February 4, 2007 9:50 AM PST

Dell to cut bonuses, trim management

Days after returning to the helm of the computer maker he founded, Michael Dell told employees in a memo that the company would eliminate bonuses and reduce management to cut costs.

Michael Dell, who returned to the company as chief executive officer Wednesday after the resignation of Kevin Rollins, also said in the e-mail Friday that he planned to stay with the company "for the next several years." He also announced that the company would not hire a chief operating officer.

Michael Dell Michael Dell

"We had great efforts, but not great results," Michael Dell wrote. "This is disappointing and it is unacceptable."

The announcements come after a terrible year for the computer maker, during which it lost its lead in PC market share to Hewlett-Packard and an investigation by the SEC for possible accounting improprieties began. Several executives have left the company in recent months, including CFO Jim Schneider, who was slated to leave the company at the end of January.

Dell is currently under investigation by the SEC over accounting issues that the company has said could result in significant restatements to its earnings before the 2006 fiscal year. The company has not specified the exact nature of the accounting issues, but has said they involve revenue recognition, and they do not appear to be associated with the stock-options backdating practice that has ensnared hundreds of companies over the past year.

The memo was first reported by the Austin American-Statesman, which posted a copy of the e-mail on its Web site. A Dell spokesman confirmed the e-mail for the Associated Press.

Michael Dell wrote that the bonus plan would be replaced by "limited discretionary awards" that would be available to all but senior management. He also announced a shortening of the stock-vesting period and an adjustment of the annual bonus plan set "against realistic targets."

In its executive ranks, the number of top managers who report to Dell would be streamlined from more than 20 to 12. "We have great people...but we also have a new enemy: bureaucracy, which costs us money and slows us down," he wrote

The moves come as Dell tries to retake its lead in the PC market. In 2006, Dell started growing slower than the market, the first time that has happened since the company started back in the mid-1980s. HP overtook Dell as the largest PC manufacturer midway through 2006. Dell fell short of that $60 billion target during its 2006 fiscal year, with $55.9 billion in revenue.

On Friday, Dell shareholders filed an expanded securities-related lawsuit against Dell, adding Intel as a defendant over the chipmaker's controversial marketing rebate program. The suit allages that the computer giant failed to make required disclosures to the Securities and Exchange Commission and investors about the "existence, impact and uncertainty of Intel rebates."

The company was also plagued by a massive battery recall in August 2006, which was the largest recall in the history of the consumer electronics industry at the time.

See more CNET content tagged:
accounting, computer company, memo, Dell, PC company

31 comments

Join the conversation!
Add your comment
dell
So what if HP is the biggest? They're certainly NOT the best...hp that is. Dell is by far the best computer on the planet. It is the easiest to work on and the easiest to get parts for. Their tech support has some areas that need polishing but it is much better than hp could ever dream of being.
Posted by rick47591 (19 comments )
Reply Link Flag
The Best...
on the Planet? Not from my experience, and because of my
experience, I will never purchase another Dell.
Posted by cashaww (77 comments )
Link Flag
Dell
At this point Dell should just sell off the company and return the
money to their shareholders. ;-)
Posted by scannall--2008 (14 comments )
Link Flag
silly comment
Man that's a silly comment about Dell being "easier to get parts for". What are you talking about?

It doesn't matter what brand name is on a PC, they are all just a box of parts made in China and Taiwan. HP, Dell, Lenova, etc all get their parts from outsourced contract suppliers. They're all the same parts. You're acting as if Dell manufactures the components themselves - they don't... and neither does any other PC company.

