Ford's Mulally: "He Should Tie Bonuses To Performance"

Ford Motor Co. had the worst year in its 103-year history in 2006. The automaker lost $5.8 billion in the fourth quarter alone – and lost $12.7 billion on the year. Yet CEO Alan Mulally - who came to Ford after overhauling aerospace giant Boeing - is reportedly considering paying bonuses to some of Ford’s managers, even as the company seeks concessions from its unions and predicts more losses this year. Meanwhile, the stock is moving higher. So what exactly is going on at Ford? Brian Johnson of Lehman Brothers was on “Morning Call” to give some insight.

Johnson says Mulally is in a tough spot. On the one hand, he has to get cost-competitive in the face of a major labor negotiation set for October. He also has to streamline product development, as it will be the most important phase of Ford’s turnaround. In order to do this, white-collar workers at the company must be motivated. That’s where the bonuses come in. Essentially, Johnson says, Mulally is trying to balance what will look good to the unions with figuring out how to motivate those people at the top who will facilitate the company's massive restructuring plan.

One thing he could do that would avoid the potential PR mess of dolling out bonus checks while the company posts record losses is to defer the bonuses and make them contingent on future performance, Johnson says. It’s not evident that Ford’s white-collar employees are overpaid relative to the market, although they are probably overpaid relative to results, he says.

In the meantime, as news came out of Ford’s disastrous year, the stock took a surprising turn upward. Where’s the sense in that? Johnson says the market is looking forward. The turnaround at Ford is a long-term project. Neither analysts nor the company expect the next two years to be profitable, but they are betting that Ford starts to show some results by 2009 and 2010. So with all the bad news and controversy swirling at the automaker, the stock price is reflecting the hopes of investors - that Ford’s worst days are now in its rear view mirror.