Schwab officials unveiled a plan to institute major personnel cuts amounting to a reduction of over 10 percent in staffing levels. The measure follows the publication of the firm's monthly activity report and rumors spelling unemployment for thousands of workers, both reported last week on the MutualFundWire. Despite the prediction of a broad swath of cuts, staff at US Trust will be immune to the cost-cutting action.

The complex set of measures involves the elimination of 2,750 to 3,400 full-time equivalent employees. In real terms, 2,000 to 2,300 full-time workers and 150 to 200 contractors will be terminated during the upcoming quarter. Furthermore, Schwab expects 600 to 900 full-time employees to leave throughout the rest of the year through attrition.

In addition, Schwab is looking to cut down on office space and deactivating hardware systems, both logical moves after departing employees clear cubicles and computers fall into disuse.

How much will this matter to the bottom line?

Initially, the move will cost the firm $70 to $100 million pre-tax in this quarter. However, Schwab predicts pre-tax savings of $40 to $45 million per quarter, starting in Q3. Simply to break even, the firm will have to expect the reduced staffing levels to meet functional needs at least through the end of the year.

"While our client fundamentals -- net new assets and new accounts -- are holding up well, investor uncertainties have put pressure on our first quarter revenues and profitability," said David Pottruck, co-chief executive officer, in a statement. However, the current measures will not, in the short-term, improve the firm's profitability. Staff cuts can only serve to help the financial state of Schwab over a long-term period with reduced staffing needs.

The firm is offering what it terms an "innovative severance program" which includes job placement assistance. Furthermore, Schwab plans on paying out three to 10 months of base salary, cash to cover a part of insurance premiums, and job placement assistance. The firm is also planning on offering a stock option grant which will be available for 15 months. Charles Schwab and his wife will be creating an educational assistance fund to provide stipends for up to $20,000 in tuition over two years.

"We are developing a transition assistance program for affected staff to provide them with resources to weather this difficult time, ensure that they have a chance to share in the rewards of our enhanced performance in coming months, give them tools to find new avenues to apply their talents, and encourage them to return to the Company if opportunities arise in the future," Charles Schwab, chairman and co-chief executive officer said in a statement.

In a measure designed to attract back lost employees, the firm is offering a hire-back bonus of $7,500 to employees that return within 18 months of severence.

Schwab officials were not available for comment at press time. A teleconference is scheduled for 8 AM Pacific Standard Time today.

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