There really is no 'winner' in the PC industry. There's only the 'least loser' - and for years and years Dell had mastered the art of losing the fewest pennies per each unit sold. Unfortuantely for Dell, HP has now mastered that art as well. Also unfortunately for Dell, HP also long ago mastered the art of "services" and ink sales and all of the other businesses that Dell thinks will get them to $60B. HP has already figured that stuff out, which is why they they broke the $100B barrier last year. That is a ton of revenue.
Posted by earlyadopter (1 comment )
Link Flag
What planet you talking about?
Best computer? Where have you been? Their cheap computers are crippled machines (no AGP slots, little memory, small hard drives) geared to lure suckers into upgrading. Upgrade prices makes them a poor value and their support was basically non-existant. This all happened while Mr. Dell was still an integral part of the company. So now he's going to shift gears because his greediness and cons didn't work?
Posted by oxtail01 (308 comments )
Link Flag
Dell breaks rules, doesnt pay Affiliates comissions etc
I used to happily service and support Dell, HP, Apple, Toshiba,
and sold them as well. I have affiliate contracts with all of these
producers but only DELL doesnt properly pay the comissions
they owe me, and further Dell is the most problematic of the lot
when it comes to service, parts and support. I have begun to
direct clients to other brands and am just about ready to be an
APPLE ONLY supplier since they seem to be the best bet in
computers, having good products, a great OS and none of the
nagging Windows maintenance issues that plague PCs. So much
for Mike Dell and the empire he built, he got lazy and let
someone else run it into the ground. No love lost here.
Posted by educateme (101 comments )
Reply Link Flag
bonuses
It's easy to throw stones at a company you don't work for, but what should concern the community is the impact on the workers. There are those of us within Dell that busted our collective ass all year to make sure we met our goals, we did a hell of a job. Then we find out that because some of the powers that be have mismanaged the company, we have to suffer for it. We were excited to have Michael back in the driver's seat for about two days... I hope our sacrifice is worth it.
Posted by DudeDrone (1 comment )
Reply Link Flag
I feel for you, I really do and you are right...
Because of the top tier management or mis-management the talent is going to take a hit.

To top it off with the current lawsuits and probable SEC investigation things don't look good for the next year or so no matter how hard you work.

I feel bad for all Dell employees since this is a demoralizing step and one that can cause talent to leave making things even worse.
Posted by fred dunn (793 comments )
Link Flag
Watch The Snakes
Having been through this recently, I understand. You built it, you sacrificed for it, you think you have a piece of it. You don't. Sad but so. The investors do. If they are hedge fund investors, the matter is worse. They want your cash, not your customers. The only number they are watching is revenue recognition.

1. If the suddenly retired managers are being replaced by the people you trust least in their group, trust your instincts.

2. If you see new t-shirts in place of medical benefits, trust your instincts.

3. If a new officer comes in with a snappy buzzy plan that is long on phrases but short on details, trust your instincts.

4. If you begin to receive long overly emotional pleas for sacrifices but notice that your company officers live in another town, that the security on their offices have been increased including a receptionist who has been moved to the left of the door so she always sees you first before you see her, trust your instincts.

5. If your officers are going away for long planning sessions in comfortable hotels in nice places to visit and when they return, nothing changes, trust your instincts.

6. If they replace your old CFO or any other top executive with a new one but the old ones are kept on as well-paid consultants, trust your instincts.

7. If the admins are working longer hours and start appearing in buildings that they don't belong in to do 'special assignments' that seemingly have no results, trust your instincts.

8. If there is an increased emphasis on business development winning new business and your analysts are telling you that you are making promises that you can't reasonably keep, run like hell for the door.

Business is not mysterious. It is a matter of resources on hand to meet schedules made. If you see that Dell is eliminating the snakes, and you know who they are, you have a fighting chance.

OTOH: when I bought the Dell I am typing this on, the hard drive died within 24 hours of delivery. A hard drive makes a distinctive noise when it bites it that any experienced professional recognizes. After 24 long hours on the phone with your service rep running your pre-scripted tests, I finally stuck the phone into the machine so he could hear that click-click-click. He decided I was right.

