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Sun uses reviews to whittle down work force

Sun Microsystems is implementing a new employee review process that, combined with cost-cutting measures, will likely lead to a reduction in company staff.

Sun Microsystems is implementing a new employee review process that, combined with cost-cutting measures, will likely lead to a reduction in the company's work force.

Under the "Employee Improvement Program," Sun managers will rank employees according to their abilities, a Sun representative confirmed. The bottom 10 percent of employees will then be offered a choice: improve performance, successfully fill another position inside Sun or accept a voluntary severance package and leave the company.

Employees who try to improve their performance will have 90 days to turn the situation around. If they don't succeed, they will be given a severance package and told to leave.

The company emphatically denied the program is a disguised plan for layoffs. Employee rankings won't even begin until July--which means the company won't see any savings during the current fiscal year, which ends in June.

"This is not a method to improve headcount," the representative said. "It is something that will be around when times are good." Sun had 44,200 employees at the end of its second quarter.

Some Sun workers weren't so sure. "Most of the co-workers I've talked to feel this is some sneaky way of doing layoffs," said one Sun employee who declined to be named. "But the way I see it, there's always fat that could be trimmed from organizations."

Managers will be subject to the same criteria.

Nonetheless, the program will likely lead to a reduction of Sun employees because of the combined impact of a number of efforts at the Palo Alto, Calif.-based server manufacturer.

Last December, Sun imposed a stringent cost containment program that included hiring controls. Sun is also not filling positions opened by natural attrition and retirement, the spokeswoman confirmed. Roughly 1.5 percent of Sun's employees per quarter leave voluntarily.

The new program will be strictly enforced. Although Sun had a similar program in the past, the difference now is that managers must adhere to a "forced ranking" that puts 10 percent of employees into the questionable category--a requirement that previously wasn't enforced. Severance packages also weren't offered to employees who fell within the under-performing category.

Analysts said the new program didn't surprise them. "However, I would expect Sun is taking careful steps not to lose people they don't want to lose," said Daniel Kunstler, an analyst with J.P. Morgan.

He added the cuts should not necessarily be construed as a sign that Sun's financial situation has become more dire, but rather that the economic downturn may be more prolonged than initially expected.

"I don't think it's that surprising, given that people know things are pretty bad there and they've been pretty up front about it," said Kevin Hunt, an analyst with Thomas Weisel Partners.

Hunt added that cutting the bottom 10 percent is one way for the company to retrench and regroup.

Other companies, such as Dell Computer, Intel and Cisco Systems, are shedding employees using similar methods. Dell, for instance, dismissed approximately 1,700 employees through a ranking program that was made more stringent this year. Intel said it will try to reduce its work force by 5,000, primarily through natural attrition.

Like Dell, Sun has experienced phenomenal employee growth in the past two years. Fewer than 50 percent of Sun's employees have been with the company less than two years, the spokeswoman said. Dell has more than doubled since the end of 1998.

Sun also is just coming off a hiring binge. In July 2000, the company had approximately 36,400 employees. The figure shot up to 42,400 by the end of 2000. Earlier this year, Sun predicted it would hire 2,000 new employees between January 2001 and the end of June. Now, Sun anticipates fewer than 1,900 will be hired in that period.

Personnel executives said the evaluation procedure seems fair.

"I think they are being incredibly humane," said Jeff Christian, CEO of executive search firm Christian & Timbers. "They're going about it with a high level of sensitivity.

"Many old economy companies do this continually. The problem with fast-growth tech industries is that these companies haven't had time to do this before and it hasn't been part of their (corporate) process."

He noted that morale will likely take a short-term hit as employees learn of the new method. But in the long term, it will benefit the company and its workers by increasing overall performance.