Richard Seltzer's home page Publishing home Articles about DEC
Volume 6, Number 3___________________________________________________________ April, 1987
Win Hindle Focuses On Executive Committee Issues And Large Customers
New Business Practices Benefit End Users And Resellers by Jack MacKeen, vice president, Channels Marketing
Digital As A Reference Account — Business Success Generates New Business
Digital And CIM: Excellence Through Integration by Dave Copeland, manager, Manufacturing/CIM Marketing
Bill Strecker Elected To National Academy Of Engineering
Corporate Systems Group Announces New Organization
BOIS Reorganizes To Target Expanded Markets
New Immigration Law Affects Digital's Hiring Practices
Digital Changes The Long-Term Disability Plan In July
"At this juncture in the company's growth, Digital must have someone from the Executive Committee who is responsible for and has the time to follow up on important issues throughout the company," explains Ken Olsen, president. "In particular, we need to maintain organizational balance within the functions and further promote company-wide teamwork. In addition, we need to focus high-level executive attention on large customers in industries that we are now targeting.
"I’ve asked Win Hindle to take on these important new responsibilities that will enable him to do things that both of us have wanted him to do for some time. In addition to his knowledge of Digital's values, strategies and strengths, Win has the unique ability to help various organizations work together as a team. In his new role, Win can help Digital by bringing more cohesion to the major parts of our business.
"He also has a knack for understanding the business needs of customers, particularly in some of the industries we are just now entering. His ability to work with customers has long been underutilized.
"People inside the company have been requesting more of Win’s time to provide guidance in their work with major customers. This change in responsibilities should free him from administrative tasks to give him more time for these important efforts."
Win joined Digital as assistant to the president in 1962. He became a product line manager in 1964, and was named a vice president and group manager in 1967. He became vice president, Corporate Operations, in 1978, and has been an active member of Digital's most senior committees since then. Last year, he was promoted to senior vice president.
As part of this change in responsibilities:
o Corporate Quality managed by Frank McCabe now reports to Jack Smith, senior vice president;
o Corporate Purchasing managed by Ron Payne, Corporate Information Systems managed by Bel Cross, and the Corporate Consultant Group managed by Ben Fordham now report to John Sims, vice president; and
o Corporate Planning managed by Ken Swanton reports to Jim Osterhoff, vice president.
Corporate Public Relations, Marketing Communications and Management Systems Research continue to report to Win.
Digital recently announced a new business structure that includes:
o A consistent, revenue-based discount schedule for systems and peripherals.
o A one-year warranty on all hardware system products. Resellers may pass this warranty through to End Users.
o A software license policy that eases moving software within companies and retains the Reseller's ability to sub-license operating system software.
o Discounts and earned credits that recognize a Reseller's business costs in handling and selling products.
At DECWORLD 86, we explained our strategy to the Reseller community. Digital will invest account management and dedicated selling resources in target accounts identified from Industry Marketing plans. We would like Resellers and Third Parties to manage the selling activities in other accounts on behalf of Digital.
Our intent was clear then. Now our new business structure should help produce the behavior to execute that plan. That is why the announcement of this new business structure is so important.
A number of efforts have now come together. For instance, the just- announced new business agreement (terms and conditions) indicates a subtle but significant change in philosophy. We used to call our contractual arrangements with customers Sales Volume Agreements (SVAs). Now we call them Digital Business Agreements (DBAs). We have begun to shift our relationships with customers from being based just on what they buy (the sales volume) to the nature of the business that goes on between us.
We have done away with a complicated set of multiple business structures. In some cases, discounts were based on the number of units a customer bought. In other cases, they were based on the value of the system. Certain systems were in one category, and other systems were in different categories with different scales. And a warranty had to be purchased separately.
Now all customer purchase dollars for hardware and software products count toward their basic discount agreement. To establish the base discount, the same rules apply to all customers, whether End Users or Resellers.
Discounts begin at a yearly purchase level of $500,000. The largest volume discount is 21%. And we have added a full one-year warranty on all products.
