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    Highlights—February 26, 2005
  • Wall Street Journal: Journal Reporters Win Award For Retiree Health-Care Article. Excerpt: Two reporters for The Wall Street Journal are among the winners of the George Polk Awards for excellence in journalism in 2004. Ellen E. Schultz and Theo Francis won the award for economic reporting for an investigative article titled "Financial Surgery: How Cuts in Retiree Benefits Fatten Companies' Bottom Lines." The page-one article showed how employers have exaggerated the cost of retiree health care and are profiting by cutting benefits. The Wall Street Journal is published by Dow Jones & Co. The Polk Awards, which are administered by Long Island University, were established in 1949 to honor George Polk, a reporter for the CBS television network killed while covering the Greek civil war. (Editor's note: Congratulations Ellyn and Theo and thanks for all of the groundbreaking reporting you've done to uncover corporate shenigans, including IBM's pension robbery!)
  • From Wayne E. Frye: Benefits Restoration needs your unified support on writing to your elected officials on the issues as stated below and to get the suggested proposals passed in this year's IBM stock holders meeting. I urge you to give this support and if possible attend the shareholders meeting in April. If you know of other collective support IBM groups organized on the web or anywhere else that will lend support to this worthy cause, please get the word out. Please review the proposals listed in this note below and take action. Thank you. Editor's note: The January edition of the Benefits Restoration newsletter is available.
  • From "justa_bean_counter": The IBM Annual Shareholder meeting is on April 26th at the Charleston Convention Center, Charlston, SC. It takes place in the morning and is over by noon. This is a great chance to attend the meeting and then visit a truly beautiful city. http://www.charlestonconvention.com/.
  • Are you interested in what goes on at IBM shareholder meetings? Check out the highlights from previous meetings:
  • Forbes: IBM's Growth Engine Sputters. By Dan Lyons. Excerpts: Can On Demand put some life back into IBM's Global Services division? This is the outsourcing business where, in the 1990s, Palmisano, now 53, made important strides in the race to succeed Gerstner. From 1993 to 2001, during Gerstner's reign, IBM's services revenue doubled to $35 billion. Since then it has climbed to $46 billion. But GlobalServices grew only 4% last year, excluding currency gains, less than half the growth of the year before. New contract signings declined 20%. Moreover, "this utility computing model is bull. Hardly anybody is buying that way," says Joseph Tucci, chief executive of EMC (nyse: EMC - news - people ), an $8 billion maker of storage equipment and an IBM rival. "People who were around in the 1970s and 1980s remember what it was like to be owned by IBM. Nobody wants to go back to that." (IBM declined to make any executives available for interviews for this story.)
    At $31 billion last year, revenue in IBM's hardware business today is 12% lower than it was a decade ago. Software revenue at IBM has grown 19% since 1995, while the entire software market more than doubled in the same period. Now the last growth engine IBM has left--Global Services--is showing signs of sputtering. "For years all they've talked about is services, but now services isn't growing. There's no ‘there' there,"contends William Fleckenstein, president of Fleckenstein Capital, a Seattle hedge fund, which has been short-selling IBM shares. "This is a company that has been deteriorating for some time." [...]
    IBM is also having greater difficulty signing new deals. New contract signings declined 20% to $43 billion in 2004. Some of IBM's biggest customers now look to other providers when new jobs come up. Deutsche Bank, Zurich Financial Services and Royal Philips Electronics are IBM customers, but last year they gave work to such IBM rivals as Accenture, Infosys Technologies, Dell and Computer Sciences Corp. In 2003 French insurer AXA Group signed a hardware-and-services contract but later hired Dell, rather than IBM, to manage 80,000 desktop computers. [...]
    Palmisano's PwC Consulting acquisition was supposed to help IBM gain a foothold in this new area, since PwC's 30,000 consultants had experience doing high-end strategy consulting and running business processes like finance and personnel. Instead, former PwCers have been bailing out, complaining that customers don't want to buy strategy advice from a company that pushes its own hardware and software. (IBM says its turnover in consulting is lower than that of competitors like Accenture.) In an awkward move for a company trying to establish its skills in managing human resources, IBM has found itself chasing down defectors to retrieve advances on bonuses (see box).
    On top of all this, IBM has had to contend with a litany of legal troubles of the sort that corporate giants are prey to, including an investigation by the U.S. Securities & Exchange Commission, the indictment of executives in South Korea for bribery and bid-rigging, lawsuits from two software makers (Compuware and SCO) claiming IBM stole their code and lawsuits from angry pensioners.
  • Forbes: IBM Demands Its Money Back. By Dan Lyons. Full excerpt: Some IBM consultants who left the company in 2004 have been getting a little surprise from their former employer--letters demanding they return bonus money. Amounts range from several hundred dollars to several thousand. IBM has even turned some accounts over to a collection agency. Recipients of the dunning letters are former PricewaterhouseCoopers consultants who became IBM employees after its $3.5 billion acquisition of PwC Consulting in 2002. The ex-PwCers say IBM cut their pay when they joined IBM but later made up for the pay cuts by doling out bonuses equivalent to 2% of salary. They say IBM made three of these 2%payouts, in February 2003, July 2003 and February 2004. But along with the money IBM sent out e-mails warning that the bonuses were actually advances and that if they left IBM before the end of 2004, they'd have to return the money. Says a spokesman, "The terms were communicated to and accepted by those receiving advances."
    • "silentskeptic" comments. Full excerpt: ...kevmed, if you're the source of the article and are out there again, I have to say I was deeply, deeply disappointed. There was zero mention of the demoralizing impact the screwing around with pay has all had on the employees, and only passing mention of the fact that IBM's happy morale might be something that would jeapordize its future success in consulting. All we seem to get is IBM's side... "gee, these bad employees left and ripped us off and now we have to go after them to keep our profits up". The box almost reads like a cruel press release (a la Catbert as PR man) - "look what kind of shenanigans we can get away with with our employees... too bad not all of them cooperate, even though they said they would!" "chasing down defectors to retrieve advances on bonuses"??? DEFECTORS? I'm pretty disgusted with the way an article we helped provide input to (presumably, if this is the kevmed article) turned out. Anyone else?
  • Forbes: On Demand' Letdown. By Daniel Lyons. Excerpt: In January 2003, Ray Barnard was one of the first customers to sign up for IBM's "On Demand" scheme in which customers forget about buying computers and instead rent computing power from IBM, paying only for what they use, like a utility. But, two years later, Barnard says IBM still can't make utility computing work, and he's frustrated.
  • Wall Street Journal: IBM Turns to Smaller Service Deals. By Charles Forelle. Excerpts: International Business Machines Corp. is shifting to technology-service contracts that are shorter and smaller in scope than the all-encompassing outsourcing deals for which it has long been known, its top services executive said. "We're going to continue to do large transactions, but there has been a move to smaller transactions on the part of customers," said John Joyce, the head of IBM's services unit, in an interview, his first since assuming the role in June 2004. For years IBM has stressed its ability, thanks to its large scale, to take on huge, long-term contracts that promise it steady streams of revenue for years to come. But Mr. Joyce said that IBM has discovered that smaller contracts are more profitable and are preferred by customers. [...] IBM may be making a virtue out of a necessity, said an outside analyst, as customers turn away from big outsourcing deals that lock them into a vendor like IBM, and instead parcel out their work among multiple firms. "The era of the big monolithic outsourcing deal is coming to an end," says Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co. "Customers are a lot smarter. They divide [projects] up into best of breed."
