Intel stunned employees on Tuesday night by announcing that it will cutting compensation for employees sharply following having reported terrible financial results the previous week..
The chipmaker announced that it will cut base salaries for employees who work above the midlevel ranks by at least 5% from March 1st as per employees who received the announcement. Vice presidents will get an additional 10 while senior executives will get an increase of 15 and the CEO Pat Gelsinger will get a 25% cut to his base salary.
Intel is the first big tech to go beyond layoffs and institute broad pay cuts. Annual bonuses paused, 401K match halved, merit increases on hold and actual pay cut by 5% to 15%.
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Employees who work for hours don’t get an increase in pay, and annual bonuses will stay. However, Intel has cut other incentive programs for all employees as of today.
They have suspended merit increases for all employees as well as suspended quarterly bonus-sharing and employee recognition programs and reduced 401(k) retirement plans match payments in half, down to 2.5 percent.
“These modifications are designed to affect our executive workforce more profoundly and will in facilitating the investment and overall workforce required to speed up our transformation and realize our long-term plan,” Intel spokesperson Will Moss wrote in a statement. “We thank the employees of Intel for their loyalty to Intel and for their patience throughout this period, as we are aware these changes aren’t simple.”
SemiAnalysis, a website SemiAnalysis initially reported on Intel’s pay reductions that come after the cuts Intel announced in the fall of last year. Intel hasn’t released the number of employees were laid off in Oregon the largest of its sites however, the company has announced that it laid off more than 500 people in California.
The chipmaker wanted to reduce the spending of $3 billion amid an elongated decline in demand for microprocessors from PC makers and data center operators through 2022.
Intel’s outlook continues to get darker. The company announced Thursday that sales had dropped 32% over the past quarter, and the company expects to see 40% less revenues this quarter, compared to the same timeframe a year before.
“We acknowledge that we made a mistake in the past, and we dropped (market) shares, and we were unable to sustain momentum” Gelsinger told Wall Street analysts this week. However, he said Intel believes that the bad times have passed “We think that the company has stabilized over this past year.”
Analysts from the investment industry have advised of Intel’s “atrocious” financial performance could force the company to cut the quarterly dividend. This could lead to a massive selloff in its stock.
A reduction in employee compensation can aid in bolstering Intel’s finances and avoid further reductions in staff however, it could force employees to leave Intel for new positions. Stock-based compensation is an essential part of Intel’s overall pay package. Employees have been struggling to cope with a dramatic drop in the price of Intel’s shares.
Intel shares closed on Tuesday at $28.26 just a bit more than half what they were in the spring of last year.
Employees reported that Gelsinger made the announcement in a sad corporate address on Tuesday evening. They claimed he was trying to motivate employees with a reference to the difficult times Intel suffered through the 1980s before it became the leading chipmaker in the world. He said the reductions may be reversed when the company’s performance improves.
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Intel has lost its position as the top chip maker within the industry in the last couple of years due to numerous manufacturing errors however it’s still not knowing if Gelsinger will be able to create a new return. Intel has made a commitment to investing billions to build new manufacturing facilities located in Arizona, Ohio and Europe and claims to have picked up the pace of the introduction of new versions of its chip technology.
But the rival Taiwan Semiconductor Manufacturing Co. continues to create its own innovations as do a number of other chip makers, including which are AMD and NVIDIA are partnering with TSMC to produce their chips. They’ve been able to gain market shares from Intel even as the overall market slows down.
Intel hasn’t stated how many employees are eligible for the reductions in wages However, Intel’s compensation system is heavily geared towards the top of the line. The cuts will have a significant impact on Oregon where Intel conducts its most sophisticated research, and more than 20000 employees.
In a rough estimate the the state’s economics expert Josh Lehner estimated Intel’s pay cuts would reduce the total wages of Oregon by $150-$200 million, or around 0.15 percent of the total wages in the state.
