We had a group life-insurance program open to all employees as early as 1926. We had a savings and investment plan, set up by John J. Raskob, in 1919. In 1929 there were 185,000 employees in the plan, or 93 per cent of all our employees; their reserves in the plan came to $90 million. When the banks closed in 1933, we anticipated that our employees would withdraw their savings from the plan. Instead they were almost unanimous in insisting that we continue to hold the money—a vote of confidence in the stability of the corporation. The plan was suspended at the end of 1935 after enactment of the Social Security Act and the Securities Act of 1933.
General Motors today has its Savings-Stock Purchase Program for U.S. and Canadian salaried personnel. Under this program, employees may put up to 10 per cent of their base earnings into a special fund. For every two dollars put in by our salaried employees, the corporation puts in one dollar. Half the employee's savings are invested in government bonds, the other half in General Motors common stock. The corporation's contributions are invested entirely in General Motors common stock. All interest and dividends are reinvested for the participants, who constitute now over 85 per cent of our eligible salaried employees. The plan was offered to the hourly-rated employees in 1955 in contract negotiations, but was rejected in favor of the Supplementary Unemployment Benefit Plan, which will be discussed later.
The Savings-Stock Purchase Program is only one of the fringe benefits now available to salaried employees. The great majority receive cost-of-living allowances, as the hourly-rated employees do. And salaried men and women are benefited by a group life-insurance program, medical-expense coverage, health and accident insurance, a pension program, and provisions for separation pay. In short, they get a comprehensive program of benefits. Hourly rated employees also receive benefits in these areas.
Our Personnel Staff is responsible for a great deal more than employee benefits, of course. Personnel is also entrusted with general supervision over recruiting, hiring, and training employees. Our foreman-training program, for example, is one of which we are especially proud. We have always taken great pains to keep foremen's morale at the highest level. In 1934 foremen were placed on a salary basis, and in 1941 we adopted the rule that their salaries had to be at least 25 per cent higher than the earnings of the highest-paid group of employees under their supervision. In addition, our foremen, who constitute our first line of supervision, have been getting overtime allowances since the early days of World War II —though the Federal Wage and Hour Law does not require the payment of overtime to supervisors. But perhaps the most important reason for the high morale of our foremen is the solid support we have given them on matters of discipline and work standards. They know that they are considered members of management.
As the foregoing facts indicate, our Personnel Staff has a great many responsibilities besides its well-publicized negotiations with the United Automobile Workers. Although personnel administration first became a regular responsibility at the corporation staff level in 1931, all our personnel programs were not centralized in one department until 1937. Since then, the Personnel Staff has served the corporation in two ways: as a specialized staff of experts on which the corporation can rely for advice and consultation; and as a group of executives entrusted with line responsibilities in union negotiations and in administering the provisions of the contract. The staff does not, by the way, ordinarily get into the settlement of employee grievances under our four-step grievance procedure; it does so only when grievance cases go to the fourth, or arbitration, step. In the years from 1948 through 1962, an average of 76,000 grievances a year were settled under this procedure. Some 60 per cent of these cases were settled at the first stage, in which the negotiations are handled for the most part by foremen and union committeemen. Another 30 per cent were settled at the second stage, in negotiations between the union's shop committee and a management committee generally comprised of members of the plant's own personnel staff. Another 10 per cent went to the third stage and were settled by a four-man appeal board, consisting characteristically of two men from the union's regional office and two representatives of local or divisional management. An average of only sixty-three cases a year— less than one tenth of 1 per cent of the total—went to the fourth stage for resolution by an impartial umpire.
The responsibilities of the Personnel Staff are, obviously, very grave ones, especially as they relate to our dealings with unions. For in these dealings there is always the possibility of great damage to the corporation—and of severe suffering to its employees. On the one hand, we must, wherever possible, avoid big strikes, and small ones too. On the other hand, we must not succumb to unreasonable economic demands or surrender the basic responsibilities of management. Avoiding both of these hazards is no easy task. And yet we have, in the past decade and a half, been reasonably successful at doing so.
In the early postwar period, our prospects for workable labor relations appeared to be remote. At the end of the 1945-46 strike, the United Automobile Workers was one of the two or three largest unions in the country, with a membership of almost a million. Many of its spokesmen were hostile to private enterprise. The UAW was besieged by factional conflicts, both internally and with respect to other unions. The principal result of these conflicts, as it appeared to us, was a tendency for every side to compete with the others in a show of "militance" against the corporation.
