Motorola freezes pension plans, cuts salaries to cope with slump
Schaumburg-based Motorola Inc. said Wednesday it will make millions of dollars in cuts starting in January by freezing salaries and stopping contributions to retirement plans while its top two executives take a 25 percent pay cut.
Analysts estimate the measures could save about $300 million.
"I believe the cost cutting will provide some added breathing room, but it's mostly a Band-Aid solution," said Alex Dannin, telecom analyst with Morningstar Inc. "While any cash savings is good during these times, Motorola must return its mobile phone business to at least break-even profitability. I think they have already begun tackling most of the issues in that business and the results should be evident within the next six to 12 months. If the economy continues to weaken and the phone business does not improve, then it's possible that the division would have to be shut down. At this point, I consider that a highly unlikely scenario."
The mobile phone and communications equipment maker said in October it would slice about $800 million from its bottom line, which included eliminating about 3,000 jobs. It already had cut about $1 billion earlier this year. However, Wednesday's actions are in addition to that $800 million, said company spokeswoman Jennifer Erickson.
"We will provide specific details in regards to cost savings during our next earnings call," Erickson said.
Starting Jan. 1, Motorola will temporarily suspend all company matching contributions to its 401(k) plan. U.S. employees may continue to contribute to the 401(k) but will not receive matching contributions from the company.
The company's expenses for its match for all contribution plans was $116 million in 2007, $105 million both in 2006 and 2005, said Erickson.
Effective March 1, Motorola also will permanently freeze its U.S. pension plans, preserving vested benefits accrued by employees and retirees but eliminating future benefit accruals. Motorola intends to continue to provide funding to meet its pension obligations to present and future retirees.
Erickson declined to say how many retirees are served by Motorola's plans.
Also, employees in many of the markets will not receive a salary increase next year.
Co-chief executive officers, Greg Brown and Sanjay Jha, who was hired in August, will take a 25 percent cut in their base salaries starting in 2009. They each have base salaries of about $1.2 million, according to federal filings.
Greg Brown also will voluntarily forgo any 2008 cash bonus earned under the Motorola incentive plan. Jha's employment contract provides for a guaranteed cash bonus for 2008. His bonus also will be voluntarily reduced by an amount equal to Greg Brown's forfeited bonus and the remainder will be taken in the form of restricted stock units.
"Motorola's change in employee compensation and benefits should help it improve its cost structure, which remains bloated compared to its competition. It may also help Motorola be more competitive going forward as new employees will not be eligible for pension plans and benefits," said Rick Franklin, telecom analyst with Edward Jones.