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Articles about DEC
Volume 5 Number 3________________________________________________________________ May 1986
Motivation In Good Times
Looking At Q3 Results by Jim Osterhoff, vice president and chief financial officer
The VAX 8500 And Growth Of The VAX Family Of Computers by Bill Koteff, manager, Engineering Product Planning
Surface Mount — Manufacturing Gets Ready For The Next Generation Of Assembly Process Technology by Bill Bennett, program manager, Surface Mount Technology, and Don Metzger, manager, Process and Technology Office
Two Named Corporate Consulting Engineer Roger Heinen and Bob Stewart have been promoted to the position of Corporate Consulting Engineer.
Nine Named Vice President
Life Insurance Changes Coming Soon prepared by Corporate Compensation and Benefits
(In his keynote address at the recent IDECUS Symposium in Marlboro, Mass., Ken Olsen, president, talked about the problem of motivation in good times.)
"Good times are much more dangerous than hard times. When we were short of orders, coupled with the economy, we always complained and were looking forward to good times. But then our goal was clear — to get more orders — and everybody worked together to meet that goal. It's easier to work hard when you’re in trouble.
"In good times it's hard to stay motivated, and it's easy to have conflicts rather than to work together, because somebody thinks somebody else isn't working hard or other people are getting more than their fair share.
"We accomplished a lot during these last two years. The company has never been in such a strong position.
"IBM has too long been enjoying its position of being on top of the world. They enjoyed enormous popularity, and people blindly bought everything they built.
"Now I expect that they are concerned. They must have had enormous motivation to lower the prices on their highly profitable big machines. So we can't let short-term success turn our heads. We have to remember that they are seven times bigger than we are.
"Today, we are the only company that does networking. We are on top of the world in terms of products. But many potential customers believe that all they have to do is wait for IBM to come out with what they need. We simply can't afford to relax and let IBM catch up technologically.
"IBM has a hodgepodge of computer architectures and software systems and networking techniques. But they're working on that problem. We've set the standard for compatibility, and now they are driving hard toward that goal.
"Of course, you don't easily solve the problems of having gone in many different directions. But IBM is motivated; so we have to make sure we stay motivated.
"It is in the nature of organizations to not work together. But we won't survive unless we do keep working toward one goal and one strategy. And we must do this work together. This is no time to relax."
By all reports, the general order situation in the computer industry continues to be soft. And while there is much speculation on the reasons why, there don't seem to be good, definitive reasons for it.
Despite the general industry softness, at Digital we’re seeing tremendous interest in our products and capabilities. We have said before in this "slump" that we may be part of the cause -- ironically, because of the availability of new products and new capabilities. I believe this is true today. Computer purchases are becoming more strategic decisions which take longer to make. Instead of buying a single machine to do a specific task, customers are beginning to look at their longer-range needs and the way each new computer they buy will fit within their future network. To the extent that customers are thinking this way, it plays to our strength.
We are very optimistic about our new products, the way we're dealing with customers, and the reaction to DECWORLD '86, which was a tremendous marketing success.
We believe we are doing better than the competition and that we are gaining market share. The feedback from customers is very positive. And it's gratifying to see our position in the industry being recognized in the press. Our financial progress, the capabilities of our new products, and our success in the marketplace are all reflecting favorably on Digital.
In a financial sense we have made excellent progress, although our absolute results are still less than satisfactory. We have succeeded, however, in raising outside expectations for the future. This is evidenced in the price of our stock, which has out-performed all other companies in the industry. A year ago our stock was selling at about a 40% premium to book value. The premium is now roughly 100%. So the expectations of our future profit growth are considerably higher than they were a year ago.
We continue to show good progress in margin performance and in asset management. One relationship that is particularly meaningful is that of operating profit margin to revenue growth. During the 1983-85 period, revenues were going up at the rate of 25% a year and margins were not improving at all. During the first three quarters of this year, revenues were up 12% over a year ago, and profit margins improved from 7.3% to 9.3%. In Q3, our operating profit margin (pre-tax) was 11.6% — the first time in 14 quarters that we have been in double digits.
