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    Highlights—February 19, 2005
  • Janet Krueger answers several questions pertaining to IBM's 1995 changes to its defined benefit pension plan. Full excerpt:
    Question: Yet IBM is in effect saying, any dollars my dollars> earn don't go to me and even though I will be retired one year less for every additional year I work, there is no increase in my annuity payment. Why?
    Answer: There are scenarios for some employees, if they assume no salary increases, where the age 65 annuity payment actually goes DOWN if they continue working.
    Question: Is this addressed in the current litigation?
    Answer: You bet it is! It is extremely age discriminatory. One of the pieces of documentation presented to the court is evidence that a 1994 presentation to the board, as well as one to the Society of Actuaries, the pension plan designers bragged that this plan design would motivate older employees to voluntarily resign, without IBM having to go to the expense of offering them golden parachutes... IBM has agreed not to appeal the portions of the lawsuit charging IBM with age discrimination in the 1995 plan.
    Question: It's my understanding the settlement will not change the 1995 plan, but seek a one time settlement to cover problems (employee losses) up to the 1999 switch to cash balance.
    Answer: You are partially correct. The settlement agreement calls for a separate settlement to address age discrimination problems in the 1995 formula. For employees who have already left IBM, the settlement will be collectable as either a one time cash payment that can be deposited in an IRA account or as an annuity. Employees who are still at IBM will be able to decide how their share of the settlement should be distributed after they leave IBM at the same time as they make their retirement selections for the base pension distribution. Your assumption that the settlement only attempts to provide redress for the harm inflicted between 1995 and 1999 is incorrect -- the settlement formula will attempt to redress the harm done for the entire length of time employees were covered by the 1995 plan, including years beyond 1999 for those who had the option of staying in the 1995 plan.
    I hope that helps your understanding! I'm just as anxious as the rest of you to see what the settlement formula looks like -- the latest word I've heard is that the settlement notices probably will not finalized until at least the end of March. Apparently, the task of designing a fair and equitable distribution formula is a lot more complex and time consuming than was originally anticipated...Janet Krueger, Rochester, MN.
    P.S. I am planning to attend the IBM annual meeting in Charleston on April 26 -- it would be great to see lots of you there!
  • Janet Krueger: Class cert of another IBM lawsuit. Full excerpt: Louisiana's First Circuit Court of Appeal in Baton Rouge, Louisiana upheld, in a brief memorandum opinion issued on Tuesday, the certification of a nationwide class of former IBM employees who left IBM after availing themselves of an early termination package called ITO II, in 1992. Shortly after the employees' departure, IBM "suspended" one of the benefits in the ITO-II package, the REAP benefit, that provided for a reimbursement of education expenses up to $2500 per person. The benefit was never reinstated.
    The suit was filed under state law contending, in effect, that the ITO-II benefits were part of the consideration for releases signed by class members releasing IBM from liability to the class members for age discrimination in connection with the down-sizing. The case claims that a party to a release (such as IBM) cannot unilaterally alter the consideration promised for a release after the release has been given. According to IBM's records, the class consists of 25,000 or more retired IBMers and their spouses in all 50 states and DC.
    The case was filed in the 19TH JUDICIAL DISTRICT COURT FOR THE PARISH OF EAST BATON ROUGE, STATE OF LOUISIANA, NO. 421-453, in DIVISION "D", under the name of PATRICK J. CUNNINGHAM, ANTON N. ZANKI,AND ALL OTHER PERSONS SIMILARLY SITUATED VERSUS INTERNATIONAL BUSINESS MACHINES CORPORATION. The court's decision is procedural in the sense that it decides that the case can proceed as a class action on behalf of all persons who either took early retirement or "bridged" to retirement under the ITO-II program. The decision is not yet final in the sense that it could be subject to rehearing by the Court of Appeals or discretionary review by the Louisiana Supreme Court, should IBM persuade the court that such action is appropriate.
    We will be pleased to provide you with more complete information concerning the status of the case, the make-up of the class, the defenses raised by IBM to the merits of the claims, and the potential implications of the case for the affected former IBM employees, if it is of interest to any of your members. Charles E. Hamilton, III, Lamothe & Hamilton, New Orleans LA Tel. 504-566-1805; Fax: 504 566-1569.
  • Yahoo!: Insider transactions for IBM. Some recent dispositions for corporate officers include:
    Date Insider Shares Transaction Value
    11-Feb-05 KELLY, JOHN E. III 5,446 Disposition (Non Open Market) at $93.235 per share. $507,757
    10-Feb-05 SANFORD, LINDA S. 26,422 Option Exercise at $31.6725 per share. $836,850
    10-Feb-05 SANFORD, LINDA S. 31,886 Sale at $92.33 - $92.38 per share. $2,945,000
    1-Feb-05 MILLS, STEVEN A. 3,424 Disposition (Non Open Market) at $93.70 per share. $320,828
    1-Feb-05 MACDONALD, J. RANDALL 3,016 Disposition (Non Open Market) at $93.70 per share. $282,599
    1-Feb-05 KOHNSTAMM, ABBY F. 3,184 Disposition (Non Open Market) at $93.70 per share. $298,340
    1-Feb-05 KELLY, JOHN E. III 3,260 Disposition (Non Open Market) at $93.70 per share. $305,462
    1-Feb-05 HORN, PAUL M. 1,880 Disposition (Non Open Market) at $93.70 per share. $176,156
    1-Feb-05 HARRELD, J. BRUCE 2,911 Disposition (Non Open Market) at $93.70 per share. $272,760
    1-Feb-05 MOFFAT, ROBERT W. JR 2,617 Disposition (Non Open Market) at $93.70 per share. $245,212
    1-Feb-05 LINEEN, EDWARD M. 2,243 Disposition (Non Open Market) at $93.70 per share. $210,169
    1-Feb-05 IWATA, JON C. 1,615 Disposition (Non Open Market) at $93.70 per share. $151,325
    1-Feb-05 ELIX, DOUGLAS T. 4,049 Disposition (Non Open Market) at $93.70 per share. $379,391
    1-Feb-05 DONOFRIO, NICHOLAS M. 3,497 Disposition (Non Open Market) at $93.70 per share. $327,668