  • Wall Street Journal: As Tech Matures, Workers File A Spate of Salary Complaints. By Pui-Wing Tam and Nick Wingfield. Excerpts: A hallmark of the boom years in high-tech was its work ethic: killer hours, often at modest salaries, without complaint. It was a small price for the excitement and the shot at a bonanza someday. But as high-tech riches have faded, a different attitude toward employers is popping up: Pay me overtime, or I'll sue. [...] The lawsuits depict an industry focused intently on cost control. In one suit, several former salesmen last year accused Oracle Corp. of failing to keep accurate time records of their work in order to avoid paying them overtime. A former International Business Machines Corp. technician sued IBM in December, alleging that managers had asked him to manipulate his time cards to reduce overtime pay. The technician, Ray Wheeler, says he was laid off when he complained. IBM declined to comment on Mr. Wheeler or his suit, filed in Washington state's Pierce County Superior Court. Oracle said the former salesmen's complaint, in federal court in San Francisco, is without merit. An attorney close to the matter said Oracle is in talks to settle it.
  • Bloomberg News: IBM Offers Concessions on Lenovo Sale to Ease Security Concerns. Excerpt: International Business Machines Corp. offered U.S. national-security regulators a set of concessions aimed at overcoming objections to the sale of its personal-computer unit to China's Lenovo Group Ltd., people familiar with the matter said. IBM made the proposal yesterday to the Committee on Foreign Investment in the United States, the government body that must approve the $1.25 billion sale. After a three-hour meeting in Washington, the committee failed to reach a decision on whether IBM's offer goes far enough, the people said. The concessions include preventing Lenovo from knowing the names of IBM's U.S. government customers, physically sealing off buildings in a shared office park and moving thousands of employees to other locations. If put into place, they could put the PC unit at a competitive disadvantage to such rivals as Dell Inc. and Hewlett-Packard Co., said Andrew Neff, a Bear Stearns & Co. analyst who follows the computer industry.
  • New York Times. "Honey, I Shrunk the Dollar" By Thomas L. Friedman. Excerpts: I have just one question about President Bush's trip to Europe: Did he and Laura go shopping? If they did, I would love to have been a fly on the wall when Laura must have said to George: "George, do you remember how much these Belgian chocolates cost when we were here four years ago? This box of mints was $10. Now it's $15? What happened to the dollar, George? Why is the euro worth so much more now, honey? Didn't Rummy say Europe was old? If we didn't have Air Force One, we never could have afforded this trip on your salary!" [...]
    As a former Clinton Commerce Department official, David Rothkopf, notes, despite all the talk about Social Security, many Americans are not really depending on it alone for their retirement. What many Americans are counting on is having their homes retain and increase their value. And what's been fueling the home-building boom and bubble has been low interest rates for a long time. If you see a continuing slide of the dollar - some analysts believe it needs to fall another 20 percent before it stabilizes - you could see a substantial, and painful, rise in interest rates.
    "When people ask what we are doing about these twin vulnerabilities, they have a hard time coming up with an answer," noted Robert Hormats, the vice chairman of Goldman Sachs International. "There is no energy policy and no real effort to reduce our voracious demand of foreign capital. The U.S. pulled in 80 percent of total world savings last year [largely to finance our consumption]." That's a big reason why some "43 percent of all U.S. Treasury bills, notes and bonds are now held by foreigners," Mr. Hormats said. And the foreign holders of all those bonds are listening to our debate. They are listening to a country that is refusing to raise taxes, and an administration talking about borrowing an additional $2 trillion so Americans can invest some of their Social Security money in stocks. If that happened, it would almost certainly weaken the dollar, further depreciating the U.S. Treasury bonds held by all those foreigners.
  • Washington Post: Schwarzenegger, Unions Clash Over Pension. By Jim Wasserman. Excerpt: Gov. Arnold Schwarzenegger's proposal to overhaul the pension funds that 2.1 million California state employees have long depended on - by converting the funds into plans resembling 401(k)s - has teachers, firefighters and other workers suddenly worried about their retirement. Under the proposal, Schwarzenegger wants to replace the nation's two largest public pension systems with private retirement plans similar to the 401(k)s popular with businesses. [...] Unions, pension fund managers and their allies nationwide are fighting the idea, calling it a power grab designed to stifle the growing influence of the nation's public pension funds, which collectively manage about $2 trillion in assets. They warn of grim scenarios of ruined pensions and impoverished future retirees cast cruelly to the fates of the financial markets.
  • New York Times: Pension Funds Think Twice About Stocks. By Mary Williams Walsh. Excerpts: A half-century ago, pension funds generally invested as safely as they could; nearly all their money was in low-risk bonds and bond-backed instruments. Then came a series of bull markets for stocks, as well as changes in pension law and accounting rules that gave the funds more leeway and incentive to take risks. The result was a vast shift of pension assets into the stock market. By the end of the century, all-bond strategies were a dim memory, and a typical pension fund had about two-thirds of its assets in stocks and just one-third in bonds. That worked well enough as long as stock prices were advancing, or their retreats coincided with periods of high interest rates. But the bursting of the technology bubble in 2000 ushered in a bear market that, unusually, coincided with low interest rates. [...] But the former consensus in the pension industry about the wisdom of using stocks to finance retirement has clearly been broken. When the risks that companies take come back to bite them and their pension funds fail, the obligation to pay retiree benefits falls to the government-backed insurance program. Officials there are bracing for more pension-fund failures - and moving the agency's own portfolio out of stocks.
  • CNET News: Shorter hours in software. By Ed Frauenheim. Excerpts: Barr's ability to sup with his family more frequently underscores a shift in the software world: Many employees are working less punishing hours. Production workers in software publishing--most are computer specialists--worked an average of 36.4 hours a week last year, down from 41.4 hours in 2001, according to the U.S. Department of Labor. Possible reasons include the reduced allure of dot-com riches and programmers putting greater emphasis on life outside of work. Also, observers say some software houses have learned to manage projects better. In effect, software makers are concluding that productivity suffers when employees work extended days month after month. "In companies that have a lot of overtime, they waste a lot of hours during the workday," said Tom DeMarco, a consultant at The Atlantic Systems Guild who has written about human resource issues in the technology field. "A normal workday has come to be selected over time because it is productive."
  • New York Times: Behind Those Medical Malpractice Rates. By Joseph B. Treaster and Joel Brinkley. Excerpts: Speaking before hundreds of doctors and medical workers in a St. Louis suburb last month, President Bush called attention to a neurosurgeon on stage with him in the small auditorium. The doctor, the president said, was paying $265,000 a year in premiums for insurance against malpractice claims. Such high prices, "don't start in an examining room or an operating room," the president declared. "They start in a courtroom." Indeed, at many recent appearances, Mr. Bush has complained about the "skyrocketing" costs of "junk lawsuits" against doctors and hospitals.
    But for all the worry over higher medical expenses, legal costs do not seem to be at the root of the recent increase in malpractice insurance premiums. Government and industry data show only a modest rise in malpractice claims over the last decade. And last year, the trend in payments for malpractice claims against doctors and other medical professionals turned sharply downward, falling 8.9 percent, to a nationwide total of $4.6 billion, according to data compiled by the Health and Human Services Department.
    The recent spike in premiums - which is now showing signs of steadying - says more about the insurance business than it does about the judicial system. "You get these jolts in insurance prices periodically, and they attract a lot of attention," said Frank A. Sloan, a Duke University economist who has been following medical malpractice trends for nearly 20 years. "They're a result of a confluence of many things." Data compiled by both the federal government and by insurance organizations show costs for the insurance companies climbing steadily over the last decade at an average annual rate of about 3 percent, after adjusting for inflation. Over most of that period, premiums for doctors rose modestly and sometimes even dropped as the insurance companies battled for market share in a scramble to collect more money to invest in strong bond and stock markets. But when the markets turned sour and the reserves of insurers shriveled, companies began to double and triple the costs for doctors.
