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for week ending September 21, 2002
- Wall Street Journal: Ex-CEOs Get Lush Perks, Fees for 'Consulting' Work. By JoAnn S. Lublin. Excerpts: (Mr. Gerstner's retirement package includes) "Access to corporate planes, apartment, cars for 20 years. Financial planning with a limit of $8,000 in reimbursable expenses annually, home security services and reimbursement for club expenses incurred during company business. Will also consult for the company for 10 years at a rate of about $600/hour if he retires his chairmanship by year end. His annual pension is more than $2 million." If link is broken, view Adobe Acrobat version [PDF--65 KB].
- A related Wall Street Journal article from June 20, 2001 is titled "While Executives See Their Pensions Grow,
Regular Workers See Their Benefits Shrink." [PDF--107 KB]. Excerpt: "International Business Machines Corp. discloses that it has an
executive pension plan and reports the plan's liability separately -- but
not the liability for a second, less-elite IBM executive pension plan. A
spokeswoman confirms this.
In January 1995, IBM moved the bulk of its work force into a "pension-equity" plan, saving the company hundreds of millions of
dollars by reducing benefits, even as it set up its special pension plan
for executives. A spokeswoman says IBM found that its plan for the
regular work force was "overly generous" compared to other companies' plans. She says IBM also sweetened contributions to its
401(k) plan after deciding that that program was less competitive."
- Executive Pay Watch provides pay and retirement details for former IBM CEO, Louis Gerstner. Excerpts: "On March 1, 2002, Louis Gerstner Jr. retired after nine years as CEO of IBM. He can look forward to a comfortable retirement. Last year he realized $115 million in stock option exercises and has another $382 million in accumulated stock options. IBM also promised him another 125,000 shares of stock when he steps down as chairman next year. Should Gerstner need something to do during his retirement, his employment agreement permits him to consult for IBM at his $2 million annual salary rate. For the next 10 years, he also will be entitled to use IBM's aircraft, cars, office, apartment, financial planning and home security services and he will be reimbursed for his country club business expenses. Future IBM retirees may not be so fortunate. In 1999, IBM saved $200 million in annual pension costs by converting its defined-benefit pension plan to a cash balance plan. After many workers complained that the cash balance plan formula shortchanged longtime IBM employees, the company allowed more of them to stay in the traditional plan."
- Plan Sponsor: Continued Erosion of Retiree Health Benefits Likely: Study: Employer cuts of retiree health-care benefits are expected to continue for at least another 30 years when companies likely will only pick up 10% of the costs. Excerpt: "According to the study, as more companies reach their contribution caps, retirees will be forced to pay a much larger share of health care premiums from their own pockets. And given the recent resurgence in health care inflation, virtually all plans with employer-spending caps will hit the caps within the next five years. Currently, half of post-65 retiree plans with caps and 42% of pre-65 retiree plans have already reached them."
- iSeries Network: IBMers Accuse Big Blue of Targeting Older Workers in Layoffs. Excerpt: "Specifically, about 20 percent of employees younger than 46 were laid off, according to the employees findings, but after that, an employees risk of being laid off increased with his or her age. For example, 25 percent of employees between the ages of 45 and 50 were laid off, and the percentage gradually increased to 67 percent of employees between the ages of 60 and 65. Put another way, everyone in the division under the age of 46 had a 19 percent chance of losing their jobs, while everyone above the age 46 had a 31 percent chance." ... "Leas believes further studies will only bolster the theory that the pension fund drives layoff decisions. 'IBM seems to be removing as many people that are eligible to collect from the old pension plan as it can,' he says. 'The old pension plan rewarded longer service and loyalty to IBM. The idea was to encourage employees to spend their careers at IBM, by making the last years at the company the most influential on pension.' By laying off people close to but not yet ready to retire, Leas says, IBM saves the pension plan quite a bit of money." If link is broken, view Adobe Acrobat version [PDF--58 KB].
- "bear_gypsy" comments. Full excerpt: "It's become pretty obvious that IGS is using billable hours to target
older employees. Remember a few years ago when you used to see
formulas with targets that took into account vacation? Do you recall
seeing anything like that last year or this year? If your ask your
manager about it, does he start hemming and hawing and giving you
some BS? It doesn't take a rocket scientist to know that the bottom
line is the more vacation you have, the more OT you'd better be
working. So much for vacation being a benefit that grows with your
years of service."
