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    Highlights—March 18, 2006

  • The Journal News (Westchester, Rockland and Putnam Counties in New York): IBM boss rewarded with 29.2 percent raise. By Julie Moran Alterio. Excerpts: The 54-year-old Palmisano took home $11.4 million in compensation, up from $8.8 million in 2004 and $7.91 million in 2003, according to a proxy filing yesterday with the U.S. Securities and Exchange Commission. [...] Palmisano's 2005 pay package included $1,680,000 in salary, up slightly from $1,660,000 in 2004. Earlier this week, in another filing with the SEC, IBM said Palmisano will earn a salary of $1.8 million in 2006. His bonus for 2005, $5,175,000, was unchanged from the year before. He was rewarded with long-term incentive payouts of $4,241,981 in 2005, compared to $1,676,480 in 2004.
    He also earned additional compensation of $103,032 last year in the form of perquisites and personal benefits, including $61,571 that was imputed as income for use of the corporate aircraft. Another $205,650 represented the company's contributions to the IBM savings plan and the executive deferred compensation plan.
    The SEC filing also revealed that Palmisano exercised options to acquire 193,634 shares of stock worth $9,451,615. He still has $10.6 million in options he can exercise now and $508,750 in options still unvested. His total stock holdings at the end of the year were 337,222 shares, according to the SEC filing. [...]
    A restructuring that led to the loss of more than 10,000 jobs in Europe last spring, after sluggish first-quarter financial results, enhanced competitiveness, the board noted.
    The directors also lauded IBM's move to reduce its pension burden. At the end of 2004, IBM ended enrollment in pension plans for new hires in favor of more robust 401(k) savings plans. This year, IBM announced that it will freeze pension benefits for all workers by 2008. IBM said the moves will save $3 billion by 2010.
  • Reuters, courtesy of CNET News: IBM chief gets hefty $20 million paycheck. Excerpts: IBM on Thursday said Chief Executive Sam Palmisano received a compensation package worth nearly $20 million last year, a hefty raise after he oversaw the sale of IBM's unprofitable PC business. Palmisano, 54, received a salary of $1.68 million, a $5.18 million bonus and incentive pay of $4.24 million in 2005, among other compensation, IBM said in a filing with the U.S. Securities and Exchange Commission on Thursday. The biggest piece of Palmisano's 2005 pay was a grant of 230,325 stock options valued at $7.2 million.
  • Vault message board post: "The fundamental problem" by "Dose of reality". Full excerpt: I had to chuckle at the absurdity of the language in the write-up: "the board says...blah blah blah. Somebody remind me of who the chairman is again??? Why don't we let CFO's just audit their own financials? I'm sure they would give just as candid and objective of an opinion as Sam would on his personal compensation recommendation! Anybody see a conflict of interest there. Oh, but what about the compensation committee you ask?? Now who has the most influence on that austere body?!!
    Let's look at his esteemed accomplishments:
    • Sold off the PC business and got a $1.0 million stipend for that directly. Was it really that difficult?
    • Raided the pension plan. Why not give him credit for beating up an old lady and stealing her purse? That would have been more difficult to think up and execute.
    • Fired 10,000 staff in Europe. Anyone bother to ask why we found ourselves with 10,000 excess bodies?!! Why can't we grow the business?! Is that a sign of company health or sickness?
    • We bought 16 software and services companies. With 3,000 patents a year, can’t we build our own capabilities organically? I would be willing to bet that most, if not all of those acquisitions were predatory in nature. What was the real return on those investments? If we had a decent management reporting system we might know the answer, but then again, no one wants to know.
    He needs another $200k in his retirement plan?!! Talk about adding insult to injury – that’s more than 99.5% of the employees in IBM make in a year. I am so proud that we have done so much to improve “business fundamentals”. If only those ignorant analysts on Wall Street could understand and bid up our stock price!
    Here’s the “What have you done for me lately picture”, that should be driving his compensation. http://finance.yahoo.com/q/bc?s=IBM&t=2y&l=on&z=m&q=l&c=hpq,msft So much for industry comparables!
  • Yahoo! finance board post by "stocksage49": BOD take on Sammy - your take please. Excerpts: You guys are just in denial here. I use to work for Sam and was personally involved with many of the IBM executives that now help to run this company. This is the millionaire boys club. They surround themselves with their friends, including the BOD, and protect each other. Has been like this since Jerry York left. No one in IBM makes it to the executive ranks anymore unless they are viewed as someone who will protect the ones that put them there. Doesn't matter if you can perform, doesn't matter if you have the best interests of the company or the shareholders at stake.
    I can't begin to tell you what a poor job Sam did when he was the General Manager of our business unit. It was all BS, anything to make the numbers regardless of the impact on the future. Sam was a desk pounder, screamer and curser. Then he'd reward his buddies for mediocrity. Carly Fiorina was fired for better performance than Sam is even capable of. The big joke in IBM these days is "where is Sam, anyone see him lately".
    Hard to imagine IBM had the nerve to give Sam a bonus for selling the PCD unit....a unit that he helped destroy. Should I be surprised after Sam was given a 200% bonus last year for revenue growth from 2002-2004. Revenue Growth??? The very thing that people view as what has held this stock down for years now.
    I remember Sam use to present to the PCD employees how we were beating Dell and Compaq. I recall the exact words..."better than Compaq in profit, better than Dell in asset management". A bigger pack of lies have never been told in business, even by Ken Lay.
  • Wall Street Journal: The Perfect Payday. Some CEOs reap millions by landing stock options when they are most valuable. Luck -- or something else? By Charles Forelle and James Bandler. Excerpts: On a summer day in 2002, shares of Affiliated Computer Services Inc. sank to their lowest level in a year. Oddly, that was good news for Chief Executive Jeffrey Rich. His annual grant of stock options was dated that day, entitling him to buy stock at that price for years. Had they been dated a week later, when the stock was 27% higher, they'd have been far less rewarding. It was the same through much of Mr. Rich's tenure: In a striking pattern, all six of his stock-option grants from 1995 to 2002 were dated just before a rise in the stock price, often at the bottom of a steep drop.
