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    Highlights for week ending May 18, 2002

As with last week, there were several reports of coming IBM firings in the news media. This section links to articles about IBM's upcoming firings.

  • Annex Research: Looming IBM Layoffs. Also, IBM CEO vs. CFO: A "Yin" and "Yang" Story. Excerpt: "If IBM does close its Endicott facility, that will be like taking the torch to grandpa's and grandma's homestead. Endicott is where IBM's roots are. This is where IBM was nurtured from diapers into a Big Blue greatness. But sentimentality and nostalgia has not been the hallmark of the 'Louis XIX' reign, the former IBM emperor who still seems to rule the roost, even if from the shadows now. Last August, for example, Gerstner forced the 86-year old IBM Endicott band to disband. The reason? Cost cuts. And that from a man who raided the IBM treasury to the tune of over $424 million, before heading off to the golf course, while IBM-ers brace for layoffs!? (see 'Sir Lou OutLayed Lay!', Apr. 1, 2002)."

  • Boston Globe: IBM said to be planning layoffs, may sell. Excerpt: "A Boston securities firm is telling its clients that IBM Corp. plans to lay off up to 1,500 workers at its huge Essex Junction microprocessor plant, and that IBM is seeking a buyer for the site."

  • Alliance@IBM: Massive Job Cuts Loom at IBM. Union Helps Workers Survive Layoffs. Excerpts: "Conrad also noted that IBM’s action seemed timed to ensure that the company would not have to pay annual bonuses to workers let go before July 1. The 'variable pay program' is an incentive program that awards up to 10 percent of an employee’s salary based on individual review, performance of the employee’s division and overall company performance, he said. Workers on the payroll as of June 30 will receive this pay next year, but those who are terminated will not, he said." ... "Guyer noted that while planning to terminate thousands of employees, IBM was spending $3.5 billion to buy back company stock. 'These funds instead could be used to keep skilled employees on the payroll, not a stock buyback that mainly benefits IBM executives,' she said."

  • Alliance@IBM: What Difference Would a Union Make?

  • Alliance@IBM: Latest job cut news.

  • Alliance@IBM: IBM Employee Job Cut Survival Kit. What to do before and after you're let go.
  • IBM's move to a cash balance pension scheme in 1999 was the beginning of the employee revolt against IBM retirement policies. A recent article in SmartMoney University explains what all the fuss is about. If you're new to this controversy, or need a "refresher course", we highly recommend the SmartMoney article. Excerpt: "The controversy over these plans became front-page news in the late 1990s, as more large companies with traditional pensions began converting to cash-balance plans in an attempt to cut down on costs and gain appeal with younger workers. According to a 2000 study by the General Accounting Office, roughly one in five large employers offers these plans -- with the majority of these conversions taking place in the late 1990s. But the transformations were often ugly. Major corporations -- like IBM -- were skewered by the press as older and middle-aged employees (justifiably) howled about the reduction in benefits that resulted." ... "But it's funny how some rotten PR combined with the risk of legal action can correct a situation. These days, the flood of companies converting to these plans has all but dried up. And those still doing it have learned from past mistakes."

  • iSeries Network: Critics Claim IBM Execs Riding Employees’ Backs to the Bank. Excerpts: "The resolution claims that 'IBM distorts the principle of pay for performance to the extent that it bases executive compensation on pension income.' Accounting rules require a portion of certain pension fund surpluses to be treated as income — despite the fact that IBM can’t actually touch the surplus. According to IBM’s annual report, the pension surplus added $686 million to its bottom line by the end of 2001. And that subsequently contributed to the $21.9 million awarded to Big Blue’s top five executives — $13.4 million in bonuses and $8.5 million for reaching predetermined income targets. 'No one begrudges executives the money if they earn it,' says Donald Parry, the IBM stockholder who filed the proposal. 'But that money isn’t coming from running the business, it’s coming from working assets.' It would be naive to think big business doesn’t participate in some unscrupulous accounting, he says, 'but IBM used to talk about respect for the individual. No more. Now IBM does earnings management and it does it on the backs of retirees and shareholders.'" If link is broken, view Adobe Acrobat version [PDF--55 KB].

  • Annex Research: An Analysis of IBM CEO's First Speech to Analysts. No New News at IBM. Excerpt: "Back on the Big Blue stage, Palmisano tap-danced his way around pointed questions and ticklish issues. He avoided talking about the looming IBM layoffs. He ducked two probes about jettisoning poorly-performing units. And he refused to respond to a leading question from a friendly analyst about when IBM would return to double-digit revenue growth. In doing so, however, the IBM CEO provided the answer for the rest of us - never! Or not any time soon, anyway..."

  • TrimTabs Investment Research: Corporate Liquidity Improves, But Unlikely to Last. Individuals Act Bullish. Real U.S. Economy Sinking While Recent Government Stats Show Otherwise. Excerpts: "What business is IBM in, information technology or common stock management? When chickens come home, IBM worth no more than $20 per share." ... "IBM's cash flow is not likely to rise anytime soon. In this new age of creditor vigilante activism, will IBM's creditors keep on lending to not only repay maturing debt but fund new stock buybacks so that insiders can support the declining value of their options? Perhaps a more important question is how much is IBM worth?"