Another way of tracking profit progress is the rate of cost increase in relation to the rate of revenue increase. In the 1983-85 period, our costs were increasing at a rate of 24% a year. So far this fiscal year our rate of cost growth has been 10%. This is the most significant factor in our margin improvement.
We're still recovering from the pre-FY86 period of high cost growth and margin deterioration; but thanks to the hard work of many people, it appears we are on the right track. During the last two quarters we have made significant progress in the direction of our objective. If we continue to plan and execute as we have been recently, we should get back to the margins of the pre-83 period, which we need to sustain our historical growth rate.
In the area of asset management, dramatic improvements in manufacturing inventories are continuing to be made. And the recent progress has been achieved at a time when we have a lot of new products, which in isolation causes inventories to go up. Inventory improvements are also evident in Field Service.
At nearly $2 billion, our cash balance exceeds our total liabilities. Our capital structure is also very sound. Because of the strong performance of our stock, we met the early redemption requirements of our $400 million convertible debt and were able to convert it to equity. This reduced our debt ratio (debt as a percentage of total capitalization) from 15% to about 8%.
While we strive to reach our financial goals, and take pride in the excellence of our products, we must remember that the best way to ensure continued success is to emphasize customer satisfaction at all levels of the company. Customer satisfaction means more than a competitive product advantage. It means being a quality organization in every respect -- including the quality of our products, efficiency and responsiveness in processing orders, and a genuine interest in solving customers' business problems. We want to make everybody feel good about doing business with Digital.
In just a year and a half Digital has taken the VAX family, its very successful industry de facto standard, and extended the range down with MicroVAX II, and up with the VAX 8500, VAX 8600, VAX 8650 and VAX 8800. Also, all the mid-range machines (an older generation of VAX-11/730, VAX-11/750 and VAX-11/780) have been replaced. That's phenomenal from an engineering, manufacturing and marketing point of view.
And we're already shipping these new VAX systems in volume. In the past, it would have taken us a year to go from announcement to high-volume shipment for a single product.
Just 18 months ago, the VAX-11/785 was the top of our line of VAX systems. Today, because our range has expanded both upward and downward, a new machine twice as powerful as that one, the VAX 8500, is now our "mid-range" VAX system.
The introduction of the VAX 8500 was a marketing-driven decision. In the design for the new systems, we built in modularity to give us the flexibility to produce a set of products, not just one. So today we are in the enviable position of being able to decide, based on market factors, what machines to introduce and at what price and performance levels. We've got some ammunition, and we've got some time to think about it.
Of course, "mid-range" is a relative term, and its meaning at any time depends on the state of technology, which is constantly changing. The PDP-11/34 was the mid-range of the PDP-11 family and Digital's largest revenue generator for years. But today that would be considered a "low-end" machine. Today's Rainbow has more memory than the old PDP-11/34, and there are some applications that run faster on a Rainbow. In fact, you couldn't run Lotus software on a PDP-11/34 because it requires so much memory.
Over the last 10 years, computing power and memory have become very inexpensive. And that trend should continue over the next five to 10 years. For instance, in the area of memories, the industry will go from 1 megabit RAMs, to 2 megabit RAMs, to 4 megabit RAMs, doubling every few years.
We've moved from an era when you needed all the computing power you could get just to keep things going, to a time when you have huge amounts of computing power available to make quantum improvements in the way people do their jobs.
So for a given price range, compared to 10 years ago, today's technology provides the customer with a tremendous amount of additional power. The PDP-11 was a departmental machine. It would typically have 8 to 32 users and would be used to run a department. When the first generation of the VAX family was introduced, customers started using VAX-ll/780s and VAX-ll/750s as departmental machines, typically with about the same number of users they had with the PDP-11/34, but doing far more things, far more efficiently.
