General Motors' Latest Bizarre Move

Chafing at the strings attached to the government bailout that saved them. Using loopholes and workarounds to pay themselves lavish salaries.

Who does General Motors think it is, Goldman Sachs (NYSE: GS  ) ?

OK, that's not quite fair. Leaders of the beleaguered auto giant have quite a way to go before they reach Goldman's level of unabashed self-enrichment. But there's still some reason to raise eyebrows.

In an SEC filing released after the market closed last Friday (first rule of PR: If it's bad news, drop it on Friday afternoon), GM made two announcements: first, that it has received "approval in principle" from the feds to pay new CEO Ed Whitacre a cash salary of $1.7 million a year, plus stock options and assorted other incentives for a total of around $9 million, retroactive to Jan. 1.

For reasons I'll explain in a minute, I don't think that's a big deal. But here's the announcement that gets me: GM has retained the guy it dumped, ex-GM lifer Fritz Henderson, as a 20-hours-a-month "consultant" -- for, in GM's words, "a fee of $59,090 payable monthly and reimbursement of reasonable expenses."

That's $2,954.50 an hour. To get advice from the guy the company fired.

Here's some advice that costs considerably less
If GM wants some advice, here's some it can have for free: Cut the cord with your past. Not the tail-fins-and-red-Corvettes past, but the more recent past of executive obliviousness and complacency, the one we all thought the company would cut when it dumped Henderson in December.

Look, I get that this is intended as a relatively short-term thing. I get that GM's PR flack says that ol' Fritz has "unrivaled expertise" in "international operations," whatever that means (maybe it means operations like GM's European division Opel, which Fritz tried to dump). I get that maybe having the guy available for the occasional conference call seems reassuring to the new boss, who after all came to the job from way outside Detroit.

I even get that Henderson didn't receive severance after he was fired, and that's unusual -- CEOs ousted from companies such as Starbucks (Nasdaq: SBUX  ) , Hewlett-Packard (NYSE: HPQ  ) , Convergys (NYSE: CVG  ) , and Seagate (Nasdaq: STX  ) in recent years all received lovely dollar-denominated parting gifts as the doors swung shut behind them.

But.

I'm having trouble seeing three grand an hour for a guy who was CEO for only a matter of months and probably shouldn't have had the job in the first place. I'm having trouble understanding why retaining a guy who personifies the old way of doing things makes sense, given that Whitacre has been telling insiders how frustrated he is with the pace of change at GM.

Henderson didn't run GM into the weeds all by himself. He's not a villain. But as an old-guard CEO at a moment when the company desperately needed a change of course, he was the wrong guy in the wrong place at the wrong time. And he's still the wrong guy, and it's still the wrong time.

Long story short, I think retaining him right now sends a lousy message.

About that raise for Whitacre
On a different note, as I said above, I'm having trouble getting too upset about Whitacre's compensation package. While it's a bit more than the $1 a year that Ford (NYSE: F  ) CEO Alan Mulally promised to get by on if his company ever had to use government loans, $1.7 million (plus some stock that may or may not be worth something someday) isn't exactly a huge payday for Whitacre. After all, the former AT&T (NYSE: T  ) CEO retired with, shall we say, a comfortable sum in his bank account.

Whitacre's a big name with a huge job in front of him. Speaking as an American taxpayer, I don't think that salary is too far out of line, but maybe I'm off base. What do you think? Scroll down to leave a comment and let me know.

Read more about the ongoing global automotive shakeout:

Fool contributor John Rosevear owns shares of Ford. Ford and Starbucks are Motley Fool Stock Advisor picks. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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  • Report this Comment On February 22, 2010, at 1:37 PM, Turfscape wrote:

    "That's $2,954.50 an hour. To get advice from the guy the company fired."

    So THAT'S why I didn't get the job. I offered to consult for GM for $3,000/hour. That jerk undercut me!

  • Report this Comment On February 22, 2010, at 1:44 PM, davidbark wrote:

    considering most people dont make 1.7mil in a lifetime,i think hes getting well paid

  • Report this Comment On February 22, 2010, at 1:46 PM, TMFMarlowe wrote:

    Most people don't run GM, either, though you wouldn't necessarily know that from the company's recent history.

    Thanks for reading.

