First Data employees given choice to stay or go under plan -
Published Monday, December 2, 2013 at 12:30 am / Updated at 11:09 am
FIrst Data
First Data employees given choice to stay or go under plan

About 20 employees at First Data Corp. are no longer employed by the company in Omaha after they declined to participate in a performance improvement program.

The employees lost their jobs last week, 19 in all, according to company spokeswoman Nancy Etheredge, who said the numbers will fluctuate as a pool of designated employees decide if they want to remain at the company or not.

Etheredge said 67 other workers of the 5,000 or so employed in Omaha by the payment processing company were given the option of participating in the performance improvement program as part of their ongoing employment, Etheredge said.

Accepting a three-month performance improvement plan was a condition of continued employment for the designated workers, according to software engineer James Wages, who said he was one of the workers terminated last week after declining to participate.

Wages said he would not have been offered severance pay if he stayed on and failed to satisfy the performance plan; as is, he said, he got three months of severance pay after he declined to participate and his employment was terminated.

“I fell into the bottom percentage of their staff rankings,” said Wages, a 27-year veteran of Atlanta-based First Data, founded in Omaha in the 1960s. “My choices were to go on their three-month ‘performance improvement plan’ or be fired. I was given the weekend to make my choice.”

The staff reductions in Omaha come as First Data attempts to recover from a string of consecutive annual losses. They started after New York-based private investment partnership Kohlberg Kravis Roberts & Co. purchased the company in 2007, using billions borrowed by First Data to buy out its shareholders.

KKR, the famed “Barbarians at the Gate” firm portrayed in the book and movie about the takeover of RJR Nabisco in the 1980s, finances the purchase of what it deems underperforming or attractive companies by using their credit to borrow the money needed to gain control. At First Data, the stratagem known as the leveraged buyout, or LBO, has been a money loser and job terminator.

In 2006, First Data, whose computer systems process billions of credit and debit card swipes worldwide, had a healthy year, according to documents filed with the Securities and Exchange Commission. The company, which collects a slice of a penny each time someone swipes a card, had $7 billion of sales, a $1.5 billion profit, 29,000 employees worldwide and $2.5 billion in borrowings at the end of the year.

Fast forward to 2008, the first full year under KKR control, and the picture was much different. Revenue rose to $8.8 billion, but it resulted in a net loss of $3.7 billion. The balance sheet included $22 billion of borrowings, an increase of almost nine-fold. The employee count was down to 26,600, after a 6 percent reduction in November 2007.

Things have been similar ever since. The company that never earned less than about $1 billion a year from 2002 through 2006 had a 2012 loss of $700 million, on sales of $10.6 billion. Borrowings were $22.5 billion late last year, and employment was down to 24,000 workers. The company paid $1.8 billion in interest during the year, mostly on the debt incurred to take the company private under KKR’s control.

There have been other changes along the way that have rankled employees, said Wages, the terminated software engineer, who began working for First Data more than two decades ago after graduating from the University of Nebraska at Omaha.

This year, the company’s match of employee 401(k) contributions was ceased. The company says the cessation applies to 2014 and that the matter will be revisited annually. Another cut: Spouses eligible for health insurance through their workplaces are no longer allowed on First Data’s benefit plans.

First Data acknowledges the financial losses, job terminations and benefit cuts, said Chief Financial Officer Ray Winborne.

“Obviously, we have been going through some changes,” he said. “Returning the company to profitability is the goal.”

He said job reductions such as those in Omaha and the 550 in Denver announced last week are necessary to cut costs and make the company more efficient. He also said those remaining will have a chance to participate in an eventual upside: Employees will be granted restricted shares of First Data stock next year, Winborne said.

“It will get everyone’s priorities aligned,” Winborne said of the stock grants.

That sets up the prospect of workers cashing in from selling the shares on the open market if the company completes an initial public offering, a possibility discussed by former Chief Executive Jon Judge. Judge was succeeded this year by new boss Frank Bisignano, former chief operating officer of New York-based JPMorgan Chase, the nation’s largest bank; Bisignano hasn’t mentioned an IPO or when one might happen.

Winborne also said the company generates vast amounts of cash before interest and some other expenses, a basis closely followed by some investment professionals. On that basis, the company generated $2.5 billion last year, Winborne said. He acknowledged much of the company’s money is soaked up by paying debts that didn’t exist before 2007.

“The debt was incurred as part of the leveraged buyout,” Winborne said.

Despite the falloff on the company’s global employment in recent years, the Omaha payroll has remained steady at about 5,000, spokeswoman Etheredge said. Part of it has stemmed from what is happening after the Denver job cuts from last week — as many as 150 of those jobs are slated to be moved to Omaha next year, Etheredge said.

Winborne said he hates to see anyone lose a job.

“But we have 24,000 employees,” he said. “We have to make decisions for the long-term.”

Contact the writer: Russell Hubbard    |   402-444-3133

Russell Hubbard covers banking, financial services, corporate finance, TD Ameritrade, business lawsuits, bankruptcies and other economic and financial topics.

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