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HP boss: pay-cut for all beats lay-offs for some

Despite a relatively buoyant result yesterday, HP is battening down with a series of pay-cuts for its global staff. Boss Mark Hurd says the four tiers of cuts will save 20,000 jobs.

Chief executive Mark Hurd leads the world wide pay-packet trim, losing 20% of his own salary.

Members of the company’s executive council will take a 15% haircut; other managers will receive a 10% trim and regular staff 5%.

In a memo to staff (widely leaked; see full text below) Mr Hurd says the maths is simple. Facing a revenue shortfall of up to 20%, the company must cut pay for all, or undergo a round of redundancies (late last year, in a separate initiative, HP trimmed around 20,000 staff after its merger with EDS. The second largest technology company after IBM HP has around 300,000 worldwide).

The cuts will be effective in the US immediately, but extended to other countries on a schedule dictated by local labour laws and employee agreements. In the UK, unionised staff have already said that any cuts will only come with staff consent.

HP New Zealand did not have immediate comment.

Mr Hurd's memo to staff:

Today, HP announced first quarter results amid one of most difficult economic downturns that any of us has ever faced. I am proud to say that we continue to execute well in this very challenging environment.

We grew revenue 1 percent year-over-year, or 4 percent in local currency, and you need to look at these numbers a little differently this quarter. For the first time in a long time, the dollar was strengthening, so the currency conversion was actually a headwind for us. We also continued to show strong operating leverage with non-GAAP operating profit up 10 percent year-over-year. This was a solid performance, and I thank all of you for your efforts.

But really, Q1 was like a tale of two companies.

HP Services — as a result of EDS and TS — had a strong quarter, delivering virtually all of the local currency revenue growth and more operating profit than any other business. It’s gratifying, because this performance was possible because of the hard work we’ve been doing to restructure those businesses.

When you take HP services out of the mix, it’s a very different picture. PSG had revenue down 19%. ESS had revenue down 18%. IPG had revenue down 19%. In fairness, across IT and even other industries, product businesses are struggling in this economic climate. And we did gain share in key market segments. PSG and ESS gained roughly 1 and 3 points of share, respectively. In IPG, quite frankly, we still have work to do across a number of dimensions like inventory, both owned and channel inventory.

In an environment like this, there’s no margin for error and no tolerance for inaction. To give you a little insight into my world, after we report our earnings, we engage in a dialogue with analysts and investors. They’re going to ask what we’re doing in light of the current environment to right-size these businesses.

The math is pretty straight forward. From a productivity standpoint, you’re supposed to reduce headcount on par with declining revenue. If you believe the environment isn’t going to improve, you should take a bigger cut to get in front of the problems. You can do the calculation, as easy as I can. We have about 100,000 people in our product businesses, with revenue down roughly 20%, and an environment that may not get any better in 2009.

I’ll be asked by investors, “Where’s the job action, where are you taking out this roughly, 20,000 positions?” Well, I don’t want to do that. When I look at HP, I don’t see a structural problem of that magnitude. There are pockets where restructuring needs to happen, and areas where actions will be taken as part of our ongoing workforce optimization process. But at a company-wide level, I don’t believe a major workforce reduction is the best thing for HP at this time.

I think we are fundamentally sound, and when the economy picks up, I want HP to be strong, and to take share and to outgrow the market. I said it last quarter, my goal is to keep the muscle of this organization intact. But we do have to do something…because the numbers just don’t add up and we need to have the flexibility to make the right long-term investments for HP.

So we are going to take action. We have decided to further variablize our cost structure by reducing base pay and some benefits across HP. My base pay will be reduced by 20 percent. The base pay of Executive Council members will be reduced by 15 percent. The base pay of other executives will be reduced by 10 percent. The base pay of all other exempt employees will be reduced by 5 percent. For non-exempt employees, base pay will be reduced by two-and-a-half percent. Additional efficiencies, including changes to the US 401(K) plan and the share ownership plan, will also be implemented. Of course, the implementation of all of these actions is subject to compliance with local laws and regulations. Follow-up communications will detail the timing and the plans in your location. 

This does not change our pay-for-performance strategy at HP. If we outperform, and there is a chance we will, then we will increase the total amount of variable pay. In fact, the financial flexibility we’re gaining helps put us in a better position to compete and to win in the marketplace, and fund the bonus program this year based on pre-adjusted salaries. If the company performs well, if our individual businesses perform well and if you perform well, then you could potentially make up the difference with your bonus. I can’t promise you anything, but I tell you…there is a chance…if we get this right.

