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    Highlights for week ending May 24, 2003
  • New York Newsday: IBM Lays Off 65 Employees In Global Services Unit. Excerpt: International Business Machines Corp. sent layoff notices to 65 employees in its services unit Thursday. The affected workers were at several sites across the U.S., said James Sciales, spokesman for the Armonk, N.Y., computer giant. He attributed the layoffs to a "skills rebalancing." The IBM Global Services unit has about 180,000 employees; IBM has a total of about 315,000 workers.
    • Linda Guyer comments. Full excerpt: The package that we (the Alliance@IBM) received showed 494 people let go in the AMS part of IGS, so IBM is lying by omission. Maybe 65 were let go yesterday and the rest last week?... Two of the affected individuals I happen to know personally and they were 100% billable so this "skills" excuse is another lie.

  • Wall Street Journal: Benefits: I'll Have What He's Having. What Riles Employees Most Is Big Divide Separating Their Coverage From the CEO's. Excerpts: More than wages and even job security, the big battle now between executives and employees is over benefits. Employees feel increasingly vulnerable as companies pare or eliminate their two most valuable benefits -- medical insurance and retirement accounts -- at the same time their savings have shriveled and their salaries have frozen or fallen. ... What most riles employees is the growing gap in retirement and health benefits for them versus their top bosses. The recent disclosures that AMR Corp., Delta Air Lines Inc. and UAL Corp. poured millions into special pension trusts for executives while worker pension plans were ravaged by weak stock markets has deepened distrust and labor strife in the beleaguered airline industry. ... These special deals fuel suspicion among employees that executives aren't telling the whole truth when they claim they can't afford health care for all job holders. While 87% of 1,000 employees surveyed at large companies agree that health-care costs are outpacing inflation, only 46% believe that employers are unable to absorb the increase, according to a recent poll by Towers Perrin. If link is broken, view Adobe Acrobat version [PDF--35 KB].

  • Wall Street Journal: Many Companies Reimburse Top Executives' Health Costs. Excerpts: Many American workers feel sick over recent cuts in their medical benefits. Yet at numerous companies, the top brass won't feel the same sting, thanks to a common but little-noticed executive perquisite: reimbursement of out-of-pocket medical expenses. Corporate leaders and their lieutenants at many companies recoup outlays that aren't covered by basic health plans -- including deductibles, co-payments and the cost of contact lenses, orthodontia, preventive speech therapy, alcoholism treatment or a private hospital room -- in some cases even as their companies are cutting back on basic medical coverage. If link is broken, view Adobe Acrobat version [PDF--35 KB].

  • Wall Street Journal: Retirees Show Their Muscle In the Struggle Over Benefits. Excerpts: Corporate retirees have long battled against cutbacks in their own health benefits and pension plans. But lately, some are setting their sights on bigger targets: pay and benefits of top executives. In a long letter to Delta management, the group of retired Delta executives wrote: "It seems unconscionable that thousands of employees who have worked and sacrificed to build the company ... have been left to fend for ourselves, while you and the current officers continue to use company funds to build your wealth and future financial security at the expense of all other Delta stakeholders."

  • Accounting Today: GAAP for pensions: Sanctioned fraud must go. Excerpts: The authors concluded that what they characterize as “opaque” pension accounting contributed to the stock markets’ irrational exuberance during the late 1990s. They said that, “despite the fact that the accounting accruals that arise from pension plans are sometimes a very misleading measure of the underlying value of net pension obligations, we find that the market seems to have focused largely on those accruals.” ... In addition to its obvious challenges to assumptions of market efficiency, this conclusion also condemns the Financial Accounting Standards Board and its constituents for retreating to the footnotes to disclose sensitive but useful information. We have never gotten over this lame excuse in SFAS 87: “The board acknowledges that the delayed recognition included in this statement results in excluding the most current and most relevant information from the employer’s statement of financial position. That information is, however, included in the disclosures required ... “ (paragraph 104). Of course, if the useful information isn’t on the balance sheet, it isn’t fully included on the income statement either.

  • New York Times: Will the Pain Ever Let Up At Bristol-Myers. View abstract on New York Times site. View excerpts on Yahoo! message board posting. Excerpts: So far, Bristol-Myers's board supports Mr. Dolan. His defenders, according to people who deal with the board, include Louis V. Gerstner Jr., the former chief executive of I.B.M., who had his own well-known run-ins with securities regulators over accounting issues. Calls to Mr. Gerstner's office and homes were not returned.