Now we have taken another quantum leap. And we expect the VAX 8500 to do the general-purpose departmental jobs that those earlier "mid-range" machines did years ago. This new system is right at the heart of our lineup. In fact, the whole new family of VAX systems has the potential to be the largest revenue-generating product set we’ve ever announced.
MicroVAX and personal computers are basically on-the-desk or beside-the-desk machines. The high-end VAX 8800 and VAX 8650 are big machines intended for use in computer centers and clusters as a corporate resource. The VAX 8500 is more departmental.
We expect that mid-range computers will continue to be a critical part of our business for many years to come. Our customers want lots of computing power right on the desk, but they also need access, through networks, to more powerful departmental machines. As the computers on the desk get more powerful, the larger machines have to get more powerful also to keep the same relationship.
People who want the performance of a VAX-11/780 or VAX-11/785 will buy either a VAX 8200 (with the same performance as the VAX-11/780) or a VAX
8300 (with the same performance as the VAX-11/785 in compute-intensive applications) . People who want more power than that will choose the VAX 8500, which offers twice the power of a VAX-11/785 at the same price. Those who want more than a mid-range computer and have more money to spend will move up to high-performance systems like the VAX 8600, VAX 8650 and VAX 8800.
The VAX 8500 is targeted to be a very cost-effective price/performance machine, filling the gap between the VAX 8300 and the VAX 8600 and VAX 8650.
The VAX-11/780 was an extremely competitive, industry-standard product for eight or nine years. But today in the computer industry, as competitive pressures lead to rapid development of ever more powerful and less expensive systems, product lifetimes are shrinking.
To succeed in this environment, we have to figure out how to get longer life out of each design, with repackaged, faster and less expensive versions of the same basic machine design. At the same time, we are constrained from producing too great a variety of machines.
At the user level every VAX computer is identical —- all running VMS software. But at the systems level, changes in technology mean we have to change parts of the operating system for each particular set of hardware; and we can only afford to maintain so many different versions of the operating system before that becomes a big burden.
Also, every new machine we introduce entails investments in spares and Field Service training for many years to come. So, while it’s vital to design in the flexibility to get the most out of our basic designs, we also have to carefully choose which configurations to actually build and sell.
For years, we had thought that someday Digital's role in the computer industry would change. Suddenly, it has. Thanks to this second generation of VAX systems, Digital is no longer a "niche" supplier, but rather is a very significant factor in the entire computer business.
Part of this change is due to the expanded breadth of our product line, both at the high and the low ends. Part of it is just the sheer physical size and inertia of the company as a whole. Digital is the second-largest computer company in the world and the leading manufacturer of networked computer systems. That means that when we make incremental growth moves, those changes have significant impact not only internally but to the industry at large, both in terms of units and dollars.
So we have finally gone through that transition to become one of the most important players in the industry as a whole. It’s an exciting time.
"'Digital Has It Now!' We have been spreading this message to our customers through DECWORLD '86, through our corporate advertising campaign, and during each and every sales call," says Jack Shields, vice president, group manager. "Our products give our customers a two- to three-year competitive advantage in developing solutions to their business problems.
"Among computer industry consultants and financial analysts, a consensus is forming. From the Wall Street investment firms to the magazines on the desks of MIS directors, people are saying that Digital is in one of the most powerful positions it has ever commanded.
"Although there are challenges still to be met in FY86, I would like to share with you the following quotes from leading industry and financial analysts. We can all be proud of how these opinion makers are talking about us, about our products, and about our future."
"With computer customers now demanding networking and communications instead of standalone personal computers, DEC — the industry leader with more than 35,000 installed network nodes -- has seen strong demand . . . The revival of DEC also reflects the insuperable advantages of a massive installed base and vast libraries of application software ... DEC is now unequivocally IBM's most successful antagonist . . . Its compound annual growth rate since 1975 is a remarkable 28.8%. In a decade of spectacular growth, DEC has been the most important and consistent growth company in the computer industry."