    John Rosevear

  • Report this Comment On February 22, 2010, at 2:15 PM, TUSKO2 wrote:

    I only know that in recent years and currently, GM makes fine automobiles. So as long as they continue that , and pay us tax payers back, I will continue to purchase their wares.

  • Report this Comment On February 22, 2010, at 2:22 PM, Milligram46 wrote:

    I hear Toyota will be looking for a new US subsidary President after they fire the curent guy as a scapegoat (don't think so - whenever leadership speaks of total confidence of an executive, you know they are doomed). Fritz could apply over there.

  • Report this Comment On February 22, 2010, at 2:24 PM, Milligram46 wrote:

    ...considering most people dont make 1.7mil in a lifetime,i think hes getting well paid...

    Disagree. If I make $30K a year flipping burgers and work for 45 years from age 20 to age 65, I make $1.350 million. That poorly assumes I get no raises during that entire duration, don't invest one penny into interest income, never get any real additional compensation, 401K match, or gifts or other non-cash perks over my entire, blue collar career.

    Amazing to think that today, even a high school drop out living in the US will earn $1.5 million to $2.0 million lifetime minimum, if they have nothing more than a good work ethic and some form of transferable skill, or a skillset so readily needed a job is waiting every where - like fry cook.

  • Report this Comment On February 22, 2010, at 2:51 PM, TMFMarlowe wrote:

    Milligram46, I suspect Toyota could do worse. (And at the rate they're going, they probably will.) I'm actually writing about Toyota's latest drama now. It'll probably run tomorrow -- just in time for Toyoda-sama's appearance. Should be an interesting week on that front.

    John Rosevear

  • Report this Comment On February 22, 2010, at 3:25 PM, sapereaude1 wrote:

    This twit is one of many reasons why corporate America is fulfilling Marx's predictions about capitalism. Corporate Republicans are doing more for Marx's cause than socialists ever dreamt of.

    But I take a warning from the prospect that "what's good for GM is good for America," and urge kids to emigrate before war comes.

  • Report this Comment On February 22, 2010, at 4:00 PM, TMFThump wrote:

    Three grand an hour isn't all that significant in the scope of the budget for an auto manufacturer. The more significant point is that Henderson brings something to the table that apparently GM is having difficulty replacing. I think it's more indicative of Whitacre being in over his head.

    What lasting achievements did he leave behind at AT&T? The company is an unmitigated disaster, yet people have hope in his ability to turn GM around. GM has its share of problems, but one of the bright spots is actually some pretty good products. I say that as someone who works for a competitor. The biggest mistake they made was allowing their finance arm to first get into all sorts of home mortgages (including subprime) and turning that business over to Cerberus instead of having it continue to be focused on supporting the car business. That's one of the chief reasons Ford was able to right the ship quicker.

    Hopefully, that il-fated decision will not be eclipsed by an even bigger blunder -- bringing Ed Whitacre in to lead them out of the crisis.

  • Report this Comment On February 22, 2010, at 4:13 PM, TMFMarlowe wrote:

    One could also argue that Mulally was able to "right the ship" at Ford more quickly because he moved aggressively to leverage Ford of Europe's small-car expertise, and because he dismantled a whole bunch of internal fiefdoms and oldthink. Contrast with Henderson, who flailed around trying to sell Opel (aka GM of Europe) instead of leveraging it (something even Wagoner had had the sense to start doing!) and who was part of the old GM executive establishment.

    Thanks for reading.

    John Rosevear

  • Report this Comment On February 22, 2010, at 4:22 PM, Techlog wrote:

    If I understand the move, you need as consultant the guy who put you in this deep hole. Yes, it is the best guy for that.

  • Report this Comment On February 22, 2010, at 4:51 PM, Jazzenjohn1 wrote:

    Whitacre fancies himself as the Alan Mullaly of GM, however, he hasn't got the same type of manufacturing experience AM has, and he's not an engineer like AM is, and he doesn't have the business sense AM has, and he doesn't have the personality or leadership skills AM has either. Whitacre is hiring Fritz back as a consultant because he's already over his head. On the plus side it's good that he seemingly can admit it this soon but on the bad side he's done little more that fire FH, reverse all the decisions they made to that point, tried oh so hard to find a new CEO and then hired himself, bargained for more money for himself, and decided he needed help and hired Fritz. Essentially he's done nothing for the company of any note so far. Hummer still isn't sold, Opal is still up in the air, the dealer situation is still up in the air, the Saturn sale is still failed, the Saab sale is still not done and is of little consequence anyway. He's almost as much a disappointment as FH. Neither is worth the money they pay them.

