Ford doubles annual bonuses amid worker fury over controversial formula
Ford Motor Co. informed employees Monday afternoon that it planned to revise its just-revealed annual bonus formula for salaried workers after a backlash that triggered executive strategy meetings throughout the weekend.
The pivot includes top executives now taking a significant bonus cut.
At issue was not just a dramatic contrast between Ford and GM of what are usually routine bonuses based on company performance but also a two-tiered system at Ford between lower- and higher-level salaried workers that shocked Ford employees.
After 16 months of relative smooth sailing, this was the first internal unrest under the leadership of Ford CEO Jim Farley, employees told the Free Press. And it comes on the heels of a disappointing reaction from Wall Street to the 2021 annual earnings report.
While the Free Press talked with a number of workers, multiple sources close to management acknowledged a situation had evolved that was not anticipated and needed immediate adjustment.
"There may be years we don’t make adjustments and there may be years when we do," Farley told the Free Press in a turnabout Monday. "We felt in this case it was the right thing to do."
This turn of events has caused worry and disruption among employees who say they are loyal to the company and especially grateful to Farley for his style, which has raised stock prices and renewed confidence in the company among its workers and investors.
Here's what happened:
General Motors announced its earnings on Feb. 1. That night, an email went out to its salaried workers telling them that their performance bonus formula would be based on a 200% across-the-board company performance factor. The Free Press obtained documentation that confirmed this data point and also confirmed with the company separately.
After Ford reported its earnings on Feb. 3, its salaried employees waited for an update on the bonuses and didn't get one. Buzz about the GM bonus made its rounds through the Ford ranks. But Ford didn't notify its employees until Feb. 7. The automaker said that the performance bonus formula would be based on a 54% bonus payout for its lower-level salaried workers and the managers to which they report and a 135% payout for its senior managers, regional directors, global directors, executive directors and vice presidents.
For example, a general salaried worker bonus target of $9,500 with a 54% payout leads to $5,130 in performance pay while a 135% payout leads to $12,825.
After a town hall webcast on Thursday hosted by Tom Hilditch, chief financial officer of Ford North America, and Kumar Galhotra, Ford president of the Americas & International Markets Group, things seemed to continue to unravel.
The Free Press obtained video as well as documents and chat discussion that reflected a serious disconnect within the company that threatened to shatter the trust and faith Farley had worked to rebuild since he assumed the CEO role on Oct. 1, 2020.
Not only did internal chat discussions at Ford reflect anger and shock, based on interviews with employees and confirmed with the company, but external job sites discussing the latest developments reflected a cynicism and outrage more common to the days of former Ford CEO Jim Hackett, whose tenure was rocked by drama and disruption as he worked to slash costs and make changes.
Farley, Ford slash exec bonuses
On Monday, Farley confirmed getting hundreds of emails protesting a new bonus structure, and explained that he and his team decided to double the dollar amount being distributed to thousands of lower-level workers while also cutting the bonuses for the top 40 or so corporate officers including Farley, executive chair Bill Ford and chief financial officer John Lawler.
"Our bonuses are going to go down to help pay for this," Farley said. "That’s just kind of the ethos of our company. ... The leadership of the company and the working level will get the same bonuses. The working levels will go up approximately double and leadership team will go down to the same level."
All decisions are reviewed and approved by him and made as a team, he said.
"We are one team. This is not Jim Farley and the rest of the team," Farley said. "We spent the whole weekend working on this. Bill (Ford) is a part of this too, a very important part. Part of leadership is making adjustments."
Sometimes a formula established a year ago isn't particularly adaptive to the environment today, with parts shortages and intense work schedules, Farley said.
"As far as the leadership team, there’s no daylight between any of us. We’re here to serve the employees. You know that’s my philosophy," he said. "That’s why we’re making this change. This change is all about serving our employees — having our top management and our team in North America be on the same page."
Employees at Ford note that while the company appeared to want to save tens of millions of dollars by slashing bonuses for its workers, they can't understand why Ford would penalize the people earning the smaller paychecks or why this would happen after the CEO held a town hall where he praised workers for their performance.
Farley has presented a profound contrast in leadership style, which has earned praise internally among employees at all levels and externally among Wall Street analysts.
On Saturday morning, Galhotra sent a memo to employees, which the Free Press obtained.
"Earlier this week I shared our performance related to the Annual Incentive Compensation Plan (AICP) metrics for 2021 and how our results would impact annual bonus payouts," Galhotra said in the memo. "Since then, we have heard from many of our team members who raised understandable questions and concerns about the significant gap between N. A. (North America) LLG and GSR employees (lower-level workers) and global LL5+ employees (upper management). I and other leaders at the company have been listening and reflecting on the issue. We have determined that we should make adjustments. As we work through this, we'll be guided by doing what is fair and what's right for the business in these challenging times. please look for a follow up communication next week with more details."
Employees at Ford told the Free Press that getting such a memo on a Saturday is unusual. Company officials, including Galhotra and Kiersten Robinson, chief people and employee experiences officer, were among those who met throughout the weekend to discuss the situation and come up with a resolution.
