Foreign Car Makers Seek U.S. Automotive Engineers

Even as Detroit braces for big job cuts at General Motors Corp. and Ford Motor Co., demand for automotive engineers and students coming out of engineering schools is perking up around the Motor City, buoyed by Asian auto makers that want to develop more products for the U.S. market.

On a recent, crisp autumn day in Superior Township, Mich., Delphi Corp. Chairman and Chief Executive Officer Robert S. "Steve" Miller stood side by side with dignitaries to cut the ribbon for a $68 million, state-of-the-art automotive-engineering center. Mr. Miller, who is demanding big pay cuts from hourly factory workers at the troubled automotive-parts supplier, posed for cameras with a pair of oversize scissors.

The new research-and-development center belongs to Hyundai Motor Co. -- one of the same Asian auto makers whose competitive pressures have helped drive Detroit into its biggest crisis since the early 1990s.

"We're thrilled that Hyundai would bring a facility like this to Michigan," Mr. Miller said. Hyundai currently has 140 people working at the tech center, a majority of them engineers. The company said it plans to boost the number to 400 by 2007.

Asian auto makers from Toyota Motor Corp. to Nissan Motor Co. to Hyundai and its subsidiary Kia Motors Corp., along with automotive suppliers from Japan and Germany, are rushing to Michigan because the R&D centers of the Big Three and major U.S. suppliers are located there. According to the state of Michigan, automotive R&D employs more than 65,000 professionals, not all of whom are engineers; the number of unemployed engineers in the state isn't known.

In a speech at Hyundai's Michigan R&D center in October, the company's vice chairman, Sang-Kwon Kim, noted the state's high concentration of automotive-engineering talent "This area's access to ... talented engineers and designers ... and rich automotive history have combined to create a matchless environment for success," he said.

Michigan Gov. Jennifer Granholm, under political pressure because of the big job losses at GM, Ford, Delphi and other manufacturing companies, in 2004 launched an initiative to promote Michigan as an automotive Silicon Valley. Since then, the state has won investments from nine automotive companies from South Korea, Japan and Germany that have created some 3,000 engineering jobs. "They all know Michigan is the place to come for engineering talent," Ms. Granholm says.

Some in the talent pool have been laid off by U.S. auto makers while others, looking for more stable positions now that Ford and GM are in trouble, are easily lured to positions with the foreign concerns. In either case, a growing presence of foreign auto makers and suppliers' engineering facilities is "a good thing from an individual engineer's point of view" because it offers more options for American engineers at a time when opportunities at the Detroit auto makers may be on the wane, says Ray Morris, executive vice president of the Society of Automotive Engineers, a world-wide association based in Warrendale, Pa.

But for Detroit as a whole, says Mr. Morris, the growing number of engineers being retired at Ford and GM or jumping ship to Asian and European auto makers "drains the traditional American [auto makers] of critical expertise and skills," threatening to turn them into mere assemblers and marketers.

Fueling the drive by Asian auto makers to establish R&D centers in the U.S. is a shortage of engineers at home, partly because they are growing so fast they can't hire engineers fast enough. This is especially true at Toyota, which is pursuing an aggressive growth strategy that could propel it past GM to become the world's No. 1 auto maker. Nearly 40% of Toyota's 20,000 engineers in Japan are contractors from agencies and "guest engineers" from suppliers.

Toyota has to fill gaps in its midcareer engineering population resulting from hiring freezes the company instituted in the mid-1990s to cope with a severe economic slowdown. Numerous middle-age engineers are also set to retire during the next few years.

"Especially lacking, when we look ahead 10 to 20 years, are experts in material science and chemistry, as well as researchers in an area I might call 'human science,' " says Kazuo Okamoto, a Toyota executive vice president. Such researchers are experts in the study of the human brain and other aspects of human behavior that might someday lead to advances in safety technology.

Toyota's long-term R&D strategy, Mr. Okamoto said, is to focus activities at Japan-based R&D centers more on advanced research-and-development activities. As a result, engineering outposts like Toyota's technical center near Ann Arbor, Mich., are gaining greater responsibilities.

The tech center, established in 1977, was beefed up more than a decade ago for designing seats, instrument panels, cup holders, bumpers and other parts, as well as tuning engines and suspensions for the U.S. marketplace. But Toyota executives say the company now is ready to let American engineers handle more critical tasks. Eventually, Toyota's U.S. engineering staff could develop transmissions and suspensions for vehicles exclusive to the U.S. market, although the company still plans to keep core powertrain and chassis design in Japan.

