Lets just say I once bled a form of Blue myself.  There was a time during the Gershner days when this was a great company.  I worked for a consulting spin off - we were cowboys and had so much fun, then the fun stopped.  We made to much money and had too much fun.  We were taken back into the fold of BIG BLUE - we stopped having as much fun.  There were still great things about the company but it was not fun and then it went from well eeewwww to EEEWWWW.  I didn' t own a blue suit and white shirt at least not that went together.  I got out...not a moment to soon.  I still hear from people in the big blue ocean, they are holding out but only by the skin of their teeth.  It isn' t a pretty picture. 

When I was there you always knew the legacy Blue Babies from us cowboys - they talked the talk and walked the walk - they didn' t like us.  On the other hand we thought they were fun to play with.  They gave so much to BIG BLUE.  Lived the life, breathed the air.  Married and had their children within the community that was the BIG BLUE world.  Many knew nothing else.  The acronym use to stand for I BEEN MOVED, over and over and over again.  It was the only way to advance in the company - relocate.  Pick up your family every 3 to 5 years sometimes with only 30 days notice.  There was a time though that the relocation packages made it worth the trouble, not anymore. 

Then there was also the temporary assignments, the mini I BEEN MOVED syndrome.  These were also very painful to many.  Little advance notice.  No concern for family obligations.  But again, the packages usually were generous and made it worth the trouble.  I did this a couple of times and made out pretty well - basically banked my US salary and lived on my expat allowance. 

BIG BAD BLUE also always had the habit of lay off then hire back as consultant syndrome.  It wasn' t a matter of sleeping around it was a matter of cost cutting.  It really is cheaper to have contractors than employees for many activities they (I don' t know that this is true but they did the analysis and this is the truth they came to).  So they do big lay-offs of middle management and then hire some back as contractors to fill their old positions, everyone knows this is going to happen.  Here is what it looks like -

1. Manager 1 earns $65,000 annually and is eligible for bonus of 25% based on performance.  Usually earns 20% or $13,000.  Total annual comp = $78,000
2. Manager 1 is totally vested in 401K plan and is saving 15% employer is matching up to first $7,000
3. Employee is vested in Stock Plan with employer contribution of 5% = $3,250
4. Other benefit cost excluding taxes are 30% cost to the employer or $19,500 
5. Taxes cost 6.5% = $5,070
   1. Total annual cost of employee = $112,820

Cost of layoff short term = Employee is 10 year vested employee package includes the following:

1. One week pay for year served = $12,500
   1. Cost of matching taxes  = $     812
2. Sixty Days Cobra pre-paid       = $  1,500
3. Reemployment Service           = $   3,500
   1. Total Cost of Layoff        = $ 18,312

So now I have eliminated the cost of the employee from my bottom line, assume I did it mid- year so my savings, less my one-time cost is $38,098.00. Now assume I did this to 6 mid-level managers.  My savings is now.  I know this is a very simplistic approach but you have to take the next step.

Out of the six I laid off for cost cutting reasons four of them really needed to go.  They weren' t really doing the job for me anymore.  I needed to reorganize the work and the department.  The mandated lay-off gave me a reason to really look at my organization carefully.  Problem is that I still need to get work done.  So I reach out to the two really high value resources that were part of my lay-off and ask if they would like to work as contractors, of course they would.  Once BLUE always BLUE. 

Here is how it works - I write a Purchase Order for two resources with specific skills.  They sign up with one of the six preferred providers that BLUE uses for contract labor.  Procurement advises that the resources are already selected and the deal is done because I have already negotiated the rate.  The provider gets an up-lift for handling the paperwork and everyone is happy as clams. 

1. New contract rate = $55 per hour no cap on hours
   1. Uplift is 5% so actual rate is $57.75
   2. Assume an average 45 hour work week on available weeks 
2. Keep in mind that contractors are only paid for the hours that they actually work so holidays and vacations are not paid for.  If we assume that the new contractor starts work mid June there are approximately 122 working days remaining available to work.  Assuming that they will work an average of 9 hours per day on those days available then here is the total cost for a single contractor -
   1. 122 * 9 = 1098 hours @ 57.75 = $63,409.50* 2 = $129,819.
      1. Overall savings to organization = $ 98,769.00 (1/2 year savings)
   2. Directly to contractor = $60,390.
      1. Improved gross earnings to individual = 1.34 or $104,500 Gross Earnings
      2. Assumes 1900 available working hours in an average year for contractors (deductions taken for vacations, organizational holidays, and sick time)

I know that is a lot of detail, but that is how it works.  I will address your other issue in the next post.