    1-Feb-05 ZEITLER, WILLIAM M. 3,085 Disposition (Non Open Market) at $93.70 per share. $289,064
    1-Feb-05 SANFORD, LINDA S. 2,949 Disposition (Non Open Market) at $93.70 per share. $276,321
    26-Jan-05 VEST, CHARLES M. 4,000 Option Exercise at $23.25 per share. $93,000
    26-Jan-05 VEST, CHARLES M. 4,000 Sale at $92.71 per share. $370,840
    17-Nov-04 MOFFAT, ROBERT W. JR 4,928 Option Exercise at $31.6725 - $36.0625 per share. $167,000
    17-Nov-04 MOFFAT, ROBERT W. JR 3,000 Sale at $96.18 per share. $288,540
    15-Nov-04 O'DONNELL, DANIEL E. 2,486 Sale at $95.61 - $95.65 per share. $238,000
    11-Nov-04 JOYCE, JOHN R. 73,864 Sale at $93.8104 per share. $6,929,211
    11-Nov-04 JOYCE, JOHN R. 73,864 Option Exercise at $31.6725 - $51.155 per share. N/A
    10-May-04 DONOFRIO, NICHOLAS M. 117,416 Option Exercise at $18.6575 - $36.0625 per share. N/A
    10-May-04 DONOFRIO, NICHOLAS M. 114,644 Sale at $87.3556 per share. $10,014,795
  • ComputerWorld: Fiorina to get millions, home security. Her severance package includes $21.38M in cash. Excerpt: In a filing with the U.S. Securities and Exchange Commission, Hewlett-Packard Co. on Friday detailed the severance package for former Chairman and CEO Carly Fiorina, who will get a cash payout of $21.38 million, as well as $50,000 for financial counseling and legal and outplacement services. Fiorina also gets to keep her PC equipment and technical support for a three-month period, HP said in the filing. In addition, the company will provide the former executive with administrative support for a six-month period and maintenance of her home-security system for a one-year period, according to the filing.
  • Wall Street Journal, courtesy of the Pittsburgh Post-Gazette: Follow the CEO's money -- that is, if anyone can. By Jesse Eisinger. Excerpt: Successes or failures, chief executives generally become vastly wealthy after serving their stints. But just how wealthy is often anyone's guess. Gillette CEO James Kilts is slated to receive an estimated $185 million pay package for having offloaded the razor maker to Procter & Gamble. The Wall Street Journal tapped an actuary and an excise-tax expert from an accounting firm to come up with that figure. The Boston Globe commissioned its own analysis from an executive-pay consultant, which came up with $173 million. The different figures underscore a problem: It's next to impossible to know for sure how much executives make in total compensation. This inability to get accurate readings on executive pay comes as many investors think spiraling CEO pay has become dangerously delinked from performance.
  • Seattle Post-Intelligencer: Honoring promises made to workers. By Elaine Chao, U.S. Labor Secretary. Excerpt: Working hard and "playing by the rules" has for generations of Americans been the guiding ethic for leading an honorable life and attaining financial security. Millions charted their career and finances based on a promise that when they retired they would have a stable income from a defined pension plan to live on the rest of their life. These workers trusted in that promise, planned around that promise and reasonably assumed that it was inviolable. The $12 trillion in current pension assets is testament to the American people's hard work and faith in the future. Nearly $2 trillion of these assets reside in traditional defined benefit pension plans covering 20 percent of the nation's work force. The 34 million Americans covered by these traditional plans played by the rules. The disturbing truth is that some companies and their unions have taken advantage of inadequate federal pension rules and recklessly underfunded their plans. Those who behave responsibly and strive to maintain well-funded plans for workers and retirees suffer when the Pension Benefit Guaranty Corp. (PBGC) has to assume the pension liabilities of bankrupt plans and these costs are passed through to the remaining plan sponsors paying insurance premiums.
  • Plan Sponsor: Class-Action Filed Against PNC over Cash Balance Switch. Excerpt: A class-action lawsuit filed in federal court is alleging that PNC Financial Services violated federal pension law by altering the method by which pension benefits are calculated. The lawsuit was filed in Philadelphia federal court on behalf of PNC current and former employees affected by the move, according to a press release from the law firms filing the suit. The seven count complaint accuses PNC of illegally converting its defined benefits pension plan into a cash balance plan in 1999, a move that resulted in pension benefits reductions as employees age, according to the press release.
  • Plan Sponsor: Citigroup Sued Over Cash Balance Plan. Excerpt: A lawsuit seeking class-action status filed in federal court is alleging that Citigroup’s cash-balance pension plan violates minimum accrual rules. The lawsuit, filed in Brooklyn, alleges that the Citigroup plan - which was created in 2000 with the merging of multiple plans - violates "backloading" rules, which are minimal accrual stipulations that make it illegal to use a pension formula that gives disproportionately high benefits in later years, according to the Wall Street Journal. Under the company's old plan, benefits were calculated by multiplying years of service by salary, while under the new plan benefits grow every year by a percentage of pay plus interest. The Citigroup plan, however, provides much lower percentages for younger workers than it does for older workers. The suit claims that this causes the plan to fail a minimum accrual test, according to the Journal.
  • Los Angeles Times: Hillarycare, Anyone? Excerpts: The grand debate on the United States' most serious moral and fiscal problem has begun. Congress, the White House and state governments are fixated on healthcare, on its spiraling costs (consuming one-quarter of the nation's economic growth since 2000) and on the shame of 45 million people being without health insurance. Oh, sorry. Wrong universe. Maybe privatizing Social Security and banning gay marriage really are more important. If so, there's a lot we have to concentrate on ignoring. As a Boston University study released last week shows, healthcare costs, which are rising far faster than inflation, are beginning to cripple the ability of companies to compete globally and threatening to bankrupt counties that care for the poor. Per-person costs in the U.S. are two times higher than those of Canada, France, Germany and Britain — which, by the way, provide healthcare to all their citizens. [...]
