Wednesday November 11, 08:40 AM

GM chairman urges changes to pay caps

By Jim Forsyth

SEGUIN, Texas (Reuters) - General Motors Co could be hurt by pay restrictions on senior executives set by the U.S. government, the automaker's chairman said on Tuesday, urging an overhaul of the salary caps.

Ed Whitacre, who became chairman of a reconstituted 13-member GM board when the automaker emerged from bankruptcy in July, also defended the decision earlier this month for GM to keep its European Opel and Vauxhall brands.

"It's been a confusing decision, but I don't think it was handled badly," Whitacre told reporters. "The circumstances changed from the time this started. The financial part of the business got better. Conditions have changed."

Whitacre said GM Chief Executive Fritz Henderson and his team have the backing of the board and an understanding of its top priorities after the company took $50 billion in U.S. government funding. The focus for GM was returning to profitability and paying back government loans, he said.

"Mr. Henderson and his team have the support of the board," Whitacre told reporters. "They understand -- we all understand - what we have to do."

Whitacre's comments on GM were the first he has made at length since becoming chairman and emerging as the face of the automaker in a series of television ads asking American consumers to give GM vehicles another chance.

He said GM would face difficulties in hiring senior executives from outside the company under the current pay caps set by the Obama administration.

One of the first tests of that policy has been GM's search for a new chief financial officer. Henderson, who has pledged to shake up GM's corporate culture, has also said he wanted to bring in an outsider to head up the Buick and GMC brands.

GM's financial management was criticized by the Obama administration's autos task force headed by former investment banker Steve Rattner.

In early September the GM board endorsed plans for Chief Financial Officer Ray Young to step aside, people familiar with the deliberations have said, but search for a replacement and an announcement on Young's next move have been stalled since then.

"DIFFICULT" TO HIRE AT THE TOP

Under the caps set for GM's top 25 executives, GM Chief Executive Fritz Henderson had his cash salary cut 25 percent to $950,000 from $1.26 million.

Cash salaries for the top executives were cut by 31 percent and only one unnamed executive besides Henderson will be paid more than $500,000 for 2009.

Whitacre said that $500,000 limit made hiring from outside difficult and he urged a reconsideration of the limits set by the Treasury Departments's special master Kenneth Feinberg.

"To find top-level people where you need them, that's a more difficult thing to do at that salary level," Whitacre said. "I don't think (the caps) will be lifted, but hopefully they'll be modified."

Whitacre, who was speaking to reporters before an address at Texas Lutheran University, said GM was also hurt by a "perception gap," saying consumers have not yet given it credit for the improvements it has made in quality and styling.

"We have to earn our way back with the American consumer and that's what we're trying to do," said Whitacre, who arrived in a red 2010 Camaro.

Whitacre said that GM and the whole auto industry remained under pressure from high unemployment and still-tight credit for consumers in the United States, but he said there were some signs economic conditions could be improving.

EU 'CATALYST' FOR ABOUT-FACE ON OPEL

GM's reversal on Opel at a board meeting earlier this month has angered workers and German politicians who had favored a sale of GM's European unit to a Russian-backed group led by Canadian auto parts maker Magna International .

The GM board had initially endorsed the sale of Opel to the Magna-led group in September.

Whitacre said the board returned to the Opel issue in November after European Union regulators questioned whether Germany had tipped the decision in favor of Magna by offering financing exclusively for that deal in a bid to save jobs.

About half of Opel's 50,000 workers are based in Germany, including the complex at its Russelsheim headquarters that has spearheaded the engineering on key upcoming GM models.

"The catalyst for all this was the EU saying you only made the money available to one investor," Whitacre said. "The board did what they should have done and revisited the issue."

He added: "My responsibility and this board's responsibility is to look out for stockholders and the people who work for GM. We're not in any gamesmanship with anyone."

The U.S. government owns about 61 percent of the new GM. The automaker has said it would consider an IPO as soon as the second half of 2010.

(Reporting by Jim Forsyth; Writing by Kevin Krolicki; Editing by Andre Grenon, Phil Berlowitz)