HP could face backlash over pay cut plan

Some staff point out exec pay cuts are not what they seem

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HP chairman and CEO Mark Hurd could face a backlash to his plans to reduce basic pay and some benefits across the company in the wake of disappointing results.

Hurd said the move was an attempt to avert mass layoffs and he will take a cut of 20 percent of his base pay while members of the Executive Council will see their base salaries reduced by 15 percent.

Other executives will see 10 percent reductions in base pay, and the base pay of all other exempt employees (salaried staff) will be reduced by five percent, according to Hurd's internal memo (run in full below).

However some HP staff have commented that Hurd’s 20 percent salary cut is tiny compared to his overall salary package.

In 2008 Hurd’s base pay was $1.45 million (£1.01 million), this was topped up by bonus, pension, share option and incentive payments, bringing the total package to $42.4 million. Hurd’s salary reduction on his base pay will be $290,000, less than one percent of his total package.

Explaining the cost cutting proposal, Hurd wrote: "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 percent, 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 "stabilise" its cost structure by reducing pay and adding efficiencies. This includes changes to the US tax-free pension scheme, called 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.

Hurd’s proposals have angered workers at EDS in the UK, which was acquired by HP last year. EDS was one of the few bright spots in the company results and the Unite union, which represents many EDS staff in the UK is demanding urgent talks with the company.

Next page: HP CEO Mark Hurd’s letter in full.

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