Communications giant Motorola, based in Schaumberg, Illinois, recently bowed to the nation’s economic crisis by announcing that it is reducing costs by revising its employee compensation and benefit programs. The move, which follows the company’s October 2008 announcement of the layoffs of 3,000 employees, involves several actions.
First, as of January 1, 2009, Motorola temporarily suspended all company matching contributions to its 401(k) Plan. U.S. employees may continue to contribute to their 401(k) plans, but will not receive matching contributions from Motorola. Other companies which have also suspended their matching 401(k) contributions include General Motors and Ford.
Next, effective March 1, 2009, Motorola will permanently freeze its U.S. pension plans. The company has barred new entrants from participation in its traditional defined benefit pension plan since January 2005, but continued to fund the plans for incumbent participants. Now, the company has announced that although it will continue to fund those pensions with cash, as required by law, it will freeze its contribution levels as of March 1.
Motivated by financial factors, employers have been moving steadily away from traditional pensions for more than a decade. The economic reasons are based on the fact that a defined benefit plan is a significant liability because it makes the employer ultimately responsible for paying the benefits promised. Other employers freezing or closing their defined benefit pension include IBM, Hewlett-Packard, Sears, Alcoa, Armstrong, Verizon, and others.
Additionally, Motorola announced that employees in many of the markets in which it operates will not receive salary increases in 2009.
Finally, Motorola’s co-chief executive officers, Greg Brown and Sanjay Jha, will voluntarily take a 25 percent decrease in base salary in 2009. The company hopes that these actions will lead to significant cost savings.
“The sustained downturn in the global economy requires that we take these difficult but necessary steps,” said Brown and Jha. “While serving our customers remains a top priority, we are equally focused on our cost structure, and we will continue to implement appropriate measures to conserve cash and reduce expenses.”