In other words, we are maximizing the purchasing leverage of our customers. And the reaction from almost all customers has been very positive.
To encourage the Reseller community to serve the other accounts which we are not targeting directly, we offer another discount or "adder". Adders, ranging from 5% to 15%, take into account the fact that, for a business reselling lower priced systems, the selling costs represent a higher percentage of the fixed costs of the business. In other words, for the first time, we are recognizing the business needs of the Reseller customer and not just their product volume.
In addition to the basic volume discount and the product adders, we also offer Resellers a 5% earned credit for making sales into accounts that do not have Digital Business Agreements. This credit recognizes the sales investment the Reseller has to make to bring Digital's theme, messages, products and architecture into new accounts. This is an after-the-fact credit against invoices. They report to us where they sold the product so we can verify that, indeed, we are not doing business there.
In summary, we have a new business structure that counts all of the dollars purchased. Resellers can have product adders reflecting the size of the system sold. They also have an opportunity for earned credit. Plus, they get a one-year warranty on every system. And, on top of that, a shelf-life provision allows Resellers to pass the warranty through so that, by and large, the End User will see that same warranty regardless of the channel which handled the sale. Customers can also elect to buy either a two-year or a three-year warranty at the time of purchase. And the cost of the extended warranty also counts toward the volume agreement and gets discounted.
Meanwhile, we have put in place a program called the Digital Development Account Program, which works closely with Distributors to make sure that accounts that fall below the $500,000 volume discount threshold are adequately serviced by Distribution channels. We will work with Distribution organizations to provide seminars and other support for these "development" accounts.
But we have shifted the primary account management responsibility for those accounts to the Distribution community. We have made provisions so the Distribution community can grant some discounts to those accounts. And the Distribution community will provide strong, localized support and product availability.
Basically, the new business structure, in conjunction with our integrated industry plans, allows for an orderly marketplace. It allows us to communicate with our users, whether they are End Users or Resellers, in a clear fashion. And the Reseller community feels good because Digital is providing a predictable, stable business structure. They know what to expect.
For now, any customer can choose to continue to operate on their current agreement or move to the new one. Our objective is to have all customers
operating on the new terms no later than the first of July, 1988. But the new structure offers such overwhelming advantages — a year's warranty and counting all purchase dollars toward the volume discount — that I expect a mass migration very quickly.
This business structure applies worldwide. The only exception is that some small countries in GIA and Europe are using different entry levels. They will grant discounts to companies buying less than $500,000 and have inserted one more bracket in the discount schedule because, otherwise, they would eliminate their entire indirect business.
As of today, Digital has articulated an All Channels Strategy based on integrated plans by industry; has put CMP and SCMP partnership programs in
place; and now has followed up with the new business structure. We have conveyed a clear and positive message to all the partners who work with us
-- we are committed to them, and they are a part of our plans. Our strategy is concrete now. They believe it. And I believe our relationships are much better.
Our All Channels Strategy is working -- it is an important competitive weapon for Digital, and it also gives our customers a competitive advantage.
Digital's success in using its own products to deal with its own business problems has become an important sales message. Bruce Ryan, vice president, Corporate Controller, and others have been delivering this message repeatedly at customer seminars.
"We use our own computer systems with every application you can imagine in a major enterprise," says Bruce. "We tell our customers about the business problems we had a few years ago and the things that we've done to fix them. When I bring in the financial results, people are stunned. It's a great sales tool because people see how utilizing our own systems has helped us to improve the way we run the business.
"What we've accomplished so far is a powerful message for our customers who face business problems similar to ours. But we must keep it in perspective. We're performing closer to where we should be, but it is going to take hard work to sustain this level of success."
