7 Reasons U.S. and European Auto CEOs Are Worth What They're Paid
Ford (F) recently announced a lavish payday for its CEO, Alan Mulally: $56 million. The consensus was that Mulally, who saved Ford from the bailout/bankruptcy fate that met General Motors (GM) and Chrysler, deserved the money. But what about his rivals in the executive suites of other automakers?
GM's Dan Akerson, on the job since last year, brings in $9 million total, while the boss of the two-headed beast that is Chrysler/Fiat, Sergio Marchionne, has taken home $6 million annually but saw that drop to just over $4 million in 2010. Renault/Nissan's Carlos Ghosn makes a bit over $9 million. Japanese auto CEOs, by contrast, make a pittance. Toyota's (TM) Akio Toyoda gets $1 million or so (excluding stock), while Takanobu Ito of Honda got even less.
And yet, the U.S. and European CEOs are worth the extra dough. Here's why:
- They aren't managing domestic businesses, but global enterprises. Mulally has to deal with Ford's heavy debt load while simultaneously maintaining market share in hyper-competitive North America and pursuing its advantage over GM is Europe and find a way to deal with GM's ambitions to get bigger in Latin America. This is not easy. Not easy at all.
- They are managing across very different business cultures. Carlos Ghosn, although battered recently by a corporate espionage scandal, is working with an executive team in France and Japan. While these cultures may have much in common, they are in many other ways miles apart. Integrating what each does, to maximize the alliance, is like having five full-time jobs.
- They are the guardian of an industrial trust. As the Detroit carpocalypse and subsequent government intervention proved, a nation's auto industry forms the emotional core of its manufacturing base. Carmaker CEOs are responsible for protecting this. When they fail, as GM's Rick Wagoner found out when he fired by President Obama in 2009, they fail big time.
- They have to be masters of many trades. At one point, it would have been okay for an auto CEO to be an able manager or money guy. But now they need to embody the vision of Steve Jobs and the financial acumen of Warren Buffett. It helps if they understand why people respond to really cool cars, too.
- They are often brought in from outside to fix big problems. In Japan, the carmakers -- with the exception of Nissan -- prefer to grow their CEOs from within. This has also been true in the U.S., but just as often of late CEOs have come from other industries and been made responsible for turning a carmaker around. Mulally arrived at Ford from Boeing (BA). Chrysler's former CEO, Bob Nardelli, was a Jack Welch protege from GE and later Home Depot (HD). It obviously costs money to go talent-shopping like this.
- They are managing the industry through a historic transition. It was one thing to be CEO of GM decades ago, when they company owned almost half the U.S. market and gas was less than 50 cents a gallon. In the early 21st century, South Korean and soon Chinese carmakers are going to be moving on new export markets. The electric car has arrived and disrupted 100 years of gas-powered mobility. Some people are even starting to think that car ownership is for suckers. Gas has gotten above $4 twice in the past four years. It's a considerable task, one that requires more brainpower than in the good old days.
- They have labor to deal with. The biggest difference between the way Japanese and U.S. CEOs manage is that the American ones have to deal with the United Autoworkers Union. This is not an organization accustomed to backing down much. Japanese CEOs also have unions to contend with, but the nature of negotiation is much less fractious.