    Selling the latest free-market fix is the new secretary of Health and Human Services, Michael Leavitt, who claims that he will be able, with tax credits and private plans, to insure 12 million to 14 million low-income Americans more cost-effectively than by enrolling them in Medicaid. That claim mystifies most healthcare economists. In recent years, Medicaid's costs have risen by 9% a year — too much, but below the 11% average rise in employer-paid premiums. Medicaid in the last few years has been the safety net preventing a wobbling economy from creating even more millions of uninsured people.
  • United Food and Commercial Workers: Calif. Congressman Calls for Investigation into Bush Administration's Sweetheart Deal with Wal-Mart on Labor Violations. So-called ‘compliance agreement’ gives preferential treatment to major Republican donor. Excerpt: After disclosure of a secret agreement between the U.S. Department of Labor and Wal-Mart giving the giant retailer the authority to conduct its own investigations of employee wage and hour complaints, Rep. George Miller (D-Calif.) today requested an investigation by the DOL’s Inspector General to determine whether the arrangement represents a sweetheart deal between the Bush Administration and one of the nation’s most frequent violators of labor laws.
    Under the arrangement, disclosed by The New York Times on Saturday, Wal-Mart will be allowed 15 days to investigate and rectify employee complaints before DOL conducts any investigation. Upon receiving a complaint about a potential violation of wage and hour laws, DOL’s field offices around the country are now instructed to notify the DOL office in Little Rock, Arkansas, which will then notify Wal-Mart’s headquarters in Bentonville, Arkansas of the complaint. The Department will not launch its own investigation during that time and it remains unclear under what circumstance it would launch an investigation after the 15 day period ends.
    Miller said that such an arrangement could allow the giant employer to cover up evidence of a violation and would discourage aggrieved employees who might fear retribution from the company. Miller also sent a letter to Labor Secretary Elaine Chao today asking for more information about the arrangement.
  • Labor Blog: Yes, Wal-Mart's Deal was Unique. Excerpt: Some folks have wondered whether Wal-Mart's deal was par for the course with the Bush administration's pro-corporate policies, or a really special treat for one of its top corporate donors. According to Hill Democrats who have now analyzed other corporate compliance deals, the answer is that Wal-Mart was given a real sweetheart deal. The DOL tried to argue the Wal-Mart deal was just like compliance agreements signed with Sears and Foot Locker, but that's not what close analysis of the Wal-Mart deal shows... [...] Read the whole analysis at the link. The bottom line is that no corporation has ever been given this kind of "get out of jail free card" by the Department of Labor. Essentially, Wal-Mart was free to violate the law at will and, if it got caught at any time, all it had to do was give the money stolen from its employees back within fifteen days. And anywhere the company wasn't caught, it could just pocket the money. And in no case would the company ever have to pay another fine.
  • Washington Post: Officials Defend Cost of Medicare Drug Benefit. Importation, Negotiation Ideas Rejected. By Ceci Connolly. Excerpt: Under attack from leaders in both parties over skyrocketing prescription drug prices, two top administration officials yesterday rebutted claims that costs could be significantly lowered if President Bush would allow drug importation and permit the government to negotiate with drugmakers on behalf of senior citizens. [...] n two hearings on Capitol Hill, senators vented their frustration about the growing price tag for a drug benefit that will cost more than $100 billion a year by 2014, according to the Bush administration. Over the next decade, Medicare drug coverage is estimated to cost $1.2 trillion, though McClellan predicts offsetting savings that would bring that down to $724 billion. Sen. Edward M. Kennedy (D-Mass.) and Rep. Henry A. Waxman (D-Calif.) wrote Bush on Tuesday suggesting that Medicare could save $190 billion over the next decade if the seniors program adopted the price-negotiating model used by the Department of Veterans Affairs. They reached that figure by taking the gross cost of the Medicare drug program ($905 million) and applying a conservative estimate of the VA discount (about 45 percent).

Vault Message Board Posts
Vault's IBM Business Consulting Services message board is a popular hangout for IBM BCS employees, including many employees acquired from PwC. Some of this week's posts follow.
  • "I'm just curious" by "Happy Indian". Full excerpt: Hello all - I'd left PwCC/Monday/IBM BCS in mid 2003, and haven't come to this board since. A conversation with a former colleague last week pique my curiosity as to the state of BCS, so here I am. While I guess this is a variation of the common theme of the board, I AM sincerely curious as to why people are still sticking around after so many cycles of minimum/no so called 'raise' and 'bonus'. Could people be that afraid of changes and still work on jobs that require you to essentially start on a new job every 6 months or so? Hard to understand... Lastly, in case you're looking, as no doubt some of my ex-colleagues are, the grass is greener outside of BCS. Since leaving in mid 2003, my base salary is up by 50%, with 15% bonus on top of that. I got much more say on choosing which assignment I want to go to and the utilization target for senior consultant is only 1700hrs/yr. While things were a bit rough at the end, I had a good time at PwCC and so wish the best of luck for all...
  • "Left early 2003" by "ibmprostitute". Full excerpt: I left IBM in early 2003 after 6+ years (PW, PwCC). It was the best career decision I could have made. After 2 years of over 100% utilization, I had just had it. I am still consulting, but for a company that keeps to their promises and knows what it means to support work/life balance. I stop by this board every so often and it is like watching a train wreck occur in front of my eyes. Nothing at BCS has changed. I am amazed that they are able to hire, but more amazed that anyone from PwCC is left. Who can blame recent college graduates that are excited about their first real job? Unfortunately they too will soon see the real “IBM” I still occasionally work with some folks from IBM BCS and just can’t understand what keeps people around. So many broken promises. How could anyone have confidence in either GR or MC? These two could not even run a Gas Station successful. While the working classes have been busting their hump for a few pennies, GR and MC have been collecting millions. Why is it that IBM always seems to hit or beat Wall Street numbers, but almost never meets its goals for bonuses? Maybe its because those setting the internal targets receive bonuses paid on the external targets. I also enjoyed my time at PwCC, but after the IBM takeover, I can’t think of one good thing that happened. There are much better options available.
