MELBOURNE: IBM worldwide has begun cost cuts

[King]

The next phase of cost cutting will involve laying off people. Some of the leading IT companies has asked their employees to take a pay cut. I know of many reputed Indian companies I deal with that have asked their employees to take a cut up to 15%-25%. Even a company like HP have gone for pay cut as an option : http://www.damiansaunders.net/2009/02/26/commentary/hp-pay-cuts-an-unfair-act-of-economic-opportunism-and-greed/

HP’s CEO, Mark Hurd announced, on the 20th February that he would be implementing a company wide cut in pay for all employees. Starting with a reduction in his own salary by 20%, followed by senior executives who would take a drop between ten and fifteen percent, regular employees 5 percent and exempt employees 2.5 percent. All this in reaction to a 13.5 percent fall in the company’s first quarter profit. Now, before I’m accused of making disparaging comments about HP let me just state that I have no issue with HP products and services which are top notch, largely due to the quality of HP people (their most valuable asset). This post is my opinion only, and one I’m entitled to. Let’s look at this in a little more detail. On face value it would seem that Mark’s decision was an expedient one and he’s backed it up with the kind of corporate eloquence (read smoke and mirrors) that we’ve become used to from him, it’s anything but that, to me it smacks of opportunism, pandering to investors and market analysts, and cold hard manipulation at a time when we need CEO’s to have the courage to do the exact opposite, and, when we are demanding as much social accountability for their action as they have to investors and Wall Street (now a dirty word) for profit. 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. You would have to assume that this situation is not much different for the senior executives who are taking smaller cuts * Ann M. Livermore, Executive Vice President, Technology Solutions Group. Total compensation of $15,675,274 in 2007, $20,551,493 in 2008, a 31% increase in total compensation. For her a 15% cut in base pay ($820,000) would be $123,000 or 0.59 % of her total package. * R. Todd Bradley, Executive Vice President, Personal Systems Group. Total Compensation of $7,674,083 in 2007, $21,058,092 in 2008, a 174% increase in total compensation. For him a 15% cut in base pay ($820,000) would be $123,000 or 0.58% of his total package. * Vyomesh I. Joshi, Executive Vice President, Imaging and Printing Group. Total compensation of $12,032,204 in 2007, $21,804,726 in 2008, an 81% increase in total compensation. For him a 15% cut in base pay ($820,000) would be $123,000 or 0.56% of his total package * Randall D. Mott, Executive Vice President and Chief Information Officer. Total compensation of $7,390,948 in 2007, $28,293,134 in 2008, a 282% increase in total compensation. For him a 15% cut in base pay ($690,000) would be $103,500 or 0.36% of his total package. * Catherine A. Lesjak, Executive Vice President and Chief Financial Officer. total compensation of $3,741,201 in 2007, $5,552,356 in 2008, a 48% increase in total compensation. Fo her a 15% cut in base pay ($625,000) would be $93,750 or 1.68% of her total package. Put bluntly, 6 people at the top of the HP pyramid accounted for $142,774,325 in compensation in 2008 alone. That is an obscene amount of money. To be fair, and before we contrast this with the HP employee, we have to acknowledge that HP has, under Mark Hurd’s leadership and at least fiscally, performed very well. In his three years on the job sales have increased by $30 billion and profits have tripled. 2008 was a stellar year for the company. HP is now the world’s biggest computer manufacturer. But, at what cost? Let’s look at the plight of the HP employee. The first thing we have to consider is that, unlike Mark Hurd, a 5% cut in salary is in fact a 5% cut in total compensation. Someone on a salary of $65,000 would be losing $3250 per year before tax, or $270.00 per month. Some would say this is a small price to pay for keeping your job but I think holding that gun to an employee’s head is outright exploitation and can not be condoned, especially when they have already been exploited enough for the sake of high profit margins and Mark Hurd’s stellar career performance. Ask a majority of HP employees about their current remuneration and you will be lifting a rock that you don’t want to look under, specifically; * Employees have seen the real value of their salaries diminishing with the rising cost of living since Mark Hurd came on board and even under his predecessor. There are no automatic adjustments for cost of living in HP’s yearly remuneration review (even though the smoke and mirrors will be employed amazingly to suggest HP is paying market competitive salaries). * With few exceptions most HP employees have not had a pay rise, or anything other than a measly token gesture, in the past three years despite their workload, and the company profit, increasing significantly. * HP Employees who are promoted into new roles with higher accountability, more work and more stress do not receive an immediate remuneration increase in line with the new position. Instead they have to wait for the yearly review which more often than not sees them bitterly disappointed. If you are employed into a new role in February you will wait until the end of the year for your remuneration review, the company will exploit you for nine months at least prior to that and then your remuneration will be determined by a simple algorithm on a spreadsheet that coldly spits out a figure you will definitely be unhappy with. * The much touted company performance bonus has the bar set just high enough that it’s only had two significant payouts in more than 5 years. It never makes up for the HP employee’s loss in real wages. Am I the only one who thinks it’s time for this to stop? Aren’t the employees the public face of the company, the ones who deliver the services, the ingenious inventors and developers? In his address to the company Mark Hurd said; 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. Well Mark Hurd, we’ve already had an insight into your $42 million dollar per anum, private use of the corporate jet, overpaid to a vulgar extreme world and frankly, something smells funny. In case you hadn’t noticed it the whole world is in recession. Governments all over the globe, and especially yours, are going into massive deficit to try and kick start their economies and preserve jobs. They are providing handouts of cash to stimulate spending and help us climb the ladder out of recession, the problem is people like you, and your MBA textbook approach to an “environment like this” (one I bet you’ve never seen), your totally myopic view that it’s all about analysts and investors, are simultaneously lowering the ladder down from the top. I’d suggest that there’s no longer any tolerance for the type of action you are taking. The way I see it you have two possible answers to the question about right-sizing the business. 1. The courageous option, the one that takes guts. You stand up and tell the investors “you know what, we’ve had an amazing period of growth, we’ve reaped billions of dollars profit out of the economy over the past few years, we’ve delivered a strong performance to our shareholders, and we’ve become the biggest computer company on the planet, but now it’s time to show some respect, to our employees, the lifeblood of the company, and the society’s around the world, who have allowed us the privilege to operate and become the company we are. To ensure that no HP employee finds his, or her, way on to the unemployment lines, has their home foreclosed, or has their capacity to contribute to the economy diminished in any way, as a result of company action, until such time as the economic cycle turns for the better. We know we can afford it (hell, we just made 1.9 billion profit in 12 weeks), it will just mean lowering our profit expectations for a short time.” 2. The cowardly option, the one that puts you squarely at the bottom with the worst of the worst, your snout in the trough, and your pants down around your ankles. You cut headcount and reduce salaries. Mr Hurd also said in his address; 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. We’ll of course not, since you’ve come on board you’ve taken over 40,000 people out of the HP workforce already (and I’m sure that doesn’t account for the thousands of jobs you moved offshore, or the thousands of long term contractors you’ve shafted), you’re still right in the middle of taking 24,600 of those positions out from the EDS merger you started in September 2008. The HP workforce reduction machine rolls on, you probably don’t even have another 20,000 you can drop right now. More smoke and mirrors. I’m willing to bet though that, 12 weeks from now, when the recession that will get worse before it gets better is biting harder into your massive profits (and your bonus), you’ll be marching those people out the door. I wouldn’t be worried about questions about headcount from analysts and investors if I was you, I’d be more concerned about the astute investor who asks you “what are you going to do when your employees stand up and say enough is enough?” People power has toppled Governments, a disgruntled employee base has the potential to bring HP to it’s knees in days, surely that time bomb’s ticking.