- iSeries Network: More Layoffs Expected for IBM. Excerpt: "When IBMs acquisition of PricewaterhouseCoopers business consulting and technology services unit (PwC Consulting) is all said and done in the next month or two, thousands of IBM employees may find its the end of their Big Blue careers, too. More than 4,000 employees will be laid off as a result of the acquisition, according to speculations of a Wall Street Journal article last week. That would bring total IBM layoffs this year to about 20,000. If true, the rumored layoffs could boost the operating margins of IBM Global Services business innovation services unit, which will absorb the PwC Consulting employees, by as much as 12 percent, predicts John Jones, managing director of SoundView Technology Group."
- The Street: IBM's Services Numbers Get a Harsh Look.
- ComputerUser: IT Unions?
Will Big Blue accept a white collar Union? Excerpt: "The most recent cause celebre on the high-tech union front comes from IBM. Big Blue has a culture of unpaid overtime that workers have gladly taken on because of its complementary culture of IBM lifers. If you are hired at IBM for a permanent full-time position, the understanding is you are hired for life, barring a major screw-up or a breakdown. You pay for this tenure with long hours, and most techies would take the trade-off. But when IBM announced it would lay off tens of thousands of its IT lifers, the remaining workers started talking about getting unionized. The question is, what would happen to companies like IBM if their techies all joined a union? Would it be good for the techies in the long run?"
"Here's one scenario that might make IBMers think twice about making Big Blue a union shop. When IBM is forced by a union to either pay for overtime or send techies home on time, development will obviously get more expensive for the company. As margins decrease, investors will call for cost cutting, which will involve more layoffs. IBM's board will also pressure management to use cheaper labor so that it can continue necessary development at a lower cost. This means it will hire more H-1B visa workers and build programming houses over in India. The net result is a lot fewer available jobs for U.S. IT workers. As in baseball, the top talent will be retained and will benefit from shorter hours. But the middle tier of IT workers will have a harder time finding work."
- ComputerUser: IT Unions II.
I touched a nerve with the talk of unions for geeks. Excerpt: "Underestimating the relative popularity of unions was not my only error. Several of your arguments helped me understand the concept of unions better, and helped me come up with a more informed opinion. Several of you pointed out that executive greed drives companies to pump their own stock into employee pension plans; the same greed drives executives to lay off workers if there is any indication of not meeting their numbers in a given quarter; and if executives don't behave in these ways, their boards and shareholders will insist that they do. Without unions, there is no complementary mechanism to protect workers from this behavior. So to rail against the very idea of unions is akin to endorsing behavior that has cost hundreds of thousands of U.S workers their livelihoods in the last two years."
- Utne Reader: The Mystery of the Disappearing Pension. Excerpt: "As corporations have switched from defined benefit plans to defined contribution plans, or 401K's, an entire generation will soon reach retirement age with a large number of people unable to retire and maintain their standard of living. According to a study published by the Employee Benefits Research Institute, 58 percent of U.S. households with pension plans in 1998 had to rely solely on a 401K in addition to their social security benefits. This compares to only 38 percent of households in 1992. This puts tomorrow's retirees in a much more risky position than those retiring as recently as 10 years ago. Never has this been more evident than in the last two years, when employees with 401K's have seen dramatic drops in their retirement portfolios. These retirement plans were never meant to replace pension plans, only to augment them."
- New York Times: Shriveling of Pensions After Halliburton Deal. Excerpt: "After comparing notes, a few of the employees and retirees have estimated that the group is being stripped of $25 million in benefits, reflecting roughly $50,000 on average for about 400 people. While Halliburton appears to be within its legal rights as the current sponsor of the workers' pension plan, its handling of their retirement benefits contrasts starkly with its treatment of Vice President Dick Cheney, who was chief executive of Halliburton during the acquisition and then the spinoff. The Dresser-Rand workers have lost their early retirement provision, and must now work until 65 to qualify for their full benefits. When Mr. Cheney left in August 2000 to become the Republican Party's vice presidential candidate, Halliburton's board voted to award him early retirement even though he was too young to qualify under his contract. That flexibility enabled him to leave with a retirement package, including stock and options, worth millions more than if he had simply resigned."