    Just lucky? A Wall Street Journal analysis suggests the odds of this happening by chance are extraordinarily remote -- around one in 300 billion. The odds of winning the multistate Powerball lottery with a $1 ticket are one in 146 million.
  • EE Times: Class action suit expanded against IBM. By Spencer Chin. Excerpts: Attorneys for plaintiffs in the class action lawsuit against International Business Machines Corp. seeking overtime pay announced that the suit has expanded to include state claims in Colorado, Illinois, Minnesota and New Jersey. The suit already included claims for overtime pay under federal law for all U.S. workers, along with state claims in California and New York.
    The growing number of plaintiffs, seeking to represent tens of thousands of current and former technical support workers, alleges that IBM failed to pay overtime wages. Claims under other states' laws may be added in the future. IBM employs over 300,000 workers. The proposed class action suit includes tens of thousand of systems administrators, network technicians and other technical staff throughout the U.S.
    "This case could result in one of the largest class action lawsuits in history, both in numbers of employees and total damages, ever filed against a corporation for failure to pay overtime wages," said James Finberg, an attorney with Lieff, Cabraser, Heimann & Bernstein, one of eight law firms representing the plaintiffs. The suit further tarnishes the reputation of IBM, a company once known for relatively harmonious labor relations. More recently, it has incurred worker anger over cost- and job-cutting actions. [...]
    The lawsuit alleges that IBM unlawfully characterized high-tech workers as "exempt" from state and federal labor law protections. The worker classifications include current and former IBM technical support workers who installing or maintain IBM software and hardware. It alleges that they were wrongly classified by IBM as exempt from the overtime provisions of federal law or applicable state wage and hour laws.
  • Forbes: Lenovo to Lay Off 1,000 Workers Worldwide. Excerpts: Chinese computer maker Lenovo Group Ltd. will lay off about 5 percent of its global workforce as part of a restructuring the company expects will save it $250 million. The layoff of 1,000 full-time employees out of its 21,400 workers worldwide will occur over the next six months to a year, the company said Thursday.
    Up to 350 positions will be cut in the Raleigh, N.C., area, where Lenovo last year bought IBM Corp.'s personal computer division, spokesman Ray Gorman said. The remaining jobs will be eliminated around the world with the exception of China, he said.
    Amelio, who replaced former IBM executive Stephen Ward as head of the Lenovo Group in December, said desktop computer operations would be centralized in China, where its parent group is still based, and more global supply chain operations also will be moved there.
  • Yahoo! message board post by Joel Mumper. Excerpts: John Boehner, the new House Majority Leader, has stated that pension reform is a top priority. Once again, beware of what's sold as reform. In this case, what's sold as reform is a direct sop to the lobbyists from whom Mr. Boehner rents his Washington apartment. Mr. Boehner proudly states his sleeping arrangement with lobbyists presents no ethical quandary. To date, he has not admitted to any physical intimacy with lobbyists at the apartment. Yet, perhaps in hopes of taking the relationship to the next level, Mr. Boehner has added an amendment that will result in the transfer of wealth from working Americans to the moneyed elite he's wooing.
    Remember when Enron workers lost their retirement money when their company went bankrupt? Well, for the first time in history, you can lose retirement benefits already earned, even when your company is racking up huge profits. Earned pension monies protected by law will no longer be protected if the Boehner amendment to HR2830 is allowed to stand.
    The crucial portion of the Boehner amendment appears in lines 18 to 23 on page 179. It states:
    "In determining the entire accrued benefit...the subsidized portion of any early retirement benefit (including any early retirement subsidy that is fully or partially included or reflected in an employee's opening balance or other transition benefits) shall be disregarded."
    This language is quite technical, so much so that only a lobbyist could have written it – if Mr. Boehner claims he wrote this, he's surely a plagiarist. In plain English, it means: "We changed our minds about paying you the pension you already earned. We'll give you, oh, let's say, half."
    A lot of decent Americans' pensions will be halved as a result of Boehner's amendment. Perhaps these folks can pool their remaining resources and provide Mr. Boehner with a better apartment. Until then, beware of what's sold as reform.
  • Washington Post: Do the Math For Lost Pensions. By Albert B. Crenshaw. Excerpts: As company after company across the country freezes or terminates traditional pensions, typically at the same time shifting to new or sweetened 401(k) plans, workers face a new and very important question: How much do I need to save to make up for pension benefits I was expecting and now won't get? The answer, for tens of thousands of mid-career workers, is a lot. [...]
    But a study by pension expert Jack L. VanDerhei of Temple University and the nonprofit Employee Benefit Research Institute (EBRI) finds that middle-age workers who had generous pensions and who don't get particularly high 401(k) returns would have to sock away 20 percent of pay to save enough to buy an annuity to replace lost pension benefits. [...]
    The good news, if you want to call it that, is that younger workers could, in theory, make up for their lost pension benefits with fairly modest 401(k) contributions. That is because they would have many years for their k-plan balances to compound. But even those workers would have lost something: risk protection. In a defined-benefit plan, the investment risks are borne by the employer, which is given tax benefits to pre-fund its pension obligations but is required to make up for deficit if the investment returns fall short. When a company shifts to a 401(k), the risks don't disappear; they are simply shifted to the worker. General Motors Chairman Rick Wagoner acknowledged as much as the company announced the freezing of its pension plans for white-collar workers. "These changes will reduce financial risks ... for GM," he said.
    Further, there is no guarantee that the improved 401(k) matches that have accompanied pension freezes at GM, International Business Machines and elsewhere will continue through an employee's career. Generally, companies are free to raise, lower or eliminate their matching programs as they see fit.
    Some big pension plans are in trouble, but most are not. Nonetheless, companies, including healthy ones, are shedding such plans wherever they can to rid themselves of the risk and expense. So workers are left to cast about for a system that decades from now will provide the equivalent of $120 billion a year, or see their living standards slide toward poverty. What's it gonna be, folks?
  • Yahoo! message board post by "retired_in_89": Bush a possible witness for the plaintiff, meaning us?. Full excerpt: I believe that I heard Bush, today, definitely state that he firmly believes that if a corporation makes a promise they should be required to keep that promise. Could he have meant that to apply to pension, COLA, and health benefit promises as well? Would he assist us in getting Congress to give us laws that would retroactively require they keep their sacred promises to America's workers? Would he attempt to coerce corporations into keeping such promises? Do we dare ask him?
