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    Highlights—April 3, 2004
  • Wall Street Journal courtesy of the San Francisco Chronicle: How Lucent's retiree programs cost it zero. Excerpt: Henry Schacht, Lucent Technologies Inc.'s former chief executive and still a director, met with retirees in 10 states last fall to explain why Lucent was cutting their medical and life-insurance benefits. In Buckhead, Ga., the retirees, some propped on canes and walkers, tottered into a meeting at the Sheraton hotel. Then, according to a handout from Mr. Schacht's presentation, he explained the burden Lucent faced from growing medical costs and rising numbers of retirees. There are now five retirees for every U.S. worker, the handout said. "Unfortunately, the numbers just don't work." Many retirees say they resigned themselves to that conclusion. A high ratio of retirees and older workers, they figured, must be a burden that forced the company to cut benefits if it hoped to be competitive. But an examination of Lucent's government filings shows that having a disproportionately high number of retirees hasn't been a problem for Lucent. In the first place, thanks to three benefit and pension funds that Lucent was born with when spun off from AT&T Corp. eight years ago, the big provider of telecom gear never had to dig into its own pocket to pay benefits for U.S. retirees. The funds paid every cent, both of pensions and of retirees' health care. In addition, Lucent has been able to use assets in these funds to help it pay for repeated rounds of downsizing. Moreover, the benefit plans -- thanks to accounting rules -- have fed Lucent hundreds of millions of dollars of income. And through a separate accounting maneuver, the cuts that Lucent made in the benefit plans last fall will contribute hundreds of millions of dollars more in income over future years. In short, in most years the pension and retiree benefit plans have enhanced Lucent's earnings, not burdened them. But now that the surplus in the biggest fund is essentially gone, Lucent is faced with using some of its own cash to pay retiree benefits, and it is cutting those benefits. If link is broken, view Adobe Acrobat version [PDF--26 KB].

  • Washington Post: U.S. Firms Keep Billions Overseas. Kerry's Plan Spotlights Huge Untaxed Earnings. Excerpt: With sales up 5 percent last year, Merck & Co. was not satisfied: To hold down costs, the pharmaceutical giant shed 3,200 jobs as 2003 drew to a close, and announced that an additional 1,200 positions would go this year. But Merck's picture abroad was quite different. It made 1,300 new hires in 2003 outside the United States, on top of the 900 brought on the year before. Company documents indicate that Merck had a cumulative $18 billion in foreign earnings untaxed by the end of last year, $3 billion more than in 2002. And the company said it had no intention of ever paying U.S. taxes on that burgeoning sum. ... By the end of its 2003 fiscal year, Hewlett-Packard Co. had "indefinitely" deferred taxation on $14.4 billion of foreign earnings, according to SEC filings, a move that helped lower its effective tax rate from the statutory corporate income tax rate of 35 percent to 12 percent. Domestic employment at Intel Corp. slipped by more than 3,300 people last year, but it grew by more than 4,300 abroad. By the end of 2003, the company had $7 billion in cumulative foreign earnings, $700 million more than it had sheltered in 2002, according to SEC filings. The semiconductor powerhouse stated that it "intends to reinvest these earnings indefinitely in operations outside the U.S." The Kerry campaign said U.S.-based multinational corporations are deferring taxation on $12 billion in foreign earnings each year, a figure that may be low, corporate tax experts say. Corporate tax revenue in 2003 fell for the third straight year, to its lowest in a decade. As a percentage of the economy, business taxes last year reached the second-lowest level since the Great Depression. Few doubt that tax avoidance has been a reason for meager corporate tax collections, and the deferral of taxes on foreign earnings may be one of the biggest factors.

  • New York Times: Negotiators Reach Accord on Pension Bill. Excerpt: House and Senate negotiators said that they had reached an agreement yesterday on a bill that would save companies an estimated $80 billion in pension contributions over the next two years. Airlines and steel companies, which have some of the weakest pension plans, would get an additional break, worth about $1.6 billion. The measure offers all employers with pension plans a break by changing the way they calculate, in today's dollars, the value of the benefits that they must pay in the future. The new method will make their future pension obligations look smaller. That, in turn, means they will not have to set aside as much money today.

  • According to "dbx1912", SSR's Lose Sunday Double Time Premium. Full excerpt: Here we go again as the robber barons chip away at what little we have left. Sunday premium is now time and a half instead of double time. If we had a union IBM would have a much more difficult time playing reverse Robin Hood, stealing from the poor and giving to the rich. Well I suppose somebody has to pay for Sam's 5.4 million dollar VPP. Maybe the SSR's should all have a case of "Blue Flu" on June 1st when this new policy takes effect? It will never happen though because the number of sheep is far too great. I'm amazed that I still see people who are willing to give up their entire personal lives for IBM (IOW they come running every time IBM calls) yet if they so much as order a screwdriver they get called on the carpet and yelled at. The next step will be no overtime and the next step after that will be contracting the entire SSR career path/job out to some other firm which will no doubt lay off all the higher paid, older employees and hire underpaid workers right out of school.Wake up people before it's too late.