Toyota's Ann Arbor tech center announced earlier this year it would purchase a large parcel of land southeast of the city, to almost double its size over the next several years to more than 1,000 engineers from 600.

Bruce Brownlee, the tech center's general manager of corporate planning and external affairs, says Toyota is going aggressively after new graduates coming out of "good" engineering schools in the Midwest, including the University of Michigan, Ohio State University and Purdue University, instead of meeting all its needs by hiring engineers away from the Detroit auto makers and suppliers.

Nissan is similarly in an expansion mode in Michigan. Its North American R&D arm in Farmington Hills, Mich., expanded in 2004 and added a satellite styling studio earlier this year. According to Tsuyoshi Yamaguchi, head of Nissan R&D in North America, the tech center has hired 100 new engineers every year on average over the past five years. "We're on an expansionary trajectory that should continue as long as our sales remain on the rise," he says.

Creative Compensation Tactics Help Forge a Company's Culture

Robert J. Shillman, Cognex Corp.'s chairman and chief executive, was ready to give staffers assembled at a hotel conference room their year-end bonuses in February 2004 when someone cried out, "We forgot to cut the bonus checks!"

As Dr. Shillman and two colleagues rushed from the room, an apparent live-action video tracked their moves. They drove to an armored truck parked nearby, distracted the driver and yanked 20 heavy cash bags from the rear of the truck. The executives' joke became clear when they rejoined the meeting and handed each person a bonus check.

Dr. Shillman is the offbeat head of the world's biggest maker of industrial vision systems, which automate manufacturing processes normally requiring vision, such as inspection of drug-package labels. And he often rewards his 762 employees and himself in unconventional ways -- from free films and refreshments at the local theater that Cognex rents Friday nights to company-paid trips abroad for long-serving employees and their friends. The company's biggest individual shareholder, he stopped taking a salary in April 2001 and bonus in 2004. His cash package peaked at $868,000 in 2000.

The creative compensation tactics have helped Dr. Shillman forge a strong corporate culture at Cognex, which the former Massachusetts Institute of Technology researcher launched 25 years ago by offering free bicycles to two graduate students. The result? The company enjoys low staff turnover and claims the highest profits in its industry.

Dr. Shillman, a ruddy-complexioned man with swept-back hair, aspired to be an actor until his father insisted he finish his MIT doctorate in computer science. But he remains a showman -- wrestling an alligator at a Cognex picnic, designing an annual report that resembled Mad magazine and declaring his gubernatorial candidacy as an April Fool's joke.

The 60-year-old CEO exhibited this dramatic flair during a recent interview in his "Director's Boardroom" at the company's headquarters here, where photos of him wearing wacky Halloween costumes fill a wall. Here are some excerpts:

Enough Money

THE WALL STREET JOURNAL: Your company motto is, "Work hard and play hard." Applied to you, it should be: "Work hard, play hard and forget the cash." Why do you do that?

DR. SHILLMAN: I don't need any more. Most people find that very strange. The analogy I give is that of having a restaurant meal with friends. You had drinks, dinner and dessert. The waitress comes over and says, "We are offering a special tonight. Here's another meal." Is that a good thing? Money is much the same thing.

WSJ: When did you decide that you had enough money?

DR. SHILLMAN: In 2001, the Internet bubble burst. Most high-tech companies suffered -- as we did. To try to save jobs, I decided senior people should take a 4% salary cut. I set a better example by taking zero salary. At that time, the board decided to give me extra stock options.

WSJ: Did you expect to resume your salary once business improved?

DR. SHILLMAN: In a capitalistic society, you should get paid for your efforts. But after 2001, I didn't miss the money. I said, "Well, if I don't miss it, then why should I keep taking it? Let's just give it to charity." [Cognex donated Mr. Shillman's 2004 and 2005 bonuses, totaling $517,000, to a public charity but hasn't donated his forgone salary since April 2001. At his request, the company will donate his 2006 salary and bonus.]

WSJ: Was it hard to sell your decision to the board? Certain experts think directors should give a founding CEO some cash because it increases the directors' control.

DR. SHILLMAN: I am uncontrollable anyway, money or not. The fact that I am giving up the cash means it wouldn't be useful to force me to take it. I don't measure my value by my bank account anymore. I measure my value by good deeds I do. I did not start this company for money. I started the company to be surrounded by intelligent people who don't work to make money, but because they like the creative juices that flow.

WSJ: At the end of 2005, you owned about 3.6 million shares -- representing a 7.6% stake that's now worth about $105 million. Will you eventually give away all your shares, too?

DR. SHILLMAN: The stock will likely go to charitable institutions.

WSJ: How many shares have you sold since going public?