    Some people in and out of the company say Mr. Gerstner is the real power on the board. When he was in charge of I.B.M., Mr. Gerstner used aggressive accounting techniques to strengthen operating results, and some say they believe he is not about to punish Mr. Dolan for being aggressive himself. In 1999, when Mr. Gerstner was chairman and chief executive, I.B.M. used the proceeds from the sale of its Internet unit to offset reported operating costs — a practice that the S.E.C. found so troubling that the agency wrote a special "staff accounting bulletin" in December 1999 to ban similar conduct in the future.Last year, while Mr. Gerstner was still chairman of I.B.M. but no longer its chief executive, I.B.M. was again using gains from asset sales to offset operating costs.

    Mr. Gerstner also used employee pension-fund assets to bolster operating results. The S.E.C. asked I.B.M. to amend its financial statements in 1999 and 2000 over concerns about the company's tax rate, pension fund and other assets. I.B.M. refused to make the changes until last year. The S.E.C. has never taken formal regulatory action against Mr. Gerstner. WHILE Mr. Gerstner is widely credited with having saved a floundering I.B.M., his use of such accounting devices was one reason he was able to increase I.B.M.'s earnings by double digits annually while sales grew, on average, 5 percent a year.

  • Minneapolis Star-Tribune: For CEO pensions, rank has its privileges. Excerpts: Executive pension issues have undergone new scrutiny since former CSX Corp. CEO John Snow resigned in January to become President Bush's new Treasury secretary, taking with him a pension cash-out of $33 million, thanks to a credit for 19 years of work he didn't perform. Such actions rile employees, who increasingly are being asked to shoulder more of their own retirement burden. "These companies are offering service credits to CEOs for years they didn't work at a time when defined-benefit plans are being taken away from frontline employees and risk is being shifted from the company onto individual workers," said William Patterson, director of the AFL-CIO's Office of Investments.

  • New York Times: Excessive Pay Eroding Investor Confidence. Excerpt: Lavish pay packages, stock options and special deals for executives whose companies have failed and laid off employees have eroded investor confidence already shaken by the accounting scandals, experts told Congress Tuesday. Eight chief executives of major corporations whose pay has prompted controversy were no-shows at a hearing by the Senate Commerce Committee. Executive compensation is getting fresh scrutiny as senators raise the issue of counting stock options for company officials as an expense against earnings. Big state, union and professional pension funds are pressing for changes to give shareholders more say in companies' decisions on executive pay and other matters. Despite trillions of dollars in stock value lost in recent years, hundreds of corporate bankruptcies and record unemployment,

    “We continue to see many examples of enormous pay packages awarded by boards to top executives,” committee Chairman Sen. John McCain, R-Ariz., said at the start of the hearing. “These kinds of excesses are making a lot of Americans angry,” he warned after hearing testimony from pension fund officials and other experts. Sean Harrigan, president of the administrative board of California's public-employee pension fund, said extravagant executive pay “continues to have an impact on investor confidence.” CEO salaries now average 400 times what a production worker earns, and they continue to rise, he testified. Harrigan denounced what he called “an attitude of entitlement in the executive suites of corporate America.” Sen. John Breaux, D-La., while opposing legislative action on stock options, observed that some executive pay packages “have very little to do with performance” by companies.

  • Pittsburgh Post-Gazette: Heard Off the Street: Watch out as pension losses mount but appear as gains. Excerpts: Here's one reason why millions of workers are worried about retirement: 320 members of the Standard & Poor's 500 paid out pension benefits equaling 8.5 percent of their pension plan assets last year. At the same time, they replenished those plans with contributions equaling only 4 percent of the assets in their plans. ... Combined, the 320 plans ended the year with a $177 billion deficit, meaning they have made $177 billion in retirement promises they are not currently capable of keeping. Put another way, the plans are 83 percent funded. They contain 83 cents for every $1 in pension obligations. At the end of 2001, the plans were 104 percent funded. Only 36 of the companies -- or 11 percent -- have pension assets greater than their liabilities vs. 36 percent in 2001 and 71 percent in 2000.

