HP cuts pay, benefits after poor financials

HP chairman and CEO Mark Hurd this week said the vendor would reduce base pay and some benefits across the company in the wake of disappointing earnings and in an attempt to stave off mass layoffs.

Slideshow: Most notable IT layoffs of 2008
Slideshow: Most notable IT layoffs of 2009

Hurd will cut 20% of his base pay while members of the Executive Council will see their base salaries reduced by 15%. Other executives will experience 10% reductions in base pay, and the base pay of all other exempt employees will be reduced by 5%, according to Hurd's internal memo (posted online by Daily Digital.

"The math is pretty straightforward. From a productivity standpoint, you're supposed to reduce headcount on par with declining revenue. If you don't believe the environment is going to improve, you should take the bigger cut to get on front of the problems," the letter reads. "We have about 100,000 people in our product businesses, with revenue down roughly 20%, and an environment that may not get any better in 2009."

That could equate to 20,000 lost jobs, Hurd continued, but instead HP opted to "stabilize our cost structure" by reducing pay and adding efficiencies such as changes to the 401(k) and share ownership plans. The company has further ideas for cutting costs as the economy continues to struggle. It has significantly reduced travel expenses along with the base pay and benefits cuts.

"I don't believe a major workforce reduction is the best thing for HP at this time," Hurd said in the letter.

As for the fiscal first quarter 2009 results, HP managed an increase in revenue, reporting Wednesday net revenue for the quarter reached $28.8 billion, up 1% compared to the same period last year. Net income was $1.9 billion, or $0.75 earnings per share, down from $2.1 billion, or $0.80 earnings per share. On a pro forma basis, which excludes certain one-time items, net income came in at $2.3 billion, the same as in the first quarter of 2008, although earnings per share rose to $0.93 from $0.86.

Yet HP only managed those numbers via its acquisition of EDS.

Revenue for that group grew 116% to $8.7 billion, and accounted for about one-third of the company's profit. HP is progressing ahead of schedule with its EDS integration plan and by the end of the first quarter had cut 9,000 of the nearly 25,000 jobs that it expected to cut as part of the deal, Hurd said.

"HP Services — as a result of EDS and TS — had a strong quarter, delivering virtually all of the local currency revenue growth and more operating profit than any other business. It’s gratifying, because this performance was possible because of the hard work we’ve been doing to restructure those businesses," Hurd wrote to HP employees. "
When you take HP services out of the mix, it’s a very different picture. … In an environment like this, there’s no margin for error and no tolerance for inaction."

Even though HP doesn't expect the economy to improve soon, it does think demand for its services will remain strong. "In many cases, the services market sometimes moves counter-cyclical to the economy," Hurd said.