(Electronic Business, 1/1/86, "Blue Battlers: Winning on IBM's Home Court")
Digital vs. the competition
"IBM, the argument goes, has now compounded the crime of high systems overhead with confusion caused by ubiquitous but underused desktops. Arguments such as these have worked for DEC because the simple truth is that DEC is in the enviable position of being able to sell against IBM's greatest weaknesses: Big Blue's hidden costs, its mainframe based centralization, its proliferation of hardware families running incompatible software, its traditionally high pricing and its chronic underachievement in scientific markets."
(Electronic Business, 1/1/86, "Blue Battlers: Winning on IBM's Home Court") "Networking is DEC's Strength"
"In office automation, DEC has a leadership position while IBM still does not have fully integrated office automation software." "The factory is DEC'S traditional stronghold; it is NOT an IBM traditional stronghold. The fact that DEC is now a power in both the office and the factory suggests that the company will play a major role in integrating the factory with the office." (Salomon Brothers, 12/26/85)
"While the size and marketing power of IBM mean that the introduction of its workstation is an important industry event, we believe that the PC RT will not significantly alter the market potential and profitability of the workstation products of DEC, the MicroVAX II and VAXstation II/GPX ..." so concludes Marc Schulman of Salomon Brothers. He bases his statement on the following considerations: The PC RT does "not establish a new price/per- formance standard," IBM falls short of DEC in networking capabilities, and it does not support proprietary operating standards, thereby limiting migration paths for workstation customers.
(Salomon Brothers, 1/27/86)
"For interactive applications like transaction processing, DEC'S VAX line offers significant advantages to the IBM 43XX series. DEC'S VMS operating system is the key: It's specifically designed for real time, interactive processing. VMS and all DEC application software run on each succeeding addition to the VAX line. IBM's systems don’t enjoy such software consistency. The VAX line's ability to network and communicate with IBM systems is an additional benefit to users."
(Statement made by Sonny Monosson in the following article, Computer Decisions, 1/2/86, "DEC Lifts its Sights to IBM Territory")
"With customers for 4,000 local area networks and 50,000 Ethernet connections with more than 500,000 users, Digital has demonstrated its ability to sell networks. The Standard Networking Packages, SERVpak, DECsite, and NETcare demonstrate not only Digital's networking prowess, but its marketing savvy as well."
(Sandra Gant, Infocorp, 3/25/86) MicroVAX II
"MicroVAX~Il may well become one of the most successful products ever introduced by any computer company. We now expect 20,000 to be delivered in Fiscal Year 1986 (prior forecast was 15,000)."
(Jay Stevens, Equity Research, Dean Witter Reynolds)
"The MicroVAX II is the hottest product in the industry . . . MicroVAX II could be roughly $1 billion in fiscal 1986 . . . Demand for the MicroVAX II as a department processor has been surprisingly strong because the MicroVAX II is a 32-bit processor that is more powerful and less expensive than IBM's 16-bit System/36."
(Marc Schulman, Salomon Brothers, 12/26/85) VAXstation II/GPX
"The Digital announcement (GPX) 'raises the bar another notch' for graphics performance levels needed to effectively compete in the technical workstation marketplace . . . One thing is clear: competition in the technical workstation marketplace is becoming more intense ... We believe that the company with the largest application software base will maintain a large degree of control of the market, and that Digital clearly controls that base in the engineering and scientific markets."
(Brad Smith, Dataquest Research Newsletter, 2/17/86) VAX 8650
The recent 8650 announcement should ease MIS managers' concerns about getting locked into static machines. David Moschella, Director of Systems Research at International Data Corporation states, "MIS managers in highly interactive, timesharing situations could definitely consider the 8650 alone or in a VAXcluster as an alternative to a mainframe."
(Computer Decisions, 1/2/86, "DEC Lifts its Sights to IBM Territory")
VAX 8200, 8300 and 8800
"With the introduction of these new products (VAX 8200, 8300, and 8800), DEC has introduced six new VAX processors . . . within the past 15 months. This unprecedented flow of new products has materially improved DEC'S competitive position relative to both IBM and the company's smaller rivals. In our view, DEC'S product positioning has never been stronger than it is now."
