Boeing CEO Says Pay Freeze Counterproductive

Feb. 19, 2009
Move would hurt ability to attract and retain high-performing employees


Freezing wages and eliminating bonuses to avoid layoffs would be counterproductive for Boeing Co. and other big employers, the aerospace company's chief executive said.

In an e-mail Tuesday to Boeing employees, printed in full on the Web site of the Seattle Post-Intelligencer newspaper Wednesday, CEO Jim McNerney wrote that such moves would hurt the company's ability to attract and retain high-performing employees.

The memo is one of the first responses by a major corporate chief executive to proposals for layoff alternatives. Such requests have gained force in the deepening recession since President Barack Obama praised "the selflessness of workers who would rather cut their hours than see a friend lose their job" in his inaugural address last month.

"More than a few of you have written to me asking whether we could avoid layoffs altogether by not paying incentive awards this year or by freezing wages across the board," McNerney noted.

He said such actions would preserve some cash during the year and lessen the immediate impact on people, but "our judgment (and one shared by most major companies) is that they would put us at a competitive disadvantage."

Since Jan. 1 Boeing has announced plans to lay off about 10,000 employees, mostly in overhead and military-related positions but few in commercial airplane production and engineering jobs.

There was no immediate response to requests for comment from the International Association of Machinists and Aerospace Workers or the Society of Professional Engineering Employees in Aerospace, the two largest unions at Chicago-based Boeing. Both unions negotiated contracts with pay raises last fall, the Machinists after an eight-week strike.

John Dern, a Boeing spokesman, said he knew of no formal proposals by any of Boeing's unions for employee pay concessions in exchange for job preservation.

Bonuses for top executives, raises for nonunion staff and incentive payments to about 114,000 of the company's 160,000 employees under Boeing's performance-based Employee Incentive Plan will likely be lower because of the recession, Dern said.

Last month, Boeing said enough financial targets were met in 2008 for EIP-eligible employees to receive six extra days of pay, a total of $220 million.

At the same time, McNerney wrote, "We are consciously restraining salary growth this year in order to lessen the number of job cuts we need to make while retaining flexibility to fund growth projects."

Boeing Commercial Airplanes began the year with an order backlog of about 3,700 planes totaling $352 billion over the next seven years or longer. Since Jan. 1 Boeing has announced orders for 18 planes of various models and cancellation of 31 orders for its new 787 jetliner, a net loss of 13 orders this year.

In a visit to Seattle earlier this month, Steven F. Udvar-Hazy, founder and chairman of International Lease Finance Corp., the world's biggest airplane leasing company and the biggest customer of Boeing and Airbus, told reporters he believes Boeing could cut production by as much as 35 percent over the next 18 months as airlines defer orders.

Boeing's latest forecast is for the company to deliver 480 to 485 planes this year.

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