Chapter 21
At the time I write this, it is more than seventeen years since there has been an extended strike over national issues at General Motors. To those of us who recall the violent and crisis-ridden atmosphere of the mid1930s, or the long ordeal of the great postwar strike of 1945-46, the record of the past seventeen years seems almost incredible. And we have achieved this record without surrendering any of the basic responsibilities of management. It is often argued that we got labor peace only by promoting a contract which stimulates inflation. This is a matter of too great complexity for discussion here, but let me say I do not believe it.
Before taking up our relations with labor organizations, I think it is appropriate to remind the reader that many of our personnel policies exist independently of collective bargaining. General Motors at the beginning of 1963 had, world-wide, 635,000 employees, of whom about 160,000 were salaried employees. Very few of the latter are represented by labor organizations. In addition, our approximately 350,000 union members receive a large number of benefits which are not mentioned in the contract and which, in some cases, were being provided by the corporation before modern industrial labor organizations came on the scene. Our plant recreation facilities, our payments for employees' suggestions, our arrangements for employee training, our provisions for employing handicapped workers— all of these fall outside the scope of the contract. As far back as the 1920s, General Motors was providing many benefits to its employees. Some of these were in the form of facilities —for example, our first-rate medical services, fine cafeterias, locker rooms, showers, and parking lots for our employees.
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 and 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.
The details of the new formula were worked out in three days of almost continuous bargaining. The contract was, as I have said, for two years; its novelty made the union unwilling to commit itself for a longer period. The annual improvement factor was set at three cents an hour for every worker covered by the contract. And the base date finally agreed upon for use in calculating the cost-of living formula was 1940—the last year in which prices had been fairly stable.
There are several points about the General Motors formula that need to be understood. First, as to the annual improvement factor, which is often misinterpreted even by persons familiar with labor questions. Section 101(a) of the contract, which deals with the improvement factor, states "that a continuing improvement in the standard of living of employees depends upon technological progress, better tools, methods, processes and equipment, and a cooperative attitude on the part of all parties in such progress ... to produce more with the same amount of human effort is a sound economic and social objective . . ." In other words, the real source of income is productivity. The union's acceptance of these sensible words was surely a milestone in labor relations.
But contrary to a widespread assumption, the improvement factor is not linked to a definitely known increase in productivity at General Motors. There is, to my knowledge, no satisfactory technique with which to measure productivity at General Motors, or, in fact, at any corporation which manufactures constantly changing products. And even if an industrial productivity measurement could somehow be provided, it would still not be desirable to relate it in direct proportion to wage increases. Such a policy applied to the economy as a whole would bring about intolerable discrepancies between the wages paid in industries where technological progress is rapidly increasing, and the wages paid where technological progress must be limited—as it is in the so-called service industries. It is my belief that the improvement factor should reflect the long-term productivity increase of the U.S. economy as a whole.
Over the years, it had been estimated, productivity in the United States had been rising about 2 per cent a year. How good that estimate was, I do not know. In any case we set the improvement factor in the General Motors formula at three cents an hour. This amounted to a 2 per cent annual increase in wage rates : three cents is 2 per cent of $1.49, which was then the average hourly rate at General Motors. In subsequent negotiations the improvement factor has been increased several times. Note that the corporation commits itself to deliver this increase over the period of the contract no matter what actually happens to the productivity of U.S. industry. Even if productivity should decline, for the country as a whole or for General Motors in particular, we would still be obliged to pay the annual improvement factor.
I have always felt that it was a source of confusion to label the improvement factor a "productivity increase." I prefer to think of it as a group merit raise of sorts, and I suspect that many General Motors employees see it in that light.
