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Ford CEO Jim Hackett notified all employees in writing Thursday morning that the company would freeze executive pay and stall employee merit raises as part of a push to strengthen Ford’s financials and prevent job cuts amid the virus crisis.
“We have taken significant actions to reduce costs and to fortify our balance sheet and cash position in this unprecedented situation. These include suspending the dividend paid to shareholders and accessing our credit lines for more than $15 billion in additional cash,” he wrote in an email marked 8:30 a.m. “Candidly, though, we need to do much more given the sharp drop-off in demand for new vehicles and the shutdown of our plants worldwide.”
Be prepared
He told workers to prepare for specific “cost-reduction decisions” that would affect everybody.
“Sacrifice starts at the top. That is why the top 300 Ford senior executives will defer 20 to 50% of their salaries for at least five months starting May 1,” Hackett wrote. “Bill Ford has decided to defer his entire salary for this period.”
The CEO, coming up on his third anniversary at the Dearborn automaker, was already restructuring the company prior to the global coronavirus crisis with job cuts and other initiatives. Ford, like others, has shut down operations globally in response to the pandemic.
“Our goal is to manage through the crisis without eliminating Ford jobs. Our people are dealing with enough challenges without being out of work, too,” Hackett wrote. “Plus, on the other side of the crisis, we will need our talented team to quickly ramp up to our full potential. Having said that, if the effects of the coronavirus on the global economy and Ford go on for longer — or are more severe — than we currently anticipate, we may have to take tougher actions. But not today.”
Cutting hours, ‘voluntary sabbaticals’
Ford will postpone merit-based salary increases, suspending overtime for salaried workers and freezing all hiring for non-critical skill positions, he wrote.
“Work schedules and compensation may be temporarily reduced for people whose jobs can’t be done effectively away from Ford facilities. Others might be offered chances to take voluntary sabbaticals. In these and other cases, we will continue to provide health insurance and, for people who are exposed to the coronavirus, paid time off to cover a 14-day quarantine,” Hackett wrote. “The actions we’re taking now are wide-ranging and substantial. We hope they will be enough to give Ford the financial flexibility to ride out the economic and business effects of the coronavirus — so we can emerge as a stronger company.”
The sabbaticals would last up to three months at 25% pay, confirmed company spokesman Ian Thibodeau. Actions also included suspending the tuition assistance program for salaried Ford employees through Sept. 1.
Hackett ended the letter thanking the 190,000 employees for their “resilience and commitment to each other and all Ford stakeholders during this extraordinary period.”
Employee merit pay will be delayed until Oct. 1 and U.S. employees must use vacation the week of April 6, spokesman T.R. Reid confirmed. Merit raises were supposed to take effect April 1, he said.
Top execs affected
Also Thursday, Ford notified the Securities and Exchange Commission about its plan for certain executives, including named executive officers, to defer a percentage of their base salary for at least five months.
“The accumulated deferred salary amounts will be paid after the Company has repaid at least $7 billion of its automotive debt,” the filing said.
While Executive Chairman Bill Ford will defer all of his salary for that same period, other deferments include 50% of salary for Hackett, Chief Operating Officer Jim Farley and Chief Financial Officer Tim Stone. The company’s board of directors did approve allowing Bill Ford “to accrue credited and contributory service under the applicable non-qualified plans such that he will receive the same benefit amounts as if he had been paid a salary under the Ford General Retirement Plan during such period.”
Bill Ford earned $1.7 million base salary in 2018, according to the April 2019 proxy, which is the most recent data available. Hackett is listed as getting a $1.8 million base salary. Stone, who was hired a year ago, earns $1.1 million in base salary. Farley, who was recently promoted, earns $1.4 million in base salary.
The company declined to provide a dollar total for wages deferred.
‘Sacrifice’
John McElroy, a veteran automotive industry analyst and host of “Autoline After Hours,” said, “Ford is clearly taking urgent action to deal with the economic downturn triggered by the coronavirus. The fact that Bill Ford is giving up all his base pay, while the other offices are giving up half of theirs, is commendable. But it’s also a warning to the rest of the workforce. If the auto industry doesn’t recover quickly enough, they will be asked to sacrifice too.”
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Apart from base salaries, the top tier at Ford reported earning sizable pay packages during the last federal reporting cycle: Bill Ford with nearly $14 million, Hackett with nearly $18 million, then-CFO Bob Shanks at nearly $8 million and Farley with nearly $6 million as then-president of global markets.
‘Skin in game’
Based on the government filing, market analyst Jon Gabrielsen doesn’t think any of the executives will recover the wages they’re forfeiting in the short term.
“Ford’s announcement on the sacrifices that the top 300 executives in the company will be taking to support Ford in these very difficult times are very symbolically important,” Gabrielsen said. “Unfortunately, the total savings from them will not be materially significant to earnings, but every little bit helps and it is very positive that they are all putting their skin into the game. As a practical reality, while in theory this compensation is only deferred, the odds that Ford will be able to repay $7 billion in automotive debt in the next few years, to trigger them being reimbursed, is extremely unlikely so this is compensation they will have sacrificed forever.”
The company should consider suspending refurbishment of the Michigan Central Station in Detroit and major projects in Dearborn, which are projected to cost hundreds of millions of dollars, Gabrielsen said. “That symbolism would go a long way.”
Reporter Jamie LaReau contributed to this report.
Contact Phoebe Wall Howard at 313-222-6512or phoward@freepress.com. Follow her on Twitter @phoebesaid. Read more on Ford and sign up for our autos newsletter.
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