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Layoffs may spoil HP workers' allegiance

The surprisingly overwhelming response to its voluntary cutback program could be a thing of the past if the company continues to lay off employees.

Workers participating in a voluntary cost-cutting campaign at Hewlett-Packard have saved the company $130 million, confounding psychologists and economists who say that people are usually motivated by selfish desires.

But a new round of layoffs for the Palo Alto, Calif.-based computer maker could foil the voluntary program, experts say, and taint the seemingly magnanimous work force with a dose of unabashed self-interest.

Employees and their families are already showing signs of bitterness. On Thursday morning, after HP announced it would lay off 6,000 workers, the angry spouse of an HP employee sent a fiery e-mail to CNET She was bitter because her husband--who generously agreed to a 10 percent pay cut to help HP save money--is now in danger of getting a pink slip.

"I realize every tech company is facing tough times, but I really felt this cut was unfairly done," she wrote regarding a month-old program asking workers to volunteer for pay cuts and unpaid vacation. "I feel it was an underhanded threat to get them to take the cuts in pay even though they said it was 'voluntary.' Who is going to say 'no' when layoffs are looming?"

The plan was not supposed to generate such rancor.

About a month ago, HP Chief Executive Carly Fiorina and other senior managers unveiled a cost-reduction strategy based on voluntary cutbacks. They asked all workers--from administrative assistants to senior executives--to sign up for pay cuts or vacation. Senior managers also gave up their company vehicles, tightened restrictions on cell phone use and promised to be more diligent about evaluating and firing underperforming workers.

Specifically, Fiorina requested all of HP's 93,000 employees worldwide to pick from a number of options: a 10 percent pay cut through the end of October; a 5 percent pay cut and four days vacation during the same period; or eight days of vacation with no salary cut. Workers could also pick a fourth option by stating that they wanted none of the above, maintaining their current salaries and not taking any leaves.

In private meetings, e-mail and on an internal Web site, executives insisted workers would not be penalized for their choice--even if they picked the fourth option. Executives promised that no evaluations, salary reviews, promotions or demotions would come as a result of their choices. Everyone was required to turn in the survey, mostly through e-mail or the Web, but executives said it was completely anonymous.

A selfish assumption
When academics conduct similar psychological studies, often called "public goods games" or the "prisoner's dilemma," the vast majority of people pick the option that pinches them least and passes the burden to other people. When HP unveiled the plan, many management professors and psychologists assumed that most people would pick the fourth option.

Surprisingly, about 80,000 people--86 percent of HP's work force--chose one of the first three options, HP spokeswoman Suzette Stephens said. That will save HP about $130 million between now and the end of the fiscal fourth quarter in late October. Senior executives were "overwhelmed" by the response, Stephens said.

She chalked up the high participation rate to the computer giant's corporate culture, known as the "HP way." It was invented about 60 years ago, when Stanford University buddies Bill Hewlett and Dave Packard began taking oddball engineering projects such as bowling alley foot-fault indicators and harmonica tuners. They worked out of their garage, which has since been dubbed the "penultimate nerd site" and the birthplace of California's Silicon Valley.

As their company grew, they became known for a management theory that respected personal autonomy and emphasized corporate decentralization. They nurtured employee satisfaction and morale, becoming one of the first companies to offer health care benefits for employees in the 1950s and one of the first to introduce flex time in the 1960s.

HP avoided layoffs during the recession of the late 1970s by ordering an across-the-board 10 percent pay cut and requiring employees to take every other Friday off. "The nine-day fortnight" became a staple cost-cutting measure in subsequent downturns in Silicon Valley.

When the company fell into the economic malaise that has sapped nearly all technology companies during the past year, Stephens said, it felt the best option was to continue to give employees choices.

"I think it says a lot about trusting employees," Stephens said. "It really goes back to the company spending an awful lot of time, right back to the founders, valuing the individual's contribution. It's very entrenched in the HP culture."

HP a rare breed?
Few other companies could pull off a similar voluntary cost-cutting campaign, said Art Resnikoff, a corporate consultant and psychologist. As executive vice president of Foster City, Calif.-based Hagberg Consulting Group, Resnikoff has provided management training to HP and rivals.

"It's contrary to the survival of the fittest theory, but it's not contrary to HP's corporate culture," Resnikoff said. "If Intel did this, the results would be very different because they're much more internally competitive and political.

"If you look at the principles that go back to the garage, there really is a sense of collaboration that oozes through: collaboration, working together, this attitude that 'if we keep each other happy, we'll in the long run be profitable because we won't have turnover and we will have consistency,'" he said.

Despite its success, executives announced this week that the voluntary cutback program alone could not save as much as HP needed. Executives emphasized that the cutbacks were a short-term cost reduction strategy, but over the long term HP needed to reduce its work force.

The short-term, voluntary measures are not nearly as efficient as long-term staff reduction. Although the voluntary program saved $130 million through October, 6,000 layoffs will save HP $500 million annually. The layoffs will also help the overstaffed company to get its work force on par with leaner computer companies, such as Dell Computer and Compaq Computer.

But psychology experts question how much longer HP can keep asking workers to tighten their belts, given the reality that even the most fastidious belt-tighteners could get the ax. The plan could backfire if the economy continues to sour and the company continues to give out pink slips.

Early this year, as a result of a marketing and management restructuring, 1,000 HP workers accepted severance packages and left the company. HP has been looking to trim costs since at least late last year, when the company asked managers to delay salary increases, cut back on using temporary workers and encouraged employees to take vacation time.

Given the mounting layoffs, HP workers might not be so big-hearted when their bosses ask them to take pay cuts or unpaid vacations the next time around, said Steven C. Currall, associate professor of management and psychology at Rice University's Jones Graduate School of Management. He bets that many will take the fourth option--no pay cuts and no leave--if they think they are in jeopardy of getting laid off anyway.

"It's a function of how often are you going to go to the well and ask them to do this," Currall said. "If the work force feels that these decisions aren't willy-nilly, done over and over again, they're going to have a positive reaction. They'll say, 'We're all in this boat together and we've got to make the financial metrics look better.' But you can't get this cry-wolf thing going by doing it too quickly or too often."