(Marc Schulman, Salomon Brothers, 2/3/86)
"DEC now unquestionably has the best line of compatible minicomputers in the industry ... Of perhaps greater importance than the renewed sales momentum these offerings portend is the fact that they are essentially minicomputer- priced products that have microcomputer-like production costs . .. These new VAXs are a major plus to DEC'S operating profitability."
(John Levinson, Goldman Sachs, 2/18/86)
"DEC continues to shine despite a tough overall environment . . . DEC is extremely well positioned for further market share gains and margin expansion . . . expenses are under control . . . the new products have considerably higher margins than those they replaced . . . while component prices have fallen, pricing is holding up pretty well for the quality vendors . . . consequently we believe that any significant improvement in the economy could make our margin expansion projections (for DEC) appear too conservative. The upside leverage is high."
(Stephen Smith, Paine Webber, 12/20/85)
NOTE: The quotes provided here are for informational purposes only. They represent the opinions of the analysts who wrote them. This article is not for use outside of Digital Equipment Corporation and should not be reproduced.
The successful introducton of the VAX 8650 Standard Memory Unit signalled a major change in the base technology used in Digital's standard products. This product depends on the use of Surface Mount Technology (SMT); and from this point forward, most major new Digital products will contain surface mounted devices.
Surface mount technology is a manufacturing method of attaching electronic components directly to the surface of a printed wiring board rather than inserting component leads into holes drilled in the board. This new methodology has the potential to increase manufacturing productivity at lower cost, improve system integration through increased density and improve product performance by shortened interconnection paths.
In the manufacture of memories, like the Standard Memory Unit (SMU) in the VAX 8650, the advantage of surface mount is in being able to put a lot of memory into a very small space. The advantage of surface mount in CPUs is performance — being able to run CPUs at very high clock rates without having long signal runs. Surface mount packages are more effective for interconnecting LSI chips with high lead counts. That is the reason a surface mount package was chosen for the MicroVAX II processor chip.
Surface mount is a sophisticated process with many subtleties. As is the case with semiconductor manufacturing, the only way to achieve reliability and performance is by tightly controlling the process at every step. Using traditional manufacturing procedures, the whole process can be ruined in the first step and you might not know that anything had gone wrong until you get to the end product, or even worse, in field performance. With surface mount technology, quality and test go away as separate functions because they become integral parts of manufacturing. Everything must be verified as close as possible to the process operations. Achievement of the cost and quality potential of surface mount depend upon careful plant design and the meticulous practice of process control.
For new technologies like surface mount, we can no longer make design decisions without considering what the impact will be in manufacturing. The successful manufacture and delivery of a product is directly traceable from the design process through the shipping dock.
Space savings with surface mount depend on the design of the circuit board. For instance, today it’s possible to put four times the amount of memory in the same space as before. As component manufacturers increasingly focus attention on surface mount packages, we expect that space improvements will double again.
As component volumes transition to a high percentage of surface mount packages, the surface mount devices are rapidly becoming less expensive than traditional devices. In addition, the reduced space used on the circuit board can mean significant cost savings. Performance gains are typically two to three fold, depending on the design.
The performance gains relate to the fact that as LSI speeds increase, the biggest delay in the operation of systems of semiconductor devices is the interconnection between devices. With surface mount, we can put the devices closer together because we no longer have to mount them on holes in the boards, so the distance is no longer limited by how close we can put holes in a board. Speed is related to distance. If we can halve the distance between devices, the signal completes its journey twice as fast.
The next generation of VAX products will get a significant portion of their boost in performance from the effective utilization of surface mount technology. Surface mount is just the beginning of a series of waves of technology change. There are other important technologies coming along, such as Tape Automated Bonding (TAB) and multi-chip packaging. To be successful in inplementing these new technologies we have to master surface mounting techniques as a first step.
Today, we place higher demands on our surface mount process than any other company in the world. We’re producing very large multi-layer boards with high leadcount I/Os in volume. We’re using surface mount on boards three times the size of products we see coming from Japan.