  • AARP Bulletin: Q&A with the author of the forthcoming book The Great Risk Shift. By Daniel Gross. Excerpts: What is the impact of the erosion of pensions for the American worker? The pension crisis in America is a major part of what I call the "great risk shift"—the growing transfer of economic risks and responsibilities from employers and governments onto workers and their families. Historically, American retirement security was based on what experts called a "three-legged stool": Social Security, traditional defined-benefit pensions and personal savings. It's crucial to recall that two of the three legs were essentially guaranteed. Like Social Security, private pensions used to give workers a predetermined monthly income in retirement, regardless of exactly how long they lived or how well the stock and bond markets did. Over the last 20 years we've gone from having two stable legs to only one. Families' three-legged stool of retirement security is a lot more wobbly, and financially more and more Americans are finding themselves falling without warning. [...]
    How do we compare with other advanced nations when it comes to pensions? Social Security is not particularly generous in cross-national comparison. What sets America apart is how much more we rely on private-sector pension benefits, which enjoy huge tax breaks. The big strengths are the flexibility of the model and the innovations in financial markets it has encouraged. The big weaknesses are that it's increasingly incapable of providing basic retirement security and it's highly skewed in favor of well-off Americans who are least in need of help for their retirement.
  • CNN/Money: Microsoft's labor troubles. On top of a stagnant stock and a host of new competition, the software giant is said to be struggling to attract the best young talent. By Amanda Cantrell. Excerpts: Microsoft employees are growing more and more disillusioned with stagnating salaries and an increasingly contentious review system that they say is unfair, according to a recent report in WashTech News. That's led to more defections by senior engineers and growing dissatisfaction among rank-and-file workers, the report said. The publication is affiliated with the Washington Alliance of Technology Workers, a labor union affiliated with the AFL-CIO that has tried to organize Microsoft workers in the past. At issue is the company's performance review system, according to the report. Microsoft employs some 38,000 workers in the U.S. alone.
  • Yahoo! message board post: "Re: Microsoft compensation plan similar to IBM" by "amax41". Excerpts: Sorry guys I'm going to have to chime in here - Microsoft's compensation plan is nothing like IBM's - One of our former IBMers is over at Microsoft. He's been there now about 2 years. In IBM terms consider him a Band 8. This year he has received the following:
    • 27% bonus (for last years results)
    • 5% bonus (hitting utilization)
    • Stock (1000 shares)
    • This years "team" trip is either Vegas or Cabo, last year it was Cancun for a week.
    • New video IPod (some teams received XBox360's)
    and to boot his wife is pregnant - 5 months. He also received a night out on the town - $400 and also they sent her a $200 gift certificate congratulating them on the pregnancy. When you are taken care of like that...I'd put up with the other crap! IBM really needs to learn.
  • Information Week: By The Numbers: IBM Getting Bigger In India, Smaller In The U.S. By Paul McDougall. Excerpts: Whoa! In the course of reporting that IBM plans to move all the design and development of its business consulting offerings to India, one company exec told me that IBM's current employment growth rate in the country will continue "for quite some time." So let's look at what that means.
    At the start of 2005, IBM had about 23,000 workers in India. As of January 2006, that number had ballooned to 39,000. That's a growth rate of 70%! At that rate, IBM would have more than 66,000 Indian employees in 2007, and more than 112,000 in 2008.
    At present, IBM employs about 150,000 workers in the U.S.--half of its total workforce. However, ruling out the possibility that the company would double its payroll at a time when its revenues are flat, there's obviously going to be some--as the suits call it--"rebalancing." In many ways, this has already begun. IBM tends not to announce sweeping reductions, a la GM or Ford. It does, however, make a lot of cuts in small doses.
    How does IBM's workforce break down in a couple of years? Here's my prediction: 30% U.S., 30% India, and 40% elsewhere, with much of that "elsewhere" being China. In other words, expect IBM to have at least as many workers in India as it does in the U.S. by 2009.
  • Information Week: IBM Eyes 50,000-Plus Indian Employees. And they're doing high-level work. Look at last week's decision to consolidate SOA work in Bangalore. By Paul McDougall. Excerpts: Meet the new face of IBM software. Siddharth Purohit lives in Bangalore, India, and is an expert at developing the kind of reusable code on which the company is staking much of its future. As such, Purohit represents two of IBM's biggest bets--Indian talent and software built around service-oriented architectures. [...]
    Make no mistake: This isn't the kind of routine, brute-force coding for which India is known. IBM last week revealed it would spend $200 million a year on a Bangalore development center to centralize work on one of its most strategic efforts--building SOA-based software systems that consultants can resell to customers in various industries. "We're moving all of that development to India," says Jeby Cherian, head of IBM's new Global Solutions Delivery Center in Bangalore. Previously, IBM did this work in a number of development centers worldwide. [...]
    IBM says its existing delivery centers outside India won't be closed but will be "remapped" into demo centers. "They will become more customer facing," Cherian says. Still, IBM's decision to put in India virtually all of the design and development of the bundled solutions its consultants offer won't comfort U.S. workers who hoped such high-end work wouldn't go abroad, at least not this quickly. The company employs about 150,000 workers in the United States but has quietly eliminated a number of domestic positions in recent months. It has lowered its costs in global services, improving gross margins about 3 percentage points last quarter, to 27.4%, compared with a year ago.
  • The Register (United Kingdom): Women improve your performance. If you become like them. By Mark Ballard. Excerpts: Male dominated workplaces have more trouble with their performance than more gender balanced offices, business leaders said at the UK Resource Centre for Women last Wednesday, which was also International Women's Day. Science, engineering and technology (SET) firms in particular should reduce the brimming levels of testosterone in their organisations. The Catalyst report, 2004, found a positive correlation between the numbers of women in an organisation's management team and its financial performance. Why? According to the report, a significant cultural change occurs in an organisation when it employs more women.