Here are some of the key points from Bruce's talk:
o The order acknowledgment cycle has been reduced from 60 days to 11. While it used to take us 60 days to acknowledge an order, we now deliver 90% of our product in 60 days.
o Our accounts receivable measurement, DSO (days sales outstanding), improved from 92 to 62 days in the U.S., thus adding over $300 million to our cash-flow.
o Inventory turns, historically, have been in the 1.8 to 2.1 range, but at the end of Q2 FY87, were up to 3.6. As revenue grew 36% in the 1985-86 timeframe, inventory was reduced by 35%. These improvements added over $800 million to the balance sheet as of the end of Q2.
o The Manufacturing population at the end of FY86 was the same as it was in FY81. And over that time the revenue has increased by over $4 billion.
o Manufacturing has made significant improvements in cycle time by establishing goals of 50% improvement on specific products. We are therefore more reactive to our customers -- building what we sell, instead of having the Field sell what we build.
o As of the end of Q2, gross margin as a percent of net operating revenue has improved over 11 points compared to the same period in 1985. That has been made possible in large part by new products, higher quality, and manufacturing productivity.
o Financial closing cycle —- the time it takes to close the books and understand the results at the end of the quarter — takes one week less now than it did two years ago. That has been made possible by the use of distributed data processing and development of the Financial Architecture.
o In January, Digital was given a AAA credit rating by Moodys, joining a select list of only eleven other U.S. industrial companies with that rating.
o Digital's improved performance has generated significant confidence among the investment community, as evidenced by the increase in the overall market value of Digital's stock by $15 billion over the last two years.
"While the improvements in our receivables, inventory performance and operating profit have brought our cash balance to $2.3 billion, we must bear in mind that these are one-time corrections," Bruce emphasizes. "This money, which is needed to fund our growth, isn't going to be available forever, and these kinds of dramatic improvements are not going to continue happening."
(excerpts from a speech presented at a mid-March press conference)
Enterprise-wide integration — having an entire company work together to bring products and services to market -- is a fundamental requirement for the future survival of large manufacturing companies. Digital's efforts at integrating its own enterprise have made a significant difference, and can serve as an example for customers.
Critical success factors for our manufacturing customers include:
o effective utilization of production resources,
o rapid time to market, o production flexibility, o customer satisfaction, and o continued quality improvements.
These factors all depend on effective management of information throughout a company.
Progressive companies used to think of automation as the productivity tool. But now more and more leading companies are viewing Computer Integrated Manufacturing (CIM) as a survival requirement, as an essential element of a competitive strategy. CIM is effective management of information throughout the manufacturing enterprise.
By using information and making information readily available throughout a company, you can get machines, processes and people to work together toward the same goals. Information enables you to cut back inventory and precisely target production to market demand. It enables you to recognize quality control problems immediately, or even to anticipate them, thereby reducing scrap and rework. Information enables engineering, manufacturing and services to get involved in product development early, to work together as a team to take a product to market quickly.
The companies that survive are going to have to integrate their enterprise, allowing their employees to take part -- using their creative abilities, education, training and motivation. This is a significant management and organizational challenge. And enterprise-wide networking will be at the heart of these changes, providing people with the tools to work as a team.
Many people are getting impatient and disillusioned with the idea of CIM because the concept has been overblown and misrepresented by some computer vendors. The confusion and disappointment with CIM results from differing expectations being set with top management and operating groups. At the top management level, computer vendors talk to customers about linking "islands of automation" together to meet business objectives -- a difficult, but obtainable goal. But in the manufacturing facilities themselves, those same vendors have sold customers totally incompatible non-networked computers, resulting in more disconnected islands of automation. And the situation is getting worse. There is now a myriad of disconnected personal computers installed on the factory floor — one for every job — and there is very little networking going on. So while top management is being told about linking islands of automation, unconnectable "pebbles of automation" are being installed on the factory floor.
The emphasis has been on individual computers, but the most important part of CIM is integration. Integration, like quality, must be designed in. Af ter-the-fact integration is costly and generally doesn't work well. And most computer vendors have not yet designed integration into their products. They offer products that consist of multiple architectures and that can't communicate over either a wide-area network or a local-area network.
Customers are left with the huge task of trying to get all of this equipment to work together. Instead of just worrying about manufacturing, they end up worrying about trying to integrate computers.
Basically, an effective CIM solution must be built on a foundation that supports enterprise-wide integration. And the products and services that Digital has announced have integration designed in, allowing our customers to concentrate on their business problems, rather than trying to integrate computers.
