Inside A Layoff

By Adam Cohen, With Cathy Booth Thomas/Austin

The e-mail looked harmless enough. Be at the Renaissance Austin Hotel, 20 minutes from the office, in about an hour. Just another stupid meeting, no doubt. But by the time Dell IT specialist Chuck Peterson walked into a room filled with 75 of his co-workers and a few managers he had never seen before, he knew what was up. "None of them would look at us," he says. "They had their backs to us, or they were looking at their feet."

The bosses stuck to their script. The economy is bad. We can't afford to keep you. So we're not. Hand in your badges on the way out. There were no individual explanations for why these workers--out of a work force of 40,000--had been picked. The members of the firing squad never even introduced themselves. It was over in eight minutes.

Peterson, 40, is one of 1,700 full-time Dell workers who lost their jobs since February, in an economy that has been shedding 100,000 workers a month since the beginning of the year. Last week Winstar Communications, once a wireless wonder, hung up on 2,000 employees--44% of its staff. TiVo, Sycamore Networks and Extreme Networks added more bodies to the tech sector's growing pile. AOL Time Warner, parent of TIME, has announced 2,400 job cuts in response to the slowing economy and pressure from Wall Street. By week's end unemployment had hit 4.3%, a slight but ominous rise. Worse, job creation was down, more evidence that recession is at hand.

Dell's cuts illustrate both the abruptness of the downturn and the almost chaotic nature of today's layoffs, even for companies trying to do right. Dell isn't a Rust Belt dinosaur or a business-plan-and-a-prayer dotcom. Its workers helped write one of the great business success stories of modern times. Dell was founded in 1984 to sell computers without a middleman (Direct from Dell, the ads said). Its hyperefficient model helped it pass Compaq to become North America's largest PC manufacturer. Nor is Dell's good news all behind it. Just last Thursday, Dell almost single-handedly ran the Dow up 400 points when it confirmed that first-quarter profit estimates were on track. Last year the company earned $2.3 billion on sales of $32 billion.

Many of the fired workers and their supporters are attacking the cuts as unnecessary and poorly handled--and antithetical to the company Michael Dell created. The Dell culture is fiercely meritocratic, with workers expected to do whatever it takes to make the company succeed. The reward: rich option packages that turned many thirtyish tech workers into millionaires or, as Austin calls them, Dellionaires.

Dell says it did not undertake the cuts lightly. "It's one of the hardest, most gut-wrenching decisions you can make as a leader," Michael Dell told TIME. The layoffs are, he admits, "an admission that we screwed up" by overhiring. If there's a lesson, he says, it's that "when things heat up quite a bit, we should take some pause."

The company insists it tried to handle the layoffs as humanely as possible. Dell gave terminated workers their yearly bonuses early, and it handed out severance packages of two months' salary and two months of insurance coverage. Dell is also paying for job counseling.

Not every employee got the bad news as impersonally as Peterson. When senior recruiter Kathleen Sullivan, 47, was let go, her boss led her from her cubicle into a "team room" where they could have some privacy. He apologized profusely and said he hoped they would stay in touch. "Then a tear started rolling down his cheek," she says. "I'm getting laid off, and I'm asking him if he needed a Kleenex."

But the pain was mostly hers. Sullivan had initially resisted going to Dell. But when it recruited her, she was enticed by the high pay, the 401(k), the stock options and the heady work environment. During the boom, she says, she once hired 600 people in five weeks. Dell hired 16,000 workers the past two years alone.

With money tight, there was pressure to cut back on departments that didn't generate revenue--administration, marketing and recruiting. Dell was also pushing to have in-house managers do more of their own job interviewing, leaving less work for Sullivan. Echoing Michael Dell, Sullivan blames the company for not doing a better job of anticipating work-force needs. "This is the first time I heard about reducing numbers," she says. "The company was growing too fast, and we didn't take a long view and look at what we had."

