Newsday, June 2, 2006 article

CA cuts workers' extra 401(k) pay

BY MARK HARRINGTON
Newsday Staff Writer

June 2, 2006

A decision to eliminate a traditional extra payment to workers' 401(k) retirement accounts, coupled with delays in paying earned commissions to its sales force, suggest that financial problems at CA Inc. could resonate beyond its fourth quarter, observers say.

The company, formerly called Computer Associates, yesterday confirmed that a discretionary payment to employees' 401(k) accounts had been canceled this year to help mitigate expenses tied to higher-than-anticipated commission payments. The discretionary payments, which sources said CA has never before withheld amount to between 4 percent and 10 percent of workers' annual pay. Eliminating the payment this year is said by employees to have saved the company some $25 million.

Meanwhile, CA yesterday confirmed that another high-level executive, Chris Broderick, senior vice president and general manager of the storage products business unit, is leaving the company.

Broderick is one of four top-level executives overseeing the newly formed business units instituted when John Swainson took over as chief executive last year. His departure, expected next week, follows four other high-level departures last month, and comes as the company has had to restate third-quarter earnings and delay a fourth-quarter earnings report.

CA spokesman Dan Kaferle said the move to eliminate the extra 401(k) contribution was "part of our expense controls to soften the effect of commission overruns." He noted CA continues to make matching payments to 401(k) accounts.

But the loss of the discretionary payment is not sitting well with workers. "It's a huge deal," said one veteran employee, who asked not to be named for fear of retribution. "The problem here that's driving everyone crazy is it has always been paid."

The discretionary payment "was always a source of pride" for employees and the executives who approved it, said a former employee who asked not to be identified. "There was always an e-mail that went out saying, 'We're contributing 8.9 percent,'" to the account. Its absence this year, he said, "would just further lower morale."

Delays in making sales commission payments, meanwhile, could further impact morale. After initially being told fourth-quarter commission payments would not be made until the end of May, the sales force is now faced with waiting another two weeks for the balance of the payments, according to two company sources. Kaferle declined to discuss the commission issue, calling it an "internal" matter.

One longtime CA observer said the spate of events this week has created a level of shell shock among investors. "The apparent lack of order is stunning," said Gary Lutin, an investment banker who conducts a forum for CA shareholders at www.shareholderforum.com.

In developments related to CA's financial missteps this week, Moody's Investors Services said yesterday it was lowering its outlook for CA debt to negative from positive, while maintaining the company's Ba1 rating. In a note, Moody's said the lowered rating reflected "challenges the company has to implement effective, financial controls, the recent departure of key personnel ... as well as subdued billings performance."

Also yesterday, Lazard Capital Markets lowered estimate for CA shares to less than $20. "We believe that the recent spate of events, with the potential for additional changes, may create more business disruptions for the company," analyst John Rizzuto said in a note to investors.