DR. SHILLMAN: At least two million shares. So I've been able to go out and buy a big house, fast cars and some pieces of art. I also have donated more than $17.5 million worth of shares to charitable causes.

WSJ: You're a strong proponent of stock options. Who gets them here?

DR. SHILLMAN: Practically everyone. Full-time management employees get them when they join, and part-timers are eligible after a year. Nonmanagement employees can receive options based on performance and service.

Dinner and a Limo

WSJ: Let's explore your highly creative forms of compensation.

DR. SHILLMAN: We use creative compensation to get people to join. We never paid starting bonuses. It's morally corrupt. I am going to pay a starting bonus to an engineer who is going to sit next to [a person] who has been here 15 years. Where is the logic in that?

We pay people less than they are currently making to take a senior-level job. The most important thing the package includes is a great place to work. [And] I am going to give you a bonus and options package that will hopefully make you a multimillionaire someday. If you are coming for the short term, I don't want you here.

WSJ: In 1990, the year after Cognex went public and its share price tripled, you made almost every staffer "rich for a night" by treating them to dinner and a limousine ride. Why?

DR. SHILLMAN: Uniqueness is what people like about rewards. Rich for a night meant dinner for two at any restaurant of your choice, up to $150, and the limo for five hours, which was $250. They had a great time. The 108 North American employees [at the time] got it.

Give people $500, they put it in the bank and they won't remember it. We like to do memorable things that get a bang for the buck. At the annual employee meeting, I said, "We are all getting a bonus, but the bonus isn't going to make you rich. I can make you feel rich. You are going on a night on the town in a chauffeur-driven limousine."

WSJ: How do these surprise rewards build loyalty?

DR. SHILLMAN: We are the most profitable company in our field -- because of the longevity of people in the company.

WSJ: What's your voluntary turnover rate?

DR. SHILLMAN: It has averaged about 6% a year since 2001. It hit a high of 18% during 1999 when we had people recruited away.

WSJ: When overall turnover increased, did it also rise among top executives?

DR. SHILLMAN: No. Some senior people retire. Almost nobody leaves. They like the management style. I am meticulous about hiring, and then I'm hands-off.

Treats to Remember

WSJ: Like Cognex, many high-tech companies are fun places to work, offering options, a game room and an Ultimate Frisbee field. But I don't know whether such goodies keep people committed. How does your approach foster your unique culture?

DR. SHILLMAN: Small perks show you care. Anybody can put a bonus plan in place. We do crazy things out of the blue. I drive up in an ice-cream truck and give everybody ice cream. My hat says "Cognex Good Humor Man." I come and ring the bell every summer on a surprise date in July. It shows that management thinks about the people and loves them.

WSJ: Wouldn't most people prefer $100 bills over ice cream?

DR. SHILLMAN: They wouldn't remember that! Where did I get the idea to send everybody a "Cogfee" cake? When we built this addition, the contractor sent me a wonderful cake from Boston Coffee Cake Co. I took that home. On each North American staffer's birthday and Thanksgiving, we send a Cogfee cake to their homes. I get more thank-you notes [and] emails from that than from stock options or bonuses.

WSJ: Tell me about your offbeat cultural practices.

DR. SHILLMAN: We don't just have a culture, we have a cult. We have our own salute. [Imitating Curly from the Three Stooges, Mr. Shillman stands up and holds his upright thumb and palm parallel to the front of his nose.]

When every company meeting ends, we all stand up and say, "To preserve and enhance vision." We are speaking about the vision of a highly successful company that treats all of its stakeholders with ethics and respect.

WSJ: During the 2001 downturn, you laid off people for the first time since going public. You dropped your family summer outing and scaled back year-end and Halloween celebrations. Why?

DR. SHILLMAN: It was the wrong thing to be celebrating, to spend money in a generous fashion when people were losing their jobs. We said we were cutting back because of this downturn.

WSJ: Were people unhappy about the reduced perks?

DR. SHILLMAN: No. They understood. They appreciated it. They would have been upset if we had had the canceled parties.

WSJ: Why didn't you also drop free trips for long-term employees to places like the Great Wall of China?

DR. SHILLMAN: These are perseverance awards. One of our 10 values is perseverance, the ability and willingness to keep working on a difficult issue for an extended period. Most companies and people who are successful have that trait.

After three years of service, you get a very nice-looking watch engraved on the back with the date you started. At five years, you get a gold pin and extra weekend vacation someplace. The 15-year perseverance award is a trip for you and your spouse to one of the wonders of the world, like the Great Wall of China. All you do is show up. You get $1,000 in spending money and an extra week vacation. After 20 years, it's the same thing with eight of your best friends plus your spouse and $1,500 in spending money.