Digital's strength in this area derives from its history and vision of computing. In the early 1970s, while much of the rest of the computer industry was trying to build mainframes big enough to handle all the data processing for a company or a division, we were building minicomputers. Since the total computing of a company was really the sum of the computing needs of sub-groups, we set out to develop a new and different style of company computing that would allow customers to:
o buy computers for small groups,
o place the computers where they are needed,
o add new computers as needed, and, most importantly,
o have them all work together.
The result of that vision is that today Digital alone can offer enterprisewide integration, while the rest of the industry is struggling to prune their incompatible architectures and implement networking.
The first piece of the foundation is Digital's network solution, which allows customers to build seamless enterprise-wide integration, step by step, around the world. Think of the acceleration in time-to-market when an engineering group in Reading, England, a manufacturing group in Boston, and a service group in Phoenix can electronically work together as if they were in the same office. Think of the improvements possible in asset management when the Materials Resource Planning (MRP) and inventory management systems of a sub-assembly plant in Cleveland are integrated with the final assembly, inventory and broadcast systems in Detroit.
Since the networking vision is based on systems and people working together, any system can talk to any other system without going through a host computer. We call this approach "peer-to-peer." This is very similar to emerging management styles which eliminate hierarchical layers of management and emphasize cross-functional work groups and decentralized decision making.
A network designed with this degree of flexibility becomes a vehicle to support enterprise-wide integration and organizational involvement.
The next component of the foundation is the VAX family of compatible processors, which extends from the factory floor to the corporate information center. The new Industrial VAX systems are part of this family, with one architecture, designed-in integration and a wealth of systems software, including languages, tools and databases. When customers plug these systems into the network, they are plugging into the same network that connects engineering, sales and the rest of the enterprise.
Multi-vendor interconnect is the third important part of enterprise-wide integration. Digital supports industry standards that make multi-vendor networks possible.
Applications and services are the building blocks which, when combined with the foundation, result in solutions. Customers can choose from a large number of high quality applications for the factory, engineering, sales -- the whole enterprise. These applications have been developed by our partners on this Digital foundation, allowing our customers to build enter- prise-wide integrated solutions.
In today's competitive world, successful implementation of CIM must be based on an enterprise-wide vision, which requires enterprise-wide networking and distributed processing as the foundation. Digital has the foundation and the building blocks to work in partnership with our customers to implement CIM solutions.
Bill Strecker, vice president, Product Strategy and Architecture, has been elected to the National Academy of Engineering. Election to the Academy is the highest professional distinction that can be conferred on an engineer, and honors those who have made important contributions to engineering theory and practice, or who have made unusual accomplishments in new and developing fields of technology.
Of the academy's 1400 members, only about 70 are in computer science, including two others from Digital -- Ken Olsen, president, and Butler Lampson, corporate consulting engineer.
The Academy cited Bill for "contributions in the design of multiprocessors and cache and memory hierarchies and in the development of a major computer systems product complex."
Bill's work on cache memories led to the development of the PDP-11/70, the leading minicomputer of the 1970s. He was the principal architect of the VAX computer system, the primary system sold by Digital during this decade.
Also, Bill was the principal architect of CI interconnect and VAXcluster communications architecture. This has become the principal means of building high performance Digital computers and is considered to be the leading high bandwidth architecture in the world.
Finally, Bill has led the effort to successfully position Digital's product strategy and strategic engineering investments over the past several years.
Bill joined Digital in 1972 as a member of the Corporate Research and Development Group. After holding a variety of engineering and management positions, he became manager of Engineering Product Strategy and Architecture in 1984, and was named vice president in 1985. He holds Bachelor's, Master's and Ph.D. degrees in Electrical Engineering from Carnegie-Mellon University, where he was a Hertz Foundation Fellow and a member of Phi Kappa Phi. He holds several patents on central processors and computer interconnects, and is the author of numerous technical publications.
The Corporate Systems Group (CSG) has been organized to increase Digital's focus and market penetration in the corporate information systems, telecommunications and financial markets. CSG is one of the five strategic product marketing groups reporting to Peter Smith, vice president, Product Marketing.
