Wave of Frozen Salaries, Frozen Pension Contributions on the Way

Wave of Frozen Salaries, Frozen Pension Contributions on the Way


As corporate profits collapse, companies have no choice but to cut expenses. In the months ahead, expect to see many more headlines like this one: Motorola to freeze salaries, pensions.


Responding to a global recession, Motorola Inc. said Wednesday it will freeze its pension plan and employee salaries, suspend matching 401(k) contributions and cut the pay of top executives.

Just two months ago, Motorola (MOT) said it would eliminate 3,000 jobs in a move to reduce costs by $800 million. The company said its latest steps would help it save an unspecified amount of cash, which the brokerage Morgan Keegan estimated could reach as much as $100 million.

"The sustained downturn in the global economy requires that we take these difficult but necessary steps," co-Chief Executives Greg Brown and Sanjay Jha said in a statement. For their own part, Brown and Jha have volunteered to accept a 25% salary reduction in 2009. Both have a base salary of $1.2 million.

With the handset unit continuing to bleed cash, Motorola was planning to spin the division off into a separate company and focus on its remaining two businesses, which focus on home entertainment and emergency-response communications. Those plans have been scrapped for now given the lack of interest by investors.
Motorola In Deep Trouble

Motorola is in deep trouble but it does not seem to be terminal, at least not yet. A quick check on Yahoo Finance shows that Motorola has about $7 Billion in cash. Its burn rate from the latest Third Quarter 10-Q is $397 million. That's a lot but it does not seem fatal. However, the 4th quarter is likely to be a complete disaster and this assessment can easily change.

Indeed, freezing salaries and pension plans is a sure sign that 4th quarter results are going to be miserable. Just as GM should have gotten rid of the Hummer and GMAC, Motorola held on far too long to some questionable operations. Those operations are not going to fetch much of anything now.

Hewlett-Packard Said to Be Freezing Pay to Cut Costs

Earlier this month Hewlett-Packard Said to Be Freezing Pay to Cut Costs.

Hewlett-Packard Co., the world’s largest personal-computer maker, is freezing salaries as part of Chief Executive Officer Mark Hurd’s efforts to contain costs, people familiar with the plan said.

.......

Beyond Manufacturing

This post may seem like it's about Motorola and HP. It's not. It's not about manufacturing or electronics either. It's about rising layoffs, salary freezes, and the death of benefit plans on a massive scale in the year ahead.

Think health care is immune? Think again. Here is a an email from Cynthia writing about hospitals in Rio Rancho, New Mexico.

One of the large local hospitals has told it employees NO raises for next year. The hospital is getting creamed by having to treat so many new people who have no insurance and no jobs. My neighbor's daughter is an ER physician and told her father yesterday that there will be no raises next year. This afternoon she is attending an emergency meeting on the hospital's finances.

Expect to hear about thousands of such occurrences in 2009. Few if any sectors will go unscathed.

http://globaleconomicanalysis.blogspot.com/2008/12/wave-of-frozen-salaries-frozen-pension.html

of salaries is relatively innocuous in a low inflation or deflation environment. Freezing pension contributions (which I assume means making no annual contribution) is truly pernicious.

1. Pension fund liabilities will escalate as the funds are whipsawed between zero contributions and negative investment returns.

2. Failure of pension funds to invest at their historical rate will drive down equity prices further, feeding a vicious cycle in which pension fund assets deteriorate even further.

3. Employees who observe that their pension funds are becoming insolvent are likely to cut back on their consumer spending adding more fuel to the recession/deflation fires...

that salaried positions will be reduced by 10%. State of Pa. has frozen hiring and non union will forgo cost of living raise in January...Union is being told that they will need to renegotiate their contract by July or face lay-offs. That's just things in our family; I doubt that there is anyone in the US that will not be touched by this.

I've been working at this job, in a small company for 13 years. In the first 5 years, I got a raise about every 6 months. In that 5 years, I doubled what I started at. In the past 8 years, I've gotten exactly 2 (count 'em...TWO) raises....for a total of....(wait for it.....) $2.00!!!

Not to mention which, in the first 5 years it was not unheard of to work 300-400 hours of overtime per year. For the last 2 years, not only has there not been any overtime, the company cut time back to 35 hrs per week for about 6 months each year. One thing I do have to be thankful for, though, is that they haven't cut back on medical benefits, or anything else!!

I feel its about time some of these highly paid (read as "exorbitantly overpaid") executives got a little bit of a come-uppance!!