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    Highlights—December 18, 2004
  • Tampa Tribune: IBM's "Discussion" Fails To Meet Expectations. Excerpts: International Business Machines Corp. took the "conference" out of conference call this week when it invited investors to "a discussion" about the sale of its personal computer business to China's largest PC maker. Too bad the only discussion was a scripted back-and-forth between two IBM executives. No real questions were taken in that public forum. Not that IBM's decision to promote the news in a one- way webcast violates securities laws, but it sure isn't the kind of thing you would expect to see from a company behind one of the most widely held stocks in the world. In the traditional conference call, this would be followed by questions from the audience, as IBM routinely does in its quarterly earnings calls. This time, how IBM dealt with the issue of questions is questionable. It didn't hold a real conference call - in which Wall Street analysts ask questions and executives give answers. It just borrowed the format: Loughridge was asked six questions by Murphy that, he said, ``may be on your mind.'' Then he answered them. After that, it was over.

  • Press release from James Marc Leas: IBM's announcement belies its argument for Cash Balance Plan. IBM's announcement on December 8 that it will eliminate the Cash Balance Plan for new hires undercuts its argument that the plans were implemented to attract new hires. Without that argument, IBM has no remaining pretext for the pension conversion it implemented in 1999. "Slashing pensions with the cash balance plan conversion slashed pension obligation, which boosted vapor profit, which boosted bonuses for executives," said James Marc Leas, one of the IBM employees who helped lead the campaign against the cash balance plan conversion in 1999. "IBM did not tell the truth in 1999 when it said that the new plan would be more attractive to new hires," he said. "The real reason was executive pay."

    Vapor profit is a purely an accounting rule increase in the profit report. It is based on a now controversial pension fund accounting rule, FASB 137. IBM boosted its profit report by over $4 billion from this accounting rule during the past 5 years, according to an article in the Wall Street Journal, dated December 9, 2004. "By dropping the cash balance plan exclusively for new hires--but not for current IBM employees--IBM can no longer assert that the the cash balance conversion had anything to do with attracting new hires. It had everything to do with boosting vapor profit and executive pay," said Leas.

    "IBM employees fought hard against the cash balance plan conversion, and this announcement, along with the court decision in Kathi Cooper v. IBM, vindicates their efforts," Leas said. "The enhanced 401k plan IBM will implement on January 1, 2005 is a vast improvement for new hires because it eliminates the 5 year waiting period that robbed many new hires of any pension benefit at all. But it does not go far enough. We are still demanding that IBM immediately revoke the illegal cash balance plan conversion and allow all current employees, regardless of age, to choose a prior legal pension plan." In September Leas submitted a stockholder resolution saying just that for a vote at IBM's annual meeting in April, 2005. A copy of the resolution is attached.

  • Janet Krueger: I just got the following question from an IBM retiree, and thought others on the board might benefit from the answer... Q: My question is: Is there any guarantee that IBM will continue to pay my pension until my spouse and I die? I was talking to a couple of other IBM retirees and we all have the same question. Never gave it much thought, until you hear about United stopping pension payments and what happens if IBM does a "Enron". A: I can understand your concern, especially after watching what has happened to many of the retired steel workers here in Minnesota! Although there are a number of 'guarantees', I'm sure you learned as a parent that there is no such thing as an absolute promise, other than that you will die at the end of your life...

    That said, the IBM pension fund is in fairly good shape. Once a year, IBM has to file a Form 5500 with Department of Labor answering a full list of questions on the state of the pension fund and its obligations. The pension fund has to be set up as a completely separate trust fund, so that it would be tough for IBM officers to raid it, and we now have people monitoring the annual report to make sure the investments seem reasonable. Of course part of the reason the fund is so healthy is that IBM dropped into a pattern in the 90s of cutting back on the pensions of current workers -- they cut mine in half in 1995, and then cut them in half again in 1999 -- this created a huge reduction in the pension fund for those of you who had already retired! (Those cuts, btw, have now been declared illegally age discriminatory in Cooper v IBM, which you can read more about at www.allianceibm.org.)