Surface mount requires a number of important changes in the way we manufacture our products and even the way we think about manufacturing. In a traditional manufacturing environment, we can put components on circuit boards and then test them, because the components and all the test points are visible and accessible. In the surface mount process, when you put the component on, the test point may be hidden under the component. There is no place to test it. And even if you could find out what is wrong, you probably would not be able to repair it. Therefore, to make a quality product, you make sure that the process stays within its performance boundaries and that all the inputs to the process — the raw materials — meet or exceed the specifications required.
Traditionally, in manufacturing, if we make a mistake we can repair the product. So we design products to make it easy to repair them, and we set up manufacturing and field service operations presuming that we'll do a substantial amount of repair. With surface mount, if we make a mistake in the process, the damage is probably irreparable. Consequently, the process has to be very nearly perfect — much closer to perfection than anything we've seen before, except in semiconductor manufacturing. Defect levels in the range of five to 10 parts per million are required. Already the Salem surface mount line is achieving better quality than is considered acceptable in traditional module assembly.
We are going through a mind-set change. We no longer fix the product; we fix the process.
The technology for Digital's surface mount process was developed by the Process & Design Support group in Andover, Mass. The surface mount process was transferred to the Salem, N.H., manufacturing facility. Salem will continue as the surface mount process development line for the company. In addition, we are transferring the manufacturing process from Salem directly to other manufacturing sites. For instance, Augusta, Maine, uses surface mount in many of the communications options built there. Westfield, Mass., uses surface mount in building the MicroVAX II. Enfield, Conn., and Clonmel, Ireland, also have surface mount capability. The total surface mount process will soon be transferred to the Singapore facility.
The introduction of surface mount is being coordinated and supported by a • Technology Program Office under Bill Bennett and a Manufacturing Program Office under Paul Sturgis. This provides a focus for process development and technology transfer for this major cornerstone of our future electronic assembly process.
Roger reports to Bill Heffner, vice president, Software Systems, and is responsible for the technical direction of the Software Systems Group. Roger joined Digital in 1973. He subsequently became directly involved in the development of RSX-11M, and worked on the initial design phase of DECnet products and VAX/VMS version 1 software. He also worked as project leader on the VAX-11 PL1 and VAX-11 C compilers and was a key contributor to VAXELN and MicroVAX I. Roger is co-author of a book on code generation and holds a Bachelor of Science degree from Worcester Polytechnic Institute.
Bob reports to Don McInnis, program manager, Advanced VAX Engineering Group. He was systems architect for the VAX 8800, introduced in January, providing technical leadership for the design team in the areas of hardware logic, microcode, diagnostics, technology, and the power system. Bob joined Digital in 1971, and served as a hardware designer for the PDP-11/70, the
VAX-11/780, and CI Bus. He also played a contributing role in the design of the original VAX architecture, the PDP-11/45, and the BI, SBI, and SI buses.
Bob has been named a joint inventor in nine patents that have been submitted by Digital. He holds B.S. and M.S. degrees in electrical engineering from MIT.
Digital has announced the appointment of nine senior managers to vice presidential posts.
Lou Gaviglia is responsible for the manufacture of all Digital's large and mid-range VAX computer systems, including the recently announced VAX 8800, VAX 8300, and VAX 8200. Since joining Digital in 1967, he has held a series of manufacturing management positions, including plant manager, Salem, N.H., and manufacturing manager for the Commercial Group. In 1982, he was named group manager, Computer Systems Manufacturing.
Dan Infante manages the worldwide Computer Integrated Manufacturing (CIM) Program Office, which is responsible for the integration of information systems and process technology throughout Digital's engineering and manufacturing organizations. He has been manager of Manufacturing Information Systems since 1984. Prior to this position, he held a series of manufacturing management positions, including Manufacturing controller and group controller, Systems Manufacturing. He joined Digital in 1973.
