HP Tightens Very Large Belt

By Mike Schuster Feb 20, 2009 12:55 pm

Bref scrutiny of today's headlines.

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Instead of laying people off in the hundreds (or thousands), Hewlett-Packard (HPQ) is instituting company-wide pay cuts and reducing benefits in an effort to boost its bottom line. It's the largest firm thus far to implement such a measure.

The unorthodox move was mentioned during a disappointing earnings call on Wednesday - but a company memo by CEO Mark Hurd detailed the actual numbers employees would be facing later that afternoon. Hurd said that a near-20% decrease in revenue and a dismal 2009 sales outlook has forced his hand.

Hourly employees will see a 2.5% decrease in base pay; exempt employees will be docked 5%. In addition to the pay decrease, HP is also reducing its 401(k) matching for employees and will no longer offering them a discounted rate on company stock.

At the top level, executives will receive a 10% pay cut; executive council members are down 15% in base pay. Hurd's pay falls by 20% -- or $290,000 -- which actually follows a 31% pay raise in 2008.

And that's not including the bonuses.

Following Wednesday's announcement, HP stock dropped $2.69 per share, roughly 8%, to $31.39.

Of course, Hurd attempted to put a positive spin on the situation, noting that performance bonuses are still in effect: "If the company performs well, if our individual businesses perform well, and if you perform well, then you could potentially make up the difference with your bonus."

But after missing analysts' estimates on second-quarter earnings by about $3.5 billion, that's a pretty big "if," Mark.Twitter: @mcs212