WSJ: Not everybody wants to see the wonders of the world. Some would rather have the trip money.

DR. SHILLMAN: We have had that request. We wouldn't do that. We want them to have a memorable experience. Money is not that.

WSJ: If memorable rewards like this don't strengthen staff loyalty, why offer them?

DR. SHILLMAN: I like to do nice things and reward nice people. Not that everybody here is nice. But that's what we shoot for.

WSJ: What could you possibly do for 25 years' service? Give that employee one of your cars?

DR. SHILLMAN: I don't have enough cars to give away. Besides, not everybody wants a car.

For 25 years' service, we set up a charitable-gift account and make the employee the trustee. We put $25,000 in, and they can contribute it to any IRS-approved charity anytime in any amount. I want them to feel the joy of giving.

I enjoyed the experience of philanthropy. I got so much positive feedback from people saying, "What a fabulous thing." How many people get to be a philanthropist? Most people never give away $25,000 in a lifetime. I care more about morale below the top.

Bonus for All

WSJ: But after you trimmed top executives' pay in 2001, Cognex instituted a quarterly bonus -- which seems unjustified since no one at any level was going to get an annual bonus in 2002.

DR. SHILLMAN: I don't believe in quarterly bonuses. But there had been layoffs, people went without raises and we had a shutdown for a few weeks. People had to use up all their sick and vacation days to be paid. The board felt a quarterly payout would be appropriate based on quarterly goals. Except for that year, it has always been an annual goal.

WSJ: Who can get a bonus?

DR. SHILLMAN: Bonuses are offered to every full- and part-time employee.

WSJ: Are executive perks a good idea?

DR. SHILLMAN: When [President] Jim Hoffmaster joined the company five years ago, he said, "What kind of company car can I buy?" I said, "The company's U.S. policy is that you can buy whatever car you want out of your own money." And that's my policy on perks.

WSJ: So senior Cognex executives don't enjoy perks like country-club memberships, business-club dues, an executive dining room or corporate jet?

DR. SHILLMAN: None. I have a bigger house, more cars, more money. Anybody can have that, too. You just have to earn it. I don't want the kind of executives who want perks.

WSJ: Have you lost anyone because of that attitude?

DR. SHILLMAN: I would be happy to lose those people.

New Hiring Cooled in April But Jobless Rate Held Steady

WASHINGTON -- U.S. employment expanded at its slowest pace since October during April, suggesting that economic activity waned a bit heading into the second quarter.

Yet overall labor market conditions remain generally sound, with unemployment still near five-year lows and average hourly wages up at their fastest annual pace in almost five years, which could put upward pressure on inflation and interest rates.

Nonfarm payrolls climbed 138,000 last month after rising by 200,000 in March and 200,000 in February, both downwardly revised, the Labor Department said Friday. Previous estimates showed a 211,000-job increase in March and a 225,000 gain in February. The unemployment rate was unchanged at 4.7% last month.

The median estimate of 23 economists polled by Dow Jones Newswires and CNBC had called for a much steeper April payroll increase of 205,000 and a 4.7% unemployment rate.

The slow rise in April jobs could limit some concerns that the economy's running too hot to contain inflationary pressures. Fed officials have repeatedly cautioned that high resource utilization -- and employment is considered a key indicator of resource use -- could pose a risk to underlying inflation.

In the minutes of their March 28 meeting, policymakers said "there were as yet few signs that any tightness in product and labor markets was adding to inflation pressures" but "participants observed that there was a risk that continuing increases in resource utilization could add to inflationary pressures."

And the 0.5% rise in average hourly earnings last month and 3.8% annual rise -- the fastest annual gain since August 2001 -- could heighten that latter concern about inflation.

Economists widely expect the Fed to raise rates a 16th-straight time to 5% when it meets next on May 10. Fed Chairman Ben Bernanke, in Congressional testimony last month, said the Fed could pause its tightening campaign at some point, but stressed that such a decision wouldn't preclude further tightening steps down the road.

The Labor Department said hiring last month in goods-producing industries rose by 37,000. The manufacturing sector increased payrolls by 19,000, after adding just 1,000 the month before. The construction sector added 10,000 jobs last month.

Service-sector employment went up by 101,000, matching its slowest gain since October. Retail payrolls fell by 36,100. Business and professional services companies added 28,000 payrolls, while education and health services added 35,000.

Average hourly earnings rose $0.09 to $16.61 last month. That 0.5% monthly increase was the fastest since October. The average work week was up 0.1 hour at 33.9 hours.