With the global economy facing rough weather, cost cutting has become the new mantra in Business World. Companies across the segments and sectors are trying various measures to rein in costs.
From layoffs to issuing hiring freeze to cutting travel costs to giving unpaid compulsory off to cutting stationery and energy expenses, companies are doing all to get a handle on operating expenses. One cost reduction measure that seems to be increasingly becoming common is salary cut. The list of companies announcing a cut in their employees’ salaries is growing across verticals.
It’s no different in IT, where from TCS to Infosys to Microsoft to HP, all have announced a cut in pay packets. Here are the technology companies who have announced salary cuts and freezes to tide over the challenging economy.
Tata Consultancy Services (TCS), India’s largest software exporter, announced an across-the-board cut in employee salaries based on the company’s performance in the third quarter. The company TCS clipped a portion of the variable pay linked to its performance, effectively reducing an employeeâ€™s salary by about 1.5 per cent for the January-March quarter.
This is the first time in two years that the IT giant reduced the variable portion linked to company performance. TCS reported a 5 per cent quarter-on-quarter revenue growth and 6.7 per cent rise in net profit for October-December, in line with market expectations. It expressed â€˜cautious optimismâ€™ in the face of fears over a US slowdown and reasserted its ability to manage the rise in rupeeâ€™s external value.
Typically, a TCS employee gets 70 per cent of salary as fixed component and the rest as variable. The latter, in turn, is split into one part linked to individual performance and the other to company performance. The company-related variable in paid in advance each quarter.
India’s second largest software services exporter Infosys announced it would pay lower discretionary pay. However, Infosys CEO Kris Gopalakrishnan emphasised that it is not a pay cut but a cut in variable pay.
He said that in the wake of the global economic downturn, the company would pay a lower variable pay to the senior management. â€œIt is not a pay cut. The performance of the company is slow, so the variable pay is low for senior management. The executive board members can lead by example. Discretionary pay is going to be lower this time.â€
The move is likely to hit the senior management most as the variable component is as high as 50 per cent of the total pay packet of Infosysâ€™ senior executives. However, in the case of the junior- and middle-level personnel, this component is around 20 per cent of gross salary. The variable pay is linked to revenue growth and operating margin of the company.
Earlier, the company said that the annual salary hike, given in April every year, might be in single digits this year as the company was expecting the slowdown in the IT services to continue. â€œOwing to slow performance, the increment to employees will be minimal this time,â€ Gopalakrishnan said.
The company also said that going forward, it is going to be ‘selectiveâ€™ regarding recruitments and the company would only recruit for specific requirements based on business demand.
The fraud-hit Satyam too has announced a slew of cost-cutting measures, including a cut in variable pay. The company has withdrawn the variable pay component of all its employees from April 1. However, there is no reduction in fixed compensation.
In an email to employees, Satyam CEO AS Murty said that only the minimum guaranteed amount of 25 per cent would be paid towards variable pay for the third quarter (October, November and December 2008) and the fourth quarter (January, February and March 2009) to all associates.
He wrote, “A revenue-linked allowance would be introduced from April 1 only for associates working in approved â€˜billableâ€™ roles and who were allocated to billable customer projects.”
The salary cuts also form a part of cost-cutting measures at software giant Microsoft. The company is slashing overtime, hours and pay for US temporary workers as part of an overall push to curb expenses during the recession.
Microsoft will cut what it pays the staffing agencies by 10 per cent for current projects and won’t raise the rate it pays for temporary workers who return after a mandatory annual 100-day break. The company also plans to reduce overtime and the total number of hours clocked by temporary workers.
In a statement, the company said it talked with some employment agencies before making the decision. The move comes a month after the software maker resorted to its first-ever mass layoffs and said that it would trim travel costs, freeze wages and scale back expansion plans.
Microsoft has not disclosed how many contract workers it uses, and analyst estimates vary. According to most analysts, the number is somewhere between 40,000 and 60,000 worldwide. The company employs an additional 95,000 permanent workers globally.
Hexaware Technologies has announced a salary cut ranging between 2-10 per cent for its employees above certain levels to help control costs. The company claims that about 40 per cent of its employees won’t be affected by the pay cut, which becomes effective in April. The measures will not affect employees at the entry level or those with less than or up to three years of offshore experience.
The company also put 350 of its non-billable employees on the virtual bench, paying them just 50 per cent of their basic salary. The software and back-office services provider said the staff who will be moved to the virtual bench are those that are not currently on any project.
It added that the benched staff will continue to remain on the payrolls and will be given time off to improve their skills.
Intel Corp, a bellwether of the technology industry announced a freeze on top salaries and an exchange of “underwater” stock options. Under the plan, the chip maker plans to exchange all but senior executives’ “underwater” stock options for options that carry a lower exercise price, becoming the latest corporation to try to compensate employees amid a stock market rout.
Intel detailed the plan this week in a federal filing of its proxy statement. The move must be approved by Intel shareholders.
The company seeks to exchange options with an exercise price above the stock’s 52-week high for a lesser number of new options that have about the same fair value as those surrendered.
The plan should be cost-neutral since Intel had accounted for the cost of the options when they were granted. Companies often try to conduct such exchanges as a way to motivate and retain employees, since stock options are part of a compensation package.
But they lose value when the market price of the underlying stock falls below the exercise price, which pushes them “underwater.”
After missing its quarterly targets, Hewlett-Packard announced that it would slash employee compensation and benefits across globe. The company in an internal email said that the move will save up to 20,000 jobs.
