Ford’s Mulally Earned Every Cent of His Bonus

Dow LeaderboardFord Motor (NYSE:F) Chief Executive Alan Mulally just landed a $34.5 million stock award. And why not? After all, he’s helped engineer one of the most amazing corporate turnarounds in the history of U.S. business.

The bonus represents shares he was awarded two years ago that recently vested. UAW President Bob King’s description of Mulally’s pay as “morally wrong” is way off base. CEOs are supposed to be paid for performance, and by any metric that can be devised, Mulally has repeatedly proven his value to Ford’s shareholders and employees.

Mulally, 66, joined the Dearborn, Mich.-based company in September 2006 from Boeing (NYSE:BA) where he won kudos from Wall Street for the way that he managed the aerospace firm’s commercial aircraft business. At the time, Ford was a mess, facing declining market share, problems with new vehicle launches and safety issues with Ford Explorers equipped with Firestone tires.

William Clay Ford, who replaced the ousted Jacques Nasser as CEO and was facing possible bankruptcy, wisely realized that the business model that had guided his company since the days great-grandfather Henry Ford was broken and that Ford needed an outsider was needed to fix it. Mulally got the job after both Carlos Ghosn of Renault/Nissan Motor and Daimler Dieter Zetsche reportedly turned it down.

One of the first things Mulally did was unwind the acquisitions of Jaguar Cars and Land Rover that Nasser had made. Investors criticized the former CEO for focusing too much time on foreign acquisitions and letting the Ford brand wither. Mulally also unloaded Volvo and Aston Martin, the automaker made famous by James Bond. He brought back the Taurus brand in the 2008 model year, one year after it had been shelved.

Ford’s turnaround wasn’t immediate. Between 2006 and 2008, the carmaker lost $30.1 billion, but in the subsequent three years it earned $29.5 billion. Shares rose more than 60% over the past five years.

Ford, which did not need a government bailout, even has a reasonable deal with the United Auto Workers that raises costs by only 1%. On Tuesday, InvestorPlace writer Dan Burrows wrote that “More fuel-efficient models, accelerating sales and canny strategic partnerships make shares of Ford and GM still look attractive even after their recent run-ups.” I would add that Ford shares deserve first consideration because of Mulally’s prowess as a manager.

Mullaly accomplished the herculean effort of improving Ford without being a micromanager, according to David Cole of the Center for Automotive Research in Ann Arbor, Mich. “His whole style of leadership is that of a coach,” Cole said in an interview, adding that Mulally deserves credit for dismantling corporate fiefdoms that had been in place at Ford for years. “It’s the team, the team and the team,” is how Cole characterizes Mulally’s approach.

Ford’s boss prefers to delegate authority and not to let himself get bogged down by details. He’s said to have high demands and little patience for people who try to rationalize mistakes instead of fixing them. Mulally’s attention to detail can be seen in Ford’s products.

Ford has received more top rankings than any other automaker since 2007 in the J.D. Power & Associates Initial Quality Survey. As of the end of February, Ford’s U.S. market share was 15.7%, up from 15.5% a year earlier. Rivals GM and Chrysler saw their figures slip.

About the worst thing that can be said of Mulally is that he’ll be a tough act to follow whenever he decides to retire.

“There is no question that he has done a spectacular job,” Cole said, adding that his bonus is “highly deserved.” Hard to argue with that.

 –Jonathan Berr is a fan of Fords but doesn’t own Ford stock or any others mentioned here.

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