Cisco offers early retirement to certain employees

For the first time since 2009, company looking to cut workforce, expenses as part of Chambers' change mandate.

Cisco this week instituted a voluntary early retirement program, its first in two years, in an effort to reduce costs.

The program is aimed at a segment of U.S. and Canadian employees at least 50 years old who have a combined age plus years of service with Cisco totaling at least 60, as of July 8, 2011. Eligible employees have from May 10 to June 24 to accept it.

“Cisco employs a variety of different methods to control costs and align investment dollars, and offering this voluntary early retirement program to those eligible employees in the US and Canada is part of our ongoing commitment to responsible business management,” states Cisco spokesperson Karen Tillman, in an emailed response to Network World.

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Tillman did not say what Cisco’s targets are for cost or workforce reduction through the Enhanced Early Retirement (EER) program. She said there will be little to no impact in Cisco’s current third quarter, which ends later this month, and that it was too early to tell if it would affect the company’s fourth quarter.

Cisco is revamping operations after consecutive quarters that saw revenue and profits in some core and tangential markets slump. CEO John Chambers issued a candid assessment of the company a few weeks ago that promised changes in order to get Cisco back on track.

Those changes began two weeks ago, with the closure of Cisco’s Flip videocamera operations and a restructuring of the company’s consumer business – one of the lowlights of Cisco’s fiscal second quarter – that cost 550 jobs. The EER is another step in that plan.

Cisco last instituted an early retirement program in 2009, during the economic recession. That program was “very well-received by employees, and requests have been made to consider offering a similar opportunity now,” states Brian Schipper, Cisco senior vice president of global human resources, in a letter obtained by Network World.

Cisco eliminated more than 1,500 to 2,000 employees in fiscal 2009, reducing expenses by more than $1.5 billion.

Under the EER established this week, non-commission-incentive employees will receive one year’s regular base pay plus their annual incentive target amount. Commission-incentive employees will receive 80% of one year’s regular base pay, plus 80% of their annual target commissions. Severance will be paid after their release becomes irrevocable, according to EER documents obtained by Network World.

Health benefits will include a lump-sum payment equivalent to 24 months of current medical, dental, and vision coverage. The amount is determined for each participant based upon current coverage elections, and the amount will be “grossed up” for tax purposes, according to the EER documents.  

Cisco will also provide 401(k) and stock payments to eligible employees. For 401(k) plans, the company will provide a one-time payment equal to approximately two years of company matching contributions, paid as a lump sum outside of the 401(k) plan. Payment will be calculated as 4.5% multiplied by total 2011 target compensation, up to a $245,000 limit, regardless of participants’ actual 401(k) participation level.

Certain former employees of Scientific-Atlanta, a company Cisco bought in 2005 for $6.9 billion, will have their 401(k) payouts calculated at 6% instead of 4.5%, according to the EER documents. There will be a similar calculation, but different limits, for Canadian employees.

Employees have a 24-month window after termination to exercise any vested options that are underwater at termination, the Cisco EER documents state.  There is no extended vesting period for restricted stock, and no acceleration of vesting for any equity-based programs.

Even though the EER is voluntary, eligible employees who choose not to participate may face downsizing eventually, according to one source within Cisco who requested anonymity.

“Last time they offered the Early Retirement package in 2009, it was heavily rumored that if it was offered and you didn't take it then you would be terminated anyway,” the source said.

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