Motorola CEO ties bonuses to profits
(China Daily)
Updated: 2004-07-23 16:20

Motorola Inc Chief Executive Officer Edward Zander sent an e-mail in April to employees saying he would reduce bonuses unless the mobile-phone maker made its goals for profits, customer satisfaction and deliveries.

"We must dramatically change how we prioritize, manage and hold people accountable," Zander wrote to 88,000 workers in an e- mail given to Bloomberg News by Motorola. Bonuses, previously tied to a unit's performance, now would depend on company profit and a survey of 50 to 100 customers.

Zander's efforts may help Motorola, the world's second- largest mobile-phone maker, report a second straight quarter of sales growth of more than 35 per cent. Illinois-based Motorola's profit probably tripled to US$432 million, or 18 US cents a share, according to 27 analysts surveyed by Thomson Financial survey. Sales likely rose 38 per cent to US$8.49 billion.

The second-quarter estimates by analysts exclude costs of US$850 million to US$1 billion in tax expenses related to the initial public offering of Motorola's Freescale Semiconductor Inc unit. The company received US$1 billion from the sale of 30 per cent of the business last week, instead of the US$1.5 billion it originally anticipated.

Zander took over on January 4, pledging to end delivery delays that caused the company to lose Christmas sales last year. Zander named the head of quality control, Mike Fenger, to a new position to monitor customer satisfaction. He also made it a practice of starting his twice-a-month meetings with senior staff by asking about client complaints.

Motorola receives 40 per cent of its annual sales from mobile phones, the company's biggest product, followed by network systems and semiconductors. In cell phones, Motorola is facing increased competition from Nokia Oyj, which said on Thursday it may cut prices to regain market share.

Nokia has about 29 per cent of the global market for mobile phones, according to Stamford, Connecticut-based researcher Gartner Inc. Motorola has 16.4 per cent, up from 14.7 per cent.

"We've got to see them get that product cycle shorter and maintain the market share they've taken," said John Krause, who helps manage US$60 billion at Minneapolis-based Thrivent Financial, which owns 879,161 Motorola shares. "Motorola still hasn't shown me they can introduce new products on the handset side at the same pace their competitors are doing."

Zander, former president of Sun Microsystems Inc, replaced Chris Galvin, who resigned after disagreements with the board over Motorola's strategy. Under Galvin, the grandson of founder Paul Galvin, Motorola lost its title as the world's leading maker of mobile phones to Nokia.

Zander will be paid US$3.56 million in salary and bonus this year, plus US$600,000 and 93,024 restricted shares for forfeited pay at his old job. He got 493,024 shares worth US$7.4 million in January and 1.35 million options at US$14.50 a share.

Motorola's first-quarter profit tripled and handset sales advanced 67 per cent on increased demand in Europe and Southeast Asia.

The company, which also makes items such as television set- top boxes and wireless networking equipment, predicted an 80 per cent rise in handset sales in the second quarter. The company had net income of US$119 million, or 5 cents a share in the second quarter last year.

Sales last year lagged when the company in September told Verizon Wireless Inc it would not have its V710 camera phone ready in time for the holiday season. In December, Motorola delayed some camera phone shipments because it did not have enough parts to meet demand.

Verizon Wireless, the largest US mobile-phone carrier, said the phone is still in testing. The ongoing delay "makes people wonder whether these guys are turning it around in terms of execution," Krause said.

Component supplies have improved since Zander took over after Motorola hired two more companies to make parts for the phones, including cameras. It would not identify the suppliers.

"Ed's dead serious about" improving customer satisfaction, said Fenger, a former General Electric Co executive who joined Motorola 18 months ago. "He wants to see improvements."

Motorola delivered four phones on time in the second quarter, Rob Shaddock, a vice-president in the company's handset unit, said in an interview.

The company sped up production of the C650, C380, V180 and V220 handsets by using software and hardware from other lines, Shaddock said.

"You're dealing with something that's pretty well proven," Shaddock said, referring to the technology used in other phones.

"That helps you reduce your development risk, reduce your cycle times."

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