  • Forbes: Pension Pangs. Some big companies are in for an earnings jolt when they own up to the reality of rotten pension fund performance. Excerpts: War, stalled tax cuts and corporate scandals have driven the markets crazy. But there's another, very overlooked problem with certain large-company shares: pensions. Some big companies have been inflating their earnings by making unrealistic assumptions about returns on their pension funds. When realism returns, reported earnings will weaken. ... In the best of worlds, pension accounting is a messy business. It involves complex actuarial calculations and some arbitrary assumptions, such as what a pension portfolio can earn over time. Ominously for corporations with large retired work forces and traditional benefit plans, the chairman of the Financial Accounting Standards Board (FASB), which sets the rules, personally wants to junk the entire pension accounting system within a few years. FASB Chairman Robert Herz seeks to end the flawed accounting practice that lets companies inflate their profits during a bear market with rosy expected return rates on pension assets, rates that date back to the bubble years. Instead, Herz wants companies to report only what their pensions actually earned.

  • Fortune: The Incredible Shrinking Consultant. To survive, the Big Three strategy firms--McKinsey, Bain, and BCG--need to make big changes. Excerpt: All over corporate America, the long-running love affair between big companies and traditional management consultants has come to an abrupt end. We're not talking about IT consultants like IBM and Accenture, which focus mainly on integrating technology. The ones in particular trouble are the pure-play strategy guys, dominated by McKinsey, Bain, and BCG. Two years into an economic slump, executives are questioning why they've spent the past ten years pouring so much money into consulting coffers and what exactly those huge outlays of cash have produced. Execs are also realizing that consultants from the so-called prestigious firms just might not be as brilliant as they're cracked up to be. The rationale for consultants' monstrous fees (up to $5,000 a day per partner and $1,500 for rank-and-file consultants, many fresh out of business school) used to be that, well, they're really smart. But you have to wonder about the wisdom of the advice McKinsey gave to its longtime client Enron. Or the value of the analysis it did for Kmart and Global Crossing, two other companies that paid the firm for strategic insights and subsequently slid into bankruptcy. (McKinsey declined to talk to FORTUNE for this story.)

  • CNN Lou Dobbs Moneyline: Exporting America transcript, aired May 26, 2003. Excerpts: Bangalore, India home to 100,000 high tech workers, many of them employed by American companies. Across all of India, one million people work for U.S. based companies, like GE Capital and Microsoft. Eight billion dollars in services are exported from India to the United States each year. The U.S. consulting firm A.T. Kearney is doing more and more work in India. ... JOHN MCCARTHY, FORRESTER RESEARCH: The conservative numbers show that over the next 13 years upwards of 3.3 million services jobs in the U.S. economy will be moved offshore. HOPKINS: India is the leading destination. The exporting of jobs angers groups like Wash Tech, an offshoot of the Communications Workers of America. They regularly protest outside Microsoft in Seattle with signs like "Think India, Think Unemployment." MARCUS COURTNEY, WASHTECH: This is a real slap in the face to American technology workers that they have built up this industry. It's one of the most profitable industries in the history of America and now what they're facing is that these companies are turning around and sending their jobs offshore. HOPKINS: Most companies we talked with like Oracle say they are global companies. They aren't outsourcing high tech jobs they're "augmenting work done in this country with thousands of workers in India." Whatever they call it, in high tech centers like Silicon Valley it's hard to find a job. HEATHER BOUSHEY, ECON. AND POLICY RESEARCH: Unemployment for information technology in the information technology sector has more than doubled over the past couple of years. It now stands at 7.7 percent. HOPKINS: Wall Street is the latest to join the flight to India. JP Morgan Chase will create 40 jobs in India for research analysts. Lehman Brothers is also hiring analysts in India. ANDREA BIERCE, A.T. KEARNEY, INC.: If you even look at an MBA graduating from the India Institute of Technology, you'll see that that graduate will hope to get about a $12,000 per year salary and that's with two to three years' experience. Contrast that with a Harvard Business School graduate who will really hope to get closer to $100,000 with the same sort of skill set.

  • Forbes: IBM sets up tech design centre in India. Excerpt: International Business Machines Corp on Wednesday launched a technology centre in India that would provide design services for advanced chips and hardware boards to companies across Asia. The unit, based in Bangalore, is part of IBM's engineering and technology services divisions in the United States, Europe and Japan, the company said in a statement. "The centre will enable IBM to leverage a vast and talented Indian information technology talent pool, competent in large integration and embedded software design," said Uday Shukla, director, technology group labs at IBM India.