  • New York Times: Tax Madness. Excerpts: Senate Republicans desperately want to pass a fresh round of tax cuts for investors this spring. But they're afraid they can't muster the 60 votes required for bills that worsen the long-term deficit. We certainly hope that's true. At a time when Congress is slashing programs for low-income Americans, there's no justification for the sought-after cuts, which would extend special low tax rates for investment income and would mainly benefit people who make more than $1 million a year.
    To eliminate the 60-vote hurdle, tax-axing lawmakers are hunting for ways to raise tens of billions of dollars to offset the cost of the tax cuts. Needless to say, the strategies they're considering wouldn't actually save any money. One ploy they're discussing would make a change in the rules for individual retirement accounts that would increase revenue in the near term but would lose money in the long run.
  • New York Times: The Right's Man. By Paul Krugman. Excerpts: It's time for some straight talk about John McCain. He isn't a moderate. He's much less of a maverick than you'd think. And he isn't the straight talker he claims to be. Mr. McCain's reputation as a moderate may be based on his former opposition to the Bush tax cuts. In 2001 he declared, "I cannot in good conscience support a tax cut in which so many of the benefits go to the most fortunate among us."
    But now — at a time of huge budget deficits and an expensive war, when the case against tax cuts for the rich is even stronger — Mr. McCain is happy to shower benefits on the most fortunate. He recently voted to extend tax cuts on dividends and capital gains, an action that will worsen the budget deficit while mainly benefiting people with very high incomes.
  • King Features Syndicate, courtesy of The Columbia Daily Tribune: We shouldn’t forget history’s lessons. Excerpts: I’m in the midst of rereading Victor Hugo’s "Les Misérables," his great 19th-century novel and sermon on behalf of the poor and oppressed. If you haven’t read it, I recommend it. Hugo was a great plotter and creator of mythic characters. Both Hugo and Charles Dickens can give you a very vivid picture of what capitalism without a safety net was really like.
    That is appropriate, because there are some in our own country who seem to wish to remove the safety net and revert to the law of the jungle. The misery that the Industrial Revolution wrought also gives you an understanding of why and how communism and socialism arose. I’ve concluded that most of human history is reaction, not initiative. Problems arise, and people react to them. Certainly socialism arose as a reaction to the misery caused by capitalism. [...]
    One of the reasons young people in particular need to read history and historical fiction is so they will realize that things we take for granted today all had to be fought for. If there were no environmental regulations, no health and safety regulations, no workers’ compensation, no unemployment insurance, no Medicare or Medicaid, no food stamps, no Social Security and no public housing, then you would see what capitalism was like in Hugo’s time.
    If you think coal mines are unsafe now, imagine how dangerous they were when no one dared tell the coal companies what they had to do. Most of this safety net is not that old. I’ve talked with retired coal miners who remember the time when they were paid 60 cents a ton to dig coal and had to buy their own equipment from the company store. Male children were put to work on the slag heaps, and wives and female children were often put to work in textile mills. Long hours, low pay and no concern at all for the health and safety of the workers were the norm in those days.
    Every benefit Americans enjoy today had to be fought for, sometimes politically, but often physically, as owners set thugs and murderers on people trying to form unions. Unrestrained power, whether wielded by private individuals and corporations or by government, nearly always produces evil and misery. [...]
    Well, all I can say is that you will be governed - well or badly - and your only protection against bad government is participation in the political wars. There is one other thing you can learn from history, and that is impermanence. What we have, we can lose. Status quo is the mother of all myths. So think about abandoning the couch and the remote and joining the rest of us on the barricades. It’s certainly more interesting than reruns.
News and Opinion Concerning Health Savings Accounts and Medical Costs
  • Aspen Publishers: HSA Expansion, Health Insurance Tax Reform Form The Centerpiece Of Bush Agenda. Excerpts: Health savings accounts (HSAs), part of the centerpiece of the President George W. Bush’s health care agenda for 2006, will “start chipping away at the inequities in the system,” stated Roy Ramthun, special assistant to the President for economic policy, at the Self-Insurance Institute of America’s 20th Annual Legislative and Regulatory Conference in Washington, D.C. As of the first week of March, the Senate Finance Committee had scheduled hearings on the President’s proposal to raise the annual contribution limits for HSAs to cover not just the deductible, but also other out-of-pocket costs up to the plan’s out-of-pocket maximums.
    This expansion is particularly important because the higher dollar amounts involved would make HSAs more attractive and worthwhile to the financial community, Mr. Ramthun explained. Moreover, the President’s health care agenda would level the tax-treatment “playing field” between employer-provided and individually purchased health insurance, as individual purchasers would be able to deduct from their income taxes the full cost of their high-deductible health plan premiums or receive a tax credit that would offset the value of the payroll taxes, not just their income taxes. [...]
    “The jury is still out on HSAs,” countered Rep. Jim Cooper (Tenn.). “HSAs are a sure-fire loser for Americans; in my opinion, this is more likely to be a savings vehicle for the wealthy.” Legislation permitting association health plans (AHPs) that would allow membership groups to purchase as a large group health insurance for all members of the group “sounds very sensible, but is unlikely to become law,” he added. One health care reform strategy that would save lives and dollars is to improve the quality of care and reduce unnecessary medical procedures, Mr. Cooper emphasized.
  • Washington Post: Uncertain Cure. Early Reaction to Health Savings Accounts Is Two-Sided. By Amy Goldstein. Excerpts: Early studies of HSAs -- and the early experiences of a small but growing number of people who are trying them -- do not match the White House's certainty that this recent concept in health insurance is, as Bush put it recently, "good for you." [...]
    Urged on by business, the banking industry and conservatives in Congress, the White House is defining HSAs as part of what Bush has called an "ownership society" that shifts responsibility -- and, critics say, risk -- from government and employers to individuals. The budget the president recently recommended to Congress includes three tax breaks, totaling $156 billion over the next 10 years, to encourage the use of health savings plans. [...]
    And though Bush has said that two-fifths of families with HSAs earn less than $50,000 a year, research and some companies' experience suggest the plans are most attractive to people who have relatively large salaries; people with modest incomes who have HSAs tend to be at small companies that do not provide a choice, early studies suggest. [...]
