Stellantis Investors Fume Over CEO Pay Amid Job Cuts, Plant Closures, Supplier Strife

Stellantis CEO Carlos Tavares’ pay increase has annoyed a subset of shareholders as the automaker positions itself for more layoffs and attempts to shift the production of electric vehicles to countries where labor is cheaper. Meanwhile, the automaker's unwillingness to renegotiate contracts with suppliers had created additional tension with its business partners.

According to reporting from Automotive News and Bloomberg, advisory firms Glass Lewis and Proxinvest are urging investors to vote against approving the €36.5 million ($39 million USD) compensation package. While investors previously voted against Tavares’s pay scheme two years ago (in a non-binding referendum), they appear to be doubling their efforts this time around.

Having increased by nearly 60 percent over the executive payout scheme from 2022, some investors are arguing that the CEO is making too much at the expense of its own domestic workforce. They are likewise irritated about a new incentive award worth €10 million tied to meeting electrification and software goals that haven’t been terribly popular with regular people.

As for the shifting production locales, we touched on this a little when we noted that the Alfa Romeo Milano ( now known as the “Junior”) had angered the Italian Business Minister due to being produced in Poland. However, Stellantis is also trying to shift EV assembly to places like Morocco due to their lower-than-average labor costs.

The argument is that European manufacturers that are pivoting to EVs have had difficulties making them profitable and have already invested heavily into their development. Lower overhead in terms of production costs are supposed to help them endure the onslaught of cheaper Chinese EVs that are assumed to flood the market as European governments effectively mandate electric vehicles.

Tavares has brought the matter up numerous times in the past, suggesting that Western automakers will need every tool at their disposal to compete with China. But investors have noticed its dwindling employment base and select financial decisions are making a lot of people upset.

“Investors, in particular European ones, are becoming increasingly sensitive to social aspects of corporates [sic],” Charles Pinel, CEO of Proxinvest, told Bloomberg in a recent interview. “They are even willing to accept lower dividends or to make efforts if the social context is complicated.”

From Bloomberg:

Last week, thousands of Italians joined striking workers near the carmaker’s base in the northern Italy, with Tavares and government clashing for months over plans to move EV production elsewhere. Stellantis is targeting reduction of its Italy workforce by 8 percent, or roughly 3,700 positions, according to the Fiom labor union. In the U.S., the company has initiated the termination of thousands of supplemental employees in Detroit, Toledo and Ohio, and is eliminating more positions in France, according to local unions.

The layoffs, which contrast with increasing executive pay and a higher dividend, may raise questions about remuneration practices “in addition to causing potential reputational risk for the company,” Glass Lewis wrote in a report last month.

Stellantis’ tough measures while raking in record profits have rankled workers who have complained about the cuts and increased work load, but also if of unsanitary conditions in certain plants, a lack of work gear and insufficient heating.

While Tavares’ plans to further streamline the company haven't been particularly popular, this has been the trend for many large automakers of late. General Motors has been trimming employment numbers for years and recently announced plans to abandon the iconic Renascence Center to set up shop within a smaller building. Ford has likewise seen a decline in staff, going from a peak of 202,000 employees in 2017 to a much leaner 177,000 by 2023.

In truth, we’ve seen these trends play out across entire markets — particularly among companies that have spent the last several decades consolidating power, subsuming the competition, and chasing automation. While that would certainly include Stellantis, this has also been the status quo for mega-corporations and their executive leadership for at least a generation.

“There’s a contract between the company and myself, just as there are contracts for soccer players and for Formula 1 drivers,” Tavares told reporters in northern France on Monday. “Also, 90 percent of my salary depends on the company’s results — this goes to show they aren’t that bad.”

We imagine that’s largely a matter of perspective and who you happen to be in relation to the situation. Suppliers certainly appear angry. With the company vowing to shift to all-electric vehicles, many long-held business relationships are falling apart. Making the matter worse is Stellantis refusing to adhere to suppliers demanding inflationary cost relief. While it’s understandable that the automaker is trying to reduce production costs in a period where people aren’t spending like they used to, suppliers are finding themselves running into operating costs they’re claiming are untenable as the larger entity profits.

Crain's Detroit Business reported that at least a couple Tier 1 suppliers have stopped shipping parts to the automaker in recent weeks out of protest. Legal challenges have also been raised on behalf of the manufacturer. Stellantis has alleged that its agreements with suppliers are binding, whatever the economic situations of the day might be. Conversely, the suppliers’ legal team have stated that the companies are effectively going bankrupt due to the automaker refusing to renegotiate inflationary cost solutions.

CEO Carlos Tavares has stated that suppliers will also need to tighten their belts as part of Stellantis’ overarching cost-cutting strategy and the company formally stated it wasn’t going to renegotiate supplier contracts in February. It doesn’t appear to have made the automaker popular with its suppliers. But Stellantis has alleged that the industry needs to think about long-term sustainability and claims plenty of businesses are on the same page.

"Many of our supplier partners understand that to overcome the challenges of vehicle affordability, they must operate with the same level of commitment to reduce their costs," Stellantis told Crain's. "However, some suppliers are threatening to disrupt our manufacturing operations by continuing to demand substantial price increases. Such actions undermine the collaborative spirit required to find opportunities to reduce and absorb costs in order to maintain affordability for our customers."

In the related legal battles, one judge has ordered a supplier of fasteners to resume shipment after production was stalled at the Toledo Assembly Complex. In the other, a judge denied the automaker's motion to force a manufacturer of gears and pinions to continue supplying the automaker. This matter has already forced several plants to go idle earlier in the year and may likewise stifle Stellantis’ transmission production in the coming weeks. Lawsuits have also been launched in Europe over suppliers butting heads with the company.

Again, the situation mimics what we’ve seen from numerous manufacturers over the last couple of years. But the fact that this has become relatively normal doesn’t seem to be making anyone feel better. If anything, the opposite appears to be true. However, fingering CEOs as the soul offender is always a short-sighted approach. Stellantis, like all major companies, has a board of directors (including a whopping four ESG committee members) and they're likewise responsible for what's happening to varying degrees. But it's easier, and often very convenient for a business to simply allow the CEO take all the heat.

[Images: Stellantis]

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