- Watson Wyatt Insider: Cash Balance Returns to Congress Radar Screen. Excerpt: "On July 24, the House added a cash balance-related amendment to the bill providing appropriations to the Treasury Department and Postal Service (Treasury/Postal) for fiscal year 2003. Specifically, the amendment prohibits the IRS from using appropriated funds to undermine the age discrimination and anti-cutback provisions of the Internal Revenue Code, ERISA, the Age Discrimination in Employment Act and IRS Notice 96-8, which addresses lump sum distributions from cash balance plans. Representative Bernie Sanders (I-Vermont) sponsored the amendment, which was approved by a vote of 308-121. Representative Sanders sponsored a similar amendment in 2000, which was approved by the House as part of the Treasury/Postal appropriations bill for fiscal year 2001 but was later removed during conference committee."
- "hrcontractor2001" points out a clause from the "new & improved
Sickness & Accident plan of
May 8, 2002. Excerpt: "In the event IBM or your business
unit conducts an involuntary reduction
in force while you are receiving
Sickness and Accident Income benefits and
eliminates existing positions, IBM reserves
the right to terminate your employment..."
- BusinessWeek: Was Jack Welch's Run All It Was Cracked Up to Be? Excerpts? "More than anything, what set Welch apart from his peers was his uncanny ability to make the earnings numbers he promised investors. Quarter in, quarter out, GE hit the mark. In the past 10 years, the company says it has only missed twice. But in the seven months since Welch left GE, people have begun to question that performance. Following blowups at Enron and Tyco International and revelations that even blue chips like IBM have used questionable accounting to make their numbers, GE has come under fire. No one is claiming fraud, or even that GE broke accounting rules. But critics are asking one very tough question: Was GE's great performance under Welch too good to be true?"
- Detroit Free Press: Susan Tompor: GE pensions are examples of hypocrisy. Excerpts: "We see six retired GE guys. Charles Kokinos, who after 31 years on the job, has a $573-a-month pension. Merrill Clark, after 25 years, gets $432. 'Time will hurt your pension too, without a COLA,' Clark says. Shameful pensions, instead of shameful perks."
... "What bugs me: How can companies talk about holding down pension costs, while some apparently have no qualms about CEO perks?" ... "'Who are the people who voted that Welch was so great? Other CEOs,' said Quirini. She blames a lack of morality where money became far more important than people."
Corporate governance issues:
- Motley Fool: Tyco Funds Toga Party. Excerpts: "Tyco released an SEC filing this morning accusing Kozlowski, former CFO Mark Swartz, and former Chief Corporate Counsel Mark Belnick of granting themselves unauthorized benefits (such as interest-free loans), forgiving $96 million worth of loans to certain employees (including themselves) through the use of bonuses, and much, much more. The company even disclosed some of the items Kozlowski had Tyco buy for his Manhattan apartment, including a $17,100 "traveling toilette box," and a $15,000 "dog umbrella stand." (What in the world are those things?) The SEC filing says all of this activity was concealed from the board of directors and other relevant people. The Wall Street Journal even details a $2.1 million birthday bash for Kozlowski's wife on the Italian island of Sardinia -- Tyco apparently picked up half the tab. It was a Roman-style affair, complete with togas and an ice sculpture of Michelangelo's "David" that dispensed vodka through his privates."
- Philadelphia Inquirer: This is the Fed speaking: CEOs are paid too much. Excerpt: "Where the CEO of a typical large corporation in 1980 made about 42 times the pay of an ordinary production worker, today's top boss takes home more than 400 times the worker's pay, McDonough said, adding: 'It is hard to find somebody more convinced than I of the superiority of the American economic system, but I can find nothing in economic theory that justifies this development. I am old enough to have known both the CEOs of 20 years ago and those of today. I can assure you that we CEOs of today are not 10 times better than those of 20 years ago.' 'What happened? Sadly, all too many members of the inner circle of the business elite participated in the overexpansion of executive compensation,' McDonough said."