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Highlights—January 18, 2004
- Wall Street Journal: IBM
Documents Give Rare Look At Sensitive Plans on 'Offshoring'.
When Shifting Jobs Abroad, It's $12.50 vs. $56 in Pay, And 'Sanitize' the
Memos. Excerpt: The IBM documents show that the company is acutely aware
of the sensitivities involved. One memo, which advises managers how to communicate
the news to affected employees, says among other things: "Do not be transparent
regarding the purpose/intent" and cautions that the "Terms 'On-shore'
and 'Off-shore' should never be used." The memo also suggests that anything
written to employees should first be "sanitized" by human-resources
and communications staffers. IBM's human-resources department has prepared
a draft "suggested script" for
managers to use in telling employees that their jobs are being moved. The
managers will tell the employees that "this is not a resource action" --
IBM language for layoff -- and that they will help the employees try to find
a job elsewhere in IBM, although they can't promise to pay for any needed
The documents describe work done by IBM's Application Management Services
division, part of Big Blue's giant global-services operation, which comprises
more than half of the company's 315,000 employees. The affected workers
don't deal directly with customers; they write code and perform other
programming tasks for applications software used inside IBM. The plan
would move jobs from U.S. locations including Southbury, Conn.; Poughkeepsie,
N.Y.; Raleigh, N.C.; Dallas; and Boulder, Colo. IBM plans to transfer
the programming work to its own operations in Bangalore, India; Shanghai
and the northeastern city of Dalian in China; and Sumare, Brazil. It isn't
clear how many jobs will be added in each location. Some of the foreign programmers
will come to the U.S. for several weeks of on-the-job training by the
people whose jobs they will take over. That's an aspect of offshoring that
many high-tech workers regard as particularly humiliating. If link is broken,
view Adobe Acrobat version [PDF--48 KB].
- St. Paul Pioneer-Press: Pension
change sent her on a mission [PDF--22
KB]. When IBM changed her pension, Janet Krueger quit her job
and began her fight for workers' rights. Excerpt: It ended swiftly
and decisively for Janet Krueger.
In a flash, she walked away from a $120,000-a-year job at IBM Corp.
in Rochester, Minn., the
company where she had worked for more than two decades and her father
had spent a career.
Quite unexpectedly, the former computer specialist who avoided politics
has become a self-styled
crusader for workers' rights and retirees' concerns. Both are at
risk — she and others claim — as
companies on a hunt for cost savings take aim at a social contract
that once so tightly bound
workers and their employers.
The change that sparked the battle at IBM landed in May 1999, when
the company mailed a glossy
brochure to employees describing its new cash-balance pension plan.
Out was the traditional
pension, which rewards lengthy service and typically pegs retirement
payouts to average pay in the
final years of a career.
... The brochure sent Krueger and others scurrying for their spreadsheets
to tote up the damage.
Krueger figures she lost roughly $500,000, including future accruals.
Other IBMers tell similar
- USA Today: More
companies trim retiree health benefits. Excerpt: A few firms
have cut benefits entirely for current retirees, but most employers have
not made such drastic changes. But they are raising the amounts that current
retirees pay, sparking anger. "We feel that IBM has a social contract
with the retirees ... for which they are now reneging," says Sandy Anderson,
a former IBM employee in Vermont who says his premiums for retiree coverage
have risen from about $90 a month in 2000 to more than $500 for his family.
He and others have formed a retiree group aimed at restoring lower payments.
Like many other companies, IBM caps how much it pays toward retiree benefits
annually, up to $7,500, spokeswoman Kendra Collins says. Retirees pay the
remainder. As health costs have risen, so have retirees' costs, Collins
says. She says Vermont is a particularly expensive state, resulting in an annual
premium for Anderson's family plan of about $13,000 a year. She says he and
others have the option of changing plans to ones with higher annual deductibles
but lower monthly costs.
- Reuters: IBM
retiree mounts campaign aimed to lower costs. Excerpt: Sandy
Anderson is a retired 61-year-old IBM "lifer" who jokes about revering
the company enough to tattoo its initials on his haunches -- but that loyalty
soured after his health-care costs jumped this year. Anderson is drumming
up support on the Internet and, with his congressman, planning to take
his case to the Vermont courts and to International Business Machines Corp.,
which he says has breached its promise of free health care. "I staunchly
believe, as an IBM manager, that I got up and told people that they could
rely on this, and so this is a violation of the social contract," Anderson
said. ... But the anger among IBM retirees about their 2004 health-care
premiums is widespread, according to Lee Conrad of Alliance@IBM-Communications
Workers of America, a union that has tried to organize IBM workers.