That is the sort of empowerment you need to see around you again. If you don't, trust your instincts.
Posted by Len Bullard (454 comments )
Link Flag
Trimming management may make it worse
In mid 2006 I started harshing on Dell for a number of issues related to advertising and support. In that time, by working with a number of people at Dell, many of the problems I experienced have been fixed for all of Dells customers. Yes, they still have a long way to go, and trimming management doesn't seem to be the right path.

I'm saying this, because I've had the opportunity to interact with a number of Dells directors, senior engineers, and others located at Round Rock. From what I've experienced, they're simply over-worked. They don't have enough support staff to respond to their daily volume of E-mail or follow up on issues, in a timely fashion.

So trimming management seems like the best way to increase the workload on others in management. From my perspective, Dell has a very large employee base that always has to refer atypical issues to higher ups. Already, that process slows down customer service because the directors and higher level management has too much on their collective plate. Reducing management will just push that large volume of approval requests through an even tighter funnel, creating a larger backlog, and a longer resolution time for customers. Maybe Dell is cutting out inefficient/ineffective management? But that's not the message I'm hearing. All I'm hearing is how Dell is trimming management as a nice sound byte for their investors who will benefit in the short run as larger salaries and bonuses will result in a better near-term profit sheet.

Dell, don't trim management, improve it.
Posted by Dell_Lied (5 comments )
Reply Link Flag
Nope. Trim the Management.
Nope. I've seen this three times in my career. Bad performance is always a bad management chain. That is what they are there to prevent and if it happens, the fish rots from the head.

The insights here are easy to obtain. Just look. Take any piece of decision-documenting paper and track the number of signatures. How many admins do you have who spend an entire year planning a conference but can't be bothered to find a new hire a machine? How old are the machines on the desks of production employees?
Listen in on a conference call and determine at the end of it how many action items were issued then watch and see how many of them are met on time.

If you see whole departments of product planners and industrial managers, you know that the busines development group is out of control and outsized. If your proposal group waits a week for a simple decision on a bid, you know your development group or your business development group is stalling or partying or avoiding. If you see your front office filling up with persuasions and yellow-tie smilies who are nice to talk to but clueless about the business you are in, you know you have a political professional cadre of do-nothing salaried parasites. If there is a manager per process per product while there are only two people who execute the process, you have a professional meeting-goer who worries more about what their immediate superior thinks of them than what those two productive employees to whom they are pushing down all the work do.

Analysis paralysis is another way of saying '10 levels of plausible deniability'. You see lots of motion but no results. Meanwhile, your workers are waking up everyday and going to a ghetto that is the nightmare of all career nightmares: going nowhere fast and out of control with no hope of change that is more real than the clustering circle of well-awarded self-selecting bonus taking turkeys. Gobble gobble..

Dell is dead right. Do what you must. Take their heads and enjoy the moment that their headless bodies run round in circles one more time before falling over. Next....
Posted by Len Bullard (454 comments )
Link Flag
After working
in a Dell shipping warehouse from november through january,
seeing what goes on there and how the systems are treated in the
packaging and shipping process, you couldn't give me a Dell.

The best computer cmopany on the planet starts with an "A". I'm
truly sorry for all the fan boys that can't see past their collective
keyboards to recognize that fact.

Oh well life goes on.
Posted by corelogik (680 comments )
Reply Link Flag
That's Right!
The Best Company is indeed Acer. What a fantastic company, much better than those crap fanboy I-wanna-hump-my-Mac Apple shoeboxes.

Thanks for sticking up for Acer - a company that proudly uses Windows!
Posted by iZune (58 comments )
Link Flag
The beginning of the end
This is how it starts.... A company stops giving out bonuses, employees start to lose interest within the company, productivity and creativity suffers, good employees leave the company for better compensation, and everything slowly collapses.
Posted by BlutoNYC (301 comments )
Reply Link Flag
Dell lost the ability to make decisions
I think Dell lost the ability to make decisions.

As the industry changed Dell stayed the same holding on to its business model and constantly reducing costs to keep ahead of the game.

Hopefully, with Michael Dell back they will start to make decisions again and get back on track.