To make matters worse, it appeared that the UAW was able to enlist the support of the government in any great crisis. The government's attitude went back as far as the 1937 sit-down strikes, when we took the view that we would not negotiate with the union while its agents forcibly held possession of our properties. Sit-down strikes were plainly illegal—a judgment later confirmed by the Supreme Court. Yet President Franklin D. Roosevelt, Secretary of Labor Frances Perkins, and Governor Frank Murphy of Michigan exerted steady pressure upon the corporation, and upon me personally, to negotiate with the strikers who had seized our property, until finally we felt obliged to do so. Again in 1945-46, during the 119day strike, President Truman formally backed up the union's controversial insistence that our "ability to pay" should affect the size of the wage increase. We successfully resisted this unsound proposition, but there is no doubt in my mind that the President's statement served to strengthen the union's public position and thus prolong the strike.
There was one other reason for concern about our labor prospects in the early postwar period, and that was the sharp inflation then under way. In 1946 price controls were taken off and in nine months consumer prices rose by 17 per cent. In 1947-48 they rose almost 10 per cent higher. The natural inclination of unions in an inflationary period is to bargain for wage increases high enough to allow for future price increases; and in anticipating these high prices, the wage gains tend to push them up still higher. The annual rounds of wage and price increases after the war were a perfect example of this inflationary spiral. Since the United Automobile Workers regarded itself, perhaps accurately, as a pace-setter for labor, General Motors faced the possibility that, when it granted demands, it would be a conspicuous target in each new round of inflationary demands.
Our apprehensions about our postwar labor relations were not diminished by the fact that we got through 1947 without a major strike. During that year's negotiations, in fact, something happened that pointed up the problems we faced. In mid-April, while we were still in negotiations, we began to hear reports that the UAW planned to pull all its members in the Detroit area off their jobs so that they could attend a union-sponsored demonstration against the Taft-Hartley bill, then being considered in Congress. The demonstration, which was to be held in downtown Detroit, was the union's own business, of course; but the work stoppages were very much our concern. We pointed out to the union's negotiators on three occasions that stopping work to attend the rally would be a clear violation of the Strikes and Stoppages Section of our contract, and that employees who walked out would be subject to discipline. (After the 1937 sit-down strikes, we
had insisted that future contracts provide for penalties for work stoppages prohibited during the term of the contract.) In reply the union men blandly told us that the walkout had been authorized by the International Executive Board, but that our view of the case would be conveyed to the board.
At 2:00 p.m. on the 24th of April, 1947, the very day a new contract was signed, the walkout began. It was only partially successful, since 19,000 hourly-rated employees, in seven of the corporation's Detroit plants, did not go out. But 13,000 did, and in the course of the walkout they committed numerous acts of intimidation or near violence. It seemed to us that this was a reversion by the UAW to its earlier-day inclination to violate the contract at will. Accordingly, we responded firmly, as we had in the past. We discharged fifteen employees, and gave long-term disciplinary layoffs to twenty-five others, for extraordinary overt actions. These forty employees included four presidents of local unions, six chairmen of shop committees, and twenty-two shop and district committeemen. In addition, 401 employees were given short-term disciplinary layoffs.
The union had, of course, the right to appeal all these actions to the permanent umpire. However, it chose to negotiate with the corporation, and finally did concede that it had violated the agreement. A formal Memorandum of Understanding, signed on May 8, included an explicit statement by the union that all such work stoppages were violations. In return, the corporation reduced the fifteen discharges to long-term layoffs, and in other ways modified the original penalties.
During the year that followed, our labor relations were dramatically changed for the better. That year saw the defeat and discrediting of the Communist element in the United Automobile Workers and the beginning then of somewhat greater stability in the union's internal affairs.
The major instrument of change in our labor relations was the collective-bargaining agreement of 1948, the principal new features of which have been retained in subsequent agreements. Since these features have proved so important in the affairs of General Motors, I shall devote most of the remainder of this chapter to a discussion of them, and of their background.
The 1948 agreement brought two major innovations to our dealings with our hourly-rated employees. For one thing, it eliminated annual economic negotiations with the union and introduced the idea of longer-term contracts. The agreement ran for two years. It was followed, in 1950, by a five-year contract, and then by three successive three-year contracts. These longer intervals gave the corporation more assurance that it could meet its long-range production schedules; and they also meant an important saving to us in executive man-hours, for labor negotiations have invariably consumed a great deal of the time of the highest officials of the corporation. The longer-term contracts also relieved our employees of their annual concern over the prospects of a strike and enabled them to plan their own affairs with greater confidence.
The other innovation of the 1948 contract was the so-called General Motors wage formula. This formula had two features: an "escalator clause," which provided for wage allowances to employees based on changes in the cost of living; and an "annual improvement factor," which assured employees of a regular share in the benefits of increased efficiency resulting from advancing technology. The entire formula represented an effort to introduce an element of reason, and of predictability, into our wage program; especially it aimed to end at least in part the contests of strength in which our wages had often been set in the past.