  • Report this Comment On February 22, 2010, at 4:52 PM, TMFMarlowe wrote:

    And just to be clear, I do not agree -- at least not yet -- that Whitacre's appointment was a "blunder". A tough-talking outsider who isn't afraid to make cuts and changes -- and who doesn't need the job, and who will be gone in a couple of years -- might look like the best possible choice, in retrospect. Time will tell.

    John Rosevear

  • Report this Comment On February 22, 2010, at 6:14 PM, PositiveMojo wrote:

    Ok - I'm their boss now and they're all fired! Isn't that what we are being told? The American Taxpayer now owns GM?

    Hmm... wait a minute - maybe the unions own them. Shades of socialism and special interest - what next. Stay tuned for the clown show to continue. Go get 'em Mulally!

  • Report this Comment On February 22, 2010, at 6:21 PM, PositiveMojo wrote:

    Ok - as an American taxpayer I'm told I own this company and they are all Fired! Right now.

    Wait a minute you say. Oh - the unions really own GM? The clown show continues... Go get 'em Mulally - rev up that Ford machine!

    In the words of Dirty Harry (kind of) - I know what you're thinking. "Did he fire six cylinders or only five?" Well, to tell you the truth, in all this excitement I kind of lost track myself. But being as this is a .44 Magnum Mustang, the most powerful car in the world, and would blow the head of your company clean off, you've got to ask yourself one question: Do I feel lucky? Well, do ya, punk?

    The only way to fix management is to replace it. Making a union as an owner just might be a conflict of interest - ya think?

  • Report this Comment On February 22, 2010, at 8:59 PM, jomueller1 wrote:

    Paying Henderson is the usual good ol' boys form of corruption. The fish stinks from the top. GM has not understood that in thirty years and will never understand it. So it will go bankrupt again. They paid dividend from borrowed money. That is not sensible financial behaviour. GM tried to keep the facade until bankruptcy. Some smart financial writers warned of that already more than 10 years ago.

    I doubt that GM makes good vehicles. In Germany independent car mechanics would warn you of buying an Opel. The other day I watched a Cadillac making a right turn with the left blinker on. Every decent car would disengage the blinker when turning the wheel the other way. To be fair, I do not think my Ford is any better. The best cars I ever had were decorated with a star.

  • Report this Comment On February 22, 2010, at 11:04 PM, mark516119966 wrote:

    Maybe Whitacre is over his head. Who wouldn't be, but I see putting Henderson on the payroll as a favorable sign.

    I always thought as boss surrounding yourself with knowledgeable people was a sign of intelligence.

  • Report this Comment On February 23, 2010, at 9:52 AM, badbiker wrote:

    I work for a major player in the auto industry. I haven't had a raise in 5 years. At 1.7 mil, Whitacre makes almost exactly per month what I make in an entire year (that's gross, before taxes and benefits are extracted). So ... where did I go wrong in my career path?

  • Report this Comment On February 23, 2010, at 12:04 PM, hicaps wrote:

    Good old Ed, He left ATT with 194M retirement pkg and now back running GM. I guess 194M doesn't go as far as it use to. Ed's salary is a joke as well as the 2900 bucks a hour for the old retread. America! great place to be an executive.

  • Report this Comment On February 23, 2010, at 1:42 PM, Tomtherailnut wrote:

    GM cars look great, drive well, and are nicely appointed inside. None of that is due to the influence of Fritz Henderson, and none of that will ever be the result of having Ed "Telephone" Whitacre at the helm. Both of these guys are wrong for a "new" GM. Neither has the gumption to do the hard work - push back on the unions until they squeal, keep the company capital at work instead of kicking out a fake dividend, advocating for exciting low cost cars that Everyman can afford as well as top end sports cars that Everyman dreams of.

    Until GM means "Great Motors!" again, instead of dreary "Government Motors . . . ", nobody ought invest in this dog, and any pay they give to these guys is wasted.