  • Los Angeles Times: Of, by and for Big Business. By Robert Scheer. Excerpts: Watching the 109th Congress, one would be forgiven for thinking our Constitution was the blueprint for a government of Big Business, by Big Business and for Big Business. Forget the people — this is Robin Hood in reverse. Here's the agenda, as laid out by the president and the Republicans who control Congress: First, limit people's power to right wrongs done to them by corporations. Next, force people to repay usurious loans to credit card companies that make gazillions off the fine print. Then, for the coup de grace, hand over history's most successful public safety net to Wall Street. Of course, the GOP and the White House use slightly different language for this corporate-lobbyist trifecta: "Tort reform," "eliminating abuse of bankruptcy" and "keeping Social Security solvent" are the preferred Beltway phrasings for messing with the little guy. [...]
    And while the story of Jesus in the temple is also being roundly ignored, so is that other once- sacred pillar of the Republican philosophy, states' rights. Nearly all states have reasonable limits on interest rates, which have been trumped by D.C. politicians in the thrall of corporate lobbies. Sure, business interests deserve some clout in a democracy, but this is ridiculous. In fact, the GOP's legislative calendar looks like a wish list sent over to the White House from the Chamber of Commerce across the street. Senate Republican Majority Leader Bill Frist (Tenn.) dropped in there the other day after a breakfast meeting with the president to assure the chamber that its wishes would soon be law. After all, the chamber spent $168 million to push the anti-class-action lawsuit bill along. Still to come this session: raising allowable emissions standards on major pollutants, oil drilling in the Arctic National Wildlife Refuge and the granddaddy of all corporate payouts, privatization of Social Security. So what's the big revelation? That, almost 2,000 years after Jesus routed those scoundrels, the money changers have not merely reentered the temple — they are the temple.
  • Washington Post: IBM Sees $8 Billion Repatriation. By Eric Auchard. Excerpts: International Business Machines Corp. said on Thursday it is looking to repatriate $8 billion of undistributed profits earned outside the United States as part of a one-time U.S. tax holiday policy. In a regulatory filing, the world's largest computer company said recognizing the $8 billion in profits would result in an income tax expense of up to $550 million, which it would take as a charge against quarterly earnings once the company's management and its board of directors approve the plan. [...]
    IBM said it is evaluating the possible effect on its financial results of recognizing $8 billion in profits from some of its more than 80 non-U.S. subsidiaries as part of a program under the American Jobs Creation Act of 2004 from which many U.S. companies, including Hewlett-Packard Co., Johnson & Johnson and Pfizer Inc., stand to benefit.
  • Wall Street Journal: CEO Bonuses Rose 46.4% At 100 Big Firms in 2004. By JoAnn S. Lublin. Excerpts: Bonuses for many chief executive officers surged last year amid rising criticism of what some deem excessive compensation, especially in cases where the bottom line doesn't keep pace. At 100 major U.S. corporations, CEO bonuses rose 46.4% to a median of $1.14 million, the largest percentage gain and highest level in at least five years, according to an exclusive survey by Mercer Human Resource Consulting in New York. Mercer, which began tracking the latest proxy statements of 100 big companies for The Wall Street Journal in 1999, didn't scrutinize any heads of Wall Street firms, where much higher bonuses are common. [...] CEOs in the Mercer study enjoyed median total direct compensation of $4,419,300 -- about 160 times as much as the average U.S. production worker made last year.
  • American Medical News: Managed care profits up, optimism for 2005 strong. But doctors say plans, despite their bounty, are still squeezing them by suppressing reimbursements and squeezing patients by rapidly raising premiums. Excerpt: This is an old story to Dr. Holmes, but the profit levels of most large insurers are surging with an exuberance that's catching the attention of Wall Street anew. Six of the seven largest health plans saw their profits increase in 2004 -- California-based Health Net was the only one to see a decline. Aetna and CIGNA saw their profits more than double. Aetna's were up 136% and CIGNA's were up 128%. Managed care "had a great year," said Carl Mercurio, president of Corporate Research Group, a New Rochelle, N.Y.-based consulting firm that studies the industry. "Profit was way up, they were able to increase [premiums], they kept medical costs in line, and they've enjoyed some efficiencies in administration." HMO premiums increased by about 10% to 12% last year on average, about two to three times the rate of inflation, Mercurio said. At the same time, medical cost increases fell from 7.8% to 6.4% last year, said Isabelle Roman-Barrio, a senior financial analyst at New Jersey-based A.M. Best Co.
  • New York Times: Wal-Mart Told to End Intimidation in Canada. By Ian Austen. Excerpts: Wal-Mart Canada was ordered by Quebec's labor relations board on Friday to stop intimidating workers at a store in the midst of an organizing drive. The decision involves three cashiers at a store in the Quebec City suburb of St. Foy and is the second unfair labor practice ruling against Wal-Mart in Quebec since September. Earlier this month, Wal-Mart Canada, a unit of Wal-Mart Stores Inc., announced that it would close a store in Jonquiére, Quebec, where employees had unionized and were trying to negotiate the first collective agreement with the retail giant in North America. The board ordered Wal-Mart to immediately stop "intimidating and harassing" the cashiers in St. Foy. But it imposed a relatively light penalty: Wal-Mart must post the decision in the store's lunchroom for 30 days.
  • AARP: Retiree Health Benefits. Update on EEOC Ruling. Excerpt: Last April, the EEOC approved a final rule that exempts employers from the federal age discrimination law. This means that retirees can lose their retiree health benefits and be barred from challenging such actions by their employers.Anticipating this EEOC rule taking effect, AARP and six members who are affected by the exemption filed a lawsuit in District court. In its suit, AARP contends that the EEOC is charged with preventing age discrimination, not with making health care policy choices that could result in employers eliminating benefits for those who become eligible for Medicare.

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.
  • "Looking to switch firms..." by "dzl105". Full excerpt: I recently joined IBM's number 1 competitor in August and I am at my breaking point on my project. One analyst has already left because of shotty project management and understaffing. I like working in consulting, but this experience has turned me off from this employer. How would I go about applying to IBM BCS for a similar position?
  • "Don't do it" by "the arab". Full excerpt: I was in a similar position and switched to IBM BCS. Now I have to live with that decision for a period of time until my resume again looks respectable and I can move. Look at this Board very closely. I did not believe the posts and am paying for it now. The company has little interest in the individual, with horrendous HR practices, petty process and procedures, and its people are travellers at the cheapest price and most inconvenient times.An average week will see you giving the company in excess of 20 hours of your own time. If you like working with graduate babies with little business experience and carry the can for the work, it is a great place to be. Think very carefully before you jump.
  • "MBA + response to Dose's comment" by "blue_moon". Excerpt: In the early fall, I addressed concerns about my low salary with my partner. He showed me the salary ranges for each band, and showed me the offer amount for new hire MBAs from Tier 1 schools - 104k. My salary was at the bottom of the band - mid 50s. He said there was nothing he could do. In December, I was asked by my RDM to contact an offeree from one of the schools you mentioned (a Tier 1) and convince them to join the firm. The recruit would come in as a Band 7, was receiving the Tier 1 offer, had no consulting experience and little professional experience to speak of, and was younger than me. An email was forwarded to me with his resume, and a memo that stated that a salary survey had been conducted and the offers were going to be increased, and I was to reassure the candidate of that. Interestingly, the candidate had 2 questions for me when I called him - (1) Would IBM raise his offer? and (2) Did he have to work on Fridays? Because he would really rather not.
    After the discussion I questioned the RDM on whether this meant my salary would be increased. She told me that she would have deleted the salary memo from the note - had she bothered to read it before she forwarded it to me. It was insulting to me that I was asked to call up and beg someone to join IBM who was going to be making double my salary at a lower PDF level than me, never mind that the person was a big enough moron to ask me if he had to work 5 days a week when he had no idea who *I* was! So I decided to walk away and accepted an offer at a competitor making in the mid 80s.
