) money as a bail out and then leave with hundreds of millions in severance packages. After the crisis, it is back to business as usual like nothing ever happened.
In the Ford case it was sheer hard work without any government safety net that resulted in this turnaround. It is worth remembering that the employees and all other stakeholders of Ford FOR SURE contributed to the success. The success would not have come without any of them. The turnaround was a classic example of ALL stakeholders contributing and all deriving benefits.
So what benefits did the collective employee base get?
- Continued employment.
- Salary, benefits and bonuses.
- A re-energized company that many love and have been a part of for much of their lives.
- Much needed job security and the avoidance of the distress and pain that many other people that have no work are suffering from. i.e. foreclosures, mounting debt, decreased standard of living, no health care, and difficulty in being able to support a family and get their kids a decent education.
- Opportunities to contribute and be part of a winning team.
- Opportunities for personal growth.
- Continuing improvement in the stability of the pension fund for future retirement as well as the caretaking of the existing retirees.
- Pride and sense of accomplishment in being part of the community that achieved such success.
- Positioning where their friends and family may be able to get a job in the future.
- Self satisfaction that they contributed to saving the Automotive industry of the US and demonstrated to the world that IT IS possible to work together to run a business the RIGHT way and not depend on Government bailouts.
So why so much squabble, particularly about Alan Mulally who UNDOUBTEDLY (acknowledged by almost every credible commentator) along with Bill Ford, was the main architect of the restructure and turnaround. He is constantly saying that he is there to serve. To serve the Customers and to serve the needs of all the stakeholders that derives benefit. I think he deserves a break.
The Bill Ford factor:
Why do we not hear of much complaints about Bill Ford’s compensation? Is it because he is a family member and has an inherited right to be treated differently. I doubt if anyone cared that Henry Ford made the money that he made considering the value that he created and the benefits that were derived by the multiples of stakeholders. While Henry Ford was a tremendously successful entrepreneur and an industry ICON, managing in this downturn in this current competitive industry is a task with quite a different set of challenges. I am sure he would have done fine. But for an outsider to come in and face the Ford community (as they undoubtedly saw him as an outsider), this created added pressure. Bill Ford gets a similar level of compensation to Mulally, without enduring the same day to day pressures of running the business and there appears to not be much noise about it. In this case maybe it is sentimentality about the famed Ford name that wins out. But spare a thought for the man that came from the outside, included everyone and took bold moves in difficult times. I believe he deserves a Thank You not castigation.
Gratitude VS Envy (and what we choose to look at):
Why do people not give that Thank You? Why are people not grateful? What role does envy play?
People often get upset or angry and generally that is as a result of a feeling of injustice. i.e. of things not being fair. However fairness and justice, just like beauty and love are in the eye of the beholder. People look at things differently and not always in an objective manner. A judgment of fairness exists based on the perception of an individual and that perception can always be influenced and compromised. Once emotions get involved as they often do we just do not do our best thinking. J.P. Morgan in the early 1900’s said something to the effect that there is nothing that warps someone’s financial judgment more than watching their neighbor get rich.
Is it possible that people view Mulally’s salary not through the lens of comparing his reward VS his contribution and performance, but rather through the lens of, look what he got, I want more. Collectively the other stakeholders have gotten tremendous benefits and will continue to do so and one hopes there is a compensation system that does in fact ensure fairness and consistency on a continuous basis.
How about a return to the past that we do not want:
Do people want a Jacque Nasser type CEO back running the company? How many CEO’s are there out there that can handle the complexity of running a global Automotive company? Mulally may be getting the rewards and accolades now, but who remembers what it was like in ’06, ‘07 and ‘08 when bold and difficult decisions were being made and people wondered if the Aerospace executive could cut it in the Automotive world. It appears that Mulally was inclusive, sincere and understood that pay should be linked to performance and that Ford needed to focus on the long term sustainability of the company.
This may be Mulally’s last big hurrah in his career and I expect that at this stage of his life he feels motivated to make the contribution of a lifetime to a great company, a great industry and a great nation.
Now that he is proven as an admired and capable CEO (much to the chagrin of Boeing), what is his value in the marketplace and how much is he worth to Ford. How about we look at it through the lens of “What will it take to keep his talent here with us, now that we have gotten to know how to work with him and have had success”. Those that push the difficult conversations such as the UAW, need to be mindful of what their own motivations are. Is it to gain more NOW than the system can reasonably sustain in the long term. This was one of the contributing factors along with ineffective company leadership that caused the Ford demise in the first place. Maybe their motivation is to be seen to look good and strong in front of their membership.
It is time for ALL stakeholders to reflect on what is the MOST important goal here. Surely it is something related to a higher purpose than squabbling over how much Alan Mulally gets paid. Surely it can be something that transcends all stakeholders and can unify not separate. It takes courage and maturity to face these difficult conversations and bring clarity on HOW to work together on this NEXT critical phase of Ford Motor Company’s life.
Disclosure: Patrick Hehir or the Business Value Group has no professional relationship with the Ford Motor Company or any of their executive staff. This article was written principally out of a desire to counter balance the current commentary and defend the honor of a man that appears to have done great things. Given that neither he nor the company can do this, then someone ought to. This is also rooted in an earnest belief that the path that Ford has embarked upon NEEDS to continue as a model for business for the 21st century and I have grave concerns that the nature and spirit of the collaboration that undoubtedly existed, could be damaged. Ford is entering into the next treacherous phase of its new life and its potential is too large, and the benefits for many too great to be squandered now.