  • "What city to live in" by "kindaoldibm". Full excerpt: If you join IBM in BCS / IGS, you're joining the part of the company that us old-timers refer to as "the strap an airline seat on your ass" division. Pick a city where you can live within a short commute to a very major airline hub, i.e. Dallas, Atlanta, Chicago. Commuting out Monday morning and back Friday night is bad enough without dealing with connecting flights. IBM has had a long term relationship with American Airlines, and you're "strongly encouraged" to use the corporate travel selection, so, everything else being equal, pick a hub where AA has a strong presence.
  • "turnover" by "BCS_Blue". Full excerpt: Per an inside source in the HR community, turnover for BCS - those leaving IBM - is up around 27-30% which is unheard of in old blue circles, and even higher than we experienced at PwCC. Management is concerned about the decline in bodies available to staff engagements which puts more pressure on remaining staff...and creates a recurring vicious cycle. Now, to stem this tide - and, prevent another wave, both bonuses and raises should be given in 2005. Finally, Dose - some of "the best and brightest" have hung around for the simple reasons of: 1) vesting, 2) been protected by new blue partner from overbearing IBM, and, finally, 3) vesting and other comp considerations still coming to us that other employers haven't been willing (until now) to renumerate for.
  • "Admin question - moving on up!" by "BigBlueBeast". Full excerpt: Here's my admin question, phrased per Dose's guidelines. I submitted a verbal resignation to my manager/partner at the beginning of last week and a written resignation to my manager/partner, the practice administrator and the 2 RDMs for my practice with notice that this coming Friday would be my last day. However, no one has responded or contacted me about it yet. I know the email went out - I verified with my project manager who was cc'ed on it. What gives? Is this normal? Am I supposed to do anything else? I followed the W3 separation checklist and see nothing else in my court. I just can't bring myself to to call IBM up and beg them to process my separation. So freaking typical.
  • "Don't Worry - Backlog and Lies" by "ancientblueconsultant". Full excerpt: The process is bogged down with all the good people leaving. Your management may also be trying to cover it up temporarily to save their hides as well. Before Friday, be professional and notify your clients to tell them you are leaving and have given notice. Have a copy of your resignation note in case they wish to see it. I've heard of cases of voluntary departures where management went to clients after employees had left and told clients the employees had been fired. Give them a forwarding address and e-mail. They would appreciate the heads up. Make sure you have anything you want to keep off the laptop. Get any names addresses, etc. you want to keep.
    On Friday, send your good-by e-mail to you manager AND THE THREE REPORTS ABOVE HIM/HER. Tell them you are re-verifying your departure, be courteous and respectful as for guidance as to what to do with any blue pig assets. Tell them you've notified clients as well, in light of the lack of guidance from your business lead, PDM and RDM's. Copy the management of the RDM and PDM as well. Use the acknowledgement feature of Notes. Print out the note. Once you get a RECEIVED back from any party, print that note and then proceed to wipe out your hard drive on your laptop. This will protect you from prying eyes for anything you had on the laptop. Don't do anything with the IBM assets (other than wiping out your drive) you own until you hear from the blue pig again. Any further communications should be backed up in writing. Copying up the chain will make sure something gets done.
  • "First, you see a bright blue light" by "deep_eye". Full excerpt: at the end of a tunnel, then deceased relatives, start calling your, no-no, sorry - that's a different moving up scenario. It was almost the same for me, but by end of the first week - a torrent of activity. Frantic calls from a wonkette in Texas (who knew nothing about me), going through the separation process, the address to send the laptop, Amex cards, etc. I am a little surprised that you are well into your last week with none of this happening. Your manager and RDMs should be very familiar with the process at this point. You might want to reiterate your departure date to the PA and RDM, I think the remaining partners are numb to the waves of departures at this point. Hmmmm... maybe they are swamped with personnel processing tasks, I'm certain you are not the only one voting with your feet this week.
  • "LVG's Dancing Lessons" by "GoingBackwards". Full excerpt: LVG may have gotten the elephant to dance, but it was probably to avoid the hot coals, rather than out of glee and joy. The things LVG took out of IBM were, in short, its heart and soul. More specifically, respect for the individual - one of the "basic beliefs" from nearly Day One of the Watson days. With this went valuing the employees as people, valuing them for their contributions to the company and its success, and the family-type atmosphere that further helped to make the employees feel valued and proud that their contributions and hard work actually mattered. With LVG came the all important short-term quarterly bottom line measure of the company's success. He and his other exec buddies are still living fat and happy while ... well, you see what's happened to the rest of the employees. For many long-term employees (those who have survived), it took quite a while for this betrayal to sink in. It was hard to believe that this was the "new" IBM. LVG and his elephant are legends in his own mind.
  • "What LVG Did" by "ancientblueconsultant". Full excerpt: LVG saw an opportunity for the deal of the century. He begged his buddies to let him in and paid them off. He then brought in a fabulous team of lawyer, propagandist/marketer and some other specialties. He proceeded to identify everything he could manufacture as wrong in the culture and wiped out the senior management. He then created a culture of fear and retribution which has given birth to a huge bureaucracy to protect mid level management so they can't be blamed. In the meantime, he quietly pushed the stock upward to save the then large investors and manipulated the pension funds to keep the price up there as he pillaged the treasury by selling every asset he could find. As he left, he commissioned people to re-write history to protect his hide. He didn't dance with the elephant. He was the elephant...
  • "Hmmmm...where to begin, where to begin..." by "deep_eye". Full excerpt: Your first observation is patently incorrect. I am no longer in BCS nor are many of the others who post here. And yes, amazingly enough, sometimes the grass really is greener. In my own case, I secured a 40%+ salary boost, stock awards (not options, mind you), a signing bonus, tuition reimbursement, etc., etc. Not to mention a work-life balance approaching normalcy. True, businesses have always had pressures, what separates the winners from the losers however, is HOW THEY RESPOND to those pressures. IBM will not change because they will always be able to hire and staff projects with polyannas who have the attitude that "I got plenty of nothing and nothing's plenty good enough for me." If you can see "changes filtering through now," you have obviously been ingesting the Kool-Aid that IBM management has been proffering for the last three years. According to this view, "a better BCS future is always just ______(fill in the blank) months away." Sadly, months slip into years and surprise!! nothing has changed. Your argument becoming partner is irrelevant - if we follow this to its logical end, you should never expect better/fairer treatment from BCS, UNLESS you make partner. Moreover, is BCS the be all to end all? I think not. I know of many, many people who were told they would not make partner, but have received considerable promotions and advancements once they left BCS. I find this aspect of your argument most troubling of all.