To be clear, these actions don’t make up for all of the decline in revenues. We’re also benefiting from the tough actions we’ve taken over the last few years. People always asked, “Why are we so focused on getting costs out in good times?” Now…is why that work was so important. We’ve been able to bank some of those savings, and we’re making a withdrawal, which along with the actions we’re taking today, I hope, will get us through this recession.

Again, there are no guarantees. If the environment gets worse, if the downturn lasts longer than we’re assuming, if our performance declines, we’ll have to reassess. But for now I believe this is the right thing for the strength of HP.

I know this is a tough time. But if we get this right, HP can be the kind of company that not only has led, but will extend its leadership. We can emerge from this recession in a powerful position to create value for our customers, our shareholders and our people for years to come.

Thank you.

Mark

More by By Chris Keall

Comments and questions
6

How nice it is to see a genuine, honest, non-self-serving communication from the top of a company right down to the bottom!

Here in NZ, there is a constant need to be a 'nice guy' and not do anything that will upset anyone. (Need proof - look at the job ads, to get ANY position these days you have to have 'exceptional inter-personal skills', which means not pi55ing anyone off!

Here is an example of how 'the truth will set you free - but it will pi55 off a lot of people on the way'. The decision is made, the troops are told, and the army goes on to the next battle in the war for survival. I wonder which NZ Large Corporate CEO will have the guts to do a similar thing!

Hey Idiot

Mark Hurd took 280K outof 42 MILLION package - less than 1%. Corporate bloated guzzlers like him are laughing at the likes of you. Why didn't he take a promised 20% of his overall package this year? Because he's an insatiable boar, that's why, and he has nothing but contempt for the professionals who deliver the goods. They are just human numbers filling his and the shareholders trough for their insatiable appetite; these "people" are there just to amuse Mr. Hurd as he downs another bucket of Fois Gras. Your naivity would be touching if it weren't the reason why western democracies are being corrupted utterly. Please, please read some respectable literature on this stuff - inform yourself!

Hey misinformed

Mark Hurd took 280K outof 42 MILLION package - less than 1%. Corporate bloated guzzlers like him are laughing at the likes of you. Why didn't he take a promised 20% of his overall package this year? Because he's a greedy boar, that's why, and he has nothing but contempt for the professionals who deliver the goods. They are just human numbers filling his and the shareholders trough for their insatiable appetite; these "people" are there just to amuse Mr. Hurd as he downs another bucket of Fois Gras. Your naivity would be touching if it weren't the reason why western democracies are being corrupted utterly. Please, please read some respectable literature on this stuff - inform yourself!

Hey misinformed

Mark Hurd took 280K outof 42 MILLION package - less than 1%. Corporate bloated guzzlers like him are laughing at the likes of you. Why didn't he take a promised 20% of his overall package this year? Because he's a greedy boar, that's why, and he has nothing but contempt for the professionals who deliver the goods. They are just human numbers filling his and the shareholders trough for their insatiable appetite; these "people" are there just to amuse Mr. Hurd as he downs another bucket of Fois Gras. Your naivity would be touching if it weren't the reason why western democracies are being corrupted utterly. Please, please read some respectable literature on this stuff - inform yourself!

Since when has making 1.9 Billion dollars nett profit in a little over 12 weeks been a legitimate excuse to cut the salaries of hundreds of thousands of people world wide? I would suggest never in a million years, Mark Hurd has revealed his true colors with this one.

First we need to put Mark Hurd's 20% salary cut into perspective, remember he is only taking a cut to his base salary ($1,450,000) which amounts to a $290,000 drop. Seems quite reasonable until you examine the following, publicly available, information.

  • Mark Hurd's total compensation in 2008 was $42,514,524
  • His compensation in fiscal year 2007 was $25,253,461 - so, by my calculations a 68% increase in the total package from 2007 to 2008.
  • He also exercised $10 million worth of stock options and had $15.7 million worth of HP stock vest during the 2008 period
  • His compensation package includes approximately $738,000 worth of additional compensation;
  • Personal and home security - $256,000
  • Personal use of HP's corporate jet - $135,734 (you have to love that don't you?)
  • $71,000 in mortgage subsidy he is guaranteed for relocation expenses under his employment agreement.

So, the question is; what's the significance of his stated 20% cut in base salary? I would suggest next to nothing.

For the full article my post on this issue.

http://www.damiansaunders.net/2009/02/26/commentary/hp-pay-cuts-an-unfair-act-of-economic-opportunism-and-greed/