  • "When The H is taken out of HR" by "Dose of reality". Full excerpt: Salary surveys are the last refuge of a mechanical, reactionry HR department, right behind bureacratic, performance-level-clustered evaluation systems. Taking statistical-based survey data and applying it to staff that have a rich and undocumentable set of skills can only lead to bad decisions. It is inevitably used as a biased rationalization tool to ratchet salaries down. It also leads to resource whipsaw, as you are constantly on the "short end of the yield curve", overpaying for marginal talent when rates are high and paying market rates for desperate job hoppers when rates are low.
    Staff make employment decisions based on what they have to do for what they get, not based on the law of averages of some composite virtual employee with nondescript talent and skills. A front line manager is the only person who can make the determination of both the desirability of keeping each staff member, and the package of opportunity and reward that is necessary to keep them. It has to be done on an individual basis. When this is centrally controlled and artificially compressed, the company is doomed. I'll take blue_moon over MBA 12345 any day of the week, and I'll get him for 25% less as well.
    The hard and soft costs of maintaining a "churn and burn" resource management model are orders of magnitude higher than the savings that are realized during down cycles. The problems is that the people making the decisions have agendas that preclude the required objectivity and analysis. Your case is a microcosm of where we are in this wave of the cycle. It's the flip side of the brain drain we experienced during the down cycle, and both are bad for BCS on many fronts.
  • "Seek and ye shall find" by "Dose of reality". Full excerpt: All of the answers to your questions on the BCS side of the equation are in this forum. If you don't have the time to do the required reading here are the headlines:
    • Salary: lower quartile/tercile of the market, virtually, perhaps literally no raises regardless of performance. Promotions are rare.
    • Stock options: Next question please or as my friend deep_eye would say hahahahahahahah...
    • Benefits: Basic retirement/health care/savings used to be median in the industry, but is below median and falling now due to profitability challenges. Bonus targets are never paid out, since profit targets are always set ridiculously high for everyone but the corporate upper echelon.
    I don't know a lot about Sapient. They have been around a little over a decade, probably about $250 million in revenue, an interesting mix of business process focus, yet with an offshore model - trying to be everything for everyone, yet they don't have the scale to do so. The good thing is they are small enough to still focus on employees, unlike BCS. I believe their founders are still in charge - a definite positive. They are much less likely to fall into the trap of screwing employees to make quarterly earnings targets, like BCS. In a bake off between the two, Sapient wins hands down. Good Luck.
  • "These scores just in..." by "deep_eye". Full excerpt: I did an informal survey 2 months ago of people who had left BCS and were employed elsewhere. Drumroll... 22 People queried - 18 would not return to BCS under ANY (yes, you read correctly, ANY) conditions, as their new positions were all they had hoped for and more. 2 people would return, provided certain financial demands were met and GR and SP were tortured to death. 2 were unsure of whether they would or would not. Hmmmm...seems the jury is in on BCS, and the dirty little secret is out.
  • "The funny thing was..." by "deep_eye". Full excerpt: For most of the 18 who responded that they would not return under any circumstances, the money issue was secondary. The most pressing issues were of the order - "dead-end career move," "overbearing BS," "no real life," "no recognition/respect," etc., Obtaining the salary boost was almost seen as an afterthought. I think you hit it in your second paragraph, so many people actually believe - "well that won't be me, I'll be the guy who gets the 15% bonus and makes partner in 2 years." And I do believe that HR and the recruiting corps plays a beautiful melody to those ears.
  • "Meal limits are by city" by "IGS_Consultant". Full excerpt: IBM does not require you to submit receipts for your meal expenses. Some clients may, but this is rare. The company sets daily meal limits by city. The meal limits are not generous. $32 for a medium-size city is typical. That's for all meals for the day, not just dinner. You will likely be reminded by both your PDM and your current project manager that the meal limit is not to be treated as a per diem. It's OK to go under the limit, but you may not go over. Your ability to exceed the limit will depend on a) your PDM; b) management on your current project. My PDM will not allow her employees to go over the limit. Others will. Project management sometimes imposes limits lower than IBM's limit...in an attempt to increase profits on an engagement. Meal limits are enforced by the expense reimbursement system. If you exceed the meal limit for a day, an exception will be flagged. You'll be required to write an explanation of why you exceeded the limit. The approver of your expense account (your PDM usually) can either approve or disapprove the exception. IBM's hotel policy is even more draconian than its meal policy, but you didn't ask about that.
  • "Don't you think it depends?" by "mrsadm". Full excerpt: Dose, don't you think the BCS experience depends on a person's age and work experience? When I was just out of college I probably could have taken anything (in fact, I did!), not knowing any better. Most of us were so eager to please we'd fall over backwards doing whatever was asked. Now I'm dating myself a bit but during one interview I had right out of college, at a Manhattan PR firm, I was asked if I would mind getting coffee for the men that worked there. CLUE!!! But most of us were pretty naive ("deficient in worldly wisdom or informed judgment") about the world of work. And still are, I suspect.
  • "Yes" by "Dose of reality". Full excerpt: If you drop a baby from a height of twice his length, he will probably cry for a while, but the chances of escaping without any broken bones or other serious injuries are pretty good. Just don't drop him on his head! Do the same thing to a 55 year old man and he will be laid up for six months and may never fully recover. In both cases it is bad for the subject, but in the former it is less bad, and they will have a very limited understanding of what happened to them until much later in life. That doesn't mean one should make a habit out of dropping babies.
    Do I believe that the standards for young job seekers are naturally lower?… Yes. Do I believe that the career impact of making a bad decision is relatively less and is more easily recoverable?… Absolutely. That being said, I think that the almost hormonal “need to please” in a job context coming out of a 17+ year career in the education system should be channeled in the right direction. A lot of misguided energy and bad career decisions are made out of ignorance on how things should be in general, and ignorance on how they actually are at specific companies. That is the reason why I post here.
  • "BCS is melting and will soon die..." by "howard stern". Full excerpt: Attrition rates at IBM are very high. Experienced staff are being replaced with newbies right out of college. Why are former PwC staff leaving:
    • Lack of opportunity for advancement
    • No raises
    • Miniscule bonuses predicated on the performance of the BCS "project portfolio" (to quote MC... why isn't MC being held accountable as the portfolio manager?)
    • Bonuses paid for through 4% pay cuts to former PwC staff
    • High utilization targets
    • Projects sold by "sales" guys without any responsibility for delivery
    • Massive allocations to Armonk making pricing of jobs impossible without either a) raising prices above market rates or b) cutting staff costs. IBM chose B.
    AND - opportunities in the marketplace... there are jobs out there. Unless IBM is willing to attack the Armonk contribution number BCS is doomed. Salaries can only be cut so far and the market will only pay so much for our services. It is obvious to anyone who has been here for a while that IBM is doomed.
  • "Overhead is self-induced" by "CONsulting_2_long". Full excerpt: In your comment you mentioned that "massive allocations [from] Armonk making pricing jobs impossible....". Let me offer a clarification. If by massive allocations you meant the RA (overhead) adder, then you are a bit incorrect. I agree the RA% is severely crippling BCS in the marketplace. And I agree that your conclusions have merit. However, the RA% is mostly BCS overhead. Only 5% is Armonk / S&D overhead. Yes, it is a lot of money. Yes, the value received is debateable. The balance (the vast majority) is BCS overhead. Again, this is overhead that is above the staff support level. The RA does not include xDMs, computers, training or bonus. The major parts of RA are two: bad job expense and partner sales time.
    • Bad job expense. Once you blow through your contingency money, the rest of the cost is paid from overhead. For you PWC types, it is the place for 'write downs'. Yes, you can argue that below expected profit is due to partners selling below reality. Yes, you can consider poor project management, etc. That is why the big push on 'delivery'. BCS has to address this cost.
