Hewlett-Packard is cutting the base pay for all its employees in the aftermath of a disappointing first-quarter performance coupled with a belief that there's no light at the end of the tunnel through the end of 2009.
HP CEO Mark Hurd spelled out the details in an e-mail to employees:
* Hurd takes a 20 percent pay cut to his base pay.
* HP executive council members take a 15 percent cut to their base salaries.
* Other executives take a 10 percent cut.
* Exempt employees take a 5 percent cut.
* Non-exempt staff take a 2.5 percent cut.
Hurd's 2008 base salary was $1.45 million, according to SEC filings. His total compensation, including bonuses, stock awards, options and other forms of compensation, was $42.5 million for the year. Four HP executive vice presidents listed in the filing made $20 million or more in total compensation on base salaries ranging from $690,000 to $820,000.
HP Thursday confirmed pay cuts. The company also is capping its matching contributions under the HP 401(k) plan at a maximum of 4 percent of eligible employee contributions for all U.S. employees, with those matching contributions discretionary based on the company's quarterly performance, and employees will no longer be able to purchase HP shares at a discount of fair market value, an HP spokesperson said.
HP on Wednesday reported a 13 percent drop in first-quarter profits compared to the same period a year ago. Revenue was down by double digits in the Palo Alto, Calif.-based computing giant's biggest business segments -- the Personal Systems Group (PSG) and Imaging and Printing Group (IPG) both dropped 19 percent year over year, and the company's Enterprise Storage and Servers (ESS) business fell 18 percent.
HP Services was the only group out of six main business units to show growth, but that was mostly due to HP's acquisition of tech support company Electronic Data Systems (EDS) in mid-2008. The company also advised investors and analysts Wednesday that it expects a 2 percent to 3 percent revenue decline in the current quarter against the second quarter of last year, and a drop of 2 percent to 5 percent for the full year as compared to 2008.
HP Services' gains did prevent the company's overall first quarter revenue from dropping against the year-ago quarter. In fact, HP's overall sales grew 1 percent by that measurement -- but Hurd's pay-cut memo states plainly that the company's first-quarter performance "was like a tale of two companies."
The computing giant has quickly come under fire for that disjointed performance. HP fell $2.69 a share to $31.39 in extended trading Thursday, and stock adviser The Motley Fool bared its teeth at Hurd, comparing HP's "merely good management" to the recent performances of "real stars" IBM and Google.
Hurd's pay-cut memo argues that there's a need to show that HP is doing something about its poor-performing segments: "To give you a little insight into my world, after we report our earnings, we engage in a dialog with analysts and investors. They're going to ask what we're doing in light of the current environment to right-size these businesses."
Hurd added that "the math is pretty straightforward" with regard to what he's "supposed to do" given the circumstances. Hurd said the standard move would be to downsize HP's 100,000-strong workforce by some 20,000 positions, but he'd rather save money "on par with declining revenue" by instituting pay cuts.