Under the new plan, companyâ€™s CEO and President Mark Hurd will cut his own salary by 20 per cent, while executive council members will get a 15 per cent cut. Executives will see their salaries drop by 10 per cent, while lower-level employees will receive cuts of five and two and a half per cent.
Last week, the company said that it will cut the base salaries of some employees in its EDS business by 10 per cent for the month of April. A company spokeswoman said in a statement via email that the move is a “temporary cost action to keep the organization strong while increasing financial flexibility.”
The company had earlier announced that 25,000 jobs would be lost as it integrates recently-acquired EDS.
In January, Silicon Valley chip maker Advanced Micro Devices (AMD) decided to shed 1,100 more jobs and cut salaries as it tries to reduce costs in a tough economic environment.
As part of the salary cut plan, AMD CEO Dirk Meyer’s base salary will be temporarily reduced by 20 per cent. Salaries of vice presidents across AMD will be slashed by 15 per cent, with employees not eligible for overtime taking a 10 per cent cut and overtime-eligible employees taking a 5 per cent cut. The company also said it will suspend its 401(k) match for employees.
The company said AMD employees outside North America will also see pay cuts consistent with local policies and regulations.
In a statement, the company said, “As a result of the continuing global economic downturn, we have determined that we need to take difficult but prudent actions designed to reduce our costs. Beginning in February, we are undertaking several steps to lower costs, including temporarily reducing employee base pay and suspending some benefits programmes.”
In December, the beleaguered cellphone maker Motorola reduced executive salaries and freezed US pension plans to help cope with the economic slump.
Co-chief executive officers Greg Brown and Sanjay Jha are taking a 25 per cent cut in base salary in 2009, Motorola said in a statement. Employees in many markets wonâ€™t get a raise, and the company will temporarily stop making matching contributions to US workersâ€™ retirement investment accounts.
The pay cuts and pension freeze will help Motorola add to the $800 million in annual costs savings it announced in October, including 3,000 job cuts.
Recently, the mobile handset maker announced that it will cut 4,000 more jobs in 2009, in addition to 3,000 it announced in October. The company said the move will save about $700 million a year starting in 2009, and total $1.5 billion in annual savings when combined with the previous cut.
Sony Corp has also decided to freeze its workers’ salaries for the year starting in April to improve profitability.
Reportedly, workersâ€™ bonuses will also be lowered to four months’ pay from six months, and annual compensation for managers will be dropped 10 to 20 per cent through wage cuts and 35 to 40 per cent bonus reductions.
Due to the global economic downtown and the strength of the yen, Sony is expected to report a group operating loss of 260 billion yen ($2.65 billion) for the year ending March 31.
It’s the first time Agilent has ordered an across-the-board, companywide pay cut since the depths of the dotcom bust. The company slashed salaries by 10 per cent between November 2001 and August 2002. Agilent also cut thousands of jobs during the tech crash.
The pay cut is expected to last through October 31, 2009, the end of Agilent’s current fiscal year, and will save about $110 million, or 1,100 jobs, Weber said. The decision means an average wage cut of about $5,500 for the company’s 20,000 employees.
Agilent CEO Bill Sullivan notified employees of the pay cut Monday, Weber said. The Palo Alto-based company expects revenue to be down as much as 5 per cent in 2009 as demand slows for its electronic test and measurement products.
Agilent is the world’s largest maker of test equipment for wireless phone makers, but orders have fallen by 10 percent as consumers stop buying the latest electronic gadgets.
Microchip Technology has instituted pay cuts for all its employees worldwide and reduced production levels by 40 per cent in the current quarter from peak levels in the September quarter.
Company CEO Steve Sanghi said, “General economic and semiconductor industry conditions have continued to decline since our October earnings call. As a result of these conditions, we are continuing with a pay cut for all of our worldwide non-manufacturing employees which was implemented during the December quarter.” He added, “We are also continuing actions to reduce manufacturing capacity in our wafer fabrication facilities in the US and our assembly and test facility in Thailand.”
However, the company declared a regular quarterly dividend of 33.9 cents a share, maintaining its fat yield of 7.4 per cent.
For its fiscal third quarter ended December 31, the company posted sales of $192.2 million, a bit ahead of the Street at $188.9 million, but down 28.8 per cent sequentially and 23.9 per cent year over year.
Santa Clara-based Applied Materials took second 10 per cent pay cut in less than a year â€œin order to reduce costs due to deteriorating global economic and industry conditions,â€ according to a filing with the SEC.
In December, the non-employee directors also took a 10 per cent reduction in the retainer fee paid for their service on the board, going from $65,000 to $58,500.
Appliedâ€™s Chief executive Michael Splinter, who was making $980,000 a year at the start of the 2008 fiscal year in November 2007, after getting a four percent raise from his salary the year before, had that reduced to $882,000 for most of the second half of fiscal year 2008 that ended October 31. Following the most recent cut, his salary now stands at $784,000.
The largest supplier of manufacturing equipment to the semiconductor industry, announced its plan to eliminate 1,800 positions, or approximately 12 per cent of its workforce, through attrition, voluntary separation and â€œother workforce reduction actions.â€
Securas Consulting Group
Information technology provider Securas Consulting Group LLC recently laid off eight employees including Securasâ€™ chief information officer, chief technology officer and vice president of sales and cut salaries across company by 10 per cent.
Securas, which brought in around $10 million in revenue in 2008, provides a range of IT solutions, including security, back-up systems, networks, Web solutions and audio-visual services. It focuses on providing IT services to small- and medium-size businesses.