General Motors and United Auto Workers Union - Case Study Example

However, there is more to be done if GM is to avoid bankruptcy, or emerge from a reorganization process as a financially sound company. This paper will examine the options that the UAW, GM, and their management have, and make recommendations in regards to managing the hourly pay issues at GM. The UAW's hourly pay is broken down into three main categories and several sub-categories. As of December 2008, the total compensation was comprised of the hourly pay of $30 per hour, premium payments of $10 per hour, and current and future benefits of $33 (Sherk).

Premium payments include overtime pay, shift premiums, and vacation and holiday pay. Benefits include health and life insurance, disability, unemployment benefits, and pension payments. The health and retirement benefits paid to retirees is considered a current compensation expense, and according to Sherk, "Since there are more retired than active employees this makes it appear that GM employees earn far more than they actually do". Reducing the hourly compensation to the $50 goal will require that GM and the UAW look at all these areas in an effort to find cost saving opportunities.

A central key to saving labor costs is reducing the size of the workforce. Currently GM has established a 'buyout' program that compensates the employee with up $45,000 cash immediately (Bunkley 2). In return, the employee severs all ties with GM, and the cost of current and future benefits is reduced to zero. While the recent round of buyouts resulted in 7500 workers leaving GM, 14000 remain at GM who are eligible for the program. However, GM terminated the program in early April 2009 and has made no plans to reinstate or continue it.

The money saved through the buyout program is critical because it saves in the short term as well as the long-term future benefits such as health insurance and retirement pensions. Two thirds of the eligible workers declined the arrangement, but GM could increase the incentive in an effort to increase that number. Further voluntary reductions in the workforce will allow GM to restructure its product lines in an environment of higher productivity with fewer employees. The fact that the workforce reductions are voluntary maintains good employee relations as well as Union/Management cooperation.

A GM that is reduced in size will allow them to focus on the product lines that have the most potential for sales growth. GM has made some pro-active moves in this direction by announcing the closing of 13 plants, phasing out the Pontiac brand, and cutting 21,000 hourly jobs (GM to Phase Out Pontiac Brand). Ford, who has reduced hourly compensation to about $55 per hour has pursued a similar strategy and said that "the figure would continue to decline as more workers took buyouts and as the new-vehicle market recovered, allowing increased production" (Bunkley 2).

An extension of the buyout program by GM, an added incentive for taking advantage of it, and the increased productivity would put GM on par with Ford at $55 per hour.Further reduction in the hourly pay could be accomplished by more closely limiting the