In the end, increased efficiency flows not so much from the increased effectiveness of the workers, but primarily from more efficient management and from the investment of additional capital in labor-saving devices. Some union spokesmen talk as though the entire benefits of increased productivity should go to labor. I do not believe that is sound. New machinery costs money and the additional investment must be justified by a return on that investment. An argument could be made that the consumer, and the economy as a whole, would benefit most if productivity increases were applied entirely to the lowering of prices. Ideally that might be a good thing. But since it is in the nature of people to work better with the incentive of an individual or group gain and to want to bargain over it, it is a good thing to have something to bargain over. And so I conclude that the benefits of productivity increases should be apportioned among the consumer (lower prices or better product), labor (higher wages), and the shareholders (return on investment).
The improvement factor as it was first applied in the General Motors formula had one curious effect. Under the 1948 and 1950 agreements, the improvement came to exactly the same rate per hour for all workers, floor sweepers and highly skilled tool and die-makers alike. The decision to take the average worker and pay 2 per cent of his rate (that is, three cents an hour) to all our men was clearly a move in the direction of equalitarianism. The effect, of course, was that the improvement factor given the tooland diemakers did not come to as much as 2 per cent a year, while the sweepers were getting an increase of perhaps 3 per cent. Thus from 1948 to 1955, the improvement factor had a tendency to narrow percentage wage differentials. This tendency was corrected in the 1955 contract, which put the improvement factor on a basis of 2.5 per cent—with a minimum of six cents—for all workers.
While the improvement factor was changed, the escalator formula remained substantially unchanged—even though it, too, has tended to equalize rates of pay over the years. Here again, there was no theoretical reason why the formula could not have provided, simply, for a 1 per cent increase in pay every time the cost of living rose by 1 per cent. Instead, the formula was set so that every worker would get the same amount of money added to his pay when living costs rose. The cost-of-living program was calculated in this manner: First, it was determined that consumer prices had gone up about 69 per cent since the 1940 base date. The hourly rate of the average General Motors worker had gone up only about 60 per cent in that interval. To make up the 9 per cent difference, eight cents an hour was added to the rate. But this increase obviously amounted to more than 9 per cent for low-paid workers, and less than that for higher-paid workers. In its provisions for future increases, the escalator clause had a similarly equalizing effect. We took the average hourly wage and the April 1948 Consumer Price Index—the latest available at that time—and determined to preserve the relationship between them. Dividing the average wage of $1.49 into the index figure of 169.3, we came up with a one-cent increase for each upward movement of 1.14 points in the price index; accordingly, this became the rule for all our workers. But note again that our highest-paid workers really needed more rapid increases to keep up with the cost of living, while a janitor making $1.20 an hour in 1948 would clearly be more than compensated for any inflation. In thinking about the cost-of-living part of the General Motors wage formula, it is important to remember that it is the average wage rate that is really tied to the price index, and that the escalator clause tends to pull all other wage rates toward the average. Whether this equalitarian effect is something good or bad in the long run, I am not prepared to say. I think it is interesting to observe that the many wage formulas adopted by other unions in imitation of our own program almost invariably tend to preserve this equalizing feature.
On several occasions we have granted skilled-trades employees special increases. These increases have offset the equalitarian effect of the formula as far as the skilled men are concerned. Altogether, special increases for tooland die-men for the period 1950 through 1962 have amounted to thirty-one cents an hour.
In other ways, too, the original concepts underlying the wage formula have been deflected somewhat by the exigencies of collective bargaining. One recurrent problem has been the "floor" under wages in our cost-of-living agreements. As I had suggested in my original letter to Mr. Jordan, workers would want some limit on wage reductions, even in a period of severe deflation. In the 1948 agreement we specified that no matter how much the cost of living might fall, no more than five cents of the original eight-cent cost-of living raise could be taken away. Again in 1953, 1958, and 1961, the "floor" was raised by an agreement between the union and the corporation. The logic of escalator clauses apparently cannot be extended to periods of severe deflation because workers are always reluctant to take wage cuts.
