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Dell Hints at Continued Weakness in Memo to Employees

Dell employees didn't meet expectations of their annual bonus plan. Never fear, Michael Dell is paying them one anyway.

Justin Sullivan / Getty

Dell, ​the privately held PC company that has made a $67 billion bid to buy EMC, has told its employees that the company has failed to live up to its internally set financial performance objectives, and that its 2016 fiscal year contains “mixed results all year.”

The disclosure came in an internal memo dated Feb. 24, obtained by Re/code, that was sent to Dell employees concerning payments related to its incentive bonus plan. The memo, from CFO Tom Sweet and human resources head Steve Price, informs employees that Dell’s performance should have left them with no bonus payout. “However Michael, the Board of Directors and the ELT (executive leadership team) want to reward and recognize the effort from our team members to execute the business model and control costs,” with a partial bonus payment amounting to 75 percent of the bonus they would have otherwise received.

The plan affects Dell employees with the title of director and above — a little more than a third of Dell’s work force. It establishes a percentage of their annual salaries as the baseline by which the final bonus is calculated. For example, under the plan, someone earning $100,000 a year might, if financial performance targets are met, be entitled to a payment of $50,000, or half their salary. Instead, this year they’ll be entitled to 75 percent of that, or (in our example) $37,500.

In healthier years in the recent past, Dell incentive plans have paid out 150 percent of target as the company’s performance exceeded internal expectations.

A Dell spokesman declined to comment on the memo.

The disclosure of the memo comes as Dell is preparing to host its worldwide leadership conference at which CEO Michael Dell plans to formally name the executives who will run the company’s business units after it closes on its $67 billion acquisition of the data storage equipment company EMC.

The memo also comes ahead of Dell’s full report on its financial performance to investors in its debt and to potential investors in its $50 billion debt offering, which it will use to pay for EMC. That financial report is expected sometime in the next two weeks, sources say.

Separately, regulators from the European Union approved the acquisition today, saying the combined company would still face stiff market competition. That follows a green light from the U.S. Federal Trade Commission last week. Regulators in China have yet to weigh in and EMC shareholders must also approve the deal.

When Dell, which went private in 2013, last disclosed financials in December, it said that sales of personal computers fell by 12 percent in the six-month period ended July 31, while sales of servers and networking gear grew by about 4 percent.

Annual sales were nearly flat for the fiscal year ended Jan. 31, 2015, at slightly above $58 billion, up slightly from about $57 billion in the same period in 2013.

Here’s the full text of the memo:

Dell — Internal Use — Confidential

Tom Sweet, Senior Vice President and Chief Financial Officer
Steve Price, Senior Vice President, Human Resources

Rewarding FY16 performance: Incentive Bonus Plan

To: Global IBP-Eligible Dell Team

We appreciate the continued passion and hard work of the Dell team worldwide to deliver for our customers in what has been a tougher macro-environment than we originally expected. We’ve reported mixed results all year and, as a result, we missed our financial and Incentive Bonus Plan (IBP) targets for the company, and at the Business Unit (BU) level. However Michael, the Board of Directors and the ELT want to reward and recognize the effort from our team members to execute the business model and control costs. Although performance versus IBP targets would have indicated no bonus payout, we’re pleased to recognize your contributions with an IBP payout modifier of 75 percent.

In FY16, revenue growth was negatively impacted by foreign currency, a weak demand environment and overall slower global growth. On a relative basis, we grew faster than the market in overall PC demand and performed well in mainstream servers. However, our major competitors at times grew faster than we did in certain key areas, such as commercial PCs. We maintained our discipline on costs and pricing and as a result, generated good cash flow, which allowed us to continue to reduce debt and invest in critical areas such as sales capacity and new solutions.

As we head into FY17, we are confident in our future and pleased with solid progress that includes: our highest ever NPS customer loyalty scores; share gains in PC and mainstream server for the full-year 2016; strong cash flow and cost discipline; and our best-ever portfolio of leading products and solutions. Details on the full-year results will be shared with you after we announce to our debt investors in March.

Thanks again for your efforts and dedication. Our core management philosophy continues to be based on recognizing performance through financial rewards, career advancement and growth opportunities. While there’s much to do, we’re more optimistic than ever about our future and look forward to sharing more about our FY17 bonus plan and incentives after the Worldwide Leadership Meeting in March. We need to grow, despite tougher global market conditions, and we have complete confidence in this team’s ability to execute against our growth strategy and deliver excellence to our customers.

Please note that team members on a sales compensation plan, Services Bonus Plan, SecureWorks Bonus Plan or other non-IBP plans are not eligible for the Incentive Bonus Plan (IBP). Implementation will be subject to local laws, regulations and practices, including as the case may be employee representatives consultation. The program is subject to the terms of the plan document which is subject to change.

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