  • Washington Post: A Tech Job in Every Port. Excerpt: The Information Technology Association of America (ITAA) high-tech trade group is the latest to weigh in. Today, the Arlington, Va.-based association is releasing a fresh report that accentuates the positive. "Outsourcing white-collar jobs to low-wage countries such as India and China has thrown some Americans out of work, but a new report predicts that the trend will ultimately lower inflation, create jobs and boost productivity in the United States," The Associated Press reported.

  • Los Angeles Times: Assault on Retiree Benefits. Excerpt: Corporations moan loudly about the increasing financial burden they are being saddled with as costs for retiree medical plans soar. But many big employers are avoiding those costs by trimming benefits, capping future liabilities and pushing more of the load onto retirees with fixed incomes. The pain is exacerbated by a complex corporate accounting rule, described earlier this month in a lengthy Wall Street Journal article, that produces an instant profit for companies that cut or cap retiree healthcare benefits. Making matters worse, the Medicare prescription drug reform bill that Congress passed in November promises yet another round of financial rewards for companies that whittle away at their obligations to retirees. ... The subsidy is supposed to reward employers for maintaining benefits when Medicare starts offering drug coverage in 2006. A noble idea, but Congress approved an incredible loophole: An employer can qualify for a subsidy even if the healthcare benefits in question are largely or entirely financed by retirees' private contributions.

  • Houston Chronicle: Bush has gotten over health-care fever. Excerpt: Some of you may recall when President Bush was stricken with what seemed to be a case of health-care fever. He was still Gov. Bush then, a presidential wannabe touring the country, claiming to be a champion for the patients, the little people on the balance sheets of hospitals and insurance companies. When political opponents challenged his credentials, which was often, Bush liked to brag about how he had "delivered a patients' bill of rights" back home in Texas. Sure enough, the legislation to which he referred was one of the more consumer-friendly laws to emerge from Austin during Bush's tenure as governor. But to say that he "delivered" it was a big stretch. It was someone else's idea and, in truth, he considered vetoing it before reluctantly agreeing to let it become law without his signature. The 1997 law, the first so-called HMO malpractice bill to be enacted by any state, allows patients, under some circumstances, to sue their health maintenance organizations if the HMOs deny payment of treatment recommended by a doctor. That law and similar statutes in nine other states — California, Oklahoma, Arizona, North Carolina, Georgia, Maine, New Jersey, Washington and West Virginia — now are under attack from insurance companies before the U.S. Supreme Court. Guess which side the president is on these days? Suffice it to say he has recovered from the mysterious malady that he encountered on the campaign trail. Last week, the Bush administration, represented by the solicitor general, joined two managed care companies — Aetna Health Inc. and Cigna HealthCare of Texas — in urging the high court to strike down the state laws.

  • Washington Times: Medicare drug law becomes bitter pill. Excerpt: President Bush had hoped that the passage of the Medicare prescription-drug bill would be one of the crowning achievements of his administration, but so far it has turned out to be one of the messiest policies, being attacked on several fronts. There are two ongoing investigations into matters surrounding passage of the bill: one by the House ethics panel into whether Republicans offered a bribe to one member to secure his vote, and another by the Department of Health and Human Services inspector general into accusations that administration officials withheld higher cost estimates for the bill from lawmakers.

  • Washington Post commentary by Michelle Singletary: A Job's Value Goes Beyond Pay. Excerpt: During her entire working life, my grandmother had low-wage jobs. But Big Mama was most proud of the job she held until she retired. She worked at a hospital in Baltimore for 25 years as a nursing assistant. In this occupation my grandmother's responsibilities included emptying bedpans, changing sheets and transporting patients to various places in the hospital for treatments. I made the mistake once of asking Big Mama if she ever wished she had a "better" job. "What's wrong with what I do?" she asked, more mad than hurt. "Girl, there is nothing wrong with good, honest work. Emptying bedpans puts food on our table, and that makes it a good job."

  • New York Times: Two Pay Packages, Two Different Galaxies. Excerpt: UNAWAY executive pay generates more shareholder rage than any other corporate issue today. So far this year, almost 40 percent of the proposals to be voted on at annual meetings relate to how much the corner-office crowd pulls down, according to the Investor Responsibility Research Center in Washington. That is up from 19 percent two years ago. But even as shareholders' ire rises, so, too, does chief executives' pay. As the most recent numbers show, compensation for the boss remains stuck on the up escalator. Granted, the rate of increase may not be as high as it was previously, and some chief executives took a pay cut this year. But for the most part, critics say, this year's figures prove that the compensation committees of corporate boards are still in a bounteous mood. Given human nature, few expect executives themselves to lobby for lower pay. And because boards seem reluctant to rein in compensation, some critics conclude that the system is irreparably broken. "One of the things you are supposed to do when you rise to a leadership position is to be an exemplar, and a man who rises to be an exemplar should not be fanning the flames of envy," said Charles T. Munger, vice chairman of Berkshire Hathaway and chairman of Wesco Financial in Los Angeles. "But now people are afraid they will leave something on the table; there will be one damn perk that somebody else has that they don't have. They just want every last nickel." Yet there are some corporate executives who do not grab for every last perquisite, who embrace the concept of enough rather than ever more. James D. Sinegal of Costco Wholesale is one. His pay package seems a throwback to another era, especially when compared with the lavish compensation of Henry R. Silverman of Cendant. A look at those two chief executives provides a stark contrast in how American companies are approaching compensation for their leaders these days.