    • Partner sales time. Ever wonder what the partner/ap target chargable percentage is. Anywhere from 30-50%. Therefore, 1/2-2/3 of the cost of the employee is shifted to overhead via the B&P process. If you added up the budgeted B&P costs and then did a bottoms up estimate by looking at the number of partners, you'd see that there is less budgeted B&P then there is expected budget from the individuals. This shortage of B&P hours leads to partner vs. partner fighting for the B&P nipple of life. Adding to the lovely cultural behaviors. Typcially, many industry leaders plan to blow the B&P budget as a means to protect their partner buddies. They starve their dissenters as a means to achieve a homogenous 'yes' culture.
    So if you want to fix much of the structural cost problems of BCS, don't look at S&D first. Look at how GR/MC have set up the organization. Clearly the strategy has been to cultivate internal competition and support of a bloated partner class. I believe that it will work itself out, but not for another couple years. My previous understanding was that
  • "Relevance Counselors???" by "Dose of reality". Full excerpt: Does it really make a difference whether the overhead is at the BCS or "Armonk" level? The philosophy of excessive control and back room deal-induced tenure is the real problem and it is systemic. No matter where the sand is, it is just as heavy.
  • "The cultural divide" by "Dose of reality". Full excerpt: At the risk of starting an intercontinental flame war, let me try to answer your question. First, the term “frustration exists everywhere” really is much too non-descript a phrase to be meaningful for analysis purposes. As it describes the environment and opportunities at BCS, its connotation engenders a gross understatement. Frustration is:
    • Not getting the specific project you want
    • Having to wait another year for a promotion
    • Having a difference of opinion with a superior
    • OCCASIONAL Resource challenges on a project that you have to navigate through
    • Getting to the final round of an RFP and losing the sale
    • Getting a 3.5% raise when you expected 5.0%.
    These things happen at most companies and are a baseline of expectations that I would agree are POTENTIALLY in the mix no matter where you go. However, the situation at BCS goes far beyond this baseline level, both in terms of breadth and depth.
    • Structural barriers against promotion
    • No raises for three years – equal outcome for unequal performance
    • Bonuses that are never paid since they are contingent on making front-line profit targets that are totally unrealistic, while corporate level targets are sandbagged and achieved for a select few
    • Across the board salary cuts that don’t differentiate the overpaid underachievers from the underpaid overachievers
    • High utilization targets that make it virtually impossible to develop skills, work on practice development and take a reasonable amount of time off
    • Projects that are habitually oversold by salesmen (who have no responsibility for delivery) to close the deal, and are destined to be resource and budget challenged from the start
    • A steadily diluting talent pool that we constantly have to defend as worthy of the premium rates that we are forced to charge – add to that the offshore model
    • State of the art in bureaucratic policies and procedures.
    These are pervasive, unavoidable and the history shows a concerted pattern – beyond what I would call “frustration”
    While I can’t speak for Europe, this list does not represent median performance in the employment market in the U.S. – it is clearly bottom 10%. Are you saying that the presence of any “frustration” at all equalizes the desirability for working for any company? Is your premise that an employee should not factor in the degree of frustration – that given a choice between working for company A with a frustration level of 3 and IBM with a frustration level of 9.5, this difference should be taken out of the decision process because they both have frustration? Do you follow the same logic when you choose a residence…an automobile…a spouse… a restaurant?! How about when you make design decisions in your consulting work – “Hey it’s not a perfect solution so what difference does it make if it is barely adequate, good, or great. Let’s go for barely adequate since it’s cheaper”. If so, then you’re a perfect fit at BCS.
    If on the other hand you disagree that BCS is in the far left tail on this distribution, I would love to hear about your external benchmarks and rationale. If I exerted my “will to try”, and in the process have used my 20 years of business experience to deduce that those that are in power are incorrigible, vision impaired (clarity and distance), self-absorbed, business sense-challenged, lifetime members of an intractable diseased organization, what is the logical next step? Then again, it could be a basic culturally-based difference in philosophy – Europe rather fatalistic and U.S. more “manifest destiny”. We are after all the ones who left the Motherland for opportunity and freedom from oppression. There is something in our genetic code that says if things are bad, go where they are good. Life is not a Shakespearean tragedy unless you allow it to be so.
  • "Band level/salary repost for reference" by "Dose of reality". Full excerpt: In case you hadn’t seen this previous post: There are 5 core classifications before you get to partner level, band 6 – 10. Let me try to equate the bands to the typical consulting model, using the legacy PwC classifications as a point of comparison. Band 6 is actually the lowest rung on the client-facing consultant ladder, reserved for entry level consultants with limited prior corporate or consulting experience. Band 6 and Band 7 together comprise the conventional “consultant” classification. Work responsibilities range from project office/administration activities and documentation and/or configuration assistance up to the upper end of the scale perhaps leading or conducting client interviews, assisting with planning, doing basic design work and related documentation, and completing testing streams. Note I am grounding this discussion in a typical IT development model. Obviously straight business process work would use a different language, but hopefully you can make the translation in your head.
    Band 8 and Band 9 equate to “Senior consultant” or “Principal consultant” in the case of PwC. Band 8 would typically lead a major workstream, perhaps with a small client or consultant team to manage. Tactical planning, status reporting, test planning, configuration leadership for a module or application are here. These are the real workhorses of the pyramid – enough experience to lead, sometimes removed from the hands on documentation, and can occasionally serve as project manager on a small project. Band 9 is the core project manager class, with responsibility for day to day management of virtually all of the medium to large size projects. They may also take on some internal practice development roles, and also have primary responsibility for tactical management of sales proposals. Band 10s come in two flavors – business development and practice development, sometimes a swirl between the two. They are typically a partner’s “right-hand man”, or may span practice areas with a client list or industry focus. Above Band 10 is the partner level. As far as salary levels and approximate breakdown or realistic ranges would be as follows:
    • Band 6 45k - 72k
    • Band 7 60k - 90k
    • Band 8 75k - 110k
    • Band 9 92k - 130k
    • Band 10 115 - 155k
    There are outliers - the actual mandated ranges overlap somewhat more than this to accommodate them. Most staff are clustered below the midpoint, and new hires are consistently brought in at the 25th percentile or below. With 6 years relevant experience and a top 10 MBA, I would guess that you will come in at band 8, unless your experience is primarily in consulting and you have real project sales credit & expertise and/or large project management experience – unlikely at your experience level. What was your 4 years of “indirect” experience? With those same credentials and a company that truly pays for top tier talent, you should expect low six figures and a real bonus opportunity of 10 – 15%. Unfortunately, we don't pay a brain cell/pedigree premium - you will swim in the same amorphous pool as the other middle of the pack band 8's, at least in terms of compensation. But don't worry - we will make it up to you by asking you to make double the contribution.... you know the Orwellian precept "from each according to his abilities..." Don’t sell yourself short! With a finance MBA, you should know that you need to get a return on your investment in your MBA sometime closer to graduation than to retirement! Now the commercial - spend some time reading this forum and you will have a lot more than grades/salary to ask your recruiter. Or if you are really perceptive and marketable, you will forget all about coming to work at BCS.
  • "Did anyone get there IBM Bonus?" by "howard stern". Full excerpt: My Bonus showed up in my paycheck... As expected, this payment plus the Feb 04 "advance" did not cover the 4% cut to base salary 2 years ago... The pay and bonus structure provide no incentive to encourage strong performance. Maybe $1000 difference between a 1 and 2 performace rating. This $1000 doesn't begin to cover the quality of life cost... IBM is such an embarassment. In some ways though the lack of pay is liberating... you can do what you want since there is no downside. I'm leaving ASAP... this IBM experience is drading.
  • "Dose - I agree with you..." by "howard stern". Full excerpt: BCS is melting down. I have stated my reasons for this...
