Boeing CEO: Pay Freeze Would Be 'Counterproductive'

Freezing wages and eliminating bonuses to avoid layoffs would hurt the company's ability to attract and retain high-performing employees, CEO Jim McNerney said.

SEATTLE (AP) -- Freezing wages and eliminating bonuses to avoid layoffs would be counterproductive for the 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 the commercial airplane production and engineering jobs.

Ray Gorforth, executive director of the Society for Professional Engineering Employees in Aerospace, which represents more than 20,000 engineers, scientists and technical workers at Boeing, said the union expected to get word from the company Friday on which positions would likely be eliminated.

Initial indications are that about half the layoffs will be in the Shared Services Group, based in suburban Renton, which handles site services, building maintenance and related work; one-third from Integrated Defense Systems; 800 positions in information technology and "hundreds to a few thousands of engineers," Goforth said.

Suggestions for pay concessions to preserve jobs have been made within SPEEA but no union body has taken any position on the issue, he added.

"Lots of members have brought that up, and we've explained to them that this company doesn't care because this is not about a cash-flow problem," Goforth said.

There was no immediate response to requests for comment from the International Association of Machinists and Aerospace Workers, which represents more than 27,000 hourly production workers.

Both unions negotiated contracts with pay raises last fall, the Machinists after an eight-week strike that was cited in McNerney's e-mail and in previous statements as a prime cause for delays and hits to the company's bottom line in 2008.

Goforth said performance problems to which McNerney alluded, including production delays in the new 787 and 747-8 jetliners, were largely the result of errors that did not involve employees, such as improper and wrongly installed fasteners in components made by subcontractors.

"The problem they do have is with their ability to deliver the products they sell," he said. "That is a management problem. Frankly, these layoffs are an attempt to divert attention from these management failures."

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 the 787s, 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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