    But when his son was hospitalized, said Meschke, the Minnesota professor, "I realized that I neither had the bargaining power nor mental capacity" to influence the price of Jason's chest X-rays, intravenous fluids or antibiotics. The hospital staff he asked about the charges had no idea, he said, "and you are kind of overwhelmed with the medical aspects of this. If you're negotiating a car, you can always say, 'I'll walk off the lot.' If your 1-year-old kid has an I-V in his arm, you don't have the same situation." [...]
    A survey last fall by the Employee Benefits Research Institute found that people with HSAs were more likely than those with other health plans to delay or avoid care when they were sick. Neither that study nor any other has assessed whether such decisions are cost-effective or counterproductive. Peter Oppenheimer, a psychologist in Barrington, R.I., remembers a woman who walked into his office a year ago, shortly after her husband had switched to an HSA, and said she needed treatment but could not afford to pay. "They clearly didn't have the cash on hand to pay for our sessions," Oppenheimer said, so she left, untreated.
  • New York Times: A Cancer Drug's Big Price Rise Is Cause for Concern. By Alex Berenson. Excerpts: On Feb. 3, Joyce Elkins filled a prescription for a two-week supply of nitrogen mustard, a decades-old cancer drug used to treat a rare form of lymphoma. The cost was $77.50. On Feb. 17, Ms. Elkins, a 64-year-old retiree who lives in Georgetown, Tex., returned to her pharmacy for a refill. This time, following a huge increase in the wholesale price of the drug, the cost was $548.01. Ms. Elkins's insurance does not cover nitrogen mustard, which she must take for at least the next six months at a cost that will now total nearly $7,000. She and her husband, who works for the Texas Department of Transportation, are paying for the medicine by spending less on utilities and food, she said. [...]
    The increase has stunned doctors, who say it starkly illustrates two trends in the pharmaceutical industry: the soaring price of cancer medicines and the tendency for those prices to have little relation to the cost of developing or making the drugs. Genentech, for example, has indicated it will effectively double the price of its colon cancer drug Avastin, to about $100,000, when Avastin's use is expanded to breast and lung cancer patients. As with Avastin, nothing about nitrogen mustard is changing but the price. [...]
    "Nitrogen mustard has been around forever," said Dr. Len Lichtenfeld, the deputy chief medical officer of the American Cancer Society. "There's nothing that I am aware of in the treatment environment that would explain an increase in the cost of the drug." [...]
    But people who analyze drug pricing say they see the Mustargen situation as emblematic of an industry trend of basing drug prices on something other than the underlying costs. After years of defending high prices as necessary to cover the cost of research or production, industry executives increasingly point to the intrinsic value of their medicines as justification for prices. Last year, in his book "A Call to Action," Henry A. McKinnell, the chairman of Pfizer, the world's largest drug company, wrote that drug prices were not driven by research spending or production costs. [...]
    And once a company sets a price, government agencies, private insurers and patients have little choice but to pay it. The Food & Drug Administration does not regulate prices, and Medicare is banned from considering price in deciding whether to cover treatments.
  • Kaiser Foundation: Financial Experts Question Fidelity Estimate of Savings for Retirees' Health Expenses. Excerpt: An annual estimate released last week by Fidelity Investments that 65-year-old couples who retire without employer-sponsored health insurance will require an average of $200,000 to cover out-of-pocket health care costs during retirement is inadequate, according to many financial experts and other observers, the Wall Street Journal reports. According to the Employee Benefit Research Institute, retirees might require twice the amount estimated by Fidelity based on longer future life expectancy. EBRI estimates that 65-year-old couples who retire without employer-sponsored health insurance will require $216,000 if they live to age 80, $444,000 if they live to age 90 and $778,000 if they live to age 100. In addition to longer future life expectancy, financial experts said that the Fidelity estimate did not include the cost of over-the-counter medications, most dental care and long-term care or expected increases in Medicare premiums (Wall Street Journal, 3/11).
  • Washington Post: Plan to Raise Military Retirees' Health Costs Faces a Tough Fight. By Stephen Barr. Excerpts: Like any other large employer, the Defense Department is struggling to hold down spending on health care, especially for retirees. But a Bush administration plan to raise fees and co-payments for medical coverage provided to military retirees under 65 has run into tough opposition. Yesterday, a dozen groups representing military officers, enlisted personnel, reservists and retirees denounced the administration's plan as an unfair tax and pledged to support a bipartisan bill that would strip the Pentagon of its authority to raise health care enrollment fees and pharmacy co-payments.
  • Kaiser Foundation: Wal-Mart Has More Employees in Public Health Care Programs Than Other Companies in 19 States, AFL-CIO Report Says. Excerpts: Wal-Mart Stores has more employees enrolled in public health care programs than any other company in at least 19 states, according to a report issued on Tuesday by the AFL-CIO, Reuters/Washington Post reports. The report, titled "The Wal-Mart Tax: Shifting Health Care Costs to Taxpayers," examined data from 23 states in which information about Medicaid and other public health assistance programs could be linked to employers. Researchers found that in 19 states, more workers from Wal-Mart than from any other company relied on public health care programs, such as Medicaid, for their health needs.
  • The Commonwealth Fund: Transparency in Health Care: The Time Has Come. Excerpts: Transparency and better public information on cost and quality are essential for three reasons: 1) to help providers improve by benchmarking their performance against others; 2) to encourage private insurers and public programs to reward quality and efficiency; and 3) to help patients make informed choices about their care. Transparency is also important to level the playing field. The widespread practice of charging patients different prices for the same care is inherently inequitable, especially when the uninsured are charged more than other patients.
    But it is unreasonable to expect that information on prices, total bills (total costs to patients and insurers), and quality will cause the health care markets to perform like markets for other goods and services. Health care is not a homogeneous commodity. Patients will never have as much information about the care they need as the physicians who care for them. Health care decisions are often made under emergency conditions and emotional stress. Both the insurance industry and the health care delivery sector are highly concentrated, leaving patients with few genuine choices. In short, all the conditions required for perfectly competitive markets do not exist in health care, making the health care market quite different than markets for other goods and services.
