Sallie Mae Laying Off 14 in Reston, 350 in U.S.
Friday, January 18, 2008
Sallie Mae, the giant student loan company, yesterday said it would lay off about 3 percent of its workforce to cut costs in the face of shrinking federal subsidies and other financial pressures.
The company is eliminating 350 of its approximately 11,000 employees at 26 locations around the country, including 14 of 697 workers at its Reston headquarters, spokesman Tom Joyce said. Employees were being notified yesterday and today, he said.
In an e-mail to employees, Sallie Mae President C.E. Andrews said the company aims to find ways to reduce operating expenses by 20 percent by 2010, which will entail additional job cuts. The possibilities include limiting travel and eliminating excess mail and postage, Andrews wrote.
"Clearly, to meet this large target, we will need to think in new ways about how we organize ourselves and deliver services to our customers," Andrews wrote.
The locations hardest hit by the current round of layoffs include Fishers, Ind.; Wilkes Barre, Pa.; and Killeen, Tex., where Sallie Mae has customer service call centers.
"This was a difficult decision, and we deeply regret when we must eliminate jobs," Joyce said. Despite the cuts, the company won't allow customer service to suffer, he said.
The layoffs are another sign of how sharply Sallie Mae's fortunes have declined over the past year and how hard the road ahead might be.
Early last year, Sallie Mae announced that it would be taken private in a leveraged buyout at $60 per share. The deal would have enabled employees and executives alike to cash in stock options at significant gains.
But that deal collapsed, and Sallie Mae's stock closed yesterday at $18.53, down 7.2 percent for the day on the New York Stock Exchange.
The company had long thrived by marketing student loans guaranteed and subsidized by the federal government. But Democrats targeted those subsidies as wasteful, and last year Congress joined President Bush in reducing them.
In a recent regulatory filing, Sallie Mae said the combination of subsidy cuts and higher financing costs could render unprofitable its business of serving as a middleman for the government-backed loans.
Meanwhile, at a time when an overall tightening of credit has made it harder for Sallie Mae to borrow money, the company must replace a $30 billion line of credit it has been using to fund its operations. The credit line was supplied last year by the would-be buyers in the aborted leveraged buyout. They are now adversaries of Sallie Mae, which is suing to make them pay a $900 million fee for walking away from the buyout.
The layoffs come as Sallie Mae has been bolstering the ranks of its highest executives -- and paying heavily to do so. With the unraveling of the buyout, then-chairman Albert L. Lord was named executive chairman in November and was given a new two-year contract that included a $3 million salary. In mid-December, Lord was restored to his former role as chief executive, replacing Andrews, who became president.
Last week, Sallie Mae hired a new chief financial officer whose compensation includes a $1 million salary and up to $100,000 per year for personal use of corporate aircraft. The company also named a new chairman whose compensation includes a salary of $600,000 and a restricted stock grant worth almost $3.6 million.
There have also been high-level departures in recent weeks. The positions of two executive vice presidents and two senior vice president have been eliminated, Joyce said.
One of the executive vice presidents received a severance package that included $1,785,000 in cash, and the other received $3.3 million, according to regulatory filings. Each of the former executive vice presidents received one-year consulting contracts worth $198,000.
In his memo to employees yesterday, Andrews said the people being laid off will receive severance pay and continued health-care coverage. The company spokesman declined to say how much.