President Obama has encouraged companies to cut pay -- particularly at the executive level. Some companies -- many of which are in Silicon Valley -- are complying. And others, like Boeing (NYSE: BA), are holding off on the pay cuts and going for the layoffs instead. This is a tricky problem and there's no doubt that CEOs are probably in a better position to make the call then Washington.
It's hard to hire engineers. So rather than fire them, many Silicon Valley companies are giving pay cuts to their executives and their employees alike. For example,
- Hewlett Packard (NASDAQ: HPQ) will cut its CEO's base salary by 20%, executives' pay by 10% to 15%, and most employees' salaries by 5%
- Applied Materials Inc., (NASDAQ: AMAT) the will cut executive pay 10% adding to an earlier 10% reduction
- Intel (NASDAQ: INTC) zeroed out its budget for merit pay or promotions, its CEO received e-mails from employees saying they would rather take pay cuts than lose a job or see co-workers terminated
But Boeing has a different philosophy. Its CEO, Jim McNerney will pay bonuses, grant raises and award top-performing employees, rather than skipping the benefits to help reduce the number of layoffs needed. He recently announced 10,000 layoffs in parts of the company that don't involve direct contact with its customers -- such as shared services and other infrastructure functions.
I think McNerney's approach makes sense and Boeing is lucky that it can afford to do this. I have little doubt that Silicon Valley companies would do the same if they had the cash to afford it. All these companies need to keep and motivate their most talented people. And they are doing their best to keep them happy in difficult circumstances.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 1)
3-07-2009 @ 2:12PM
Laura Ing said...
I am a consultant with Unisys and we have just been notified of a 20% paycut. I haven't found anything in the news on this yet. Paycuts only make sense if you at least leave the employee enough money to live on. Now that taxes take a quarter of your pay and companies take a fifth of your pay we are no longer working for ourselves. We are working for government and corporate America.
3-09-2009 @ 12:05PM
Pamela said...
I think our corporate leaders and wall street have been too short-sighted for too long. If we go back to WHY did the rules change for lending on new home sales, we find that it is because buyers couldn’t afford as much house as they used to due to rate of inflation compared to salary range AND # of jobs moving overseas at an increasing rate. Most of these people were in the middle class - not poor, not rich. When the lending rules changed, it created a “false sense of security” in an environment where the middle class was already over-extended by keeping up consumption using credit (0 down, 0 payments for 1 year, etc., etc.). Once the payments are due on all of these great offers and the APR rates adjusted after their 3-5 year term, the middle class consumers “sink in quicksand”. Not only that, they are losing jobs at an alarming rate.
Consumer - buys goods and services - businesses grow and hire more employees - more consumers buy more goods and services - employees get raises - consumers buy more goods and services. THIS IS HOW IT WORKS.
US Companies have cut the legs off the consumers - less pay, less benefits, less jobs - and they wonder why they don’t make as much money now.
How about we get some smart people in CEO positions who understand basic rules of economics. Keep employees in the US - pay them a good salary - give them good benefits - and, GUESS WHAT, the economy will pick back up again!
US Government should have distributed the “TARP” money to the people who are US citizens, over 18 years of age, who own a home. This would have put the money in the hands that need it and in the hands that SPEND it, thus keeping the economy moving forward.
I think I will write a book about what’s really going on here and perhaps enough people will listen to do something about it.
5-19-2009 @ 7:10PM
Tired of employed whiners said...
To Laura Ing:
Um, yes. You are working for corporate America. It's called HAVING A JOB. You are one of the lucky ones - even with your pay cut.