  • San Francisco Chronicle: Visa's use provokes opposition by techies L-1 regarded as threat to workers. Excerpt: An obscure work visa known as the L-1 has become the center of a bitter controversy in the technology industry. Much like the H-1B before it -- an equally obscure visa that rose to prominence when American workers complained they were being displaced by its recipients -- the L-1 is catching the ire of tech workers and the eye of government regulators who disagree on whether the visa is being used legally. ... What happened in Florida follows the general pattern of how Indian outsourcing firms use L-1 visas: The Indian firms take over a project, such as software maintenance, at low rates for an American client and send in a team of visa holders to learn the company's procedures. As much of the work as possible is then transferred to the company's headquarters in India, where wages are much lower. But some visa holders continue working at the client's office.

  • Washington Alliance of Technology Workers (WashTech): Tech worker says agency uses 'non-compete' agreements to bully, intimidate.

  • Watson-Wyatt Press Release: Accounting-Rule Change Would Sharply Increase Balance-Sheet Cost of Many Cash Balance Pension Plans. Excerpt: A proposed new accounting approach for determining liabilities in cash balance pensions would artificially drive up the liabilities for many of these plans on corporate balance sheets, according to experts at Watson Wyatt. The Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) appeared to reach consensus in favor of the new approach at a meeting on May 15. To be enacted, this guidance would need to be ratified by the FASB, which could occur as early as its meeting on May 28. While a written summary of the task force’s consensus guidance is not yet available, preliminary analysis of the approach by Watson Wyatt has identified disturbing implications for many sponsors of cash balance pension plans.
    • "just_a_bean_counter" comments. Full excerpt: Dear Watson Wyatt: Did you really think going to CB was the panacea to fix your baby boomer problem? So CB is going to cost you a lot more than originally schemed? Well, cry me a river. BTW, I don't agree with your misguiding falsifications below. Do you even know how to spell 'truth-in-media'? If the FASB does what needs to be done, you'll wish you had never put us on CB. Why? because you will have to recognize liabilities as they accrue, which is what should have happened all along! (readers: notice Watson Wyatt qualifies this piece of trash with "according to experts at Watson Wyatt". Remember, never ask an insurance salesman if you need insurance.)

  • Dow Jones News Service: FASB Cash-Balance Pension Change Could Hurt Earnings. Excerpts: In March, FASB said it would conduct a formal review of pension accounting rules. It began mapping out a plan for improving corporate pension disclosure, and approved a preliminary list of a dozen pension reporting issues that should figure in its effort. The list could ultimately lead to more detailed reporting on pension assets, expected rates of return on assets, corporate cash-flow, and pension cost, among other things. FASB's pension disclosure project was prompted in part by growing concern on the part of lawmakers and financial firms over underfunded corporate pension plans. ... Particularly controversial are the use of various techniques that fall under the rubric of "smoothing." They include letting companies take some assets and obligations off their balance sheet and amortize them over time as income or expenses, and letting companies report expected returns on assets rather than actual losses or gains.

  • Dow Jones News Service: Pension Plans Step Up Fight Against FASB Proposal. Excerpt: Pension plans and actuaries are stepping up efforts to block a proposal to change the way cash-balance retirement benefits are measured. The Financial Accounting Standards Board could approve the plan, which emerged abruptly last week, as soon as Wednesday. Under the proposal, many companies with cash-balance plans would measure their future benefits obligations by reference to government bonds, rather than the high-grade corporate bonds other pensions use. Companies with cash-balance pensions would have to put more money into the plans to keep funding shortfalls from growing, according to critics, who say corporate earnings could be hurt as soon as the fourth quarter if the proposal is adopted.
    • Janet Krueger comments. Full excerpt: Interesting isn't it, that corporate lobbyists are so focused on what this change might do to corporate earnings -- we sure wouldn't want to forego any of those vapor profits! What they don't mention, and the reason this change is so critical, is that the current funding rules don't require plans to carry anywhere close to enough funds to pay off all the vested cash balances if they go bankrupt. The proposed change still doesn't require enough funding to pay off vested balances, but it brings them closer.

This week on the Alliance@IBM Site:

"The test of our progress is not whether we add more to the abundance of those who have too much; it is whether we provide enough for those who have too little." — Franklin D. Roosevelt
This site is designed to allow IBM Employees to communicate and share methods of protecting their rights through the establishment of an IBM Employees Labor Union. Section 8(a)(1) of the National Labor Relations Act states it is a violation for Employers to spy on union gatherings, or pretend to spy. For the purpose of the National Labor Relations Act, notice is given that this site and all of its content, messages, communications, or other content is considered to be a union gathering.