Microsoft reduces vacations, raises drug co-pay to cut costs

Decline in sales growth also leads to reduction in worker discount on stock

May 20, 2004|By BLOOMBERG NEWS

REDMOND, Wash. - Microsoft Corp., the world's largest software company, will cut vacation time for new employees and charge U.S. workers a $40 co-payment for brand-name prescription drugs as part of plans to cut costs as sales growth declines.

Microsoft also will reduce the discount for employee stock purchases to 10 percent from 15 percent starting in July, spokeswoman Tami Begasse said. Using generic drugs can save Microsoft as much as 80 percent in prescription costs compared with brand-name drugs, she said.

Chief Financial Officer John Connors wants to reduce operating expenses by 21 percent next year, to about $21.9 billion, to boost profit as sales slow.

Microsoft has forecast that revenue will grow as little as 3.4 percent next fiscal year, compared with the 14 percent increase it expects for the year ending next month.

"There is a drive toward cost-cutting across the whole company, and this is part of that," said Matt Rosoff, a Microsoft analyst at the market research firm Directions.

"It sounds like they are just trying to stay in line or a little bit ahead of industry standards."

Begasse declined to provide a figure for how much Microsoft expects to save overall from the changes.

U.S. employees hired starting in 2005 will receive two weeks of vacation for each of their first two years at the company, down from three weeks, Begasse said. The changes are part of a regular review of benefits, she said.

"This is designed to ensure we maintain fiscal responsibility while offering employees a competitive and comprehensive benefit package and more value to our shareholders," she said.

The company also is trying to save on travel by cutting 20 percent of all business trips, and will try to save on computers and software used by workers.

Microsoft is facing slower sales next year because its new version of Windows has been delayed, most customers aren't renewing two-year licenses giving them the rights to product upgrades and the company doesn't expect as large a benefit from currency conversions as it had this year.

Expenses have risen, trimming Microsoft's operating margin to 41 percent in fiscal 2003 from 50 percent five years ago. Microsoft's work force has nearly doubled to more than 56,000 since 2000, increasing benefit costs.

Connors said in March that the company has to "hunker down" before the release of its next Windows, called Longhorn, which it hopes to have on sale in the first half of 2006.

Rosoff said the reductions "might cause some grumbling from people who are already there, but it's par for the course at many firms."

Microsoft provides health-care and prescription drug coverage. The company also offers one month paid and two months' unpaid infant care leave and pays for workers' gym memberships.

Employees learned of the changes Tuesday in a companywide e-mail from Human Resources Vice President Ken DiPietro.

Shares of Microsoft shed 21 cents to $25.62 on the Nasdaq stock market yesterday.

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