General Motors Co. said Wednesday it will eliminate traditional pensions and freeze salaries for its U.S. salaried employees. But the automaker will attempt to soften the changes by offering salaried employees an extra week of vacation and a chance at larger bonuses.
The announcements come a day before GM will release its fourth-quarter and full-year earnings, which are expected to reveal record full-year profits but shaky fourth-quarter margins, the weakest since the company emerged from a bankruptcy restructuring.
The whole philosophy is to allow our employees to share the success of the business, said Katie McBride, executive director for GM communications, in a phone interview Wednesday afternoon. But it's also about helping GM grow profitably and strengthening the balance sheet.
McBride outlined what GM told U.S. employees Wednesday. She said the company will allot bonuses to special-skills workers, but they will not be offered across the board. Bonuses will be based on a number of metrics and internal targets to those metrics, McBride said.
With the pension plan, GM will complete its shift of employees to a 401(k) system, as opposed to defined-benefit pensions. The 401(k) plans are marked by defined contributions, which McBride said most large corporations have shifted to long ago. This continues GM's own shift, when it began requiring salaried employees hired after Jan. 1, 2001, to enter into a 401(k) plan. Now, even employees hired before then will switch, effective Oct. 1. Employees hired before 2001 will still keep the benefits they have accrued under the old pension plan.
GM's pension obligations at the end of 2010 stood at more than $128 billion, the largest of any U.S. corporation, McBride said. These moves aim to make the automaker more competitive. Those obligations were underfunded by nearly $11 million midway through last year, according to company filings.
McBride said the pension-plan changes will not affect retired workers.
What's happening today is that it's another step, McBride said. All salaried employees, after Oct. 1, will be on one consistent, defined-contribution pension plan. They will have a pension plan. It's just structured differently.
Headlines about GM cutting pensions are not accurate, she added.
GM's fourth-quarter earnings are expected to take a hit Thursday, as the automaker's struggling European operations with its Opel unit drag down profits. The company is reportedly looking for deep concessions from labor unions in Europe and from Opel, which has suffered from nearly $14 billion in losses since 1999. GM has considered severe job cuts and plant shutdowns as well, already closing a plant in Belgium.
It's a mess, said Michelle Krebs, a senior analyst at Edmunds.com. GM's back is against the wall on Opel. It just is going to have to do something there. So I think we will see something coming in that regard.