  • Report this Comment On February 25, 2010, at 12:09 PM, grant224 wrote:

    "So ... where did I go wrong in my career path?"

    Working for a major player in the auto industry ?

  • Report this Comment On February 25, 2010, at 6:05 PM, langco1 wrote:

    with the depression in the US now out of control and with no one running the country here are a few of the name bankruptcys for 2010...GM!chrysler,aig,hertz,sirius,riteaid,etrade,aol,moody's,blockbuster,street.com,sears,and palm...just a few!!

  • Report this Comment On February 25, 2010, at 7:48 PM, tricktrack wrote:

    Milligram, I suggest you recheck your calcs for the burger flippers. How about starting at $7.50 per hour, and maybe 25-30 hours a week? In this economy, forget about 401K matches, raises, and additional compensation like health insurance. Actually, you could forget about much of that in the "previous" economy as well.

    The next raise will probably come when an increase in the minimum wage is legislated. The person will probably move after a few years onto another job that offers 50 cents or a dollar more per hour. There probably won't be much income put into investments, or even savings. And this is the person with the work ethic and the employable skills.

    Hope that info makes your day. You seemed rather dejected thinking that a high school dropout could earn $1 million over 45 years.

    Actually, you could take this guy, pay him 10 times his rate, let him run a major corporation into the ground in the same length of time, and still save money over guys being paid $3,000 per hour.

  • Report this Comment On February 28, 2010, at 8:11 AM, dlomax77 wrote:

    I earn $10/hour and the only reason I can divide 15% of my pay among my 401k, ira and brokerage account is that I don't own an automobile. I would have a hard time clearing $30k in my town if I owned a restaurant.

  • Report this Comment On February 28, 2010, at 11:18 AM, futuretrade wrote:

    GM still does not have a sustainable economic model. GM should have been allowed/forced to go into bankruptcy so that some of their long term structural financial burdens could be properly dealt with.

    Billions of dollars of taxpayer money was spent in order to interfere with the bankruptcy process and keep many of those long term structural financial burdens in place.

    It would have been far better if the federal government had been honest about what they were doing and instead of bailing out GM allowed GM to go into bankruptcy and then use the "bailout" money to bailout all those who would be left holding the bag due to GM's bankruptcy.

    Then the federal government could used the billions in taxpayer money to set aside a trust to continue to pay health benefits, retirement benefits and other long term costs while allowing GM to shed itself of these costs. AND forcing GM (the bankrupticy judge would have required it) to start dismantling its inefficient layers of overpaid management, just like Ford has had to do.

    Instead, the billions of dollars were dropped into that sinkhole that is GM with no correction of the structural problems. And for what? To payoff the unions?

    Whether you are a Republican or a Democrat this nonsense should make your blood boil.

  • Report this Comment On February 28, 2010, at 11:19 AM, futuretrade wrote:

    GM still does not have a sustainable economic model. GM should have been allowed/forced to go into bankruptcy so that some of their long term structural financial burdens could be properly dealt with.

    Billions of dollars of taxpayer money was spent in order to interfere with the bankruptcy process and keep many of those long term structural financial burdens in place.

    It would have been far better if the federal government had been honest about what they were doing and instead of bailing out GM allowed GM to go into bankruptcy and then use the "bailout" money to bailout all those who would be left holding the bag due to GM's bankruptcy.

    Then the federal government could used the billions in taxpayer money to set aside a trust to continue to pay health benefits, retirement benefits and other long term costs while allowing GM to shed itself of these costs. AND forcing GM (the bankrupticy judge would have required it) to start dismantling its inefficient layers of overpaid management, just like Ford has had to do.

    Instead, the billions of dollars were dropped into that sinkhole that is GM with no correction of the structural problems. And for what? To payoff the unions?

    Whether you are a Republican or a Democrat this nonsense should make your blood boil.

  • Report this Comment On March 09, 2010, at 9:53 PM, NineD930thTA wrote:

    Fritz Henderson was the CFO at GM when they had soo many accounting mistakes and then he failed upwards to the COO then he was named CEO when the government needed someone to be their lap dog and do what they wanted.

    I think GM brought Henderson back as a consultant so he could tell them what in the hell he did in the books as the CFO of the company because they cant figure out what in the world he was doing and why he was doing it. lol

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