[The Outsider]

My company has replaced free soda/water/candies with freaking vending machines, home internet/phone has to be paid by me now, and families are not allowed on any business trips now. There are also talks of not reimbursing for alcohol anymore for business dinners - only the client's bill will be reimbursed. :((

[Ram]

Its possible that things will start easing from the 3rd quarter (2nd half) of this year.

[Macj]

Its possible that things will start easing from the 3rd quarter (2nd half) of this year.

Not being facetious, but how do you say?

[Ram]

Not being facetious' date=' but how do you say?[/quote'] All the stimulus packages going into the public construction and works programs is bound to ease the unemployment situation a bit. The U.S govt. mortgage refinancing plan will help keep more people in their homes, thus stabilizing home prices. Once home prices start stabilizing, housing activity will pick up again, so will consumer spending. The Fed clearing all the toxic assets from the banks’ books will help banks to start lending more aggressively, especially to small businesses. All this was started towards the end of last year, and could take upto 6 months to have an effect. The situation will still be bad, but it will not as bad as it was before.

[Macj]

All the stimulus packages going into the public construction and works programs is bound to ease the unemployment situation a bit. The U.S govt. mortgage refinancing plan will help keep more people in their homes' date=' thus stabilizing home prices. Once home prices start stabilizing, housing activity will pick up again, so will consumer spending. The Fed clearing all the toxic assets from the banks’ books will help banks to start lending more aggressively, especially to small businesses. All this was started towards the end of last year, and could take upto 6 months to have an effect. The situation will still be bad, but it will not as bad as it was before.[/quote'] In other words the States will bear a burden of debt to the Federal Government. Also wheres the money in the packages coming from? From bonds and other instruments that are bought by the Chinese, Russians and Saudi Arabians for the most part. So to finance this stimulus package we've basically borrowed more money and made more people in debt. If GM cant sell cars they need to go under, innovativeness is key, not buttressing failing companies.