The 1953 negotiations, incidentally, present an interesting example of the kind of public pressures which have been steadily exerted on the General Motors wage formula, and which have made it difficult for the formula to operate as Mr. Wilson originally intended. In principle, there should not have been any 1953 negotiations, because in the five-year contract signed in 1950, the union "unqualifiedly waive [d] the right" to bargain on any issue covered in the contract. But toward the end of 1952, the UAW became dissatisfied with the cost-of-living provisions of the contract. The union feared, as many others did at the time, that the post-Korea inflation had about run its course. If the cost of living declined, its members would lose some, conceivably all, of the special allowance which they were then receiving under the escalator clause. To make matters worse, the Wage Stabilization Board had allowed other groups of workers, that is, in the steel, electrical, and other industries, to receive living-cost increases which were added to their base rates. In other words, a deflation would mean that UAW members would lose some take-home pay, while other union members would not. We agreed with the union that wages at General Motors should not lag behind those in comparable industries. And so we reopened the contract and incorporated nineteen cents of the cost-of-living allowance (which was then up to twenty-four cents) into the permanent base rate. This episode illustrates the difficulties of adhering strictly to the original concept of the wage formula.
Our wage formula has often been attacked as inflationary. I would agree with Mr. Wilson that the formula itself does no more than protect our employees against inflation. However, the formula is by no means our whole labor contract. Because we have granted many fringe benefits some critics maintain that the cost increases are in excess of productivity and that, therefore, the formula plus the fringe benefits may have inflationary implications.
There is another factor of importance that must be considered. In discussing the improvement factor, I have said that, in my opinion, it is more of an incentive or a bonus than it is an improvement factor per se. And from that point of view I think the fact that our workers benefit on a definite and prescribed basis, resulting in an increase in their standard of living, gives us a more sympathetic co-operation in the introduction of labor-saving devices and other improvements that flow from technological progress, which on the whole have a healthy influence on the efficiency of the corporation's operations.
It is undeniable—as of this writing—that the formula has served to bring relative peace and stability to our labor relations. We have had no extended strikes over negotiation of a national agreement since the formula went into effect in 1948.
The most widely publicized addition to the General Motors labor contract in the last few years has been the provision for supplementary unemployment benefits—a provision often, though not accurately, described as the guaranteed annual wage. As all the major automobile companies approached the 1955 labor negotiations, it was apparent that the union regarded this program as a great milestone in its history, and intended to win it at all costs. A large part of the idea behind this program—that is, the idea of an employer-financed supplement to state unemployment compensation—had already been worked out by the union, apparently in 1954 and 1955. However, the plan proposed by the Ford Motor Company and finally accepted, differed in many respects from the union's specific proposals—and was much more conservatively financed. We agreed to this program shortly after Ford did, although we disagreed with several aspects of the plan. Ultimately, the entire industry conceded the point.
Actually, we at General Motors had been considering alternative plans of this broad type for about two decades. In December 1934, before the state unemployment-insurance laws were on the books, some thoughts on a private insurance program for the corporation's own employees were outlined. Among the ideas suggested, we endorsed these:
General Motors subscribes to the principle of accumulating reserves to be paid to employees in periods of involuntary unemployment.
We also subscribe to the principle of joint contribution to such reserves by both employers and eligible employees.
We also believe in the justice of a probationary period before any employee becomes eligible.
I was impressed with the merit of these points and so, I think, were most of my colleagues. However, the sudden growth in federal and state unemployment insurance programs in the mid1930s altered our perspective on the problem. With insurance against unemployment now available, we developed a program designed to allay the hardships caused by our cyclical production. It worked in general this way: Any employee with five years' seniority who was temporarily laid off—in a model change-over, for example—or who was earning less than twenty-four hours' pay in a week, could borrow from the company each week the difference between his earnings and twenty-four hours' pay. No interest was charged. In weeks when he had an income in excess of twenty-four hours' pay, he would repay the loan at the rate of one half of the excess over twenty-four hours' pay. In the case of employees with less than five years' but more than two years' seniority, the corporation made advances up to sixteen hours' pay with a maximum aggregate advance of seventy-two hours' pay. In other words, the earnings of our workers were being spread more evenly over the entire year. The program was discontinued when defense production made it unnecessary.