Ilene Jacobs is the Corporate Treasurer, responsible for managing Digital's Treasury, Pension Investments, Tax, Risk Management, and Customs groups. She joined Digital in 1974 as manager, Cash and Investments, Corporate Treasury Department, and has held a succession of management positions within Treasury. She was appointed Assistant Treasurer in 1981 and Treasurer in 1985.
Ed McDonough is responsible for GIA Manufacturing Operations, which includes Far East manufacturing operations and Western Hemisphere manufacturing operations in Puerto Rico, Canada, Brazil, and Mexico. He joined Digital in 1976 as group controller, Computer Manufacturing and Engineering. After serving as group operations manager, Far East Manufacturing Support Center, he was named senior group manager, GIA Manufacturing and Engineering, in 1984.
Kevin Melia has served as group manager, Manufacturing External Resources, since 1984, and is responsible for manufacturing materials and distribution, including management of Digital's manufacturing inventory and assets. Since joining Digital in 1973, he has served in various manufacturing finance management positions, including plant controller, Galway, Ireland; group controller, Worldwide Systems Manufacturing; and manager, Manufacturing Business Center.
Bob Palmer joined Digital in 1985 as group manager, Semiconductor Operations. His responsibilities include engineering, manufacturing, acquisition and test, and marketing. He was one of the original founders of Mostek Corp. Most recently, he served as executive vice president, Semiconductor Operations, United Technologies Corp., which acquired Mostek in 1980. He held a series of senior management positions while at Mostek, which involved the development of Mostek's first wafer fabrication facility, and responsibility for design engineering, product marketing strategies, and strategic product development. He shares a patent for work in MOS integrated circuit production processes, an accomplishment recognized by the Semiconductor Equipment Manufacturing Institute as one of the most significant technology developments in the integrated circuit industry.
Bruce J. Ryan is the Corporate Controller, responsible for financial planning and analysis, budgeting, internal audit, fiscal and management reporting, accounting policies and procedures, internal controls and the financial development program. Bruce joined Digital in 1969 as manager, Field Finance, and has served in a succession of financial management positions, including Finance and Administration Manager, Computer Products Group; Manufacturing Controller, Galway, Ireland; and Finance and Administration Manager, General International Area. He was named Controller in 1985.
David Stone is responsible for establishing and developing the company’s international engineering presence to ensure that Digital's products are competitive worldwide. He joined Digital in 1970, and has held a succession of management positions, including corporate manager, Software Engineering; manager, European Software Services; and acting manager, European Engineering. In 1985, he was named vice president, Digital Equipment International Europe. A member of the Corporate Engineering Staff, he assumed full responsibility for International Engineering and Strategic Resources in 1985.
Don Zereski is responsible for the management of all U.S. field service business. Prior to becoming manager, U.S. Field Service, in 1985, he managed Field Service Europe. For 10 years before that he was manager, GIA Field Service. Don joined Digital in 1962 and held various engineering, manufacturing and product support management positions, including responsibility for Digital's worldwide mid-range systems support between 1968 and 1974.
Digital is telling employees in a mid-May announcement how their life insurance plans will change on July 1, 1986, to offer them more options.
Having additional options will enable employees to make selections that more closely meet their particular needs. It will be easy for employees to purchase this low-cost coverage during the oper enrollment period that ends Monday, June 16.
Your support, as a manager, is vital during this open enrollment. You can help to ensure that employees understand what their options are and why now is an excellent time to re-evaluate their life insurance needs.
What is changing
The life insurance changes are three-fold:
o New dependent life coverage. For the first time, employees will be able to purchase life insurance to cover their dependents under one of three Digital plans. These three plans vary in price based on the level of coverage.
o Additional level of optional life coverage. Employees can now cover themselves at a level of 3 times their salary, in addition to the traditional offerings of 1, 2, 4 and 5 times salary.
o Age-bracketed rates for optional life coverage. Instead of one rate for all employees, rates will vary by age for optional life insurance. This change reflects both the greater costs as Digital’s workforce grows older, and typical insurance industry practice.