Our search for a rational wage program of this sort really began in the 1930s. In 1935, specifically, we became interested in the possibility of tying wages to changes in the cost of living. Initially, we thought in terms of the local cost-of-living indices prepared by the Bureau of Labor Statistics, rather than of the bureau's national index. In 1935 the bureau published semiannual reports on changes in living costs in thirty-two cities. In twelve of these cities, including Detroit, General Motors had plants. However, there were many other cities with General Motors plants which the bureau did not report on. This practical difficulty was one reason we did not pursue the subject at the time. Another reason was the relative stability of consumer prices in 1935, and, indeed, in the years through 1940. Price fluctuations were no real issue in our wage adjustments during those years.
But during 1941 the defense program stimulated a sharp increase in prices, and the problem of inflation confronted us—and our employees—in an inescapable fashion. On April 4, 1941, accordingly, I wrote to Virgil Jordan, the president of the National Industrial Conference Board, and asked him what he thought about the possibility of a wage formula tied to a cost-of-living index:
Do you think there would be any sense to an approach to establishing an economic formula for wage adjustments, if we base it upon the assumption that real wages are bound to increase in the future just as they have in the last twenty-five years, and that we recognize that fact in such a formula, by increasing the dollar wage rate as the cost of living increases, preferably on a community basis, in some ratio that might be worked out which would cover the objective, but in the event that the cost of living should decline, the decrease in the dollar wage rate would be at a lower percentage rate than the increase. This would insure, over the years, an increase in real wages to which I believe the worker is entitled and which industry is obligated to make possible through capitalization of increased technological efficiency.
This informal suggestion elicited a generally pessimistic reaction from Mr. Jordan. He replied that he was doubtful about our chances of getting unions to go along with an automatic wage formula; union leaders, he suggested, would prefer to play an active role in setting wages. Nevertheless, the exchange of letters served to stimulate our interest in the broad principle of tying wages to living costs.
Early in 1941 Charles E. Wilson, then president of General Motors, advanced our thinking on this subject further. He was confined to the hospital with a broken hip and gave a good deal of his time there to the study of a wage formula. He came out with two new points regarding wage adjustments. One was that, as a practical matter, wage adjustments based on changes in the cost of living must be tied to the national Consumer Price Index. Otherwise, the corporation would continually be in the position of giving increases to some of its employees and not to others—which would be logical enough as far as the economics of the case went, but which might create real psychological problems.
The other point put forward by Mr. Wilson concerned the means of affording our workers a share in rising productivity. It was his contention that the only feasible way to do this was to set a fixed increase which each worker would receive annually. This proposal was the origin of the "annual improvement factor" in the General Motors formula.
Though the basic elements of the wage formula were worked out by Mr. Wilson in 1941, there was no good opportunity to introduce the formula in collective bargaining until the 1948 negotiations. During the wartime years the government's wage-stabilization policy made it difficult to initiate any new proposals. In 1945 it was apparent that our employees would be interested only in a very large increase in basic wages, to enable them to "catch up" with the wartime rise in living costs. Furthermore, the union's insistence during the long strike of 1945-46 that wage increases be determined by our ability to pay and that we should in effect negotiate our selling prices, raised a crucial issue of principle which we felt had to be settled before any new wage program could be adopted. Again in 1947 we felt that our employees' principal need was a sizable increase in basic wages.
The 1948 negotiations began on March 12 and appeared, at the outset, to follow the pattern of the preceding years. The union demands were, if anything, more extreme than ever. They amounted, in fact, to a proposal to rewrite virtually the whole basic contract, developed painfully during the preceding decade. The demands also included a wage increase of twenty-five cents an hour, a pension program, a social security program, a guaranteed forty hour work week, and many other economic items. We regarded these demands as extravagant beyond reason a
nd feared that if the UAW persisted in them we would have another disastrous strike similar to the 1945-46 one. Indeed it seemed in the spring of 1948 as though the nation might be in for one of the most severe years of strikes it had ever faced. Most of the steel and electrical industry negotiations were deadlocked. On May 12 the UAW struck Chrysler, and at about that time began to conduct strike votes among their General Motors locals.
There was, however, one circumstance favoring us in the 1948 negotiations. This was that we had reached an agreement with the UAW that negotiations would be conducted in relative privacy. In previous years, our collective bargaining had come to resemble a public political forum in which the union fed a stream of provocative statements to the press, and we felt obliged to answer publicly. The privacy of the 1948 negotiations made their tone more realistic from the start.
Nevertheless, the negotiations went slowly and in May a strike seemed imminent. At this point we decided to introduce our wage formula into the bargaining. On May 21 we handed it to the UAW in written form. We had no indication in advance that the union would respond affirmatively to our contract proposal. However, the union accepted it in principle, and we began to work on the details. To speed up bargaining we suggested that General Motors and the union appoint four-man task forces to study the question.
My Years With General Motors Page 48
