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Jobs memo outlines cost-cutting

An internal memo from Steve Jobs to Apple employees outlines reduced compensation and severance packages.

An internal memo from cofounder Steve Jobs to employees of Apple Computer (AAPL) today outlined reduced compensation and severance packages.

The changes will affect the It's official: Jobs sold $150 million Apple shares company's stock options, sabbatical program, travel plan, and bonuses.

"We're in a difficult time period, and we need to make difficult decisions," corporate spokeswoman Katie Cotton said of the cutbacks on fringe benefits.

The move to cut costs comes just a day after the company officially reported that it will stay in the red through its fourth quarter. The computer maker posted a smaller-than-expected net loss of $56 million, or 44 cents a share, for the quarter ending June 28, compared with a loss of $32 million, or 26 cents a share, a year ago.

Stock will now make up the primary form of bonuses at Apple, a commodity that until recently has not held much value to employees with options. Profit-sharing programs will remain in place, but the emphasis will be on stock options.

Macworld saga Cotton noted that while employees may be upset with the changes, there is a widespread understanding that the company needs to take drastic steps to return to profitability. "The long term will benefit the company and then in turn the employees," she said.

The company's sabbatical program will be discontinued at the end of the fiscal year ending in September. Previously, employees with five years under their belts at Apple received a six-week paid sabbatical, said Cotton. However, those with five years experience through September, will still receive the paid leave.

The travel plan was also trimmed. Now, all the employees will use coach travel on a trip less than ten hours long, and business class for longer trips.

The executive team is forefeiting current and future bonuses in exchange for stock options.

Executive compensation was one of the criticisms of investors. Shareholder organization and pension fund manager CalPERS told CNET's NEWS.COM in an earlier interview that "it is natural for companies to grow and downsize, but when that is happening and they are paying excessive compensation, that is not a great value to shareholders when assets are being used that way."

The pension fund was also displeased that personal stock ownership was low among most directors, therefore, board members lacked a personal interest in the company. "As shareholders--and owners of this company--we believe that dedication of all of Apple's directors and personal incentives are critical to recovery," Kayla Gillan, general counsel for CalPERS, said previously.

But, while there are cutbacks of cash incentives to executives, the employees are still being granted generous walking packages.

When an employee is laid off, he or she is put in "layoff notice period," in which the employee is still on the payroll receiving regular paychecks and benefits but does not have to come to work.

The layoff period lasts 60 days and is intended to support outgoing employees as they make the transition to new jobs. The cutback plan does not provide additional severance based on rank; Apple used to give employees a week of severance pay based on how high they climbed up the Apple ladder. But the new plan continues providing an additional week of severance pay for each year of service at Apple, Cotton said.

Meanwhile, the memo reiterated previously announced plans to bring more of the company to its R&D location, renamed the "Apple Campus." It will house not just engineering and research and development, but marketing and sales as well.

Apple now has just under 10,000 employees.

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