  • National Center for Policy Analysis: Personal and Portable Health Insurance. By John C. Goodman. Excerpt: One of the peculiarities of the U.S. health care system is that the health plan most of us have is not a plan that we chose; rather, it was selected by our employer. Even if we like our health plan, we could easily lose coverage because of the loss of a job, a change in employment or a decision by our employer. These problems affect all Americans, but have the greatest impact on older workers, who are more likely to have health problems. President Bush has proposed making health insurance individually-owned, personal and portable, traveling with employees from job to job. It is an idea whose time has come.
  • National Center for Policy Analysis: Bush's Answer to Hillarycare. By John C. Goodman. Excerpt: In his State of the Union address, President Bush devoted only a few sentences to health policy. But as the president was speaking, the administration released a five-page document describing health policy proposals so sweeping and bold, they are comparable in scope to Hillary Clinton's proposals of a decade ago. If the White House devotes the energy and political capital necessary to see them through, these reforms will leave a lasting mark on social policy in this country.
  • The Daily News of Los Angeles, courtesy of The Foundation for Taxpayer and Consumer Rights: Health Accounts on Rise; But Savings Program Could Backfire, Experts Say. Excerpts: While that's a big monthly savings over traditional health plans, critics say the plans could wind up costing patients dearly if they fail to put enough money away for future medical costs. Because of the higher deductibles, the savings plans also can encourage many lower-income and middle-class patients to put off health care at the beginning of an illness, which can lead to more costly care later on. "They (HSAs) are sold as Band-Aids, but in essence they put salt in wounds," said Jerry Flanagan, consumer advocate at the Foundation for Taxpayer and Consumer Rights in Santa Monica. "That's why I look at HSAs as a cost-management issue that keeps people from using care." [...]
    Dr. Vincent Riccardi, president of American Medical Consumers in La Crescenta, thinks that ignorance is a good thing. Basically, medical costs are rising so fast that a health savings account simply will not be able to keep up. "To think you can match the cost is rather naive," said Riccardi, citing the double-digit increases in the cost of health care in recent years.
    Riccardi also claims that consumers who are enduring a medical procedure are in no position to make decisions about money. In some cases, HSAs require the individual to pay medical bills. That means if a patient with an HSA goes to a radiologist, the patient will receive billing from the radiologist, the X-ray lab and so on. You can't expect someone who is crippled or who has had a stroke to make decisions about their HSA, Riccardi said. [...]
    Ideally, Lewin believes high-deductible health plans should focus more on prevention services, scientifically proven interventions, to avoid the onus of medical bills later in life. "But I worry about the day middle- and low-income families won't spend money in their HSAs to treat their chronic diseases simply because they want to save money," Lewin said.

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 sample posts follow:
  • "Comments?" (on IBM's recent "Technical Leadership Exchange") by "David Banner". Full excerpt: For those of you who were there, comments from the peanut gallery?
  • "Mixed Reactions" by "BCS-SA". Full excerpt: I had been given some "heads up" from the old timers, and it proved very accurate. First, the lowest cost airline and the most stops! The travel from the airport to the hotels was a nightmare on those Mear buses! It took me more to get from the Orlando airport to my designated hotel than it took to fly from my house to Orlando.
    The food was OK, the schedule was brutal (hey, wasn't this a recognition event?) and the Monday night tour at Sea World was a cheap side show at best. One of the old timers told me that a few years ago they were going to Disney World and actually rented out the whole of Sea World exclusively (no competition with Mary Kay convention) but IBM is no longer a class act. I agree. It's all veneer.
    Food was OK, except at Sea World. Nothing fancy, middle of the road staple. Security was tight, maybe because of Palmisano's "surprise" appearance (everyone knew but acted surprised). I was thrown out of breakfast on Wed AM. Didn't like that at all. You were treated like children or disposable tools by the management of the show.
    Recruiters out in force. Mostly looking for the older IBMers. Saw some friends from SAIC in the hotel, and saw a crowd of ITS older employees talking to a recruiter openly in the lobby.
    Sam was OK, tried to be funny, told us in no uncertain terms that the business plan had failed and was still failing. Ginny was Ginny.
    Innovation is the hot button, trying to hide On Demand under the carpet. Seems there is a fear among Donofrio and Palmisano that commoditization is about to eat IBM. Comments on the fact that Wipro, GCI, Tata are the big competitors to worry about. Daniels was lying as good as he ever did.
    I talked to one of the Consultant "Excellence Award" winners and he was resigning in 3 weeks!
    Lots of dissent among the older employees. Many of the senior Band 10-D experience is watching some law being written in Washington and lobbied by IBM (2830?) and are going to leave en masse in a hurry if they try to screw them one more time.
    Young people were OK, not enthused, other than the impressionable geeks that think techniness is all there is in life. Very few ex-PWCc, especially in the exec ranks of IBM present at the TLE.
    Overall, a grade of C+, B-
  • "Back to 'strategic considerations'" by "wonderaboutibm". Full excerpt: Shades of the recent popular thread on strategic considerations! I did not go to the TLE, but from your description, it is more of the same -- a tacit admission of IBM management that services at IBM is on a slow but perhaps accelerating downward spiral.
    What is wrong with our management? They've commoditized the BCS workforce by insisting on such ridiculous utilization levels, killing off the possibility of developing high-value-add models like the much-touted asset-reuse. And now they worry that, having dumbed down and commoditized the workforce, that maybe those Indians are a problem? Guess they live in a rarefied world approaching the one Gerstner held in such contempt.
    Let's all innovate, but remember, it has to be on our own time, since 90 to 95 % commodity-type utilization is expected
  • "Ne'er the twain shall meet" by "Dose of reality". Full excerpt: Any first year strategy book will tell you that if you are intent on a commodity strategy then you have to be the low cost provider. That doesn't just mean low operational cost - it means low cost from the top to the bottom of your cost structure.
    As long as we continue to carry the corporate and general business unit leadership overhead that we do, we will always be cost-disadvantaged vis a vis Wipro and TaTa, no matter how many offshore clones we hire, or how much we cut the salary and bonus structure.