Focusing on corporate computing and networking, CSG will develop the product application strategies, systems and programs for corporate computing across all industries, with special emphasis on MIS production systems, financial services and telecommunications industries. The marketing activities of CSG will be closely aligned and integrated with those of the other Product Marketing groups and Industry groups.
"We are working with Corporate Software Services, European Marketing, and GIA Marketing to determine how to best connect our groups to make CSG's marketing and systems engineering activities truly worldwide in scope and impact," says Bill Steul, vice president, CSG.
Now in start-up mode, CSG consists of the following groups:
CORPORATE MIS MARKETING, managed by Patrick Zilvitis, is responsible for developing product and application strategies for MIS production and enduser computing systems. This effort includes multi-vendor telecommunication networks reguired by businesses, government and educational organizations. The emphasis will be on defining and marketing computing platforms and data base products and applications that clearly differentiate Digital from major competitors.
FINANCIAL INDUSTRY PRODUCT MARKETING, managed by David Stroll, is responsible for defining market requirements and providing integrated solutions for retail banks, wholesale banks, investment companies, brokerage houses, and insurance companies.
TELECOMMUNICATIONS INDUSTRY PRODUCT MARKETING, managed by Bill Kania, is responsible for defining market requirements and providing world-wide computing and networking solutions for telecommunication equipment suppliers, service providers and subscribers of telecommunication services. This group will align its marketing and systems engineering efforts with those of the Telecommunications Industry Marketing group, the European Telecommunications Competency Center and GIA marketing.
ARTIFICIAL INTELLIGENCE MARKETING, managed by Bill Kania, is responsible for marketing Digital's Al technology across all strategic markets and industries by providing leadership to the product marketing groups with special emphasis on CIM, financial and telecommunications applications.
ON-LINE TRANSACTION PROCESSING (OLTP) MARKETING, managed by David Stroll, is responsible for defining cross-industry market requirements and for developing and acquiring OLTP applications. Working closely with HPS (High Performance Systems) Engineering, this group develops Digital's OLTP market strategy and works closely with the product and industry marketing groups to define systems engineering and marketing solutions platforms for distributed financial computing environments. Because of the importance of OLTP to Digital's future business and market goals, David Stroll also reports to Bob Glorioso, vice president, High Performance Systems.
SYSTEMS ENGINEERING (open) is responsible for defining systems specifications, prototyping characterization, testing and documenting solution system platforms for corporate computing, financial and telecommunication industry applications. This group will be closely aligned with High Performance Systems Engineering, other Engineering product business units and Software Services Engineering.
MARKETING COMMUNICATIONS, managed by Barbara Watterson, is responsible for developing and communicating Digital's corporate computing and networking messages. The group will scrutinize competitors' product, service and marketing strategies to better direct Digital's corporate computing messages. This group will work closely with High Performance Systems Marketing, with Rose Ann Giordano's Consultant and Information Systems Marketing group, and with the field marketing programs groups.
FINANCE AND PLANNING, managed by Terry Fink, is responsible for CSG's financial management, business planning and analysis, and decision support systems.
PERSONNEL, managed by Barry Moore, is responsible for CSG’s personnel administration and planning, recruiting, organizational development and employee relations.
Henry Ancona, vice president, Business and Office Information Systems Group (BOIS), has announced the following organizational and management changes:
Gene Hodges is group manager for the Office Information Systems Group, which includes PC-based solutions, the ALL-IN-1 integrated office systems family, end-user information management and computing, and business communications, including electronic mail, videotex and conferencing. Gene joined Digital in 1974, and most recently has been responsible for the company's ALL-IN-1 strategy.
Howard Woolf is group manager of the new Electronic Publishing Systems Group, responsible for Digital's worldwide strategy and solutions for desktop, departmental, production publishing and documentation systems. He will work closely with the Media Industry Group and will provide focus for the electronic publishing and documentation systems across all Product Marketing solutions groups. Howard, a Digital employee for 13 years, has been responsible for the Document Publishing Group within OIS for the last year. He will continue to market Digital's word and document processing solutions.
