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.

Employees have been notified by e-mail that they won�t receive a salary increase in fiscal 2009, which began in November, according to two people who asked not to be identified because the message was confidential. The only exceptions will be in countries where pay freezes are illegal, the two people said.

Hurd has cut jobs, closed offices and merged data centers to lift profit, even as he expands through acquisitions. Hewlett- Packard also is limiting travel, curtailing hiring and eliminating �favorite science projects� to save on research costs in 2009, Chief Financial Officer Cathie Lesjak said last month on a conference call.

Hewlett-Packard, which has 320,000 employees, declined to confirm the salary freeze. �In this difficult macroeconomic environment, we believe it is prudent and responsible to reduce costs where possible,� said spokeswoman Emma McCulloch. �H-P has a longstanding and disciplined approach to managing costs in order to invest in the company�s growth.�

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. Those who have a job are going to find their dollar going farther, but another 2 million are going to find themselves jobless.

Deflation continues to pick up steam. Frozen wages is proof enough.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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