The payback guarantee shows GM expects the situation to improve considerably by early next year, David Whiston, senior equity analyst for Morningstar, told Automotive News. "Right now, it's not about some grand strategic vision or anything like that. It's about survival, and it's about cash," he said. "GM is telling people, 'You'll take some pain now, but we'll make you whole as best we can by early 2021.' "
The salary reductions will result in "significant" immediate cash savings, GM said, without being more specific. The company has about 69,000 salaried employees, making up about 42 percent of its global work force.
In addition, 6,500 salaried workers in the U.S. — mostly people in engineering and manufacturing functions who cannot work remotely — will be placed on leave and receive 75 percent of regular pay during the downtime.
Executives will see deeper pay cuts on top of the unilateral 20 percent deferment, resulting in a total reduction during the crisis of 30 percent for senior leadership and 25 percent for other executives. Pay for GM's board of directors will be cut 20 percent and not made up.
Ford Motor Co. also took swift action to weather the coronavirus pandemic, but opted to reduce shareholders' payouts through a suspension of its dividend and left most employees' compensation untouched.
Ford is deferring 20 to 50 percent of earnings for its top 300 executives for at least five months, while Executive Chairman Bill Ford forgoes his full salary.
CEO Jim Hackett said Ford would delay merit-based salary increases, suspend overtime for salaried workers and freeze hiring for noncritical positions. He said work schedules and pay might be "temporarily reduced" for workers whose jobs cannot be done from home and that others may be offered voluntary sabbaticals.
GM's dividend isn't necessarily safe, but the automaker likely will wait until mid-April, when it typically declares its second-quarter dividend, to make any adjustment.
"If you can get plants running again by roughly mid-April, you can start to get back to normal," Whiston said.
GM CEO Mary Barra and CFO Dhivya Suryadevara told employees Thursday, March 26, that the company needed to take immediate, aggressive steps to cut costs.
Suryadevara warned on a webcast recording reviewed by Reuters, "If we don't take significant austerity measures, we will do serious damage to the long-term viability of our company."