    Of course, there is always a possibility that IBM could proceed into bankruptcy (some of us see similarities to Enron as IBM continues selling off its real plants and assets, and building its business purely on 'services'). If that were to happen, the pension fund is federally insured by the PBGC (Pension Benefit Guarantee Corporation). This means that if there were signs IBM might go bankrupt, the PBGC would step into and take over the pension fund on behalf of IBM retirees. If there was enough there to cover all obligations, you would see no change in benefits. If, at that point in time, the plan was underfunded, then the PBGC would create a formula to proportionally reduce some or all of the pensions of current retirees -- this is what happened with the steel companies, where some pensioners saw their monthly checks reduced by as much as
    60%. Those who lost the most were those who retired before they turned 65, as part of their pension was classified as an uninsured "early retirement benefit".

    Another question you and your fellow retirees might be interested in is whether you will ever receive a COLA (Cost Of Living Adjustment). Older IBM retirees received COLAs every year or two through the 70s and 80s, and retirees were shown foils during retirement planning seminars that gave a history of IBM COLAs, with an assurance that since this had always been IBM's practice, it would likely continue. The most recent COLA was distributed in 2000, but only to those who had left before 1991 -- we think this was done as a response to Don Parry's shareholder resolution, so that Lou Gerstner could assure all the shareholders that the company really is taking care of retirees. Chances IBM will do another are relatively slim, unless there is a complete changeover in management and corporate philosophy.

  • Vault's IBM Business Consulting Services message board is a popular hangout for IBM BCS employees, including many employees acquired from PwC.
    • In "It's a Blend of Factors" "Dose of Reality" responds to a potential IGS employee's question about the amount of travel that IBM will expect from him. Full excerpt: Partners will generally staff projects from within their own practice area, and staff are generally clustered around a few geographic areas. If a project is located remotely from these clusters, first choice is generally to use best available resources and travel is likely. In other words, skill and affiliation trump proximity when it comes to choosing resources. In the past few years, the percentage of out of town assignments has grown significantly. Utilization targets are so high, that the number of resources that are on the bench when a project is sold is extremely small. That means compromise on skill set and a very high likelihood of staffing from other locations. We have reacted to this by doing some "just-in-time" hiring, but that leaves us with a geographic footprint that is unbalanced. We hire resources for specific projects in an area, but it is random whether we will have a similar opportunity when that project ends. No problem for BCS - we just push them aside and eventually out. Kind of like a litter of wolves that we just reconstitute wherever the meat du jour is. If your question emanates from a desire to forecast your likely travel schedule, assume at least 75% of your work weeks will be spent in a hotel. There are a few rare cases where the timing works out and you end up local for an extended project, but don't count on it. If you are in a major Metro area, the chances are slightly higher. There is a tremendous amount of coercion to take whatever comes available when you are available. Three weeks on the bench will make it impossible to make your 85%+ utilization targets, and you will have your practice leader, HR, and finance all aligned against your best interests.

    • "Critical Numbers" by "pork". Full excerpt: Utilization targets are based on 2080 hours in a year. 85% Utilization means you need to bill 1800 hours in a year. There are 260 work days in a year. Minus 7 for the standard holidays and minus 15 for the 3 weeks of vacation you will want to take. Now we are left with 238 potential billing days. 8 hours a day for all 238 and you meet your target.So there you go. Take 3 weeks of vacation but never get sick, never take another day off, never attend training, never be on the beach for a day and never spend a day interviewing candidates, working on proposals, going on sales calls. If you are not on a project for 1 month a year you just lost 168 billable hours and all chance to meet your target.

    • "In the Spirit of Enlightenment" by "Dose of reality". Full excerpt: Perhaps you can explain to prospective job candidates how one can be expected to achieve 94% utilization and still manage to take your three weeks vacation, receive adequate training, time your roll-offs, downtime, and startup on new projects while managing to work on projects that are geographically palatable and on your career track. Also, what are the implications of not meeting this target?