    When it comes to pay, Mr. Sinegal, president and chief executive of Costco, the warehouse retailer based in Issaquah, Wash., seems to inhabit an alternate universe. His salary last year, $350,000, was not much different from the $300,000 he earned 10 years ago. He received 150,000 stock options last year but has refused a bonus in each of the last three years. The terms of his employment contract could fit on a cocktail napkin. ... "Jim is a highly ethical capitalist of the old school," said Mr. Munger, a Costco director since 1997. "He's not in some lofty place where he's sitting around with compensation consultants. He must visit hundreds of stores per year; he's mixing with the troops. If you were to rank retail executives, I would say Sinegal would be in the top 10 of the last century, as far as talent and work. And it's there in the numbers." A 2000 survey by Towers Perrin, the consulting firm, found that the pay of chief executives, on average, was 531 times that of their lowest-paid rank-and-file workers. But Mr. Sinegal's salary is less than 10 times that earned by his company's top hourly employees and roughly double the salary of a Costco warehouse manager, he said. ... While Mr. Sinegal keeps a lid on his own pay, his company is known for providing salaries and health care benefits to lower-level workers that are higher than average for the industry. For example, Mr. Sinegal said, a forklift driver at the company typically makes more than $40,000 annually, after three years on the job. And Costco pays 92.5 percent of employees' health care costs. "We just believe firmly that if you're taking care of your customers and taking care of your people, you're not too far off target," Mr. Sinegal said. "The profits will come and you'll be successful." One measure of how this approach succeeds is found in the rate of theft by customers and employees at Costco stores - what the retail industry charmingly calls shrinkage. Mr. Sinegal says such losses run under two-tenths of 1 percent at Costco each year. Other companies have 10 to 15 times that amount of theft. If link is broken, view Adobe Acrobat version [PDF--31 KB].
Coverage on H1-B and L1 Visa and Off-Shoring Issues
  • ZDNet: Gartner CEO to CIOs: Embrace offshoring or else. Excerpt: "Rather than waste precious energy on a fruitless effort to preserve the economic structure of the past, we need to embrace, control, and ultimately own the changes that are underway. To survive the offshoring threat, IT leaders must present themselves as an outsourcing authority that their company can't do without." That advice was delivered by Gartner Group CEO Michael Fleisher to a roomful of IT executives here at Gartner Symposium/ITxpo 2004. Fleisher admonished IT executives who have been resisting the "unquestionable" benefits of outsourcing. Fleisher's warning was subtle but unmistakable: Not only IT's rank-and-file jobs are at risk; even IT leaders could be out of their jobs if they aren't looked upon within their organizations as the go-to people on outsourcing.

  • CNET News: For Dell, Indian call center failure a lesson. Excerpt: Dell admits it has "learned its lesson" after being forced to drop its Indian call center last year following customer complaints about the quality of service. The call center operation for the OptiPlex desktops and Latitude laptops was moved back to the United States. Dell CIO Randy Mott said in an interview that the Bangalore center was unable to deal satisfactorily with the volume of calls generated by the rapid growth of those product lines. ... Surveys released in February showed that, while Dell's market share has continued to grow, customer satisfaction has declined. The company has acknowledged the problem and said steps are being taken to improve tech support and other customer services. Mott did not rule out future expansion in India and said Dell has a policy of "all shoring"--spreading jobs throughout Dell's global reach--wherever the right skills are to meet the needs of its global business.
Now on the Alliance@IBM Site:
  • SSR's to lose double time on Sundays.

  • IBM Earnings & Vapor profit for 7 years as of 04-01-04. Excerpt: Vapor profit is the paper boost to IBM income from pension fund accounting rules. It is purely an accounting rule treatment: no money is transferred to IBM from the pension fund. Vapor profit is found on p. 112 of the 2003 annual report, adding US and non-US plans it was $692 + $111 million = $803 million.

  • Show Us the Jobs' tour protests loss of work to overseas and comments from Alliance@IBM Vice-President Garrett Lanzy. Excerpt: Software engineer Garrett Lanzy, vice president of union-affiliated Alliance@IBM criticized corporations that "rewrite the social contract" with their workers. The government, which grants legal and tax benefits to corporations, should ""demand good citizenship," he told a crowd gathered in the center's Rotunda. "In particular, why should any company that offshores jobs receive any tax benefits from any level of government?" he asked. ... Myra Bronstein of Mercer Island, Wash., an IT worker with WatchMark Corp., said she also was notified of her own layoff and told to teach overseas workers to do her job. "I think it should be illegal to force employees to train their replacements and use the severance and unemployment (insurance) as hostage," she said.

  • Call to Action! Join the Rally to protest Offshoring at the IBM Shareholders' Meeting - April 27 in Providence, RI.
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