While they told workers that the bonus formula was based on North America results, where Ford makes most of its money, workers say the formula created makes no sense because there is no way the Ford bonus should be so much lower than GM.
The chilling effect of this situation is dire for a company that wants to retain and attract talent, workers told the Free Press, asking that their names be withheld because they're not authorized to discuss Ford town hall content.
"This has caused chaos," a Ford employee told the Free Press. "We knew we were trending below the plan and GM would be higher but what makes it worse is screwing over probably 75% of the company. This is hitting people in their pockets by $5,000 to $15,000."
Galhotra said during the streamed meeting on Thursday, based on video reviewed by the Free Press, "Clearly there are a lot of questions ... I fully understand the disappointment."
He went on to explain that the 54% for lower-tier workers was tied to North America performance goals while the 135% for the higher-ups was tied to global performance goals, and workers in the past requested they be tied to North America as Ford has always made money in North America. In this case, the metrics reflected that Ford failed to meet its goals and so the company adjusted the metrics to comply with employee request — it just didn't benefit them.
Affecting the majority
"Employees wanted to be more connected to North America performance versus global performance," Galhotra said. "That was feedback and why it was changed."
The coincidence of the sudden formula change and dramatic cost savings to the company wasn't lost on workers.
General salaried workers have titles such as design engineer, finance analyst, communications lead, program manager, architecture engineer, CAD engineer and systems engineer. Their supervisors also fall within the lower-level group.
Initially, this was what the estimated impact on the average Ford employee was going to look like:
- General salaried worker bonus target of $9,500 with business performance factor of 54% leads to a payout of $5,130
- Manager bonus target of $18,000 with a business performance factor of 54% leads to a payout of $9,750
- General salaried worker bonus target of $9,500 with business performance factor of 135% would have led to a payout of $12,825
- Manager bonus target of $18,000 with a business performance factor of 135% would have led to a payout of $24,300.
By comparison, GM workers are getting between $15,000 and $40,000.
This is the first year a tiered bonus system was implemented, employees said.
Farley confirmed Monday that he was aware of the 54% bonus structure, saying it's a strict formula that he approved as CEO earlier in the year, before anyone can predict performance outcomes. And it would be imprudent to make financial changes midyear when things are so dynamic, he said.
"But pretty much as soon as Kumar did his town hall, which we all felt was super important, we all started getting immediate feedback," Farley said.
While Ford beat its financial targets in 2021, Ford Credit carried the day with a surge in profitability because of the buoyed used car market but that metric was applied only to global profits and not North America, Farley explained. In the past, North America has always had higher profits than the global metric, he said.
"The reason why we had tension is very explainable," Farley said. "There was an enormous gap between the leadership team that works on global business or even managers deep down the organization ... and the team dedicated to North America. The gap was very large and that’s what we (in management) heard about … 'The gap is so large between myself and my manager and my manager’s manager, I’m confused.' "
People have been emotional, Farley said.
"In the end, all that really matters is the team was very clear. The inequity was the thing they were concerned about. And so we’ve addressed it," Farley said. "We’ve made change. I think that’s part of being a leader."
Now, Farley said, general salaried workers and their supervisors, known as LL6 level, will get a 108% performance bonus formula — as will the top tier in the company. The midlevel executives, known as LL2 to LL5, will remain at 135%. Bonus cuts will also be felt by Robinson, the human resources officer, and Hau Tai-Tang, chief product platform and operations officer.
While he can't speak to the General Motors formula, Farley said, it was mentioned as part of the feedback he received.
Pat Morrissey, GM spokesperson, told the Free Press, "We had strong performance in 2021, and with our global variable pay incentive program for GM salaried employees and hourly profit sharing, when GM wins, all of our team members win."
GM employs 157,000 workers globally. Of the 98,000 in the U.S., 53,000 are salaried and 45,000 are hourly, he said. GM declined to discuss specifics.
Ford employs 183,000 workers worldwide. Of the 86,000 employees in the U.S., 30,000 are salaried and 56,000 are hourly, a Ford spokesperson confirmed Monday.
"Not everything in business is a formula," Farley said. "What I’m excited about? When we heard from employees, we did something. It’s not about money, it’s about us serving the employees and listening to them."
In previous years, Ford used these formulas for performance bonus payouts, according to documentation obtained by the Free Press:
- 2016: 113%
- 2017: 76%
- 2018: 100%
- 2019: 72%
- 2020: 54%
- 2021: 50% (board approved to compensate for COVID impact)
- 2022: 54%
Hourly workers are represented by the UAW and receive profit sharing checks every year as part of their collective bargaining agreement. In 2021, GM hourly workers will get an average payment of $10,250 while Ford hourly workers will get an average payment of $7,377. Stellantis is scheduled to report its earning and profit sharing on Feb. 23.
"We don’t have any time for drama at Ford. We have a huge transformation to make," Farley said Monday. "I think it’s terrific that our employees turn to you to express where they stand. I would tell you that the feedback I got was no different. ... I’m so glad I did. Glad our whole leadership team did. Leading a company as complicated as Ford, there will be plenty of times we’ll need to make adjustments."