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Salary.com Reins In Rapid Growth With Layoffs

January 15, 2009
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Salary.com spent the last few years bulking up, spending millions adding to its sales and marketing forces, acquiring companies and opening a software development office in Shanghai, China.

But the Waltham, Massachusetts, company paid a price for that growth, and as a result has scaled back its efforts to be a contender in on-demand HR management applications, a retreat that included the January 8 layoff of 100 people, or about 16 percent of its workforce.

Two Salary.com senior executives also lost jobs in the downsizing: William Coleman, senior vice president of corporate development, and Christopher Fusco, vice president of data operations. According to filings Salary.com made with the Securities and Exchange Commission, the company will take a $2.5 million charge against earnings in the fourth quarter ended March 30 to cover severance, benefits and other costs related to the layoffs.

Salary.com officials would not comment on its workforce reduction. However, the cutbacks put Salary.com in good company, with HR software and technology vendors such as Authoria and SuccessFactors also downsizing staff in the past year. Of Salary.com in particular, Mark Stelzner, a Washington-based HR management consultant with Inflexion Advisors, says, “It’s not unusual due to the competitive market and acquisitions for them to become much leaner as an organization.”

Salary.com’s actions come a month after the company acquired Genesys Software Systems, a privately held software-as-a-service benefits, payroll and HR management applications vendor. Speaking at a January 9 investment conference, Salary.com CEO Kent Plunkett acknowledged the company used part of a $10 million credit line it received last fall from Silicon Valley Bank for the acquisition, although officials haven’t disclosed a specific purchase price.

Buying Genesys was the latest step in Salary.com’s drive to supply midmarket customers with a complement of SAAS-based HR tools, a move that puts it head-to-head with competitors such as Ultimate Software, SuccessFactors, Workday and Taleo. Outside of HR circles, Salary.com might be best known for its free Salary Wizard service that rates a person’s salary against others with the same job. But in recent times, the 10-year-old company has built or acquired compensation, competency, learning, payroll, tax and other SAAS HR applications, and amassed 3,300 corporate subscribers.

At the Needham & Co. investment conference, Plunkett admitted Salary.com spent $10 million during the past few years on sales and marketing to win that new business. But the higher operating expenses pushed the company further into the red, resulting in a $6.3 million loss on revenue of $10.5 million for the quarter ended September 30.

“Management and employees are prepared to do what’s necessary in the current environment,” Plunkett said at the conference. “We understand it; that’s why we took action this week. And we’ll be positioned to be a big winner when the market returns.”

Until then, the loss is one reason Salary.com’s stock plummeted in the past 12 months, dropping from a high of $11 a share to around $2.40 on Wednesday, January 14. In November, Salary.com’s board adopted a shareholder rights plan, an action commonly taken to thwart an unwelcome takeover attempt by a suitor capitalizing on a company’s low stock price.

According to its SEC filing, Salary.com management expects cost savings from the layoffs to total $10 million during fiscal 2009.

In his presentation, Plunkett said the layoffs did not affect 100 software developers who work in the company’s year-old Shanghai office.

One bright spot in Salary.com’s future could be Randy Cooper, an HR technology industry veteran Plunkett brought in to run the company’s HR management systems and payroll businesses, taking over for Genesys founder and CEO Larry Munini. Cooper attempted to create a comparable SAAS-based HR technology vendor last year while running Empagio, but a merger with Workstream fell apart and he was subsequently ousted.

“Cooper is fairly well connected, so it’s likely he will bring in other key executives to grow the newly combined enterprise,” says Stelzner, the HR management consultant.

—Michelle V. Rafter

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