    • "How to make your util nums" by "kindaoldibm". Excerpts: If you work on a project that mandates no overtime, as quite a few do, you can't do _any_ of that stuff ... except _maybe_ get lucky and work on a project that's on your career track. 94% utilization means you work 244.5 of the available 260 ( not counting weekends ) days in a year, assuming 8 hour days. With 12 holidays (mix of site and personal choice) that leaves ~3.5 days for vacation, sick time and personal appointments, training, bench time, and vacation. As far as training goes, there's, for all practical purposes, no budget for _that_ , so that's no consideration . If you can bill the hours, travel, and class expense to the client then take all the classes you want. Now, if you want to get a promotion to (or keep) a band 9 or above, you'll need to squeeze in 150+ hours or so of mandated on-line training on your own time and go thru the "certification process". Oh, I forgot, they tell you to expect to spend 80+ hours preparing your certification package too.

      The implications of not meeting this target ... Let's see. As I've posted elsewhere, your achievement of the utilization target is part of the yearly appraisal (performance evaluation). I've never heard of anyone getting a 1 appraisal who didn't overachieve on this target. The first line managers pretty much have a specified number of 3s they _have_ to distribute across their team, so not making your target almost certainly makes you a candidate for placement on this highly sought after "short list". And the percentage of your (hypothetical and highly unlikely, the last few years, alas) annual bonus is controlled solely by your appraisal number. IIRC, 3s don't get anything. Also, I think that getting a 3 two years in a row is considered "cause for dismissal". And when the area you're in gets a RIF, they pretty blindly "cut from the bottom" using your point-in-time utilization achievement for the current year, as far as I can tell. This means it's a _really_ bad idea to go into September or October 'under plan'.

      So, adding 10+ hours or so a week of unbilled travel time to the need to build a cushion for sick time, deaths in the family, whatever, means you'd better plan on about 55+ hours a week to "stay off the cut list", at least if you intend to take any vacation. At one point in the past, they asked us to report our travel hours, so that could be considered when comparing local versus remote employees, but they don't collect that statistic anymore. As Dose says, a 2 or 3 week period between projects can pretty much put you in an unrecoverable situation for that year. I'd love to have a look at the PBC template for our RDMs to see if they get evaluated on the utilization achievement of the team they are responsible for placing :-)

    • "It's actually even much worse than this" by "deep_eye". Full excerpt: How many of you are actually working 40 hour weeks?? Please, be honest, hmmmmmmmm thought so - damned few. In fact, the 55-60 hour week is the dirty little secret in consulting today and a cornerstone in BCS' operational philosophy. Now, how many of your are able to pass those extra hours through to the client? hmmmm - still damned few. So, what do you do? Bon appetite, monsieur!! Hope you have a healthy appetite for eating that "extra time." In fact, the only way you can reasonably have high utilization, write white papers, interview candidates, cross train, give presentations on sales calls, etc. - is by eating these hours. If you asked the man in the street how he would like to give 15-20 extra hours a week free to his employer, he would assume that your crack addiction is quite bad. Nice initiative, set a low pay scale and then load on the extras (all required for the performance evaluation, by the way). When you fail in one area - "Oh, I'm sorry, you only wrote 1 paper this year, not 2, so it's a "3" for you little buddy." Maybe next year is bonus year for you and oh, by the way, be on the lookout for the downsizing fairy with your "3."

    • "no / don't care / doesn't matter" by "CONsulting_2_long". Full excerpt: No official vacation allocations are not negotiable in general. BCS pool Executive management in many instances does not really care about specific vacation amounts taken. Metric is charged hours / 2080. Whether a non-billable hour is vacation or bench is of little concern It generally doesn't matter because the metrics for billable hours are so skewed that you will not be able to meet your metric and take all of your earned vacation anyway. (unless you can find a client that will let you bill substantially more than 40 hours / week. This does not occur in many private sector clients)

    • "Cyclical vs Secular" by " Dose of reality". Excerpts: However, what sets BCS apart is the pervasive culture of IBM that will inexorably leave us on a different plane than the other organizations. HR actions taken the past several years go far beyond temporary income management tactics. Compensation levels have been ratcheted down, both through across the board adjustments and undervalued market compensation benchmarks for new hires. There is no longer a pretense of paying for top talent. Pay for performance has been completely taken out of the mix – bonuses are completely contingent on achievement of corporate targets. Stars with 120% utilization and/or quota-busting sales delivery get virtually the same bonus as coasters. We are proud of our elimination of thought leadership investments. The theory is that we will just become order takers and RFP responders for whatever falls off a truck. What we lose in large/profitable projects, we are supposed to make up in bundling and cross-pollination with other product lines From the standpoint of a job applicant, this puts us at a decided disadvantage. No rational, high-potential, ambitious person will want to work in such an environment. From the standpoint of the market, this is suicide. We are in a position where we are selling moderately skilled resources at premium rates – a business model that is doomed for failure, even with the “aura” of the IBM/PWC brand as a launching pad.

