Unlike many of its peers, E*Trade Group Inc. has avoided laying off employees this year. But according to the Wall Street Journal, the online-brokerage firm has found a creative way of reducing its work force: The Menlo Park, Calif., firm recently knocked down the titles of many of its senior managers a notch, a move the company concedes could prompt staff to leave.
The 16 acquisitions the company has made in the past three years have left the firm top-heavy, Jerry Gramaglia, E*Trade’s president and COO told the Journal. He says E*Trade considered solving the problem by creating a new level of management. But in the end the firm decided to simply demote dozens of people to, say, director from vice president, or to business manager from director.
Now, E*Trade has about 85 vice presidents and directors, down from around 170 before the retitling strategy. It has trimmed the number of business managers to about 300 from 600. At the end of June, the company had 3,960 employees, almost flat with the begining of the year, when it had 4,083. However, staffing levels rose as high as 4,440 in April and have come down 11 percent subsequently due to attrition. While titles may have been cut, pay levels have remained the same, notes the Journal.
The company stresses it’s not trying to push people out the door, but concedes that might be a side effect, says the newspaper. In a memo to employees, the company’s management team devised a list of possible questions staff might ask regarding the demotions. “Are you trying to get people to quit?” reads one. No, E*Trade says. It doesn’t need to go about that in an “indirect or inefficient” way, the internal document says.
Gramaglia concedes that some employees are upset they have been demoted, says the Journal. But he says no one has made a good case for needing more, rather than fewer, managers.
All this has left some analysts shaking their heads. Greg Smith, an analyst at J.P. Morgan Chase & Co. in San Francisco, told the newspaper it is “classic aggressive attrition.” Indeed, besides the retitling program, E*Trade has adopted a rigorous review system to identify the top 20 percent, the middle 70 percent, and the bottom 10 percent performers of the company. Employees falling into the bottom 10 percent may be cut.
For much of this year, many Wall Street brokerage houses have been handing out pink slips. For instance, Citigroup Inc., the nation’s largest financial-services company, recently said it intends to eliminate 3,500 jobs, bringing the total to be cut so far this year to nearly two percent of its work force. J.P. Morgan Chase plans to let go a total of about 8,000 employees, or eight percent of its work force.
The discount-brokerage firms, which rely almost exclusively on revenue from trading, have been hardest hit. Charles Schwab Corp.’s announcement last week that it has cut an additional 2,400 jobs will leave it with 25 percent fewer employees than at the beginning of the year. Its rival Ameritrade Holding Corp. has cut about the same percentage of staff this year.
Though times are tough, Gramaglia insists, E*Trade won’t resort to layoffs. In fact, according to the Journal, he and E*Trade Chairman and CEO Christos Cotsakos have told staff they will cut their own pay to zero before they lay off anyone.