People like money. People want money. In the name of money, crime has flourished here and there. So who would be surprised to read that people want “their” money back? This is applicable to HP employees, and to anybody else in the world, whether they are employees, self entrepreneurs of retirees.
It seems quite obvious a conclusion. Still, it deserves some comments, as the way this has been written looks a bit too simple a view.
We think they deserve it. We agree with the conclusions at the end of the article, but not for the same simplistic rationale. The reference article just says that since economical results for HP have recovered, salaries should be restored and that’s it.As well, the article generalizes too much.
If we look to the official memo to employees at HP, we see a couple of items that have not been explained much in detail in the online report:
First: Salary reductions were not applied to total earnings by employees with variable salary. Just to base pay. What means that the cut was smaller than it looked.
Second: As these cuts have to be compliant with local regulations should there be any, in many countries in the world these reductions are simply non-effective, as local legislation protects salaries in a way that they cannot be reduced even if the consent of the employee is granted.
We are not going to discuss that cutting salaries was not a technically correct measure. It was one of the valid choices HP had to address the economical situation of the time. Indeed it was. And, as long as it complied with local regulations, it was legal to use it.
Now, having said this, we will try to go beyond, and imagine the ultimate target. The guys deciding to take this option (reduce salaries) were guys whose total earning from HP mainly came not via their own base salaries, but proportional to the value of shares. So increasing the value of the shares was their primary target. Not, as presented to the employees, was it about competitiveness and so forth.
There is only one way to increase share value significantly in the short term: Increasing profits. To increase profits, there are only to ways to do it: Either increasing revenue beyond expectations keeping costs in check, or to reduce costs significantly. From these two possibilities, it is kind of obvious that the second one is the easiest.
We believe this was the ultimate intention of the board. Just make sure the market understood they were slashing costs, and therefore increase shares value. Nothing else.
We base our opinion on the wording of the communication to HP’s rank and file employees. Messy, at some point, and potentially unclear for the average employee, who has by no means the slightest individual influence in results, and gets the explanations under the apparent “share-of-the-pain” by managers, who pretend their salaries’ cuts are even bigger than theirs.
Average employees might get lost in all the technical explanations, but what they know is that their cost of living is not paid with percentages. The greengrocer’s, the butcher’s, utilities’, insurance, schooling for kids and a long list of daily expenses are not paid on percentages, but on counting dollars. And though a 20% cut on Top execs base salary may sound big, if (this is a big “if” indeed) shares value performance means a massive payment to them, the ultimate impact is ridiculous in top exec’s earnings. As documented before, a 20% cut in former HP CEO Hurd’s earnings in 2009 roughly meant $290,000 out of more than $42,000,000, what basically proves the point. Who would care for 20% of base salary, or even 100%, if shares value can mean 30 times as much?
Not elegant at all. It simply cannot be imagined that such execs dare that much to add insult to injury. At the end, it could be even thought that they are making their millions not at the expense of competition, or by fair play in the market. They were making their earnings out of employees that supposedly are always declared to be “the most important asset” in the company whatsoever. But nothing different should have been expected, we’d say if we review recent posts from ours too.
The good news for HP? Léo Apotheker could not have found a better opportunity in the beginning of his tenure to gain a solid support basis from his more than 300,000 troops.
The skeptical view? Léo Apotheker’s income is based on shares value as much as Hurd’s was. What basically means he could be driving HP the same way as Hurd did.
The bad news? If things went bad for HP, it would behave like any other company does when targets are not met: “The most valuable assets” are sold out.
