HP server business slides in Q1
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HP to cut paychecks by May

Less than a day after HP reported a double-digit slide in nearly all of its businesses' profits, the company told employees in a memo that a wide range of employees will see 5 percent pay cuts by May 1. The cuts came on the heels of a surprising turnabout in HP's 2009 forecasts. HP expects its sales to drop by as much as 5 percent this year, even though the company acquired $22 billion in revenue by buying EDS last year.

CEO Mark Hurd is taking a 20 percent cut on his own base salary effective immediately. But Hurd's compensation last year was $34 million — and less than $2 million of that was base salary. Much of the CEO's compensation came in performance bonuses for 2007 and 2008.

That kind of pay perk seems unlikely if HP's trends continue through fiscal 2009. In November HP said it expected revenues to rise for fiscal 2009. On Feb. 18 the company told analysts that a "tough economic environment" has pushed down sales in every business line except services. Server sales took one of the steepest drops, and the segment contributed one of biggest declines in profits.

The ink was scarcely dry on reports of the quarterly results when employees read about HP's first "variable pay" implementation. HP said that the steepest cuts are directed at upper-level managers — some will see a 10-15 percent decrease — and that the company will be asking top-level staffers to support the variation in their pay.

Wider-sweeping cuts come in the form of pruning benefits for every employee, from retirement benefits to stock plans.

Published reports around the world relayed the language from an HP memo sent to the company's 300,000 employees yesterday. In a news report from the UK-based Register, Hurd was quoted as saying he didn't want to cut 20,000 jobs to respond to the decline in sales and profit.

"Well, I don't want to do that," the Register quoted from the Hurd memo. "When I look at HP, I don't see a structural problem of that magnitude." HP is already about a third of the way into a cut of almost 25,000 jobs, after adding the EDS payroll of 140,000 employees in 2008.

In Boise, Idaho, home of HP's printer empire, the Idaho Statesman reported that all employees have been informed of a 5 percent pay cut, along with ending contributions to 401K accounts and curtailing one of the keystones of HP compensation: a discounted stock purchase program. HP employees built retirement accounts and even income off the plan for decades.

But with Hewlett-Packard stock frozen below $45 a share for much of the last six-plus years, making money off the stock has required more nimble moves than in the 1990s and earlier. The shares dropped more than $1 in the hours after the Q1 report was announced Wednesday after trading ended. News of the pay cuts and the ripples of the report drove down the shares another $1.25. HP's dip to a close yesterday of $31.39 helped contribute to a six-year low for the Dow Jones Average. HP's stock is among the 30 shares that make up the average.

The company continues to forecast a modest earnings increase for 2009, based in large measure on its ability to contain and cut costs. HP also said that its business line managers are planning on retaining installed base customers longer to ride out what the company continually called economic "headwinds."