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Last year, Fortunemagazine ranked high-flying online broker The Charles Schwab Corporation as one of the top five places in America to work. A year later, the discount broker is trying to stake out less coveted ground as one of the best places in America from which to be laid off. Riding the new-economy roller coaster, San Francisco-based Schwab opened too many branches and hired too many people at just the wrong time — right as the tech boom chugged to the top. A month after the stock market’s plunge in April, Schwab laid off 3,400 workers; then, in August, the company announced another round of 2,400 job cuts. These layoffs, affecting about a quarter of Schwab’s workforce, cut through all levels of the organization and left Schwab with 18,863 employees. That’s roughly the same number the company had at the end of 1999. Schwab says it tried hard to avoid layoffs, but once that effort proved fruitless, it offered a severance package to cushion ex-employees’ fall. What the company calls its “transition package” was designed, says spokesman Greg Gable, to make unemployment as bearable as possible. Labor lawyers and layoff experts say that it also worked to shield Schwab from lawsuits. Two innovative features of that package stand out. Company founder and co-CEO Charles Schwab and his wife, Helen, created a $10 million education fund for laid-off workers that will give each person who wants to return to school up to $20,000 for tuition. Also, any ex-employee rehired by Schwab within 18 months of being terminated will receive a $7,500 bonus. “They’ve gone about this in a class way,” says Larry Powers, of Powers & Associates, a San Francisco executive recruiter. He cites the case of a friend who got a job at Schwab not long before the first round of layoffs was announced. Schwab withdrew the friend’s offer of employment, but still gave several months’ severance. Schwab execs are “protecting their reputation on the street,” says Powers. “They want to be able to recruit again when things turn around.” That may be the long-term objective, but the plan seems to be paying off in the short term, too. A search of federal court and numerous state court dockets, including California’s, failed to find any layoff-spurred lawsuits. Schwab is just being shrewd, trying to play the good guy so it won’t have to take flak for its actions, says Mark Jaffe, a partner in the executive search firm Wyatt & Jaffe in Minneapolis. “These kinds of [severance] programs are like saying to your girlfriend, ‘We’re not breaking up; we just need to spend some time apart. It’s not you, it’s me,’ ” Jaffe says. Others take a less cynical view. Veteran San Francisco labor lawyer Garry Mathiason of Littler Mendelson describes Schwab’s education fund as “pretty unusual.” It’s such a “good idea,” he says, “I’ve recommended [it] to several clients.” The education fund and hire-back bonus augment a severance package that many experts call substantial. Employees received 60 days’ paid notice, and a minimum of one month’s pay. The severance was based on either salary or tenure — whichever gave more money to the worker. Schwab also gave grants of 500 to 1,000 stock options that vested at the time they were given to workers, but expired in 15 months. (Schwab’s stock, which peaked above $51 in 1999, traded at around $12 in mid-October.) The company also will cover medical insurance costs for a year. In addition to providing career counseling and outplacement programs (which one executive recruiter says cost about $4,000 per person), Schwab also offered 90-day assimilation coaching for employees tackling new jobs. Norman Rosenblatt was one of Schwab’s ramp-up hires in the San Francisco headquarters last year. At 56, he came in at a senior position — that of managing director. Rosenblatt says that on Sept. 25 a company officer gave him a pink slip with genuine sorrow and concern in a 30-minute one-on-one meeting. Rosenblatt also calls the severance package that he received generous. Neither he nor any colleagues he knows harbor hostility toward the company, and he dismisses the notion that they might sue. “People recognized that business was way down,” he says. That doesn’t mean companies should throw money at employees they want to lay off. Some moves, says Mathiason, are just “dumb and harmful — such as giving employees a lot of money to leave and not requiring a release. To have that money then fund a lawsuit against you is contradictory and upside down.” But if a release is coupled with a good economic package, say Mathiason and other employment lawyers, most employees will accept it. In addition to an agreement not to sue, a typical release, say experts, contains a mutual nondisparagement clause and a severance confidentiality clause. Schwab, says one ex-employee (who wished to remain anonymous) handed soon-to-be-ex-employees a “very long release.” Of course, even the most amicable breakups won’t stop laid-off workers from taking another look at their releases’ enforceability if the severance money runs out before they find another job. The risk of litigation almost doubles in a downturn, say lawyers who represent both workers and companies. So the advice is: Treat people well, but protect the company. And, above all, says Paula Brantner, a senior staff attorney with the pro-worker National Employment Lawyers Association in San Francisco, treat employees equally. “If a company uses layoffs to get rid of people it perceives as ‘troublemakers,’ that’s a huge mistake,” she warns, adding that it doesn’t look as if Schwab did that. Instead, Brantner says, it seems Schwab was true to its reputation as a good employer. Rosenblatt agrees, calling Schwab’s good name “well deserved” and actually enhanced by the way it let people go. Schwab also has gotten high marks for its financial performance. For several years it seemed the company could do no wrong. The discount brokerage firm that Charles Schwab founded nearly 30 years ago reinvented itself in the mid-1990s to lead the online trading charge. Its stock, which traded at around $4 a share in April 1996, hit $51.69 a share in April 1999. By the end of 1999 Schwab’s assets topped $1 trillion. Its revenue soared to $4 billion, up from $1 billion in 1994. As the Internet economy and tech stock trading peaked, in 1999 and early 2000, Schwab began hiring to meet the seemingly limitless demand for customers’ day trading. By the end of 2000 it had hired about 6,000 new employees and opened hundreds of new branches nationwide. The company that had 50 branch offices in 1982 suddenly had 429. But the Internet bubble was beginning to deflate. Then, from January to February of 2001, online day trading by Schwab customers plunged 13 percent. Analysts say that company brass tried to avoid layoffs. In February, Schwab’s top 750 executives — including co-CEOs Schwab and David Pottruck — took pay cuts of up to 50 percent for the quarter. That didn’t work. Neither did a hiring freeze. Nor did encouraging employees to work four-day weeks. Nor did paying some bonuses in shares instead of cash. By March the company’s market value had dropped 61 percent from the year before, to $21 billion. The first round of job cuts was inevitable. July’s 36 percent drop in daily trades prompted the second round of layoffs. Schwab’s third-quarter earnings report, released in mid-October, showed a 91 percent drop in profits for the quarter — from $142 million to $13 million — from a year earlier. Schwab has a lot of ground to cover to return to its pre-2001 perch. But analysts point out that while the company rode the online trading wave to new heights, it also offered traditional brokerage services, on which it can now rely. “The number of new customers they have is surprisingly high,” says Tim Butler, an analyst at Pacific Crest Securities in Portland, Ore., who follows the discount broker. “Investors are looking for a little bit of hand-holding now, not just a cheap trade, and that’s what Schwab is providing. And, when market conditions pick up, Schwab will have reduced its costs.” In other words, Schwab is making layoffs work to its benefit. Says recruiter Jaffe: “Some companies have stepped forward and changed the model for layoffs to make them appear more humanitarian, but the purpose is always the same: Minimize loss. These are profit centers, not institutes of human development.” And that doesn’t change, whether we call the economy new or old.
The Charles Schwab Corporation Headquarters: San Francisco 2000 Revenue: $5.8 billion 2001 Revenue (first half): $2.27 billion Chairman and co-CEO: Charles Schwab President and co-CEO: David Pottruck Executive Vice President and GC: Carrie Dwyer Employees: 18,863 (as of Oct. 1) Law Department: 60 attorneys Primary Outside Counsel: Howard, Rice, Nemerovski, Canady, Falk & Rubin; Skadden, Arps, Slate, Meagher & Flom

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