Intel freezes salaries from CEO on down

Chip maker expands cost-cutting actions in response to drop-off in chip demand

Intel Corp. said Monday that it has frozen the salaries of employees across the board, including the chip maker's top executives, in a further effort to reduce costs.

The salary freeze comes as Intel tries to cope with the reduced chip demand that is resulting from the economic recession. The salary freeze applies to every employee, including CEO Paul Otellini, said Intel spokesman Chuck Mulloy.

"We are in the toughest recession in the history of our industry, and we need to continue to control our costs," Mulloy said.

However, a salary freeze for Otellini and other top executives, including chief financial officer Stacey Smith, has to be approved by shareholders, according to a proxy filing that Intel submitted to the U.S. Securities and Exchange Commission today.

Intel also said that it plans to reimburse employees who have lost value on their stock options, according to the SEC filing. The company later this year will allow employees to receive new stock options in lieu of previous outstanding stock options that went below the exercise price at the end of 2008.

Revamping the stock option plan is important to the company's efforts to attract and retain top talent, Intel said in the filing. The chip maker, which had 83,900 employees as of Dec. 27, noted that 87% of its workers currently hold stock options.

Prior to the salary freeze, Intel had taken other corrective actions in an effort to pull itself out of the economic hole being caused by lower chip orders as demand for PCs and other hardware products continues to decline.

For example, Intel said in January that it would cut 6,000 jobs and close four manufacturing and test facilities in the U.S., Malaysia and the Philippines.

Several weeks later, Intel announced plans to spend $7 billion over the next two years to upgrade three U.S. manufacturing plants in order to ramp up production of chips based on its new 32-nanometer process technology. That investment is expected to help retain about 7,000 jobs in three states.

Intel hopes the chips that will be made using the new manufacturing process will fit into devices such as set-top boxes and digital TVs, potentially opening up new markets and revenue opportunities for the company.

Mulloy said the chip plant upgrades will continue, despite the worsening economic picture. "The investments we're making are strategic," he noted. "In order to continue to lead and continue to grow for the long term, we have long believed that we must continue to invest in technology."

Copyright © 2009 IDG Communications, Inc.

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