responsible wealth co-director, UFE

A public advocacy group has called on Hewlett-Packard CEO and president Mark Hurd to take a pay cut in light of the company’s cost restructuring to “share the suffering” of some 14,500 HP employees expected to be laid off within the next 18 months.

Boston, Mass.-based United for a Fair Economy (UFE) said the impending mass lay off that HP announced yesterday is another case of “employees being made to pay for executive mistakes.”

“I think it’s really important that the new leader at HP take a pay cut or freeze his pay until [we] see what comes of this [restructuring plan]. What happens is that one group bears all the suffering [while] the other gets all the rewards,” said Scott Klinger, responsible wealth co-director at UFE.What happens is that one group bears all the suffering [while] the other gets all the rewards.Scott Klinger>Text In 2003, UFE released a report claiming layoffs in large companies resulted in bigger pay hikes for CEOs. HP was on top of that list, and the report claimed that largescale layoffs in 2001 led to a huge leap in the pay of then CEO Carly Fiorina in 2002. The study, however, did not indicate a direct link between the layoffs and Fiorina’s pay hike.

Disputing the allegation, HP claimed all employees, including the CEO, received a bonus in 2002 for meeting performance goals.

Klinger, who is also a chartered financial analyst, expressed doubts that such re-organization and layoffs are actually helping the companies achieve their objectives.

“The [usual] answer is just to get rid of people, but I think most [of the time] large layoffs don’t usually result in the kind of savings that PR releases forecast,” he said.

But an industry analyst believes HP’s reorganization could bring benefits to the company.

HP’s US$1.1 billion restructuring program will put the company in better shape to compete with rivals such as IBM and Dell but swift implementation is key to its success, according to Carmi Levy, senior research analyst at London, Ont.-based Info-Tech Research.

He said the reorganization plan – announced yesterday by the HP CEO – is the company’s response to a long-standing clamour from shareholders for cost restructuring.

“It shows the organization is serious about reigning in its cost structure…that it’s aligning itself with where the industry is. Whereas in the past, [HP] has always been perceived as a bit of a fat organization,” Levy said.

Under the plan, the Palo Alto, Calif.-based company will reduce its workforce by 14,500 employees worldwide over 18 months, and modify its US retirement benefits programs.

As a result, HP anticipates annual savings of US$1.9 billion beginning in fiscal 2007. For 2006, it expects to save between US$900 million and US$1.05 billion.

The analyst warned however that HP should ensure any labour reduction is implemented as quickly and efficiently as possible, and that employees are informed as soon as possible.

“If [HP] is going to cut 14,500 jobs it has to let those individuals know what the process is going to be, get it over with quickly…so employees who remain can maintain their focus on servicing HP customers,” Levy said.

If done efficiently, such re-organization could potentially spell big benefits for HP and allow it to compete more effectively against IBM and Dell, he said.

“Whether that plays out, it’s hard to tell because the technology market is so tumultuous. But clearly HP, at post-organization, will be in a much better position to compete than HP at pre-organization,” Levy said.

Hurd also announced the dissolution of HP’s Customer Solutions Group (CSG) – an entity dedicated to enterprise, SMB and public sector sales. Instead, HP will merge the sales functions into three business units: Technology Solutions Group, Imaging and Printing Group and Personal Systems Group. HP said the intent was to “simplify the company and bring its sales force closer to customers.”

“We know that it is only by having a competitive cost structure that we could compete aggressively in the market place, enabling us to grow HP for our customers, employees and shareholders,” Hurd said.

While customers will benefit from integrated service (as clients need only to contact one business unit for technical and sales support) the transition process could be tricky, according to Levy. “The question is how effectively [would] HP be able to transition to that model with minimum confusion and inconvenience to customers [and] employees.”

While it is too early to say how restructuring will affect the Canadian market, Levy has advised businesses that are currently using HP to “determine how their relationship will change.”

The transition of HP’s sales force from the CSG to the three business units may create some initial confusion. Existing service level agreements may also have to be revised under the new system, Levy said.

“Their SLA was likely negotiated when HP was a much different company. The ground rules no longer apply and managers must re-evaluate their relationship to account for HP’s new reality.”

Related links:

HP to lay off thousands, reports say

HP users weigh in with advice for Hurd

Hurd deflects queries on plans for HP

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