  • PBS, I Cringely, the Poet. (Scroll down to the section on IBM). Excerpts: "I received a number of great e-mails on the state of IBM following that column. One writer had been recently laid off from IBM. He shared with me the stories of his now unemployed comrades and how they were treated by the company. Last year for example, many were asked to bill 2,010 hours of "productive" work. You need to do some math to really understand the implications of this directive. You can take two weeks off for vacation or illness. Any more time off has to be recovered by overtime. There will be no training. If you have more than two weeks of vacation, you have to put in even more overtime. Thousands of IBM employees were asked to work 45 to 50 hour weeks all year without any additional pay."

  • TheStreet.com: The Pension Bombshell in the Fine Print.

  • Washington Post: Accounting Reforms Won't Add Up Unless Stock Options Are Addressed. Excerpts: "Watching American corporations these days is like watching drunks at a revival meeting. They're vowing to sin no more, to tell shareholders the straight truth instead of playing accounting games, to embrace "transparency" so outsiders can see what's going on. But talk is cheap. When it comes to action on two key reforms -- accounting for stock options and showing the value of chief executives' compensation packages -- corporations are as opaque as ever."

  • Boston Globe: Fixing the broken part of pensions. Excerpts: "Remember How Enron employees found their retirement accounts ruined because company policy blocked them from selling Enron stock while the stock was crashing? Congress is currently debating pension 'reform,' but only of the most flagrant abuses. But there is a much bigger story here. It isn't just that some companies irresponsibly lock up workers' retirement assets in their own stock. Fewer and fewer Americans even have secure pensions. As recently as 1980, one American worker in two had ''defined benefit' plans. All during your working life, the company built up a pension account on your behalf. At retirement, your pension, based on your pre-retirement income and years of service, was guaranteed as long as you lived. No longer. Only one employee in four now has such coverage, mostly in old line companies and unionized ones, and their share of the work force is dwindling." ... "Of course, there was one part of the retirement system that worked just beautifully - Social Security. This part of the system is the ultimate defined benefit plan. It is adjusted for inflation, it is totally portable, and it covers you as long as you live, whatever happens to the stock market. But this one part of the retirement system that isn't broken is the part that privatizers want to 'fix.' They want to make it more like a 401(k) plan. Instead, says Wolff, we should be enhancing Social Security."

  • Seattle Times: S&P creates new method to calculate earnings. Excerpts: "Responding to deepening skepticism about the way many companies report financial performance, Standard & Poor's unveiled a new benchmark yesterday designed to gauge corporate earnings more accurately. Under the new "core earnings" measure, the 10,000 U.S. companies analyzed by S&P will have some revenue they use to boost profits — such as pension-fund investment gains — stripped away. The lucrative stock options that corporations typically grant executives will be deducted from per-share earnings to provide a better yardstick of executive costs. The new way to assess company earnings comes amid investor dismay over revelations — many prompted by the Enron scandal — that publicly traded corporations have used questionable accounting methods in their quarterly and annual reports to inflate profits and mask costs."

  • New York Times Editorial/Op-Ed: America's Poor Standards. Excerpt: "On Tuesday Standard & Poor's, the private bond rating agency, announced that it would do something unprecedented: It will try to impose accounting standards substantially stricter than those required by the federal government. Instead of taking corporate reports at face value, S.&P. will correct the numbers to eliminate what it considers the inappropriate treatment of "one-time" expenses, pension fund earnings and, above all, stock options — a major part of executive compensation that, according to federal standards, somehow isn't a business expense. S.&P.'s estimate of "core earnings" for the 500 largest companies slashes reported profits by an astonishing 25 percent."

    "To see the absurdity of the current rules, consider stock options. An executive is given the right to purchase shares of the company's stock, at a fixed price, some time in the future. If the stock rises, he buys at bargain prices. If the stock falls, he doesn't exercise the option. At worst, he loses nothing; at best, he makes a lot of money. Nice work if you can get it. Yet according to federal accounting standards, such deals don't cost employers anything, as long as the guaranteed price isn't below the market price on the day the option is granted. Of course, this ignores the "heads I win, tails you lose" aspect: executives get a share of investors' gains if things go well, but don't share the losses if things go badly. In fact, companies literally apply a double standard: they deduct the cost of options from taxable income, even while denying that they cost anything in their profit statements." If link is broken, view Adobe Acrobat version [PDF--15 KB]

  • Financial Times (of London): US companies face new pressure on stock options. Excerpts: "US companies will this week come under increased pressure to deduct the cost of stock options from earnings. Standard & Poor's, the stock indexing and credit rating group, will announce on Tuesday that it will change its assessment of corporate performance to take into account the cost of stock option awards." ... "Advocates of stricter accounting standards claim corporate America is opposed to change because it would affect executives' remuneration. Earlier this month, Warren Buffett, the influential investor, described the corporate lobbying campaign against reform as shameful." ... "S&P's decision, which follows months of discussions with the investment community, will not alter the accounting rules but it will put pressure on companies to supply more information about the cost of stock options and other data."

 

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