[Ram]

In other words the States will bear a burden of debt to the Federal Government. Also wheres the money in the packages coming from? From bonds and other instruments that are bought by the Chinese, Russians and Saudi Arabians for the most part. So to finance this stimulus package we've basically borrowed more money and made more people in debt. If GM cant sell cars they need to go under, innovativeness is key, not buttressing failing companies.

Yep, right now, all the stimulus is from borrowed and newly printed money. All the inflation that America is creating by printing all this new money is being offset by the drop in demand due to reduction in consumer demand. What America is hoping would happen is the productivity that they’re going to generate from investing all this money (new roads, new bridges, better power-lines, better communication lines, new Industries, Green-technology jobs) will help them to pay back these loans in the longer term. The best equivalent I can come up for this is imagine a guy who is about to lose his house because he cannot pay the mortgage. What he does he do? He borrows more money on the house. Sounds insane right? But he is using all the borrowed money to convert that house into a museum, so that many people will visit it and he can pay back the loans from the entrance fee is going to collect.

[Macj]

The best equivalent I can come up for this is imagine a guy who is about to lose his house because he cannot pay the mortgage. What he does he do? He borrows more money on the house. Sounds insane right? But he is using all the borrowed money to convert that house into a museum, so that many people will visit it and he can pay back the loans from the entrance fee is going to collect.

Rather he should buy a house he can afford. As a FICO risk no one will lend him anymore money if he doesnt service his debt 'as arranged' so the rest of the analogy is moot. E.g. The sub prime crisis was wrought by people who bought homes they couldnt afford. 50k income families bought inflated 300-400k houses and were forced by the Government NOT to be assessed a higher risk bracket. FM and FM packaged these securities off which itself was inflated so their value was appreciated to begin with. Artificial appreciation at its best. GM and Chrysler are parasites sucking the Treasury, they have no business making guzzling SUVs AND getting a bailout package. They'll fail, workers will get laid off, invigorate the flex fuel industry, theyll find work, break the hold of the Unions.

[Ram]

Rather he should buy a house he can afford. As a FICO risk no one will lend him anymore money if he doesnt service his debt 'as arranged' so the rest of the analogy is moot.

Not necessarily.. If the lender thinks the borrower can somehow finance the debt in the future, if he does seem to be able to do it now, he will lend him the money. Only, the risks he takes are higher, but the interest he will be charging he will be higher too.

E.g. The sub prime crisis was wrought by people who bought homes they couldnt afford. 50k income families bought inflated 300-400k houses and were forced by the Government NOT to be assessed a higher risk bracket. FM and FM packaged these securities off which itself was inflated so their value was appreciated to begin with. Artificial appreciation at its best.

I think this is where I fundamentally disagree. The sub-prime crisis was not caused by people who borrowed more than they could afford. Remember, people borrowed money, because someone lent it to him in the first place. If you’re living in a rented apartment paying $2000 in rent and then a bank comes to you and says ‘I can give you zero-down, no income proof mortgage that can help you buy a 5,00,000 condo that will appreciate at 10% a year’, who wouldn’t take up that offer? The sub-prime crisis was caused due a combination of lax lending standards, poor regulation, artificially low interest rates and an insatiable hunger for American debt all over the world. If the world did not buy those mortgaged backed securities, there would have been no housing boom in America. What you listed as the reasons for the sub-prime crisis are not the actual causes. They’re the effects.

GM and Chrysler are parasites sucking the Treasury, they have no business making guzzling SUVs AND getting a bailout package. They'll fail, workers will get laid off, invigorate the flex fuel industry, theyll find work, break the hold of the Unions.

GM, Ford and Chrysler are effed. They cant compete with their Asian rivals. Their cost structure is just way too high.

[Macj]

Not necessarily.. If the lender thinks the borrower can somehow finance the debt in the future, if he does seem to be able to do it now, he will lend him the money. Only, the risks he takes are higher, but the interest he will be charging he will be higher too.

This is where I think the borrower has a personal responsibility to understand his financial obligations, its not the lender's prerogative. Also Dodd and Frank MADE SURE pretty much ANYONE could borrow upto 100% of the principal amount. So in this case the check and balance are both neutered. Its like blaming a restaurant when you get fat eating there everyday.