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Dell cuts bonuses and reduces management

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Michael Dell

Steven Musil CNET News

Published: 05 Feb 2007 10:17 GMT

Days after returning to the helm of the computer maker he founded, Michael Dell told employees in a memo that the company would eliminate bonuses and reduce management to cut costs.

Michael Dell, who returned to the company as chief executive officer on Wednesday after the resignation of Kevin Rollins, also said in the email on Friday that he planned to stay with the company "for the next several years". He also announced that the company would not hire a chief operating officer.

"We had great efforts, but not great results," Michael Dell wrote. "This is disappointing and it is unacceptable."

The announcements come after a terrible year for the computer maker, during which it lost its lead in PC market share to HP and an investigation by the SEC for possible accounting improprieties began. Several executives have left the company in recent months, including chief financial officer Jim Schneider, who was slated to leave the company at the end of January.

Dell is currently under investigation by the Securities and Exchange Commission (SEC) over accounting issues that the company has said could result in significant restatements to its earnings before the 2006 fiscal year. The company has not specified the exact nature of the accounting issues, but has said they involve revenue recognition, and they do not appear to be associated with the stock-options backdating practice that has ensnared hundreds of companies over the past year.

The memo was first reported by the Austin American-Statesman, which posted a copy of the email on its website. A Dell spokesman confirmed the email for the Associated Press.

Michael Dell wrote that the bonus plan would be replaced by "limited discretionary awards" that would be available to all but senior management. He also announced a shortening of the stock-vesting period and an adjustment of the annual bonus plan set "against realistic targets".

In its executive ranks, the number of top managers who report to Dell would be streamlined from more than 20 to 12. "We have great people... but we also have a new enemy: bureaucracy, which costs us money and slows us down," he wrote.

The moves come as Dell tries to retake its lead in the PC market. In 2006, Dell started growing slower than the market, the first time that has happened since the company started back in the mid-1980s. HP overtook Dell as the largest PC manufacturer midway through 2006. Dell fell short of that $60bn target during its 2006 fiscal year, with $55.9bn in revenue.

On Friday, Dell shareholders filed an expanded securities-related lawsuit against Dell, adding Intel as a defendant over the chipmaker's controversial marketing rebate programme. The suit alleges that the computer giant failed to make required disclosures to the SEC and investors about the "existence, impact and uncertainty of Intel rebates".

The company was also plagued by a massive battery recall in August 2006, which was the largest recall in the history of the consumer electronics industry at the time.