    • No raises - No bonuses
    • High Utilization
    • Bus model with Sales guys selling work who are not accountable for delivery
    • An economic model with a 30%+ overhead charge making it impossible to either sell the work or make money to pay raises
    • Low morale
    • Inability to manage a CONSULTING business... IBM is a hardware shop
    • 30% turnover with replacements being incompetent newbies or "off the boat" types you can't put in front of a client
    My intent is to leave ASAP.

Coverage on H1-B and L1 Visa and Off-Shoring Issues
  • Jim Hightower: What's Behind the "Jobs Creation" Act? Excerpts: Just when you think you've bottomed out on the level of cynicism it's possible to have toward Washington's constant kowtowing to the monied interests – along comes the "American Jobs Creation Act." These days, whenever the White House and congress put a positive-sounding title on a piece of legislation, you can bet that the law itself does the exact opposite of what the title so gloriously proclaims. The American Jobs Creation Act, pushed by George W and enacted last fall, does not create a single job. Instead, it's a massive multibillion-dollar tax giveaway to global corporations. Through this law's "homeland investment" loophole, corporations operating abroad are allowed to have some $400 billion in foreign profits taxed at the bargain-basement rate of only 5.25 percent, rather than the normal rate of 35 percent.
    To pass this gargantuan boondoggle for some of the richest corporations in the world, Bush and his congressional cohorts had to cloak it as an economic development program, promising that it would prompt a surge of new investments all across our land and create hundreds-of-thousands of new jobs for U.S. workers. They lied. Instead of building new factories or producing new products, thus creating new jobs, such corporations as Hewlett Packard, Proctor & Gamble, Pfizer, GE, and ExxonMobil are using the billions they get from this tax windfall to buy out their competitors, shore up their bottom lines, or simply finance their existing operations.
  • USA Today: Dobbs fires away against outsourcing. By Michael McCarthy. Excerpts: Lou Dobbs is mad as hell. And the CNN icon, who became famous sticking to dollars and cents on his old Moneyline program, is making sure viewers know it on his current show. The anchor and managing editor of Lou Dobbs Tonight (6 p.m.-7 p.m. ET) has been manning the barricades against what he sees as the demise of the American middle-class dream. [...] But he saves his greatest scorn for job outsourcing. His 2004 book, Exporting America, advocates "balanced trade" over "globalization." He mocks free-traders as "faith-based" advocates who promote their cause with an almost religious intolerance. "The ultimate message in outsourcing is this: America be damned. It's all about the lowest cost," says the silver-haired, 59-year-old newsman at his new Time Warner Center digs in Manhattan. "I can't accept that statement. Nor will I, whether it comes from a lawmaker, a politician or a businessman or woman. The pain that's being exacted on our middle class from so many quarters is intolerable."
    Dobbs is a lifelong Republican but says President Bush's "compassionate conservatism" rings hollow when "the White House obviously supports outsourcing of American jobs to cheap labor markets." Democrats, meanwhile, have "all but abandoned their traditional commitment to working men and women in this country," he says. And neither party will stand up to money, he says. "Corporate interests have as much sway over the Democratic Party as the Republican. The political power of Corporate America is all but unchallenged."
  • Wall Street Journal: India's Software Exports Exceed Targets, to Reach $17.3 Billion. Excerpts: Also, the number of people employed in India's outsourcing industry has reached one million for the first time, the National Association of Software and Service Companies, or Nasscom, said. "Our exports gained momentum this year, with more companies realizing the value of global sourcing," said the association's president, Kiran Karnik. In the year to March 2004, India's software exports stood at $12.8 billion and the industry employed 770,000 people, Mr. Karnik said. [...] Mr. Karnik said information technology was now the prime driver of growth in India's foreign-exchange reserves, currently estimated at $130 billion. When the current fiscal year began, India had forecast revenues of $16 billion from software exports for the period, given the backlash in the U.S. against outsourcing work to India and other developing nations. "However, the anti-outsourcing wave has decreased, if not gone away fully. We managed to grow faster than our rivals like Ireland and Russia," Mr. Karnik said.
  • New York Times: Medical Companies Joining Offshore Trend. By Andrew Pollack. Excerpts: The exporting of jobs by ReaMetrix is telling evidence that the relentless shifting of employment to countries like India and China that has occurred in manufacturing, back-office work and computer programming is now spreading to a crown jewel of corporate America: the medical and drug industries. It could be a worrisome sign. The life sciences industry, with its largely white-collar work force and its heavy reliance on scientific innovation, was long thought to be less vulnerable to the outsourcing trend. The industry, moreover, is viewed as an economic growth engine and the source of new jobs, particularly as growth slows in other sectors like information technology.
  • Denver Post: Panel endorses U.S.-only jobs bill. Excerpt: Colorado officials could no longer hire companies that send service work out of the country under a bill that was approved Tuesday by a Senate committee. Senate Bill 23, the Keep Jobs in America Act, would prohibit the state from hiring companies such as Microsoft and IBM if they provide services for their products with workers who are based in other countries. "We can and should ensure that tax dollars are not being spent to send good jobs overseas," said the bill's sponsor, Sen. Deanna Hanna, D-Lakewood. The bill elicited strong support from union leaders and out-of- work Coloradans who claim they have lost jobs that were moved overseas. But business lobbyists, state computer experts and Gov. Bill Owens railed against the measure.

Coverage on Social Security Privatization
  • New York Times: Kansas on My Mind. By Paul Krugman. Excerpts: Call it "What's the Matter With Kansas - The Cartoon Version." The slime campaign has begun against AARP, which opposes Social Security privatization. There's no hard evidence that the people involved - some of them also responsible for the "Swift Boat" election smear - are taking orders from the White House. So you're free to believe that this is an independent venture. You're also free to believe in the tooth fairy. Their first foray - an ad accusing the seniors' organization of being against the troops and for gay marriage - was notably inept. But they'll be back, and it's important to understand what they're up to.
    The answer lies in "What's the Matter With Kansas?," Thomas Frank's meditation on how right-wingers, whose economic policies harm working Americans, nonetheless get so many of those working Americans to vote for them. People like myself - members of what one scornful Bush aide called the "reality-based community" - tend to attribute the right's electoral victories to its success at spreading policy disinformation. And the campaign against Social Security certainly involves a lot of disinformation, both about how the current system works and about the consequences of privatization.
    The message of Mr. Frank's book is that the right has been able to win elections, despite the fact that its economic policies hurt workers, by portraying itself as the defender of mainstream values against a malevolent cultural elite. The right "mobilizes voters with explosive social issues, summoning public outrage ... which it then marries to pro-business economic policies. Cultural anger is marshaled to achieve economic ends." In Mr. Frank's view, this is a confidence trick: politicians like Mr. Santorum trumpet their defense of traditional values, but their true loyalty is to elitist economic policies. "Vote to stop abortion; receive a rollback in capital gains taxes. ... Vote to stand tall against terrorists; receive Social Security privatization." But it keeps working. And this week we saw Mr. Frank's thesis acted out so crudely that it was as if someone had deliberately staged it. The right wants to dismantle Social Security, a successful program that is a pillar of stability for working Americans. AARP stands in the way. So without a moment's hesitation, the usual suspects declared that this organization of staid seniors is actually an anti-soldier, pro-gay-marriage leftist front.
  • Congressman Bernie Sanders (Ind.—Vermont): Statement of Congressman Sanders on 2/18/2005 regarding Sanders vs. Greenspan. Excerpts: I'm not going to waste a whole lot of time talking about the so- called crisis in Social Security, because there is not a crisis. Depending on the studies that you look at, Social Security is solvent for either 37 years or 47 years, with minor modifications, like doing away with the cap for wealthy people so they could contribute more into the system, it'll be good for 50 or 60 years. So I don't think we have to waste a lot of time on that particular crisis.
