Intel freezes salaries across the company

The salary of CEO Paul Otellini is also subject to the freeze as the recession further impacts the semiconductor market

Intel on Monday said it has frozen salaries of employees across the company, including top executives, in an effort to reduce spending and control costs.

The salary freeze comes as Intel tries to cope with reduced chip demand as the recession wears on. The salary freeze applies for every employee, including CEO Paul Otellini, said Chuck Mulloy, an Intel spokesman.

"We are in the toughest recession in the history of our industry and we need to continue to control our costs," Mulloy said.

A salary freeze for Otellini and other top executives that include chief financial officer Stacey Smith has to be approved by shareholders, according to a filing with the U.S. Securities and Exchange Commission on Monday.

Intel on Monday also said it planned to reimburse employees who have lost value on their stock options, according to the SEC filing. The company later this year will allow employees to receive new stock options in lieu of the previous outstanding stock options that went below the exercise price at the end of 2008.

The company's common stock price closed at US$14.18 on December 26, resulting in more than 99 percent of Intel stock going below the exercise price. The company saw its fourth-quarter profit in 2008 drop 90 percent from the year earlier as the chip maker battled reduced chip demand.

Revamping the stock option plan was important for Intel to attract and retain top talent who are critical to the company's long-term success, according to the filing. Intel had 83,900 employees as of Dec. 27, 2008, and 87 percent of employees currently hold stock options.

The moves come as Intel tries to take further corrective action to pull itself out of the economic hole. Semiconductor companies are seeing lower chip orders as demand for products like PCs continues to slow down. That has led to factories being underutilized, which is a cost burden for semiconductor companies.

Intel in January cut 6,000 jobs and said it would close four manufacturing and test facilities in Malaysia, the Philippines and the U.S.

At the same time, Intel last month said it would spend $7 billion over the next two years to revamp three U.S. manufacturing plants, which would keep close to 7,000 people employed in three U.S. states.

The new plants should ramp up the production of smaller, more integrated chips using the 32-nanometer process technology, which could lower chip-manufacturing costs. Intel hopes to fit the integrated chips made using the new manufacturing process into embedded devices like set-top boxes and TVs, which the company hopes will create new markets and revenue opportunities.

"The investments we're making are strategic, in order to continue to lead and continue to grow for the long term we have long believed that we must continue to invest in technology," Mulloy said.

Intel stock (INTC) was trading at $15.33 on Nasdaq at the time of this story.

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