Thursday, January 15, 2009

Who's really overpayed?

While many commentators have blamed the Big Three's recent troubles on high salaries for manufacturing workers, Dean Baker points out that that's not the only important salary issue:
"The Post has virtually ignored the much larger gap between executive compensation at the Big Three and at the transplants. While top executives at Japanese manufacturers like Toyota only earn around $2 million a year, executives at the Big Three can earn 10 times this amount.This would seem to be a reasonable focus for those concerned about making the U.S. industry competitive."
When you break down the salary differentials between unionized GM workers and non-unionized Toyota and Honda workers in the US, you find that the former makes about 1.2 times the latter ($55 versus $45 per hour, including benefits). This is nowhere near the difference in executive pay.

As I've written before, the wage difference is probably a very small part of Detroit's problems. Similarly, even if GM pays it's executives $18 million more than their Japanese counterparts, this is still relatively small when compared to the billions of dollars in revenue and costs for these companies. Then again, you can't possibly argue that the Big Three's executives have been worth their salaries.

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