    Let's talk about some real crises facing the American people today. The health care system is clearly disintegrating. We're the only country in the industrialized world without a national health care program. We pay the highest prices in the world for prescription drugs. We have children sleeping out on the streets of America today.We don't give our veterans the benefits that we promise them.
    Our middle class in general is in a state of collapse, with millions of workers working longer hours for lower wages. There's been an increase in poverty. The gap between the rich and the poor is growing wider, and the richest 1 percent own more wealth than the bottom 90 percent.
    Now, Mr. Greenspan, representing the CEOs of America and the wealthiest people of America, you consistently come in here every year and you tell us how great the economy is doing, and you tell us how great unfettered free trade is. So that's the crisis I want to talk about. Talk about unfettered free trade that you have been supporting for years.
    We now have a record-breaking trade deficit of $618 billion. We have a trade deficit with China alone of $160 billion, which has gone up by 30 percent in the last year. There are economists who tell us that trade deficit is going to go up and up and up. People who go Christmas shopping understand that when they walk into a store virtually everything on their shelves is made in China now.
    You have the heads of large information technology companies in America who basically are telling us, "Hey, we ain't going to have information technology in America, no long white collar jobs, because in 10 or 20 years China is going to be the information technology center of the world." Economists tell us we have lost millions of decent-paying jobs. We have lost 16 percent of our manufacturing sector in the last four years alone, and we're going to lose more and more white collar jobs to China. And yet year after year people like you come here, "Oh, unfettered free trade, it's just great."
    Question, Mr. Greenspan: After record-breaking trade deficits, the loss of blue collar jobs, the beginning hemorrhaging of white collar information technology jobs, the understanding that if we don't change things China is going to be the economic superpower of this world in the next 15 or so years, have you rethought your views on unfettered free trade?
  • New York Times: A New Target for Advisers to Swift Vets. By Glen Justice. Excerpts: Taking its cues from the success of last year's Swift boat veterans' campaign in the presidential race, a conservative lobbying organization has hired some of the same consultants to orchestrate attacks on one of President Bush's toughest opponents in the battle to overhaul Social Security. The lobbying group, USA Next, which has poured millions of dollars into Republican policy battles, now says it plans to spend as much as $10 million on commercials and other tactics assailing AARP, the powerhouse lobby opposing the private investment accounts at the center of Mr. Bush's plan. [...]
    For public relations, USA Next has turned to Creative Response Concepts, a Virginia firm that represented both Swift Vets - the company was paid more than $165,000 - and Regnery Publishing, the publisher of "Unfit for Command," a book about Senator John Kerry's military service whose co-author was John E. O'Neill, one of the primary leaders of Swift Vets. Swift Vets captured headlines for weeks in last year's presidential race, when it spent millions of dollars on incendiary commercials attacking Senator Kerry's war record. Because federal law prohibits outside groups from coordinating with presidential campaigns during elections, the organization came under fire when it was revealed that a lawyer for Mr. Bush's campaign was also advising Swift Vets. Mr. Bush criticized groups like Swift Vets last year, and his campaign kept its distance from the groups' attacks on Mr. Kerry. In policy battles like the one looming over Social Security, though, there is no prohibition against coordination. Several huge business lobbies, like the Business Roundtable, have become closely linked to Mr. Bush's plans for Social Security and have assembled coalitions to promote the proposals across the country.
  • New York Times: Swifties Slime Again. By Maureen Dowd. Excerpts: As Glen Justice reported in The Times, USA Next, which has spent millions on Republican policy fights, has pledged to spend as much as $10 million on ads and other tactics to "dynamite" AARP and get Americans to rip up Social Security. It's hiring some of the same consultants who helped the Swift Boat Veterans for Truth, who dynamited John Kerry, a war hero, by sliming him as a war criminal. Once again, just as W. runs into political trouble, he floats above the fray while the help takes out his opponents. Just as John McCain was smeared by Bush supporters in 2000, Swift Boat assassins can rid the president of any meddlesome adversaries now.
    The USA Next group intends to combine the two ruthless success stories of the Bush re-election: the Swiftian tactic of amplifying its vicious and dishonest attacks through the media, and the Rovian tactic of hanging gay marriage like an anvil around the neck of a foe. It began with an almost comically hyperbolic Internet ad that briefly ran on The American Spectator's Web site, painting AARP as pro-gay sex - even though it's tough to think of AARP and steamy lust in the same hot breath - and anti-soldier. It showed a soldier with a red X across him, and two gay men kissing at their nuptuals, with the headline "The REAL AARP Agenda."
  • Washington Post: Private-Account Concept Grew From Obscure Roots. By Jeffrey H. Birnbaum. Excerpts: Cato's privatization effort was aimed from the start not just at dismantling Social Security but also at making major inroads against what it considered an overweening central government. "Social Security," said David Boaz, Cato's executive vice president, "is the linchpin of the welfare state." To Cato critics like the Brookings Institution's Henry J. Aaron, Cato's goal was to "topple the great monument of 20th-century liberalism." With its roots so radical, few official Washingtonians paid Cato much heed at first. Crane, after all, was preparing to manage the also-ran campaign of Libertarian Party presidential candidate Ed Clarke, and Ferrara was just another third-year law student about to join a white-shoe Manhattan law firm. But Crane saw promise in Ferrara's analysis and encouraged him to expand it. In his paper, Ferrara predicted that Social Security eventually would run short of cash, requiring a serious revamping. Crane paid Ferrara $5,000 to elaborate his thesis into what would become Cato's first hardcover book -- "Social Security: The Inherent Contradiction." [...]
    In the fall of 1983, Cato made clear that it was preparing for a protracted fight. It published a paper by Heritage Foundation scholars Stuart M. Butler and Peter Germanis that called for "guerrilla warfare against both the current Social Security system and the coalition that supports it." They compared the drive to Nikolai Lenin's effort to undermine capitalism: "Lenin well knew to be a successful revolutionary one must also be patient and consistently plan for real reform."
    Nowadays, Cato alumni are everywhere in the Bush administration and in groups advancing the president's Social Security initiative. Former Cato analyst Andrew G. Biggs is an associate commissioner of the Social Security Administration. Abdnor heads a pro-private-accounts group, For Our Grandchildren. The director of the Alliance for Worker Retirement Security, Derrick A. Max, previously worked for Abdnor (when she was at Cato) and for Weaver (when she was at the American Enterprise Institute). Charles P. Blahous, the White House aide leading the president's charge for private accounts, preceded Max as head of the Alliance for Worker Retirement Security.
  • Northwest Indiana Times: Visclosky breaks down Social Security plan. Excerpt: The office of U.S. Rep. Pete Visclosky, D-Ind., analyzed information released by the White House regarding the president's proposed privatization of Social Security. Below are his staff's conclusions on how the plan would work:
    • The estimated cost to the public for privatization is $4.9 trillion over the first 20 years. The transition would be financed through public borrowing, mostly from foreign lenders.
    • The blueprint calls for a one-time election to open a private account but doesn't say at what age a person must make a decision. Participants in the private accounts won't be able to opt out and go back into the guaranteed benefit plan.
    • Private accounts aren't flexible and will be invested in a government securities fund or index fund. Investments can be diversified in five funds based on the thrift savings plan -- the government employees retirement plan. There will be one annual period for plan adjustments.
    • Guaranteed benefits will be cut for those who stay in the traditional system. Participants in the investment account won't be protected against inflation.
    • Upon retirement, private account holders will be required to purchase an annuity that provides a monthly payment up to the poverty rate, about $18,000 presently. If the account holder dies before the annuity is paid out, his or her heirs won't receive the money. There is no defined protection for annuity holders if the issuing company goes under. Account holders can choose to leave the money in their account to pass on to their heirs.
