Ford Queues Up the Bonuses Again

It is really amazing how much people do not understand the dynamics of labor inside a company. Ford is trying to buy people out, so why hand out bonuses to retain? Well, it's far more complex than that. First, there are the salaried, non-union workers, none of which are currently eligible for buyouts. Bonuses retain them. Retention keeps Ford running smoothly at the operations level and helps save potentially billions over the next couple years. Second, there are the unions, the ones who are eligible for buyouts. If you don't offer bonuses while the rest of non-union labor gets it, they lose motivation, but they won't quit of their own accord because they have no better paying job to go to. Not offering bonuses won't get rid of them. Buyouts will, but you have to have both so you keep the remaining ones motivated to do a good job. Otherwise, you just have dead weight that you can't fire because they aren't doing terrible things, but you can't keep motivated unless you give incentives along with the rest of the company. If you give nothing, it will likely cost you more in the long run than if you do. The opportunity cost of forgoing debt payments the size of the bonus pool might be NPV of $150 million. The opportunity cost of investing the bonuses in new programs might be NPV $150 million. Let's call it an even $500 million in "cost," but that is a pretty high guess. Disruptions or poor performance in the workforce would likely cost Ford far more in the long run - likely a couple billion in NPV reflecting in program delays, operational inefficiencies and COQ in vehicle production. As a businessman, I'd take the bonus payout any day.

I tend to agree with RobertSD -- to a point. Many companies base their bonuses on a combination of individual and company performance metrics. Given Ford's dismal financial state, the company performance metrics ought to be set to the minimum (which might be zero), but if you deny your employees individual performance bonuses, your retention at the rank-and-file levels starts to become grim. It's entirely possible for individual salaried employees to really do an outstanding job even as the company itself is under-performing. If they don't have P&L responsibility, the employee's control over the company's overall bottom line is pretty limited. If you've got somebody who's busting their ass to get things done in a bad situation and you don't recognize their performance, it sends two messages: (1) don't bother doing an outstanding job, because there's no reward for it and (2) the company is a sinking ship, and it's time to flee. I have no idea how Ford structures its bonus metrics, but the people with P&L responsibility really ought to have their bonuses far more tied to company performance, and when the company is in shitty shape, their bonuses should suffer. But there's a big difference between not handing out cushy rewards to the fools in upper management who are actually supposed to be responsible for the bottom line and slapping the rank-and-file people.

Exactly which people are they trying to retain here? If they were to give out very targeted retention bonuses that may have some logic. Better yet, they should give out very targeted stock options. At the low, low price of Ford stock, the incentive to stay and triple it should be really motivating. The folks who need cash to stay aren't worth keeping.