Honda CEO takes pay cut

As faulty airbag recalls continue to grow.

Honda CEO, Takanobu Ito

If employees get bonuses and pay rises for good performance, should they get pay cuts for bad performance? Apparently, Japanese automaker, Honda, thinks that they should. As the company is being hit with the growing exploding airbag crisis that has dented its reputation for quality, its CEO Takanobu Ito will take a 20% cut for three months starting from November. Chairman Fumihiko Ike and 11 other directors will also be taking a pay cut of 10%.

Japanese auto executives are generally paid a fraction of what their American counterparts receive. CNN reported that Ito received a salary of US$944,000 and a bonus of US$444,000 in the last fiscal year, which means that his pay cut would amount to about US$42,000 only. Mary Barra, the CEO of General Motors who has also been embroiled in the faulty ignition and recall crisis, receives a base salary of US$1.6 million, and a total compensation package of US$14.4 million per annum. Like Honda, GM has failed to recall faulty vehicles before deaths occurred, but Barra and the other GM executives were not penalised financially for the alleged 29 deaths and the subsequent PR fiasco; instead, 15 employees were given the boot. 

Honda has thus far recalled 5.1 million cars in the States with faulty airbags manufactured by its supplier, Takata. It was found that the chemicals in the inflators, in the airbags manufactured between 2001 until 2011, were found to degrade, particularly in humid surroundings, causing the airbags to inflate too forcefully and tearing away from the mountings, spraying shrapnel into the passengers. According to the Center for Auto Safety, the exploding airbags have killed three drivers of Honda vehicles and one of an Acura (also by Honda); dozens have been injured and two have been blinded in at least one eye. A spokesperson for the center said that they are not satisfied with the pay cut, but is lobbying for a criminal investigation into whether Honda properly reported the deaths that occurred in its cars. 

Takata's airbag manufacturing facility in Sibiu, Romania

The Takata airbags were also supplied to BMW, Ford, GM, Mazda, Mitsubishi, Nissan, Subaru and Toyota making this an industry-wide issue. Recalls began in 2008, and now the NHTSA has issued an urgent message to owners to get the affected airbags fixed immediately. Toyota and GM have informed owners to forbid front passengers, and Toyota dealers who do not yet have the repair parts were told to disable the airbags in the interim. So far, 12 million vehicles have been recalled, but safety advocates believe that as many as 25 million vehicles in the US alone may have the faulty airbags; recalls are also being made in China, Japan and Europe.

The crisis is still unfolding and investigations are still being conducted, but considering that Takata produces some 20% of the world’s airbags and the faulty ones were manufactured throughout the span of a decade, this could potentially supersede the largest recall crisis which occurred in the 1980’s, albeit involving only one carmaker, when Ford recalled 21 million cars for a defect that caused the gear to slip from park into reverse. 

images: wsj.com,  reuters.com