Ford's New Strategy: Slashing Bonuses to Boost Performance and Cut Costs

Ford Motor Company, the iconic American automaker, is taking a bold step to improve performance and cut costs by slashing manager stock bonuses. In an internal memo sent to senior managers, the company announced that instead of the 148% bonus executives qualified for under the annual incentive compensation plan, they will receive 90% of their bonus. This move is part of Ford's broader strategy to become a higher growth, higher margin, more capital efficient, and more resilient business.

Ford CEO Jim Farley has been candid about the need for the company to become more efficient, and this latest move is a clear indication of his commitment to driving results. The reduction in manager bonuses is a strategic move that aligns with Ford's broader goals to improve performance and cut costs in several ways.

Firstly, the new performance system ties manager bonuses directly to progress on key goals, such as improving quality and lowering costs. This incentivizes managers to focus on these areas and drive results. As Farley stated, "When we meet or exceed our targets for those factors - and we achieve the ambitious goals of Ford+ - the team is rewarded." By tying bonuses to specific targets, Ford is sending a clear message that performance matters and holding employees more accountable.

Secondly, by reducing the payout of bonuses from 148% to 90%, Ford is directly cutting costs. This reduction in bonuses is part of the company's broader effort to close a cost gap with the best in the industry and improve profit margins. Farley has emphasized the need to eliminate waste and become more disciplined in operations. The company has set ambitious financial targets, including an adjusted EBIT margin of 10% in 2026, and this cost-cutting measure is a step in the right direction.

Lastly, the new performance system is designed to change Ford's culture and promote a culture of accountability. By tying bonuses to specific targets, the company is sending a clear message that performance matters. This aligns with Ford's goal to become a higher growth, higher margin, more capital efficient, and more resilient business.

Ford has set specific targets and metrics to measure the success of its Ford+ growth plan, which aims to redefine customer value, reduce cyclicality, improve capital efficiency, and generate profitable growth and strong free cash flow. These targets and metrics will be communicated to shareholders through various channels, including capital markets events and financial reports. Some key targets and metrics include:

* Adjusted EBIT margin of 10% in 2026 for the total company, with similarly timed EBIT margin targets for Ford Blue (low double-digits), Ford Model e (8%), and Ford Pro (mid-teens).
* Adjusted EBIT guidance for full-year 2023 of $9 billion to $11 billion and adjusted free cash flow of about $6 billion.
* Achieving a 10% pretax profit margin in 2026.

Ford's move to slash manager stock bonuses is a strategic and necessary step in the company's broader effort to improve performance and cut costs. By incentivizing performance, cutting costs, and promoting a culture of accountability, Ford is positioning itself for long-term success in the competitive automotive industry.