Fiat Chrysler Automobiles (NYSE:FCAU) agreed to a tentative labor deal with the United Auto Workers, laying the groundwork for a new wage structure that reportedly includes higher salaries for new hires.
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FCA, which was selected by the UAW to be first in line for a new four-year contract, announced the agreement alongside union leaders Tuesday night. Officials from both sides declined to reveal details. Union members are waiting to be briefed on the contract before a vote takes place.
According to The Wall Street Journal, FCA and the UAW have a plan to gradually phase out a two-tier wage system that has been characterized as a point of contention among factory workers.
Under the system, anyone hired after 2007 (Tier 2) receives a maximum salary of around $19 an hour. Veteran workers (Tier 1) are paid up to $28 an hour for equivalent jobs.
The report says FCA will bring the salary cap for entry-level workers closer to $25 an hour, which will eventually become the standard mark for all auto workers. Employees that currently make more than $25 an hour will be grandfathered in.
Analysts anticipated a pay raise for the bottom tier, especially since FCA CEO Sergio Marchionne publicly expressed his intent to eliminate tiered wages. At a press conference Tuesday, Marchionne said the issue “will go away” under the pending agreement.
FCA and the UAW reached a deal less than 24 hours after the existing labor contract expired. The union avoided a strike by agreeing to extend the contract on an hourly basis, allowing for more time to hammer out the details.
It came as a surprise to many industry watchers when the UAW chose to work with FCA first. In past contract years, the union identified the most profitable Big Three automaker as the lead company for negotiations. The initial agreement would then be used as a template for contracts with the two remaining manufacturers.
But FCA was more receptive to closing the gap between pay groups, a primary goal for the union. FCA has the largest percentage of lower-paid production employees, and under the current UAW contract, the Italian-American automaker would have been forced to shift many of those workers to Tier 1.
Negotiations with General Motors (NYSE:GM) and Ford (NYSE:F) now take center stage. Like FCA, hourly employees at GM and Ford plants are working under extensions to the UAW’s current deals with the companies.