In addition to this program of interest-free loans, we began to consider whether we could somehow guarantee a substantial proportion of our workers some minimum number of working hours during a year. The Social Security Act of 1935 included one section which was intended to give employers an incentive to devise such plans. Under this section, employers who guaranteed their workers 1200 hours of work a year were exempted from paying the 3 per cent payroll tax. We seriously considered offering some such guarantee to our workers in 1938. However, Donaldson Brown, then vice chairman of the board, stated the case against it very persuasively. In a memorandum to me dated July 18, 1938, Mr. Brown argued that the guarantee could not be extended to very many workers—or that if it could, these workers could not be guaranteed very many hours. Further, he said:
The extension of a guaranteed annual number of hours of employment to a given segment of the employees inevitably will tend to freeze the average hours of employment at that level. A plan of the kind would be taken as implying the purpose—in event of declining business—to spread work to the end of averaging hours at the guaranteed level. Union pressure towards this result inevitably would be exerted.
All of us were dubious about the feasibility of work-sharing in such a large and complex organization as General Motors. Personally, I regarded work-sharing at low levels of hours over long periods as unsound, economically and socially. But in the early post war period, I felt that the corporation would have to devise some kind of guarantee. On May 15, 1946, I expressed my view on supplementary unemployment compensation:
... if we could determine what the limitations are we might get ahead of the pressure that is going to be put on us, and determine in our own way and in a factual way, just how far it would be practical to go, which might result in a better relationship between our people and ourselves without the liability of paying for work that was not accomplished.
On balance, the plan which was finally written into the contract seems to me to represent less of an innovation than its proponents believe it to be. As many economists have pointed out, the plan is merely another extension of unemployment insurance, which has been in effect for more than twenty years, and which has always been financed by the employers. I suspect that the real benefit of the new plan is not simply the degree of protection it will give to workers in slack periods; after all, many workers will always be ineligible for coverage, and many other workers will receive only small payments. Rather, it is that the plan gives our workers a greater feeling of economic security; and perhaps in the long run that is merit enough.
Before 1933 General Motors had no dealings with labor unions, except for a few craft organizations in the construction field. For this and perhaps other reasons we were largely unprepared for the change in political climate and the growth of unionism that began in 1933. One is inclined to forget that unionization in large industries was not then the custom in the United States. The significance of large-scale unionization was not yet clear to us. We knew that some political radicals regarded unions as instruments for the attainment of power. But even orthodox "business unionism" seemed to us a potential threat to the prerogatives of management. As a businessman, I was unaccustomed to the whole idea. Our early experiences with the AF of L unions in the automobile industry were unhappy; the chief issue with these unions became organizational. They demanded that they represent all our workers, even those who did not want to be represented by them. Our initial encounter with the CIO was even more unhappy; for that organization attempted to enforce its demands for exclusive recognition by the most terrible acts of violence, and finally seized our properties in the sit-down strikes of 1937. I have no desire to revive the bitter controversies that arose over these early encounters with labor organizations. I mention them merely to suggest one of the reasons why our initial reaction to unionism was negative.
What made the prospect seem especially grim in those early years was the persistent union attempt to invade basic management prerogatives. Our rights to determine production schedules, to set work standards, and to discipline workers were all suddenly called into question. Add to this the recurrent tendency of the union to inject itself into pricing policy, and it is easy to understand why it seemed, to some corporate officials, as though the union might one day be virtually in control of our operations.
In the end, we were fairly successful in combating these invasions of management rights. There is no longer any real doubt that pricing is a management, not a union, function. So far as our operations are concerned, we have moved to codify certain practices, to discuss workers' grievances with union representatives, and to submit for arbitration the few grievances that remain unsettled. But on the whole, we have retained all the basic powers to manage.
The issue of unionism at General Motors is long since settled. We have achieved workable relations with all of the unions representing our employees.