    • The private fund is locked until retirement. Withdrawals in lump sums or for purchase of items such as a house or car aren't permitted.
    • Insurance companies issuing the annuities would be regulated at the federal level.
    • There is a privatization tax. Presently 12 percent of a person's earnings are held. Private account holders will place 4 percent in their accounts and 8 percent in the Social Security fund. The only money a private account holder can keep is the interest earned above 3 percent. If a private account performs poorly with returns less than 3 percent, the guaranteed monthly benefit could be reduced by 100 percent.
    • Survivor benefits will be cut. Presently 10,000 dependents in Visclosky's district receive benefits.
    • Disability recipients that never paid into the system would receive the same benefit as a person who chose not to invest in a private account. No information is provided on when a person disabled before they reach retirement age can access their private account.
    • Social Security isn't at a crisis stage. In 2028, the government will begin drawing money from the Social Security Trust Fund to pay benefits. By 2042, the government will still be able to pay 80 percent of benefits if no changes are made.
    • Historically, adjustments have been made to Social Security to keep it solvent. In 1983, the system was adjusted to extend its ability to make payments to 2042.
  • New York Times: Some Inheritance. Excerpts: As he stumps for Social Security privatization, President Bush always gets a big round of applause for promising that the money in a private account could be passed on to one's heirs. If those happy clappers only knew the details.
    Under the president's proposal, when you retired you would not be able to start spending the money in your private account until after you bought an annuity, a financial contract in which you hand over a lump-sum payment and, in return, get a monthly stream of income for life. The upside of buying such an annuity would be that you'd be protected against outliving all of your money. The downside is that even if you died immediately after retirement, the most your heirs would inherit would be the amount that remained in your private account after you had paid for the mandatory annuity.
    What if you died before you retired? As with many claims Mr. Bush makes about Social Security privatization, the fate of your private account in the event of your untimely death is unclear. But one issue that raises big doubts about whether that money could be inherited is the question of how the trillions of dollars the government would have to borrow to set up a privatized system would be repaid.
  • Los Angeles Times: States' Private Pensions Make a Weak Showing. By Peter G. Gosselin. The retirement accounts have had less appeal and spottier success than Bush plan's projections. Excerpts: President Bush believes Americans are so eager to join the "ownership society" that, given a chance, two-thirds of those eligible would divert funds from Social Security into the personal investment accounts he proposes. But when public employees in seven states were offered the opportunity for similar accounts during the last decade, nowhere near two-thirds signed up for them. In many instances, the figure was closer to 5%.
    Bush has argued in campaign-style events from Fargo, N.D., to Blue Bell, Pa., that Social Security account holders could make more money for retirement on their own than they can count on from the New Deal-era fixed-benefit program. But when Nebraska's state and county workers were given do-it-yourself accounts, they made so many investment errors that they ended up making less than colleagues with fixed-benefit pensions — and less than what analysts have said is needed for old age. Their poor performance led the Nebraska Legislature two years ago to junk the accounts for new employees.
    Social Security and traditional pensions are "defined benefit" systems, meaning that the worker is entitled to a predetermined level of benefits; the employer or the government — not the individual — manages the money, bears the economic risks and makes sure people get certain, fixed benefits in retirement. By contrast, the accounts that Bush and Schwarzenegger are proposing would be "defined contribution" arrangements similar to today's 401(k) plans. In these plans, the employer's responsibility ends with a fixed contribution to a worker's account. From there on, it is largely up to individuals to bear the risks and reap whatever rewards result by the time they retire.
  • The Register-Guardian (Eugene, OR): Social Security puzzles: Big questions haven't been answered. Excerpts: If investing in stocks would yield higher returns for Social Security funds, why not start doing it now? President Bush believes Americans can improve their financial future by investing a portion of their Social Security taxes in stocks, which historically have delivered a higher rate of return than bonds. This advantage could be obtained without creating a system of private accounts. Income to the Social Security trust fund could be invested in a set of broad-based mutual funds. The higher returns could be used to extend the system's solvency, fund benefit increases or finance payroll tax cuts.
    Other questions also need to be asked, and still more will arise as the details of a privatization proposal emerge. But the concept as presented to date appears to depend on exaggerating the problems of the existing Social Security system, or claiming benefits for a new system that could just as easily be obtained for the current one. Americans will need to keep their eyes open.
  • Cox Newspapers: Bush's Social Security half-truths. Excerpts: President George W. Bush is playing the race card in his effort to begin privatizing Social Security and he's dealing it from the bottom of the deck. The president has now more than once made the pitch that Social Security is an especially bad deal for African-Americans because, generally speaking, they receive back less in retirement income from the program than whites do. Some supporters of Bush's plan to substitute iffy private investment accounts for a portion of Social Security's guaranteed benefits go whole-hog and portray Social Security as a scheme to take money from working black folks and redistribute it to well-off whites. This is one of those cases where half a truth is worse than none.
  • The Nation: The Republican Dictionary, IV. By Katrina vanden Heuvel. Excerpts: But here is the really funny thing about the personal/private accounts debate. Not only are they not personal accounts, they're not private accounts either. They are in fact US government loans. (Bear with me now, because this will only hurt for a moment.) You see, your payroll taxes will still be used to cover the benefits of current retirees, but under Bush's scheme the government will place a certain "diverted" amount into an account in your name. It sounds like a personal retirement account, but it's not. It's a loan. Because if your account does really well (above 3 percent), when you retire the government will deduct the money it lent you (plus 3 percent interest) from your monthly Social Security check leaving you with almost the same amount you would have received under the current system. If your account does really poorly (below 3 percent), you are out of luck. According to Congressional Budget Office, the expected average return will be 3.3 percent, so the net gain will be zero.
    But wait, it gets better. These personal accounts aren't exactly US government loans either, because our government under the fiscal stewardship of George W. Bush no longer is running a surplus and therefore does not have the $4 trillion or so needed to cover the transition costs, and Bush refuses to raise taxes on his base (BUSH'S BASE, n. the wealthy). So our government will have to borrow that cash. And if the last three years are any guide, our largest single loan officer will likely be the Central Bank of China. And who runs China's Central Bank, China, and the Chinese people with an iron fist? Why, it's our old friends, the democracy-loving, freedom-marching Chinese Communist Party. So Bush's personal retirement accounts=private retirement accounts=US government loans=US government borrowing=Chinese government lending=Chinese Communist Party loans. Or as we like to say in Republican Dictionary land: PERSONAL RETIREMENT ACCOUNTS, n. Chinese Communist Party loans.
  • Los Angeles Times: Selling the Social Security Overhaul. Republican members of Congress go home to try to persuade seniors that proposed changes to the retirement program will not affect their benefits. By Lianne Hart and Richard Simon. Excerpts: With members of Congress at home for a weeklong recess, many Republican lawmakers are making similar appeals in town meetings across their districts. Social Security needs changes to avoid financial ruin, they are saying, but seniors need not worry. Their benefits will be protected. [...] But as Brady and others are finding out, seniors are feeling uncertain nonetheless. And that could spell trouble for the push by President Bush and Republican leaders to restructure the massive retirement program, allowing workers under age 55 to divert some of their Social Security taxes away from the government and into private investment accounts. "I wouldn't want to invest my retirement in the stock market. It's too risky," said Margaret Pellerin, 75, after attending the session in Bridge City, about 100 miles east of Houston in an area dotted with oil refineries. Pellerin said she and her husband had lost $20,000 in the stock market years ago. "I don't think kids should take that chance either," she said.

New on the Alliance@IBM Site:
  • ITO II - REAP Lawsuit. Excerpt: Louisiana's First Circuit Court of Appeal in Baton Rouge, Louisiana upheld, in a brief memorandum opinion issued on Tuesday (February 15, 2005) 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.
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