Ford awards CEO Alan Mulally $21.7 million for cutting losses by $10 billion

''Less of bad is good'' - Ford Motors evidently believes in this maxim, as it rewards its CEO Alan Mulally with an annual compensation of $21.7 million for 2007, in a year in which the US car maker notched up losses of $2.72 billion and saw its share price decline by 10 per cent.

Although many, such as workers unions, have criticized such a generous payout, analysts feel that Mulally's compensation is justified in the light of Ford's enormous losses totaling $12.6 billion in the year he joined. Looking from this point of view, the current CEO may be credited with shrinking the company's losses by $10 billion within a year of taking office.

Mulally's compensation included $2 million in salary and $7 million in bonuses, according to a regulatory filing made by Ford on Friday. In addition to salary and bonuses, Mulally's 2007 compensation included $11.2 million in stock options and awards, and $1.4 million in other compensation. Other top executives saw pay awards that doubled or tripled.

Alan Mulally had taken over stewardship of the Detroit-based automaker in September 2006, after being recruited from Boeing Co. He replaced William Clay (Bill) Ford, who continues to be chairman of the board. Ford awarded Mulally $28.2 million in 2006, including compensation for payments he would have received from running Boeing's commercial aircraft business.

Ford had reported the largest annual loss in its history in 2006 of $12.7 billion, and estimated that it would not return to profitability until 2009.However, under Mulally's able guidance, Ford surprised Wall Street analysts in the second quarter of 2007 by posting a $750 million profit. Despite the gains, the company finished the year with a $2.7 billion loss, largely attributed to finance restructuring at Volvo.

After coming to Ford, Mulally had embarked on a major cost-cutting spree – cutting jobs, closing plants and selling off loss-making units. These included the premier British brands of Aston Martin last year (See: Ford to sell Aston Martin stake for $848 million : report ), and Jaguar and Land Rover in March this year. (See:Tata Motors confirms Jaguar, Land Rover deal with Ford for $2.3 billion)

He wanted Ford to play to its strengths, and simplified Ford's product portfolio. Earlier, Ford models had been available in too many options which ate up profit margins. In a contrast to Ford's earlier ambition of global influence, Mulally wants the company to concentrate on the US markets, where it has seen sales declining by 25 per cent over the last decade.

All this restructuring and cost-cutting had their effects when Ford increased its losses substantially within the span of a single year. However, a lot remains to be done for it to regain its runner-up position in US markets behind General Motors, which was usurped by Toyota last year.

Also, the company has suffered from a 10 per cent slide in its share price to $6.73, even as the Standard & Poor's 500 Index gained 3.5 percent. The company hit a 22-year low on March 17 when the shares closed at $5.11.

The Ford board's compensation committee credited Mulally with leading negotiations for a money-saving new agreement with the United Auto Workers (UAW), also recognizing his contributions in ''improved operational effectiveness'' and ''communicating the company's strategy''. However, workers, who felt they had sacrificed higher pays for Ford's future, are angry because they ''did not sacrifice so that management could find a way to reward themselves with higher compensation''.

Under the four-year labor contract that took effect last year, Ford will shift retiree health-care obligations starting in 2010 to a union-run fund. The UAW said that the company has also negotiated lower wages for new workers citing financial constraints. Although current pays won't decrease, they are nowhere near to satisfactory, feels the union.

The company awarded compensation of $11.7 million to CFO Don LeClair, an increase of 166 percent from a year earlier; $8.4 million to Americas division president Mark Fields, up 50 percent; $10.3 million to Lewis Booth, the top European-based executive, up 140 percent; and $8.7 million to Michael Bannister, head of Ford Motor Credit Co., up 216 percent.