  • "OK, I'll Bite Pt 1" by "Dose of reality". Full excerpt: Since I'm in a good mood today, I'll keep this cordial and clinical. I'm not sure if your conclusions come from your point of view/perspective, or from a general denial. I'm willing to give you the benefit of the doubt on the first round. Boom and bust profit/compensation cycles have been around ever since our friends in the Netherlands started selling Tulips in the early 17th century. Well-managed companies do not allow this whipsaw to totally obliterate the delicate employment balance that exists with the vast majority of staff. The actions BCS has taken are flawed on two dimensions – how it was executed and for how long.
    I will not deny that compensation had gotten ahead of its long term trajectory coming out of the Y2K bubble. However, that phenomenon did not grant BCS a license to throw out the economics and management dynamics of a normal performance evaluation cycle. If there is a need for a downward “mark to market” of compensation, then it should be executed with the same care, differentiation, and discretion with which an upward MTM is. It should be based on merit, relative performance, and expected future value of resources. It should also include some increases and even greater decreases to provide room for them. Explain to me how the across the board reductions, zero-sum bonus advances, and elimination of incentive compensation is fair, or how it can position BCS for long term success?! The incredibly unsupportable premise embedded in this decision is that everyone has the same “inflation” factor to their market value. Since that premise is so unfounded, the inevitable result is that those that are pulling their weight and have value will leave, and those that were previously inflated more than the average inflation factor will stay. No question that the anecdotal evidence proves this theory.
    The other “how” part of this equation has to do with the relative hit given to rank and file consultants versus partners. The relative amount of compensation “windfall” that had accrued to partners in the boom years was an order of magnitude higher than that which accrued to the average band 6 – 10. However, the relative amount taken back from rank and file, vis a vis their current marketability, was significantly higher, and the resulting loss to delivery capability was much greater. Translation – we should have cut numbers and compensation of partners more deeply and much sooner, instead of pursuing the morale killing actions we did.
    As far as the “how long” part, recovery in the industry started in 2003, yet we are still screwing staff. The simple reason is that we virtually lopped off our arms and legs, so that when opportunities came back, we no longer had the reach to capitalize on them. We are in the predicament we are in now, not because of the environment, but due to the short-sighted and flawed decisions we made in 2002 (PwC) and 2003/2004.
    The other backdrop to this is the fact that this ostensible reaction to “salary inflation” has been mixed in with the move down market (into commodity services) and benchmarking between PwC and BIS. Both of these initiatives led us to set the mark on compensation even lower than we would have otherwise. These constructs are all pointing in the same direction, yet those that were responsible for the latter two decisions put the entire burden on the market, and refuse to admit how much of the current pain has been self-imposed.

Coverage on H1-B and L1 Visa and Off-Shoring Issues
  • itWorldCanada: Forum to address low enrollments in IT college programs. Excerpts: Most industry experts would agree enrollment in IT college and university programs has steadily declined over the last few years. But when it comes to the reasons for this drop and its implications, not everyone sees eye to eye. [...] Declining enrollment, said Uremovich, creates a “vicious circle” for educational institutions. He noted that colleges are very responsive to the industry and if they stop attracting large student numbers...they tend to cancel programs, which means fewer graduates. "But if business and industry, somewhere down road, have a problem meeting their own human resources needs," it will be difficult for colleges to ramp up again, Uremovich said. [...] Despite decent job prospects, enrollments have steadily declined, with the biggest drop, at least at Algonquin, in the software development program. Uremovich said this might have something to do with fears of offshore outsourcing. “There is still a significant amount (of software development) that takes place in Ottawa, but if you look at the news and hear about all that activity that has moved offshore, the perception is that it is not a good area to get into.”
  • ComputerWorld: IBM to open Innovation Centers in Brazil, China, Russia. Excerpt: Hoping to strengthen its presence in the world's emerging markets, IBM plans to open new Innovation Centers in China, Brazil and Russia, the company said in a statement this week. The centers, which were set to be officially announced today, will serve as resources to local venture capital firms, developers, systems integrators and software vendors by providing them with access to IBM products and technical information, the statement said. The company already operates 25 such centers worldwide and currently has operations in Shanghai, Sao Paulo and Moscow, according to IBM's Web site. More than a dozen new centers will eventually be opened, the statement said.
  • Denver Post: Unions rally to keep contract work in U.S. Full excerpt: Union workers rallied on the west steps of the state Capitol to support Senate Bill 23, which would prohibit the state from hiring contractors that send work out of the U.S. John Coffey, who worked for IBM Corp. for more than 11 years until he was laid off eight months ago, said he trained the Canadian worker who took his job. "It's unacceptable to me that after paying Colorado taxes for years that this money is being used by this government to send state jobs overseas," Coffey said. Neither lawmakers nor union officials offered an analysis that says how much money Colorado government is spending on contractors hiring workers overseas. The bill is scheduled to be considered by a Senate committee next week.
  • News 4 Colorado: Workers Fight Offshoring Of State Jobs. Full excerpt: Former IBM computer programmer John Coffey knows what happens when companies send jobs overseas. Coffey said he was forced to train his replacement in Canada, then lost his $72,000-a-year job at IBM in Boulder. He applied for another opening in IBM, only to be told it was a Canadian job and he could not have it. Now he's looking for a job overseas, while his wife works at Starbucks to provide benefits to his family of six.