    • "Now you are getting tedious and..." by "Dose of reality". Excerpts: On the subject of mismanagement, I would have to spend a few thousand words to get you to understand the temporal disconnection between management decisions and financial results, and there would be no way to do it without compound sentences. Let me try to shortcut it for you with what has happened in BCS. 1. We gradually but steadily cut costs and make employees miserable; 2. Our revenue streams are based on momentum and sales efforts from last year; 3. Contracts continue and costs are squeezed down – profits go up temporarily; 4. Best people leave – remaining staff have their targets increased to make up the difference; 5. New work gets harder to sell – costs are cut even more, targets are increased and the cycle continues; 6. The organization and revenue streams shrink; 7. Eventually, we reach the limit on cost reduction and target increases and we have lost a tremendous amount of profit opportunity; 8. We have to over-promise results to clients and under-deliver resources in order to continue to win contracts; 9. Reputation suffers and makes it even more difficult to sell work; 10. Eventually we bottom out with an environment that has a demoralized overworked staff of people that is comprised of people that have no place else to go and ignorant raw recruits, with a few well compensated taskmasters to continue to crack the whip.

    • "Can IBM help but be a true global brand?" by "Dose of reality". Excerpt: There may be players in certain offices and practices that work harder than others at counteracting their effects, and differences in style may swing the mix a bit one way or the other. However there are certain corporate standards that have been superimposed across the whole geography, and most of these are at the root cause of the consensus complaints on this board: 1. Across the board salary reductions; 2. Lowering of starting salary thresholds; 3. Unachievable and unsustainable utilization and profit targets; 4. Virtually no bonuses; 5. Mass exodus of most productive staff 6. De-emphasis of thought leadership investment; 7. Undue pressure to peddle other product lines; 8. Ridiculously burdensome bureaucracy; 9. Consulting factor in most of our projects is non-existent; primarily technology slam-type projects; 10. Pain in the a$$ travel policies; 11. Push on staff to take off-track projects just to stay utilized.

  • Yahoo! message board post by "ibmgrunt". Full excerpt: I just got my review for this year. I worked on an extremely difficult account cutting over to some new software that nobody, anywhere, knows. Nobody wanted to touch this beast and I got stuck with it. Took me almost the whole year to do the transition, with hostile customers, and hostile IBMers from other departments that I had to interface with. The bottom line is I got the job done, made everything work, did 99% of all the work myself, and we are talking about a lot of different people involved in this project. I don't think I ever worked harder, on a more difficult project, with a bunch of people on other teams that treated me like crap. My manager said he wanted to give me a 2+ but his manager would not let him give me any better than a 2. I said why not a 1 ? He said he had none to give out. I'm done killing myself. No more projects. I'm just gonna blend in with the rest of the grunts and do the minimum I need to keep my job.

  • Austin American-Statesman: For retirees, health coverage is iffy. Excerpts: Four years ago, Austinite Lynda French retired early from her job at IBM Corp. to protect a prized benefit: health care coverage for the rest of her life. When her husband, Tom, 55, retires, it's an option he won't have. Like many other large companies, IBM has cut back on health coverage for retirees. Lifetime coverage is gone; and the company limits how much it will spend per employee each year. That means retirees are paying a bigger share of steep increases. "I see a crisis coming," French said, as higher health care costs and possible Social Security cutbacks collide just as millions of baby boomers head toward retirement.