Jim Willis has accepted the position of group manager for the new Distribution, Marketing, Sales, and Service Business Systems Group, responsible for Digital's worldwide strategy and complete business solutions for these corporate functions. Jim, who has been with the company for 18 years, was most recently manager of the Indirect Channels Group within the Channels Marketing Group.
Mike Carabetta is manager of the Financial and Accounting Business Systems Group, responsible for Digital's strategy and business solutions for the financial and accounting functions of corporations and government. He will also serve as acting manager of the Administrative Business Systems Group, responsible for strategy/business solutions for administrative functions in business and government. Mike has been with Digital since 1984, and has been responsible for the New Ventures Group in OIS for the past two years.
John Doherty has been appointed manager of Corporate Personnel Policy and Procedures, reporting to Erline Belton, manager, Corporate Employee Relations. John has been with Digital for 13 years, most recently as manger of Human Resources for Software Services, CSS and Educational Services. He also has had such positions as recruiter and Personnel manager, and has been a line manager in the Product Support organization. John received his bachelor's degree from Northeastern University and hold an MBA from Suffolk University in Boston, Mass.
Ross Myerson has been named associate medical director, reporting to Richard Porter7~medical director. In this position, Ross will develop, implement and supervise health protection and medical monitoring programs for employees who work with potentially hazardous materials. He also will consult on matters such as the medical aspects of manufacturing processes and site health promotion programs. Ross joins Digital from IBM Corp., where he was senior managing physician at the Fishkill, N.Y., semiconductor facility. During that time, he was a lecturer in occupational medicine at the Mount Sinai School of Medicine in New York City, and an instructor in advanced cardiac life support at Vassar Brothers Hospital in Poughkeepsie, N.Y. He also served as attending physician in emergency medicine at St. Francis Hospital, Poughkeepsie. Ross received his M.D. degree from the George Washington University School of Medicine and Health Sciences, Washington, D.C., and a master of public health degree from the Boston University School of Public Health. He holds a bachelor's degree from Washington University in St. Louis.
Peter Robohm has joined Digital as director, General Services Industry, reporting to Bob Hughes, vice president, Service Industry Marketing. In this position, Peter will be responsible for developing the integrated marketing plans for wholesale/retai1 distribution, travel related services, data services, transportation services, and other industries within that group. Peter joins Digital from IBM Corp., where he was MIS manager in the Information Systems Group. Previous assignments with IBM included administrative assistant to the IBM senior vice president and group executive; manager of the IBM Scientific Centers; manager of Science Industry Marketing; program manager, Government Industry Marketing; and management skills development manager, Data Processing Division. A Navy veteran, Peter holds bachelor's and master's degrees from Dartmouth College, Hanover, N.H. He also attended the Brookings Institute and the Stanford University Executive Program.
Grace Smith has been named to the newly created position of manager of Public Affairs, reporting to Bruce Holbein, manager, Government Relations. In this position, Grace will develop programs to present Digital and its strategic issues to government officials. She will work out of Digital's Washington, D.C., office. Grace joins Digital from Telocator Network of America, the national trade association for the mobile communications industry. She has also worked in several congressional offices. She holds a bachelor's degree from the University of Maryland and an MBA from George Washington University in Washington, D.C.
The Simpson-Rodino Immigration Reform and Control Act of 1986 (IRCA) imposes significant new responsibilities on Digital as an employer. It will alter Digital's procedures in selecting and hiring employees in the U.S.
The statute is intended to curtail employment opportunities for ille- gal/unauthorized aliens in the U.S.; and, at the same time, prevent employment discrimination on account of national origin against citizens and certain authorized aliens.
The major provisions of the law are as follows:
o It is unlawful to knowlingly hire an unlawful alien on or after November 6, 1986.
o It is unlawful to continue to employ an unauthorized alien who was hired on or after that date.
o Employers are required to inspect documents of all individuals hired on or after November 6, 1986, to verify their identification and eligibility for lawful employment.
o Employers are required to certify in writing and under oath that they have inspected required documents.
o Employers are required to retain certificates for on-demand inspection by the federal government for at least three years.
o Employers are prohibited from evading these statutory obligations through use of an "independent contractor subterfuge."