    "It's just not right," he told a gathering organized by the AFL-CIO at the state Capitol to support a measure (Senate Bill 23) that would bar state contractors from sending taxpayer-funded jobs overseas. The bill has been introduced and is awaiting scheduling for a hearing. A similar measure was killed last year after business organizations, including the Colorado Association of Commerce and Industry, said a number of large corporations are benefiting from the improving national economy and need to make decisions about where to expand. Business groups said the legislation sends the wrong message at a time when Colorado is trying to compete in the global marketplace.
    A spokesman for IBM did not return a phone call seeking comment. Union president Steve Adams said taxpayers should not be paying to send jobs overseas. "We've lost thousands of jobs in this state to offshoring and now have 130,000 Coloradans who are unemployed. The state cannot solve the problem of offshoring, but they can make sure our tax dollars don't pay for it," he said. The new measure would bar companies that receive state service contracts from shipping jobs overseas and require companies to certify they will not have work performed overseas.

Coverage on Social Security Privatization
  • Detroit Free Press: GOP wary of adding to rising U.S. debt. Excerpts: Stung by sticker shock, congressional Republicans are struggling to embrace President George W. Bush's ambitious and expensive agenda while avoiding the economic and political pitfalls of massive new debt. The numbers speak for themselves: Ten-year cost projections are $2.2 trillion to overhaul Social Security, $724 billion for the Medicare drug benefit, $1.1 trillion to make tax cuts permanent, and untold billions to secure Iraq and Afghanistan beyond this year.
  • Center for American Progress: Social Security Privatization: The Retirement Savings Gamble [PDF]. Excerpts: As President Bush continues to push for Social Security privatization, many new issues are surfacing, adding to the already substantial list of costs and risks of privatization. Under privatization, workers would be allowed to divert a large share of the money that currently goes to Social Security into private accounts. The risks of saving for retirement would be privatized. This includes the chance that financial markets will underperform for long periods of time, which is known as market risk. A worker’s birth date could determine the size of his or her retirement account. The difference from worker to worker could vary widely. This could result in generations of workers with less money than they thought they would have for retirement and considerably less than they would have under the current Social Security system. Given few alternatives, future governments will be compelled to come to the aid of workers who have saved too little for retirement. Reasonable estimates show that this could add between $600 billion and $900 billion in present value terms to the costs of privatization over the next 75 years.
    Considering historical data and reasonable forecasts for the future, this analysis highlights the following points about market risk under Social Security privatization:
    • Market risk is severe. Depending on a worker’s birth date, the retirement benefits generated from putting 10 percent of earnings in a private account for 35 years would have ranged from 100 percent to less than 20 percent relative to preretirement earnings.
    • The extraordinarily high retirement income generated from the booming ‘90s stock market was the equivalent of winning the generational lottery – unlikely to be repeated regularly. Even under these beneficial circumstances, a privatized system favored by President Bush could have cost the government more than $1 trillion in today’s dollars over the past three decades in a government bailout of the Social Security system to assist those who accumulated too little for retirement.
    • The primary alternative to a government bailout of the Social Security system, older workers working longer, would create enormous labor market pressures. Without changes in wages, the unemployment rate could have approached 13 percent in the past 30 years if older workers had wanted to work longer to compensate for having too few retirement benefits.
    • Projecting past trends into the future, it is likely that the government will face additional costs to bail out a privatized Social Security system that provides too few benefits. The present value of these additional costs will average between $600 billion and $900 billion over the next 75 years and could exceed $1 trillion.
  • Washington Post: Holes in a Web of Budget Deceit. By E. J. Dionne Jr. Excerpts: Let us stand back in awe at the Bush administration's genius. Few administrations in our history have been more successful in setting the terms of the political debate. None has been as skilled at getting its facts accepted as plausible even when they are not. None has looked so principled, even when it said one thing while doing another. More than any of his predecessors, President Bush understands the conventions of journalism and the traditions of political debate. These require that respectful attention be paid to whatever claims the president makes. Journalists who have the temerity to question whether the claims ring true (or whether the numbers add up) can count on being pummeled as liberal ideologues, even when they are only seeking the facts. [...]
    Oh, yes, and the administration's "tough" budget doesn't even include the costs of the Social Security plan or the long-term costs of the war in Iraq, let alone the huge costs of permanently fixing the unintended effects of the alternative minimum tax. As one critic put it, Bush's spending cuts "may grab headlines but will have little impact on the tide of red ink that Bush has ridden since 2001." Bush's budget "will obscure an agenda that is likely to generate ever-larger deficits over the coming decades" and "resembles Swiss cheese -- and the holes may be more interesting than the substance." Are those the words of a big-spending, Bush-loathing, partisan Democrat? Nope. They come from a budget commentary in the current issue of Business Week, a magazine that can hardly be accused of ultra-leftism. Then there was a description of the Bush budget as "tough talk, but not enough to reassure the world that U.S. public finances are in safe hands." That would be from the Financial Times, another journal free of any taint of Marxism.
  • Washington Post: Conservatives Join Forces for Bush Plans. Social Security, Tort Limits Spur Alliance. By Thomas B. Edsall. Excerpts: With billions of dollars at stake, a large network of influential conservative groups is mounting a high-priced campaign to help the White House win passage of legislation to partially privatize Social Security and limit class-action lawsuits. Corporate America, the financial services industry, conservative think tanks, much of the Washington trade association community, the Republican Party and GOP lobbyists and consultants are prepared to spend $200 million or more to influence the outcome of two of the toughest legislative fights in recent memory. [...]
    The emergence of the center-right phalanx backing the Social Security proposal is a major victory for the Cato Institute, a prominent libertarian group. In the late 1970s and early 1980s, Cato was almost alone in its willingness to challenge the legitimacy of the existing Social Security system, a politically sacrosanct retirement program. Recognizing the wariness of other conservatives to tackle Social Security, Cato in 1983 published an article calling for privatization of the system. The article argued that companies that stand to profit from privatization -- "the banks, insurance companies and other institutions that will gain" -- had to be brought into alliance. Second, the article called for initiation of "guerrilla warfare against both the current Social Security system and the coalition that supports it." Just 22 years later, the business alliance is fully on board in the drive to create partially private Social Security accounts.