The next 12 months should be very exciting at Dell and I expect a few of the areas where they are challenges to be sorted out.
Posted by ahickey (177 comments )
Reply Link Flag
Kind of simple
I, and many other techies I know, used to recommend Dells. Why? Good price; leading tech; good ordering site; good service (when you got a rep from TX on the phone).

Nobody I know (I know, this is anecdotal) is a Dell fan anymore. I wonder if Dell executives realize how simple it is, or if they are knee-deep in consultant reports, "market segmentation" analyses, and other high-priced nonsense.

My reasons I left Dell -

They started to get real arrogant about product quality. In recent years, it's been painfully obvious how Dimensions and Inspirons in particular are slapped together with whatever is at hand. Dell reps have admitted to me on the phone that two spec-identical machines could have completely different parts. This isn't necessarily bad, but it could lower quality since your QA process now has that many more testing paths.

In particular, their LCD screens in laptops have been terrible, far worse (and cheaper) than their competition. Read any of the laptop forums on the web; Dell has incurred many, many returns simply because they insist on using awful (cheapest) screens. The True-Life coating doesn't hide the poor contrast, low uniformity, and other glaring (hah hah) defects of their low-cost screens. If their machines were correspondingly low-cost that'd be one thing, but Dells no longer have a cost advantage to make up for their shabby components.

Their support of course has become a really bad joke. Maybe they have gotten that picture, but is it really a coincidence that they have lost leadership after years of consumers saying their support is awful and Dell not seeming to listen (care)? You can only sucker so many people into buying from you the first time, they won't come back if they have to wait for hours on hold to talk to someone who can't help or can't be understood. This is particularly galling when one has, say, a critical server that is down, one is a trained IT technician, then has to wait for some time (silver support) only to be run through a script with no flexibility ("please reboot..." "look, I KNOW it's the SCSI controller chip!" "sir, please reboot so we can perform irrelevant checks for the next two hours, only to confirm that you are correct..." After too many experiences like that I won't buy servers and storage from Dell anymore until they get it right. This isn't an anti-offshoring argument - I've certainly come across obviously domestic reps who are incomprehensible or unhelpful - it's an indictment of management that thinks "outsourcing = all problems solved".

Finally, Dell came across as incredibly arrogant and anti-customer during all those years of ignoring AMD. It's not about whether AMD is better or not; it's about choice, and I and many other customers asked for AMD all these years when Opteron and Athlon were whipping Intel at lower cost. When Dell finally made the move, it was laughably bad timing: Intel was just turning the performance and performance/cost tables, and Dell was losing leadership; it seemed like a desperate, late move by an executive team with no direction or vision, a team that had been ignoring its customers for years only to make a move when its competitors were succeeding where Dell had not dared go.

Well, one more thing. Dell also handed its web site over to people who love segmentation and other marketing buzzwords too much. It's far too complex and many-pathed now; it used to be simple and straightforward, and I've spent hundreds of thousands if not millions of dollars on the Dell site. Now, one has to plow through lots of screens to get to the config screens, and then plow through many more screens, turning down all the cross-sell garbage. A company that cared about its customers would give them a simple yes/no option to see related products, and spare me the garbage if I say no; obviously, all the cross-sell in-your-face hasn't kept them their leadership, so hopefully somebody there (Michael Dell?? We'll see) will get back to what made Dell great.

To recap:
- better product quality and consistency - especially in laptop screens
- more proactive, forward-thinking, in favor of customers actions (as opposed to reacting to competitors)
- better, simpler, faster web site, with ability for people in a hurry to sidestep the cross-sells

We'll see how much one of the big consulting houses charges Dell to come up with fix-it measures. I'll be curious to see how much of it can be boiled down to this... Anyway I hope Dell can turn it around.
Posted by nhidealist (13 comments )
Reply Link Flag
I agree on their website
There use to be a 3 click rule.
Now it takes a lot of clicking just to start configuring a system. Once you start there are a lot more clicking and less options per screen.

