Motorola Takes Drastic Measures to Combat Losses - December 17, 2008

In an announcement made earlier today, Motorola Inc. (MOT) confirmed plans to reduce executive pay, permanently stop its U.S. pension plans, and suspend its matching 401k contributions for the time being, in order to slow the current downfall the company is in since this time last year.

As part of the program, Motorola’s two top officials, co-CEO Greg Brown and Sanjay Jha have both reportedly taken voluntary pay cuts of 25% to help reduce costs within the company. Both CEO’s have a base salary of $1.2M per year.

In dealing with the stoppage of the pension fund, any member of the company hired after the end of 2004 would not be able to draw from the pension fund. For those members that were hired before that date, can keep any benefits accrued, but would not accumulate any additional benefits in the future.

The company went on to say that they would still invest in funding the pension plan to meet obligations for current and future retirees. Motorola also confirmed that they will cease to match contributions to their 401k plan, but employees are still allowed to contribute if they so desire.

These cost-cutting measures are expected to save the company some $100M amidst the global economic turmoil. Today’s announcement comes on top of the $800M cost-reduction plan instituted back in October.

In the October plan, the company stated that they were laying off some 3,000 workers, the same day the company announced a net loss of $397M in their 3rd quarter. During the quarter, the company saw overall revenues drop 15% to $7.48B. Over the past year, the company has cut more than 9,000 jobs.

Since 2005, the company has been under tremendous pressured to duplicate their success of the introduction of their most popular cell phone model, the Razr. From that point on, the company’s cell phone division has been hemorrhaging money and market share.

During the last quarter, Motorola’s market share slipped to just over 8% of the global phone market, from more than a 20% market share just over two years ago.

With the release of the Razr, shares of MOT were trading right around the $25 mark. In today’s trading session, shares of Motorola were only $1.50 higher than its 52-week low of $3.00 a share, set back on November 21.

Earlier this year, Motorola announced plans to spin off the company’s cell phone/handset division and form a separate entity to be traded publicly. However, with the economic environment the way it is, and the company’s dismal earnings release in October, those plans were shelved for the time being.

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