    At BCS, in terms of margin and corporate allocations, we are also held to the same standard that we have in the software group. The problem is that software development has a tremendous amount of operating leverage. Once the product is marketable, variable cost is next to nothing. They can absorb corporate allocations that are 50% of revenue and still be profitable. We can't.
    We also get very little in benefit from the R&D and marketing budgets, yet we still have to absorb the costs.
    The fundamental problem here is that at IBM everything is standardized and normalized – “one size fits all”, in spite of the vastly different economics and business models of the various divisions. BCS gets the resource and comp model of ITS, the overhead model of the software group, the widget mentality of products, and the leadership of The Three Stooges. It’s no wonder why we are a mess!
    It all stems from a finance organization that is clueless about the business and an HR organization that is clueless about people.
  • "Therein Lies the Rub" by "Dose of reality". Full excerpt: Here is where the two IBM letalis maculae (fatal flaws) come crashing together: an inability to differentiate and a propensity to manage perception instead of reality. Someone in the chain besides me may very well want to upgrade the talent pool, but premium resource recruiting, retention and reward just don't fit into the overall HR management strategy and processes.
    We instead try to represent to the outside world (prospective applicants and clients) that we have a premium organization. In the meantime, we don't differentiate between hiring a mediocre wannabee and an experienced consulting expert. We bring in whatever fits the salary structure, and that structure is developed by an HR and finance organization that are clueless about the market for services or the market for employees.
    We ought to have internal branding and independent line executives that are given the flexibility to lobby for and marshall resources and decide how best to build the franchise.
  • "black hole / poor business" by "sapgod". Full excerpt: Something till this day still puzzles me a bit, although I am no longer an IBMer. In the projects I worked on as a Band8, the billing rate is more than 3X my base salary, excluding benefits.... granted that the benefit package may run in the neighborhood of $20k/per head per year, where does the rest of the dough go, if at the end of every year management is still crying poor profitability?
    I know the overhead is high (partners, admin people, RDM's, support staff), but is that it? or is there some other black holes that are sucking up the juice. At W2 or C2C shops, they typically chop off ~1/4 to 1/3 of the billing rate and are still able to land projects and take care all the admin.... so isn't it a much more superior model ???
  • "Some general answers" by "Dose of reality". Full excerpt: Here are the black holes, some of which you mentioned:
    • BCS partner comp
    • BCS floating business development types that never bill
    • BCS administrative overhead
    • Paying for benchtime of new recruits, unemployable staff, and loafers
    • Corporate overhead which covers facilities, technical support, laptops, general research, overhead, and an entire layer of the same things that we have in 1 - 4, including HR, Finance, marketing (huge and a big waste of money), and legal.
    • Write-offs
    • Executive bonuses
    We could cut huge chunks out of all of the above without losing a single dollar of revenue. The reason that we don't is because IBM's only real stakeholders are the layers of leeches that owe their livelihood to your blood, sweat and tears and no one has the cujones to get rid of them.
  • "how long do i wait for an invitation or rejection e-mail?" by "damnineedajob". Full excerpt: I just finished the online app and applied for CRM consultant position. How long do i wait for an invitation or rejection e-mail? What is the usual profile of a person who gets an interview (i.e. major, GPA, etc.)? I am a senior at one of the Ivy schools but my GPA is only 3.1 and my major is hospitality management. What would be the chance of getting an interview?
  • "It varies" by "Dose of reality". Full excerpt: We hire base on on immediate needs, but we will generally do initial screens if we don't have enough prospective screened applicants in the pipeline. If we have 10 viable candidates in the practice/geography that you are applying for, we won't bother to scour the online applications.
    After you pass the interviews, there would likely be another long wait time until we had a project need that we needed to fill before we extended an offer.
    The initial timing also depends on the workload of the recruiter. We have no service level agreements or metrics around response time. If she has other things to do, she could ignore the system for weeks or months. You may never get a rejection notice.
    As far as credentials go, B student at an ivy league school is more than sufficient to garner an interview, and your functional major is less important than your technical aptitude. We don't do strategy or process consulting - we install CRM packages. If you have a basic understanding of customer service (who doesn't?!), and are seen to be intelligent, a quick study, and eager to learn how to configure Siebel etc., you'll do fine. At entry level, the interviews are generally behavioral.
  • "Some ideas" by "Dose of reality". Full excerpt: There are no easy answers and no magic bullets. A job search is a full time job, and you either have to cast a wide net, or get very lucky. Here is a list of common job sites. As with anything on the internet, you'll have to search through the chaff to find the wheat, but there tons of 2 - 10 year experience jobs.
    When you do find some good leads, you just have to be a tenacious detective before, during, and after the interview. You are a buyer as well as a seller! Too many candidates get caught up in trying to get the offer. Then, with the momentum and urgency of making a decision at the end of the process, they never get around to doing due diligence. If you are smart and perceptive, you should be able to use forums like Vault and others to get a solid read on the inside story. Just think of how your career path would have been different if you had read this forum before you signed on. Message to others surfing this forum - don't be a "soblue"-in-waiting!
  • "It's the premise, not the people" by "Dose of reality". Excerpts: have no problem with Indians. It is not their ethnicity that is at issue - it is the context and pretext under which they are overwhelming the ranks of IT services in the U.S. I would have the same problem if they were sourced from the U.K., although the language and cultural barriers would lessen the unfavorable impact on service delivery
    1. I have a major problem with importing labor on false pretenses. There is no shortage of domestic IT labor in the U.S., yet the H1 program quotas are based on exactly that premise. Next thing you’ll know, we’ll be importing dishwashing help, because domestic applicants want $7.50 an hour, and Vietnamese dishwashers will be happy to work for $4.00 an hour and the opportunity to leave their local hellhole to live in the SSI-enabled U.S of A. That is the blue collar equivalent of the H1 IT scam.
    2. The offshore adjuncts to imported labor are generally useless. Fresh out of school, high turnover, little quality control, padded time estimates, lousy language skills, no understanding of business, poor customer orientation, and require a layer of bureaucracy to manage them. All they are is cheap, but they generally don’t provide comparable value vis a vis a U.S. entry level IT resource.