Why time is of the essence
If employees return their completed enrollment forms by Monday, June 16, coverage begins July L Once the June 16 deadline passes, however, the normal process resumes — employees and their dependents must complete an Evidence of Insurability form and may be required to have a physical exam before John Hancock will consider their request. Not only is the usual process time-consuming, but not all applications are approved. Unlike some other benefits, there is no annual enrollment period for optional or dependent life insurance.
Since this is a limited opportunity, it’s an excellent time for employees to seriously consider whether they have the appropriate level of life insurance.
More detail about employee life insurance
Three Digital plans — basic, optional and dependent life insurance — are available to all regular employees who are actively working at least 30 hours a week. Basic life insurance is provided at no cost to the employee. The employee can purchase the other two through weekly payroll deductions, and benefits are paid in addition to the Basic Life Insurance.
o Basic life insurance.
Employees automatically have life insurance covering themselves worth $50,000 or twice their annual base salary, whichever is less. This $50,000 is the most life insurance Digital can purchase and still have the premiums Digital pays for this coverage be tax free to employees.
o Optional life insurance.
Employees can choose to purchase additional insurance on themselves worth 1, 2, 3, 4 or 5 times their salary. If an employee who has purchased optional life insurance should die, the beneficiary(ies) would be paid both the basic and optional life insurance amounts. The weekly rate for each $10,000 in coverage will be approximately:
o $.35 for those under age 35,
o $.51 for those ages 35 through 49, and
o $.67 for those age 50 or older.
For example, suppose you earn $24,200 a year and want to purchase coverage at three times your salary. To determine your coverage, simply round your salary up to $25,000 and multiply by three. To purchase this $75,000 in Optional Life Insurance coverage, your weekly cost would be:
o $2.60 if you are under age 35,
o $3.81 if you are age 35 through 49, and
o $5.02 if you are age 50 or older.
By comparison, the weekly cost used to be about $.35 for each $10,000 of coverage for employees of all ages.
o Dependent life insurance.
If an employee has eligible dependents, that employee can choose one of three plans:
An employee either has dependent coverage or doesn't. The number of dependents does not affect the insurance levels or rates. Through this packaging, the reduced administrative costs allow Digital to offer dependent coverage at these low rates.
Employees who choose dependent life insurance coverage will have the first three months of coverage for free. Dependent coverage will begin on July 1, but the weekly deductions will not start until October.
The employee will name a benef iciary( ies) for the basic and optional life insurance plans. The same beneficiaryfies) will apply to both plans. The employee is the beneficiary of dependent life insurance.
Conununication Strategy and Schedule
The conununicat ion plan uses a variety of media with the theme that highlights "picturing your future . . . and drawing your own conclusions." The intent of this theme is to remind people, with a light treatment using crayons and children's drawings, that the future is fairly uncertain . . . and that this uncertainty can be offset by employees doing some planning now. And now is the time for employees to be "quick on the draw" to take advantage of the opportunity to tailor their program without hassle until the June 16 deadline. This approach reinforces a continuing theme in our benefits communication -- that employees are responsible for making benefits decisions; no one else can do it for them.
Specifically, the scheduled communication are:
Training Kit. PSAs/PAs throughout Digital received a training kit to provide them with background and material to conduct employee meetings about life insurance. (Employee meetings can be conducted at each area's discretion, and should begin, if possible, in mid-May after employees have received the personalized information.)
Posters. Posters have gone up throughout Digital introducing the theme and announcing that information is coming.
Brochure, personalized enrollment form and preaddressed envelope. These pieces are being sent to employees' homes so they can learn about their options, know their current enrollment status as well as how much the different options will cost them. If employees decide to purchase additional coverage, they also have the convenience of having the enrollment form and pre-addressed, postage-paid envelope right there.
Employees newsletter article. An article will appear in employee newsletters within Digital and discuss how to determine the appropriate level of life insurance.
Posters. Posters will go up announcing the enrollment deadline.
Enrollment deadline. The envelope containing the employees' completed enrollment form must be returned no later than June 16.