  • New York Times: Social Security Reform, With One Big Catch. Excerpts: Of all the arguments being made to replace part of Social Security with private retirement accounts, few are more seductive and more misleading than the prospect of earning higher returns. ... The nonpartisan Congressional Budget Office, which is run by a former chief economist in President Bush's own Council of Economic Advisers, assumes that equities and bonds will earn no more than Treasury bonds. Strikingly, the White House's own Office of Management and Budget recently made the same assumption. The issue was not Social Security but rather the projected growth of assets in the railroad retirement trust. In evaluating the railroad retirement system, the White House budget office also assumed that investments would yield the same as Treasuries. But the more basic question is this: Should a rational person believe that Social Security's very real financial shortfall can be reduced just by shifting from bonds into stocks? Those who imply that stocks can promise higher returns without higher risk are essentially arguing that Social Security can be fixed with a huge exchange of paper. If that is the government's strategy, people should by all means push for the right to shift all their payroll taxes to personal accounts and invest the money in gold.

  • Center for American Progress: The $47 Million Retiree Sellout. How White House/GOP donors bought a Medicare bill that lets them cut health benefits. Excerpts: On Oct. 29, 2003, President Bush reassured seniors that "corporations have no intention to what they call dump retirees" from their existing drug coverage after the Medicare bill passed. But according to the Wall Street Journal, the White House and its allies in Congress added "a little-noticed provision" to the law which rewards companies with a tax subsidy even if they reduce retirees' existing drug coverage. In effect, the provision creates a financial incentive to reduce retiree benefits.The Wall Street Journal notes that the provision was pushed primarily by a group called the "Employers' Coalition on Medicare" – an organization made up of corporations that have given President Bush and the RNC more than $47 million since 2000. These same corporations stand to profit from the provision. And it appears at least 10 of them (representing tens of thousands of workers) are have either tried in the past or are trying to slash retiree benefits. These 10 companies, which include 3M, AT&T, Bank of America, DaimlerChrysler, GM, IBM, and Verizon, have alone given more than $17 million. ... "IBM retirees as a group saw their health-care premiums rise nearly 29 percent in 2003, on the heels of a 67 percent-plus increase in 2002. For IBM, with its caps in place, spending on retiree health care declined nearly 5 percent, after a drop of 18 percent the year before. The company confirmed that retirees' spending has risen as its own has fallen." [Source: Wall Street Journal, 3/22/04]

  • The Onion: Wal-Mart Announces Massive Rollback On Employee Wages. Excerpts: Wal-Mart, the world's largest discount retailer, announced its biggest-ever rollback Monday, with employee pay cuts of up to 35 percent. "Just in time for the holiday shopping season, we're rolling back the hourly wages of workers in every department—housewares, automotive, health and beauty, and so many more!" Wal-Mart president and CEO H. Lee Scott Jr. announced at a press conference. "From Baton Rouge to Boise, we're continuing our tradition of low, low prices and using our muscle to create unbelievable savings!" "For us!" Scott added. Scott then turned to a large projection screen on which the company's trademark yellow happy face whizzed through the aisles of a Wal-Mart, enthusiastically "slashing" the hourly wages of employees all over the store. "Paying $7.75 an hour for a Class-2 cashier with fewer than two years' experience?" a cheery narrator asked in amused disbelief. "How about $6.50? And $8.45 an hour for a dockworker to unload boxes of bath towels all day? We think $6.75 sounds more like it!"

Now on the Alliance@IBM Site:
  • IBM PC Division Employees Alert! Full excerpt:
    • PC Division Sold - Although virtually unknown in the United States, Lenovo, China's largest PC maker and the world's fastest growing one, has bought the IBM PC Division for $1.75 billion. The sale brings the end of an era in an industry that IBM helped invent.
    • What of the PC division employees? The impact on employees, their families and communities is still to be determined. Nearly 10,000 IBM employees will become Lenovo employees, doubling their workforce. In RTP alone there are an estimated 1900 PC division employees.
    • The fight for a voice in the workplace continues. The Alliance@IBM/CWA Local 1701 is deeply concerned about the impact that this sale will have on current IBM employees. We want to make it clear that we will not abandon our members or co-workers. We intend to keep organizing and representing employees as they move into Lenovo. In fact, we will actively pursue the formation of a new Alliance chapter at Lenovo. We encourage IBM PC division employees to contact us. Let us not be victims in this sale, but active participants in this transformation. Let us all do our part to ensure that the employee's voices are heard, as employees of IBM become employees of Lenovo.
    • Contact the Alliance@IBM/CWA Local 1701 via phone at 607-658-9285, fax us at 607-658-9283, email us at EndicottAlliance@stny.rr.co


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