    3. The geopolitical motivation for the whole program is distasteful. We are selling out the citizens here to gain influence with leaders in India. The Nuke deal from a few weeks ago made that very clear. We are also doing it to make Bill Gates et al happy, again at the expense of immigration law and U.S. citizens. Without entry level career paths, we will lose our pipeline for higher level jobs.

New on the Alliance@IBM Site:
  • Alliance@IBM: Attention IBM employees: IBM is blocking e-mail to and from the Alliance@IBM e-mail address endicottalliance@stny.rr.com from inside the company. Please send your job cut information and other correspondence from your home e-mail. You can also contact us the following ways: Phone 607 658 9285 or Fax 607 658 9283.
  • To IBM Canada employees: Concerned about pension changes, declining benefits and working conditions? Please contact the e-mail below to find out how to get involved in working for a better future for IBM Canada employees. allianceibm@tngcanada.org
  • Attorney Investigating Claim that IBM Targets Workers Who Take FMLA or Maternity Leave, or Women With Small Children, for Low Ratings and Layoff: Richard T. Seymour, a workers' rights attorney in Washington, D.C., is looking for information on whether IBM is getting rid of workers with families, by giving them PBC ratings of "3" if they take FMLA or maternity leave, or are women with small children. If you have information and are not a manager, please contact him by e-mail at rick@rickseymourlaw.net, or on his web site, www.rickseymourlaw.com.
  • From the Job Cuts Status & Comments page:
    • Comment 3/12/06: The way IBM sells it's employees off and then orders them to like it or lump, seem like a modern form of slavery. IBM profits from selling you off to a new employer. You're told not to discuss it with the press, why? Isn't it legal to sell people for a profit and extort them, with threats of unemployment. IBM once again seems to be leading the way, to America's lowest standard of ethics. People want employment not enslavement, IBM. Good luck keeping this IBM scam from the media. 400 employees and families won't hide IBM dirt for long. -Anonymous-
    • Comment 3/14/06: Today 3/13/06 some of the intel support teams were told their accounts are going to India. A third line manager that is close to one of them told him today that he was on a conference call that was planning big job cuts. Of course this is hearsay but I believe the source. We have also been told that 50 mainframe people in Poughkeepsie were walked out with no notice last week. We have contractors and IBM'ers alike leaving the company left and right on their own. Some contractors are hearing about 20% paycuts again and are leaving before it happens. We are now shorthanded and nobody is being hired to replace them. What a great company we work for...NOT!!! -Anonymous-
    • Comment 3/14/06: Why doesn't IBM want employees to talk to the media about the QualxServe deal? Answer. IBM knows the deal is immoral and won't go over well with some of the public... plus IBMers will just shut up and take it, mainly, as in the past... Isn't it time to stop letting IBM extort and cheat Americans, out of their jobs? Now more than ever is the time to talk. Being mum only furthers IBM agenda, which is not in most IBM employees best interest. IBMers need to raise up, stand together and form their Alliance's, before it is to late. IBM employees need contracts that prohibit people being sold off like slaves for IBM profit... you do the work, have the talent and should have a say in such matters. How many IBM managers or executives could actually do your job? Not many I'm sure yet you get the raw end of the deal... fight back, don't just take it anymore! -Anonymous-
    • Comment 3/17/06: It makes sense to me that if you have been moved from IBM to QualxServ you are no longer bound by IBM's hush. QualxServ, however, might have it's own requirement that you keep quiet, so beware. These restrictions: don't tell the customer, don't talk to media, etc, may be conditions of employment. Consider, though, that you will no longer be with the IBM that you have come to dislike. It is possible that you will like the new company better. No guarantee, of course. How does the retirement plan work out? And medical? Etc? -Anonymous-
    • Comment 3/17/06: Here in RTP today they pulled the entire desktop development team from Lenovo (around 200 ex IBMers)into the cafeteria and told them that they would all be laid off. They are to have meetings with their managers 1 on 1 over the next day to find out when their last day is. In total, the press is reporting, they will cut about 350 jobs here in RTP with their overall announcement that they were trimming the workforce by 1000 worldwide -Anonymous-
    • Comment 3/17/06: Yes, I too, was caught in the QualxServ trap due to being a dedicated 28.5 year Support Specialist that is getting screwed out of the FHA (ya, I know it isn't much, but better than nothing) and possibly my 30 year bump on pension if they decide to discard us after the year time frame. Wrong place working on the wrong stuff at the time their "slice" was taken for who goes and who stays. This is just the tip of the iceberg, though. IBM has wanted to get rid of the service business for many years and this is phase 1. If this pans out, in a year or so other gear will go, with most everything to follow after that. For those of you that are left, I wish you luck! -Anonymous-
  • From the General Visitor's Comment page:
    • Comment 3/16/06: The government wants us to work until we are 72, as one of the methods to help hold down Social Security and similar costs. How's that supposed to work when companies like IBM are laying off people in their 40's? This is a tremendous disconnect! Why isn't the government doing things to 'encourage' (read twist arms) companies to assist in their plans? I wouldn't mind working as long as I am healthy, but how's that supposed to happen if companies don't cooperate? -Anonymous-
    • Comment 3/16/06: Who cares what the company says. I got the information from a colleague who was cut after 13 years and sent it to as many newspapers I could think of, along with the website link to the overtime lawsuit. What can they do? Fire you again? They already tossed you aside like trash to begin with. IBM is not in any position to attempt anything else with all the labor laws they violated. Besides if they do, try and find a judge who is going to be sympathetic after all of the other labor problems they are already in litigation over. Merely my opinion, but then I am really pissed right now. -Anonymous-
    • Comment 3/16/06: I am very happy that Sam Palmisano received his much deserved raise of 29.2% . Keep in mind, it was more than paid for by cutting our pensions, reducing benefits, outsourcing jobs, and skimpy pay increases (if any). So what else does Sam deserve? i'm sure the stockholders would agree, what's another several million dollars for the re-design and construction that is underway for his conference suite and dining facilities (including French chef and wait staff), in the less than 10 year old, already opulent, headquarters building. After all, this can be funded by the next round of employee takeaways and job cuts. -Anonymous-
  • Pension Comments page

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