Unauthorized aliens who can document that they entered the U.S. prior to January 1, 1982, may apply for temporary alien status if they can establish that they have continuously resided in the U.S. since that date, if they apply for legalization between May 6, 1987 and May 6, 1988, and if they meet current citizenship requirements.
The Act also includes provisions prohibiting discrimination based on national origin against citizens or those who have been granted authorization for employment, based on the provisions of this Act. Employers are, however, permitted to give preference to a citizen over a non-citizen if the two are equally qualified.
The Immigration and Naturalization Service is finalizing regulations specifying the documents employees must provide, and the certification form employers must provide. Therefore, the government is prohibited from imposing any sanctions during a grace period of November 6, 1986, through
May 31, 1987. It may issue warnings between June 1, 1987, and November 1987. After that date, the full sanctions of the law will be imposed.
This statute only impacts employees hired on, or after, November 6, 1986.
The law does not require companies to act on individuals who commenced employment prior to that date, even if they are "unauthorized aliens."
In May, Digital will distribute information on how it will comply with these provisions through the Personnel organization and in newsletters. Appropriate Employment and Administrative personnel will receive training on implementation and maintenance procedures. Implementation will begin in June.
Though the basic features of Digital's Long-term Disability (LTD) Plan will remain the same, the company will soon make several changes affecting the specifics of the plan.
The current Long-term Disability Plan offers employees who purchase coverage income protection beyond the six months provided by the company’s short-term disability plans. Under LTD, disabled employees receive two-thirds of their base salary. Payments continue in most cases, for as long as employees are totally disabled up to age 65, or until they retire. And because the program is fully paid by employees, LTD payments are tax-free.
Effective July 1, 1987, Digital will:
o Increase employees’ cost by $.09 a week for each $100 of base weekly salary.
o Offer Digital's 4,100 U.S. employees not now in the LTD plan an opportunity to elect coverage without proof of insurability or a physical. Employees must enroll by June 26, 1987, and be actively at work on July 1, 1987.
o Improve the rehabilitation incentive. Employees returning to work on rehabilitation status may continue receiving LTD benefits offset by 50% rather than the current 70%.
o Raise the minimum monthly benefit from $50 to $100
o Raise the maximum annual salary amount used to calculate premiums from $90,000 to $180,000. This means the most anyone will pay for coverage will rise from $4.32 to $11.76 a week.
o Double the maximum benefit employees may receive from $5,000 to $10,000. (The benefit amount still will be two-thirds of base salary but with this higher maximum.)
o Offer employees over age 70 LTD coverage with benefits available for one year.
o Contract with The Prudential Insurance Company of America as Digital's new long-term disability insurance carrier.
Why change insurance carrier when the rate is higher?
Digital's effort to control employees' weekly cost is actually one of the reasons for changing LTD carrier. This new cost reflects the first increase in the negotiated insurance carrier rate since the LTD Plan began and is, in fact, less than if the company had not made the change.
As our workforce has aged, the number of disability claims has increased. Needing more revenue to fund the plan, our current insurer requested a rate increase higher than what the company would accept. So, Digital looked to the insurance marketplace for a more competitive LTD price and program.
Starting July 1, 1987, Prudential will become Digital's Long-term Disability Plan insurance carrier, and the administrator for employees who became disabled after July 1, 1986.
The LTD plan offers administrative services focused to manage LTD claims as efficiently as possible and program features that help disabled employees return to the workplace as valuable and productive workers.
This claim management program includes:
o Disability Verification and Management
o Social Security Disability Benefits Assistance
o Vocational Rehabilitation
All U.S. employees will receive a Benefits Bulletin at home during the first week in June that explains the plan changes and program. Managers will receive more information in the future about how the changes will affect disabled employees. Employees who have further questions about their LTD benefits or changes should contact their Personnel Services Administrator.