While the tech industry has announced thousands of layoffs in recent months, as the global recession spread through Silicon Valley, some local companies are also starting to trim employee pay and benefits to reduce costs.
The moves, once considered unusual, are a way to "share the pain" that might save some jobs, according to executives and economists, although the cuts don't sit well with some workers.
Tech behemoth Hewlett-Packard was the latest employer to announce pay cuts this week, including a 2.5 percent reduction for hourly workers, 5 percent for salaried workers and 10 percent to 20 percent for executives.
Struggling manufacturers AMD and Seagate Technology also implemented broad pay cuts this month, while Applied Materials announced it will institute "multiweek shutdowns" at various divisions — including six weeks over the next six months at its California facilities — in which workers must use vacation or holidays or take the time as an unpaid furlough.
It's difficult to track the extent of pay cuts for rank-and-file workers, but compensation experts say there's been a definite increase in tech companies announcing reductions for top executives, which are often disclosed in regulatory filings.
More than 100 public companies in all industries have reported executive pay cuts since June, compared with just a handful in recent years, said Alexander Cwirko-Godycki, research manager at Equilar, an executive compensation research firm in Redwood City. He said the largest number of those companies, about 40 percent, are in the tech sector.
The reports started to surge after the stock market plunged in November, he said. "We're almost guaranteed to see this trend continue."
Intel and Yahoo have halted employee pay raises. But Palo Alto-based HP, with more than 300,000 employees worldwide, is the biggest to announce pay cuts.
HP announced the pay cuts Wednesday, along with lower contributions to employee 401(k)s, even as it reported a $1.9 billion profit for last quarter. The company said sales grew only 1 percent, with a surge in the services business making up for a big drop in key product segments. Profit fell 13 percent from last year.
Chief Executive Mark Hurd told analysts he expects the recession will continue through the year. In a letter explaining the cuts to employees, he said: "In an environment like this, there's no margin for error and no tolerance for inaction."
Hurd has been aggressive about streamlining operations since taking the helm at HP in 2005, and he told analysts last fall that HP could maintain profits in part by continuing to control spending. Since last summer, the company has laid off 9,000 workers as part of a three-year plan to eliminate 24,700 positions related to its acquisition of the tech-services company EDS.
But HP executives say those layoffs were not tied to the economy. Chief Financial Officer Cathie Lesjak told the Mercury News that HP considered doing additional layoffs in response to the downturn, but decided that pay cuts would cause less harm to employees and less disruption for HP — because more layoffs would require the company to replace workers when business picks up.
HP also says employees may recover some of their lost pay through bonuses if the company meets performance goals — a point Hurd stressed in saying the move gives HP flexibility by making some compensation "more variable" and "more performance-oriented."
Still, the cuts clearly irked some HP employees who contacted the Mercury News in recent days. Several complained that while Hurd is taking a 20 percent cut in his base pay of $1.45 million, that pales in comparison to nearly $24 million he received in a cash bonus last year, plus additional stock compensation.
Other companies have cut pay amid more dire circumstances. Chip-maker AMD, which reported a $1.4 billion loss in its last quarter, said last month that it will lay off 1,100 workers in addition to 2,200 last year. The Sunnyvale company also announced "temporary" pay cuts of 5 percent for hourly workers, 10 percent for salaried workers and 15 percent to 20 percent for executives.
Seagate Technology, which makes disk drives, posted a $496 million loss in its last quarter. Seagate, based in Scotts Valley, said last month it would lay off 3,000 workers and cut pay by 15 percent to 25 percent for executives and 10 percent for management, sales and professional employees. Seagate estimates the pay cuts will save $80 million annually.
Such broad pay cuts will have a ripple effect as employees reduce their own spending, said Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. But it's difficult to compare the economic impact of pay cuts versus job cuts, he said, noting that laid-off workers will receive unemployment benefits and continue some spending.
"Whatever they do, it's going to be a hit" to the economy, Levy said of local companies that are cutting costs. Reducing pay "is just another way of absorbing losses. Everybody will take a little hit instead of a few taking a lot."
Source : http://www.mercurynews.com/