  • Washington Post: Poorest Face Most Risk on Social Security. Bush Plan's Success May Hinge on Perceived Safety. By Jim VandeHei. Excerpt: Because Social Security is often the biggest or the only source of retirement money for the poorest Americans, low-income workers would be hit particularly hard if the markets plunged and they were left with smaller benefits than they would have received under the current system. Under the Bush plan, low-income workers would be required to purchase an annuity, which pays a fixed stream of money until the person dies, or set up an alternative way that keeps them above the poverty level until death using their personal account funds. The administration said such mandates are needed to keep seniors from falling into poverty by emptying out their accounts upon retirement. Fay Lomax Cook, director of the Institute for Policy Research at Northwestern University, called the accounts "much too risky." "The whole purpose of Social Security has always been to ensure basic income to those no longer able to work. That basic income can no longer be guaranteed" under the Bush plan, she said.
  • San Francisco Chronicle: Budget Programs Facing Cuts, Elimination. Excerpt: Here are the 154 programs that President Bush wants to eliminate or cut in his 2006 budget proposal. Bush would terminate 99 programs and make major spending reductions in 55. Separately, the administration listed eight major reforms Bush proposed that also would produce spending cuts. Of the terminations, Bush has recommended 59 of them before. Twenty-seven of the 55 programs targeted for spending reductions have been previously submitted to Congress.
  • Houston Chronicle: Fake reporter's questioning of the president fits into the administration's widening pattern of manufactured journalism. Excerpt: The practice of buying ostensibly independent reporters and writers to shill for politicians deceives the public and corrupts the free media. Allowing fake reporters to compete with credentialed journalists for sparse press conference time with the leader of the free world demeans the whole process.
  • Los Angeles Times: A New Idea for Social Security. By Paul H. O'Neill. ( Paul H. O'Neill was Treasury secretary in the Bush administration from January 2001 to December 2002). Excerpt: The debate over what we should do, if anything, with the Social Security system is heating up. A political campaign-style assault has already begun; in the weeks and months ahead, prepare to be buried in markedly different versions of the truth. If you are like me, you hunger for something better from the political class. How about a new idea to offer financial security for each American when he or she reaches retirement age? Here's one way.
  • St Petersburg Times: Fix Medicare first. The financial difficulties facing Medicare are more immediate - and more severe - than those facing Social Security. Excerpts: So it is not clear why Bush would choose to take on Social Security, a relatively stable program, and ignore a much more pressing need: bolstering Medicare's shaky finances. None other than the board of trustees for Social Security and Medicare, all of whom are appointed by Bush, put the comparative risk in perspective. The Social Security trust fund is good for another 37 years, the trustees reported in their most recent annual report. The trust fund for hospital insurance (referred to as HI) under Medicare will be tapped out in 14 years. In fact, HI is already dipping into the fund to meet expenditures, while that day is more than a decade away for Social Security. (The medical insurance portion of Medicare that covers doctors' fees and the upcoming drug coverage are treated differently, because the law requires that they be fully funded each year by recipient fees and general revenue.)
  • St Louis Post-Dispatch: Labor department bars distribution of newsletter criticizing reform. By Philip Dine. Excerpt: The Department of Labor is trying to stop federal employees from receiving a union newsletter that includes an article critical of President Bush's plans to change Social Security. The department has distributed the quarterly newsletter since 1978 to 7,500 union members and other Labor Department employees outside of Washington as part of its contract with the union that represents those workers. But officials decided to block distribution of the current edition after learning about a column that referred to "the risky, ill-conceived White House plan to save Social Security by destroying it." A top department official told managers to "take necessary and reasonable steps to stop distribution of this edition ... any existing bulk mail not distributed should not be distributed," according to an internal memo obtained by the St. Louis Post-Dispatch. The column, written by a union lobbyist, urged union members to write legislators opposing Bush's plan to change Social Security, saying it "will reward Wall Street by funneling Social Security dollars into risky private accounts." Next to the article in the newsletter was a sample letter for mailing to legislators.
  • AARP: Get the Truth About Private Accounts. Social Security is in the line of fire. Many in Washington want to take the hard-earned money workers pay into Social Security and divert it into private accounts. But did you know that diverting money into private accounts would weaken Social Security, put benefits for future generations at risk, and do nothing to ensure long-term solvency? Private accounts are not a way to strengthen Social Security. Besides, the transition to a private account system would cost trillions of dollars -- which would add to the federal deficit and increase the federal debt. That is not the legacy we want to leave to our children and grandchildren.
    We know there is a better way to strengthen Social Security. And AARP is firmly committed to ensuring that the only secure source of retirement benefits for America's families is not put at risk. It's time we have a national debate about what changes best meet the needs of all generations. We'll never get to a national solution until people realize that private accounts created out of Social Security are a problem, rather than a solution. Please help us spread the word by forwarding this message to your friends and family, using the "Tell a Friend" feature above. We all have a lot at stake in this debate, and we urge you to stay informed and get involved. Visit www.aarp.org/socialsecurity to get the real facts, read our daily blog, view public opinion polls, and contact Congress.
  • National Public Radio: Lessons Learned from Britain's Private Retirement Plan. By Kathleen Schalch. Excerpt: If the Bush administration creates private retirement accounts, it won't be alone. The British were among the first to take the plunge, and it hasn't turned out the way many expected. (Editor's note: This Morning Edition segment is a "must listen to" report).
  • New York Times editorial: What Does Alan Greenspan Want? Excerpts: It was inevitable that Alan Greenspan would make news when he testified before the Senate Banking Committee on Wednesday that he supported private accounts in Social Security. "So if you're going to move to private accounts, which I approve of," he said, "I think you have to do it in a cautious, gradual way." But Mr. Greenspan said so much more that, by any measure of logical consistency, could hardly be read as approval. [...] Mr. Greenspan also stressed the importance of closing Social Security's long-term funding gap - an estimated $3.7 trillion hole that will develop over 75 years, the usual span of time used by Social Security's trustees to gauge the system's soundness. Then he pointed out that money accumulating in private accounts would do nothing to close the long-term funding gap in Social Security. The only way to do that is to increase taxes or cut benefits, or to adopt some combination of the two. Unlike the president, Mr. Greenspan acknowledged the huge benefit cuts that would be inherent in a private system. Speaking of Mr. Bush, he said, "I gather what he has in mind is that the amounts that go into the private accounts are offset, after discount, with benefits that would have been paid with those monies in the Social Security system." That's Greenspan-ese for this: "Every dollar you put into a private account, plus interest, would be subtracted from your traditional Social Security benefit."