Gary Davidson's firing was mercifully brief. Davidson, 39, a network administrator in a factory that makes laptops, got to work at 7:30 a.m., and his boss called him into the human-resources building. He was told that he was history and was asked to hand over his badge, cell phone and corporate cards. "They gave me the option of coming back later to clean out my desk," he says. "By 7:45 a.m., I was out."

The news didn't come as a complete shock. When Davidson started out, money ran freely. "The mood was, 'Gosh, Dell has oodles of loot,'" he says. "'Let's just spend, spend, spend.'" But last spring, when the dotcom bubble burst, everything changed. It was harder to get anything more than a bare-bones computer to work on, and training was halted for several months. "You could practically hear the screws being tightened," says Davidson.

By early this year, rumors were rampant that job cuts were coming. But Dell traditionally kept a 10% to 30% buffer of temps and contractors, who normally get the boot during slow times. The company usually lays off an additional 10% of full-time staff after annual evaluations in February. The regular staff had hoped that those traditional purges, which happened again this year, would be all that were needed.

Many of the fired workers object to the way they were let go. Just days before D-day, as Feb. 15 is now known at Dell, management was denying planned job cuts. On D-day, officers from the Texas Department of Public Safety showed up at the Dell campus to escort the doomed to their cars. Workers were encouraged to sign "the bribe," an agreement not to discuss their package or sue Dell, in exchange for up to four extra weeks of severance.

One of the biggest complaints among redundant Dell workers is that the company has not explained how it chose whom to fire. Dell rigorously evaluates its employees, ranking each on a descending 1-to-5 scale; fives get fired first. But performance didn't seem to matter this time. "The first guy in my department to go was the second highest rated on the team," says Davidson. "It was more like a shotgun blast, or a lottery."

Some of the workers let go accuse Dell of targeting older, more highly paid workers. "The people left are not the ones who built the company," says Peterson. "We did all the sweat, and now they're getting our stock options." Dell counters that older workers who say they were singled out are just expressing sour grapes or don't understand where they fit in the process.

Some say management's choices don't make business sense. Randy Schleicher, 52, who lost his job as a network analyst, says he heard from someone still employed at Dell that the plant making computer portables was on hold for an hour because there wasn't enough tech help after the job cuts. At $11,000 a minute, he says, that would be an expensive delay.

More broadly, economists are now questioning whether large scale head-count reductions are cost-effective. Kim Cameron, professor of management at the University of Michigan Business School, says studies from 1986 to 1992 show that companies that laid off workers went on to trail their industries in productivity, profitablity and shareholder value. "A lot of downsizing is simply done as a message to external constituencies, especially Wall Street," he says. Dell's stock, for instance, rose 9% the day the cuts were announced. It had fallen 62% since March 2000, putting heat on Dell for this kind of move.

In theory, the fired Dell workers should land on their feet. Most have highly marketable skills, and unemployment in the area is near 2%. Every day they troop to a "career center" in northwest Austin. They check out websites like computerjobs.com and a bulletin board that boasts 30 "success stories"--only limited consolation given that companies where they might naturally land--Intel, Motorola and Verizon--have also been trimming workers. Doug Hutter, 41, with two kids at home, lost his job as an IT specialist Feb. 15. "I'm starting to get scared," he says. "I'm wondering where the next house payment is coming from."

But if Dell's projections hold, it could be rehiring people like Hutter soon, and some other recent casualties are already saying they intend to be at the front of the line. "Of all the places I've worked, I've never felt more appreciated," says Davidson. "I'd go back in a heartbeat."

Michael Dell has been feeling beaten up over the job cuts, particularly in Austin, where, as an employer of some 20,000 local workers, his company is intensely scrutinized. "Whenever we do something good, it's a little bit of news," he says with a sigh. "Whenever we do something bad, it's all over the place." But Dell is still widely regarded as a good employer, a solid corporate citizen and a millionaire maker. It's unlikely a single round of job cuts will change that.