My preference is to have one long screen with all the option on it. Fill in one form where everything is selectable making it easy to decide if I want a bigger hard disk, more memory or possibly a processor upgrade depending on my budget and the cost of the upgrades.
To do this currently is a pain and involves clicking backwards and forwards through multiple screens and remembering your options as the price changes. Not the most friendly way to decide what to buy.
Posted by ahickey (177 comments )
Link Flag
Be Careful Mr Dell
Those salaried employees that put in 25-30 hours extra a week, will be looking at other companies who keep their promises.
There is nothing worse than an employee who has been demoralized because upper management decides to placate their investors.
This is nothing new. A large company I worked for is a shell of the company that it once was. Most of the talent that this company invested in, have left for new companies.
Cutting bonuses is the worse thing management can do.
Posted by HR_Nortel (1 comment )
Reply Link Flag
Microsoft
I agree with earlyadopter about what HP already knows how to do well. Dell seems to be following Microsoft's trail of we need to have our hands in everything to be competitive instead of focusing on what they are good at or at list should be good at. You can't tell me Windows hasn't suffered since Microsoft has spent their time playing with Xbox's and MP3 players and Web Browser wars. 5 years between releases? If you think about it Dell has never hit to many bumps in the road. I think it was just their turn for a flat tire or a car fire caused by a laptop. I was a Help Desk manager 1997 to 2000 and never had a problem with Dell but I guess times have changed. I hope their customer service isn't as bad as Gateway used to be, 2 hrs later "Your call is important to us...."
Posted by alb203 (6 comments )
Reply Link Flag
Layoff Avoidance Strategies for Dell Managers
If you are an employee of the Management Team at Dell Computer CO., there IS something else you can do besides worry about this recent announcement.

As an Employment Continuity Expert, there is one key layoff avoidance strategy that will work for you:

Increase your value to your employer!

You can do this by learning the procedures, operations, software programs and inner-workings of departments that inter-connect with your own. Gain an understanding of your company outside of your own job and responsibilities. By widing your array of knowledge of operations, you become a better problem solver. At a time where there must be layoffs, your company is looking for some BIG problem-solvers. Be one.

Make known your reputation that you are someone who "gets things done". Don't be afraid to offer solutions and relay creative ideas where ever you see they are needed. Skew from your regular meeting agendas and brainstorm with your team on how you all can save Dell money and make them more productive.

Don't be afraid to share your personal Kudos with upper Management. Now is the time to ask the people you assist daily for their feedback and send that feedback up the management chain. One great letter can save your job! Reputation is powerful.

Brainstorm with your entire team and draft new and different ways that you and your team can become more valuable to the entire company as a whole. Innovation is the key here, so hold nothing back. There are no such things as stupid ideas. Look beyond your current job title and description as a means of expanding your ideas to help your company.

Hold nothing back! Do not be afraid to approach your upper Management with confidence and relay your ideas.

-Christopher Henson
<a class="jive-link-external" href="http://www.layoffshield.com" target="_newWindow">http://www.layoffshield.com</a>
Posted by hensonrouter (4 comments )
Reply Link Flag
alternatively
Alternatively, you could forward your CV to HP seeing as they are now the market leader...
Posted by richto (895 comments )
Link Flag
alternatively
Alternatively, you could forward your CV to HP seeing as they are now the market leader...
Posted by richto (895 comments )
Link Flag
Oh that's BRILLIANT!!! Now let's hear some vague...
...ramblings about 'leadership' and 'teamwork'. Hey, let's not even acknowledge the real problems. That might lead toward some sort of concrete action to address them.
Posted by vm019302 (85 comments )
Reply Link Flag
 

Join the conversation

Add your comment

The posting of advertisements, profanity, or personal attacks is prohibited. Click here to review our Terms of Use.

What's Hot

Discussions

Shared

RSS Feeds

Add headlines from CNET News to your homepage or feedreader.