  • New York Times: Three-Card Maestro. By Paul Krugman. Excerpts: Alan Greenspan just did it again. Four years ago, the Fed chairman lent crucial political support to the Bush tax cuts. He didn't specifically endorse the administration's plan, and if you read his testimony carefully, it contained caveats and cautions. But that didn't matter; the headlines trumpeted Mr. Greenspan's support, and legislation whose prospects had previously seemed dubious sailed through Congress. On Wednesday Mr. Greenspan endorsed Social Security privatization. But there's a difference between 2001 and 2005. In 2001, Mr. Greenspan offered a convoluted, implausible justification for supporting everything the Bush administration wanted. This time, he offered no justification at all. [...]
    Let me make a detour here. The way privatizers link the long-run financing of Social Security with the case for private accounts parallels the three-card-monte technique the Bush administration used to link terrorism to the Iraq war. Speeches about Iraq invariably included references to 9/11, leading much of the public to believe that invading Iraq somehow meant taking the war to the terrorists. When pressed, war supporters would admit they lacked evidence of any significant links between Iraq and Al Qaeda, let alone any Iraqi role in 9/11 - yet in their next sentence it would be 9/11 and Saddam, together again.
    Similarly, calls for privatization invariably begin with ominous warnings about Social Security's financial future. When pressed, administration officials admit that private accounts would do nothing to improve that financial future. Yet in the next sentence, they once again link privatization to the problem posed by an aging population. And so it was with Mr. Greenspan. He painted a dark (and seriously exaggerated) picture of the demographic problem, and said that what we need is a "fully funded" system. He then conceded that Bush-style privatization would do nothing to improve the system's funding.
  • Economic Policy Institute: Removing the Social Security earnings cap virtually eliminates funding gap. Excerpt: Using relatively pessimistic assumptions about future growth in productivity and immigration, the Social Security Administration (SSA) actuaries estimate that Social Security trust fund revenues will fall somewhat short of covering scheduled benefits over the next 75 years. Until recently, President Bush had signaled opposition to any revenue increase to close that shortfall. On February 16, however, President Bush indicated his willingness to consider raising the cap on income subject to the Social Security tax. SSA actuarial estimates show that eliminating the cap would virtually eliminate the projected 75-year funding shortfall. This shortfall is less severe than is often presented by proponents of Social Security privatization. SSA's projections show that a 1.9 percentage-point increase in the existing payroll tax dedicated to Social Security would close the projected funding gap over a 75-year period. Using slightly less pessimistic economic assumptions about the next 75 years, the Congressional Budget Office (CBO) has estimated the gap could be closed over the next 75 years with just a 1.0 percentage-point increase.
  • Los Angeles Times: GOP Takes to Heartland With Social Security Plan. By Janet Hook. Excerpt: Republican leaders in Congress, faced with the political reality that there is little grass-roots momentum behind President Bush's plan to overhaul Social Security, are planning to spread out across the country next week to try to build a constituency for change — and to take a watchful measure of voters' response. GOP leaders are encouraging rank-and-file members to hold town hall meetings in their home states and districts during next week's congressional recess, arming them with briefing books, PowerPoint presentations and a video of Bush making the case for major changes in Social Security. [...] The town hall presentations are part of a coordinated political effort that involves the White House, the Republican National Committee and outside business groups, as well as congressional leaders. The intensity of their combined focus is a measure of how concerned Republicans are about one of the biggest obstacles facing Bush: a public that has been largely lukewarm to or fearful of his approach to restructuring Social Security. [...]
    The Republican efforts are being bolstered by business lobbyists and other conservative groups who back a Social Security overhaul. Representatives of those outside groups meet regularly with GOP leaders to share information and plot strategy. A coalition of business groups — the Coalition for the Modernization and Protection of America's Social Security — began running ads Thursday in publications that circulate on Capitol Hill to promote a campaign it called "Generations Together."

New on the Alliance@IBM Site:
  • WorkDay Minnesota: Bush budget could hurt workers left jobless by trade deals. Excerpt: Workers who lose their jobs because of unfair trade deals will have to battle teenagers, veterans and other workers for a smaller pool of training money, under President George Bush's proposed budget. In his budget for the year starting Oct. 1, the president wants to combine the Trade Adjustment Assistance program -- currently serving workers dislocated by trade deals -- with others serving jobless adults and teens into one big block grant--and let states decide how to spend the money.
  • Job Cut Update: Alliance@IBM has received further information from employees on recent job cuts and resource actions. We don't believe it is complete yet; and we will not list locations at this time, so that we can protect workers identities. The cuts occurred in IBM Global Services units. The total number so far, is about 250. We are also getting reports of employees being given separation packages not related to resource actions; but in response to PBC evaluations. Many of those cut in resource actions and separations are being reported as "over 40 years old". Stay tuned for information as we receive it. See our visitor comments section for update on RTP.
  • Resource Action Alert!! - Alliance@IBM is hearing of job cuts in IGS: Distribution Sector, Tech Support, Deskside Support Services, Operations and Network Services. If you have any information, please e-mail us at: endicottalliance@stny.rr.com
  • Pension Lawsuit Questions & Answers (updated Jan 12, 2005). Read this to determine how this lawsuit affects you.
  • Think Twice for January/February 2005 [PDF]. (Editor's note: This issue is a "must read."). Articles in this issue include:
    • The Fight Continues...at Lenovo
    • Outsourcing Blues
    • PBCs and Behavior Modification
    • Message From the President
"The test of our progress is not whether we add more to the abundance of those who have too much; it is whether we provide enough for those who have too little." — Franklin D. Roosevelt
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