UPDATE 1-Ford to pay chairman for '08 once company profitable

(Rewrites headline and adds stock price)

DETROIT, Feb 27 (Reuters) - Nearly three years after vowing to work for free until Ford Motor Co (F.N) returned to profitability, Ford Executive Chairman Bill Ford Jr. could be back on the payroll.

In a filing with securities regulators, the No. 2 U.S. automaker said Ford could be compensated for his work in 2008 and future years after foregoing salary and bonus payments since 2005.

But at Bill Ford's insistence, no payments will be made to him until the compensation committee of Ford's board determines that the company has achieved its turnaround target of returning its auto operations to full-year profitability.

Ford aims to return to profitability in its core operations in 2009 and said the change to compensation terms for Bill Ford Jr. reflected a judgment that the company was "on track" to hit that goal.

"Although the company's automotive sector has not yet achieved profitability, it has made substantial progress toward that goal," Ford said in a note filed as an addition to its annual report to the U.S. Securities and Exchange Commission.

Ford said its board compensation committee decided to change the terms of of Bill Ford's unusual 2005 compensation arrangement in light of the company's progress in restructuring its troubled North American operations.

The compensation committee also concluded that it was "not reasonable" to expect Bill Ford to continue to work for free "particularly after he has received no compensation for three years," the note filed with the SEC said.

In support of the decision, the company cited Bill Ford's recruitment of former Boeing Co (BA.N) executive Alan Mulally to run the automaker in 2006 and signs of progress in its turnaround efforts.

Ford spokesman Oscar Suris said Bill Ford had foregone compensation estimated between $25 million and $33 million during the three years of his no-pay vow.

Ford's board has not yet determined the compensation that Bill Ford Jr. would receive for 2008, Suris said. No money will be budgeted or withheld for the compensation until the automaker hits its profit target, he said.

Bill Ford's great grandfather, Henry Ford, founded the automaker over 100 years ago. The Ford family retains 40 percent of voting power at the company through a separate class of shares.

Hit by rising oil prices, slumping market share and a shift in American tastes from large sport-utility vehicles, Ford posted a record loss of $12.6 billion in 2006 when Bill Ford Jr. stepped aside as chief executive and brought in Mulally.

Under Mulally, Ford negotiated a ground-breaking labor deal with the United Auto Workers union intended to cut health care costs and allow it to hire lower-cost workers.

The company slashed its North American payroll by 26 percent in 2007, but still posted a loss of $2.7 billion.

Shares of Ford closed up 1.2 percent at $6.60 on Wednesday on the New York Stock Exchange. The stock is down almost 2 percent since the start of the year. (Reporting by Kevin Krolicki, editing by Richard Chang and Carol Bishopric)