Mass redundancies announced at KPN

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In late October 2001, the Dutch telecommunications group, KPN , announced plans to make 4,800 employees redundant. Following negotiations with trade unions, in November the number of compulsory redundancies was cut to 2,800, with 2,000 older employees to depart voluntarily. In return for the reduction in the number of redundancies, KPN staff have accepted pay cuts.

On 25 October 2001, the major Dutch telecommunications group, KPN, announced plans to make 4,800 employees redundant. This amounts to around 10% of the company's overall workforce. The job cuts will be heaviest in KPN's distribution channels, fixed-network services and support services, as well as at its head office.

The primary aim of the redundancies is to further reduce the company's debt burden, which currently amounts to EUR 22.8 billion net and is mainly due to the takeover of the German company E-plus, the purchase of expensive 'universal mobile telephone services' (UMTS or 'third-generation' mobile telecommunications - FI0108100F) licences and high investments. The debt amounts to approximately EUR 447,000 per employee, twice the level at companies such as British Telecom and Deutsche Telekom. Merger negotiations between KPN with companies such as the Spanish Telefónica and the Belgian Belgacom have recently broken down.

It is expected that the redundancies will generate annual savings of more than EUR 700 million, though these will only really be felt from 2003 onwards. In the short term, however, the 'rationalisation' will probably cost money since the revisions to the company's existing redundancy programme will cost it between EUR 45 million and EUR 90 million.

In their initial response to the planned redundancies, the KPN works council and the trade unions expressed outrage. Together, they are demanding that KPN's management resigns. The unions are calling for KPN to honour commitments made in an earlier redundancy programme to do its utmost to redeploy surplus employees within the company itself. The company has stated that it is no longer in a position to meet the costs of a redundancy programme agreed at an earlier stage.

On 27 October 2001, the government announced that it would assist the employees dismissed from KPN in finding new jobs. To this end, a special taskforce will be established and headed by the Minister of Social Affairs and Employment, Willem Vermeend. The intention is that the taskforce will include representatives from Centres for Work and Income (Centra voor Werk en Inkomen), the National Social Insurance Institute (Landelijk Instituut Sociale Verzekeringen), the Employment Office (Arbeidsbureau), two ministries, the trade unions, labour market experts and KPN itself. The Prime Minister expects this approach to be successful, based on earlier experiences in the 1990s concerning DAF and Fokker. Observers expect many of the KPN employees to find alternative employment relatively quickly. Today's labour market is far more favourable than in the past and many employers have already expressed an interest.

An agreement was reached between KPN and the trade unions on 17 November 2001. The number of compulsory redundancies will be reduced from 4,800 to 2,800. To this end, all levels of staff will accept lower pay over a two-year period. Management staff will suffer a 15% salary reduction and the pay cut will amount to somewhere between 2.5% and 10% for lower-level staff. Furthermore, in the year ahead, employees will not be awarded a salary increase or any form of profit-sharing. However, KPN will allocate between 400 and 1,000 share options to each of its employees as compensation for the abovementioned measures. The cost savings generated by the agreed measures will be used to finance a voluntary departure scheme for 2,000 employees, mainly workers aged 55 and upwards.

A controversy has since arisen surrounding the remuneration of KPN's new managing director, Ad Scheepbouwer, who was appointed in September 2001 and obtained a package of 1.6 million share options. At the current price level, the package is worth EUR 2.3 million. The options can be exercised after three years. Additionally, a generous early retirement scheme has also been agreed in the event that this should occur.

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