"Retirees are very upset around the country. For many of them this
is drastically cutting into their pension check," Conrad said. John
Kotson, a 69-year-old IBM retiree from Fort Collins, Colorado, who worked
for 30 years at the company until 1989, said his health-care premiums
rose by 20 percent this year. Kotson is part of a lobbying group called
the National Retiree Legislative Network that includes retirees from other
companies such as Lucent and Raytheon that are fighting to restore pension
and health-care benefits.
- Salon.com: No
safety net for programmers.
When manufacturing jobs go overseas, laid-off workers are eligible for
a host of benefits. But if you're one of the tens of thousands of software
producers whose jobs have been outsourced, you're out of luck. Excerpt:
Jim Fusco worked at AT&T for 13 years as a mainframe programmer, before
his job was outsourced to IBM in 1999. "One Friday, we walked out as
AT&T employees, and the following
Monday we walked back in as IBM employees, doing the same work, at the
same desks, with different-colored paychecks," he says. Three years
later, in May 2002, Fusco's job was outsourced again, and this time he
wasn't so lucky. IBM's Global Services Division moved his job to Canada,
and he was laid off. If link is broken, view
Adobe Acrobat version [PDF--79
- Wall Street Journal: Bribery
Case Tied to IBM Unit Triggers U.S. Inquiry in Korea. Excerpt: A burgeoning
bribery and bid-rigging scandal involving International
Business Machines Corp.'s South Korean unit has sparked inquiries
by the U.S. Justice Department and the Securities and Exchange Commission,
according to people familiar with the matter. ...
IBM generally is regarded as an ethical multinational, but the case is reminiscent
of a 1994 Argentina case, in which IBM fired its top executive there after the country
began probing bribes paid to computer buyers with a state-run bank. In 2001, IBM
paid a $300,000 fine to the SEC for violations of bookkeeping and record-keeping
requirements in that case. It didn't admit or deny the SEC findings.
- Wall Street Journal: IBM
Is Likely to Face SEC Charges. Excerpt: The Securities
and Exchange Commission has told International Business Machines Corp.
and one of its employees that they are likely to face charges for allegedly
abetting a scheme by Dollar General Corp. to misstate its financial results.
IBM also said the SEC investigation of other revenue-recognition issues that
grew out of the Dollar General scrutiny is continuing, raising the possibility
of additional SEC charges. IBM first disclosed the SEC inquiry in June.
- Motley Fool: Oops,
I(BM) Did it Again.
IBM's South Korean subsidiary was accused over the weekend of bribing government
officials within the country's National Tax Office and Information Ministry.
In all, 48 government and company officials have already been indicted
by South Korean prosecutors. Foolish international attorney Rich Smith
takes a look today at what consequences IBM may face back home in the U.S.
Excerpt: It is partly due to this rule that, when you open up IBM's latest
10-K, you see such easy-to-understand entries as "Assets: Current Assets:
Notes and accounts receivable -- trade, net of allowances" on the Balance
Sheet and "Cash Flow from Operating Activities from Continuing Operations:
Noncash portion of special actions" on the Cash Flow Statement. (If for
some reason you do not find these entries easy to understand, consider
taking a couple credits at our Fool School -- might I suggest the Read
Financial Statements Like a Pro How-To Guide.) Yet as many times as I have
read IBM's Balance Sheet, I have yet to find the entry for "Assets: IBM
Korea: Slush Fund." I am having
similar trouble locating the Cash Flow Statement entry for "Outlay
of Bribes to South Korean National Tax Service." This is just a
hunch, but I suspect the SEC is going to have trouble finding those entries
as well. And if the SEC has trouble, it is a safe bet that IBM is going
to be in for some trouble too.
- Wall Street Journal: U.S.
Drug Subsidy Benefits Employers. Excerpt: Some companies with many retired
workers are expected to post big earnings gains for 2003 or 2004, thanks
to accounting guidelines for subsidies under the federal prescription-drug
program. When Congress approved prescription-drug benefits for Medicare
recipients last year, it granted benefits for the 65% of large employers
with retiree health-care plans, providing funds for companies that maintained
their prescription-drug coverage for retirees. The program is supposed
to encourage employers to retain prescription-drug coverage. But companies
are entitled to the subsidy regardless of how much of the cost they pick
up themselves. As a result, it does nothing to halt the current rush
by some employers to shift more costs to retirees. In fact, benefits
consultants are designing employer-sponsored prescription plans to save
companies more money by unloading costs on their former workers without
losing out on the new subsidy. If link is broken, view
Adobe Acrobat version [PDF--47 KB].
- Reuters: Health
Benefits for Future U.S. Retirees Cut - Study. Excerpt:
One in 10 large U.S. employers in the past year eliminated subsidized
health benefits for future retirees as companies battled rising health-care
costs, a survey released on Wednesday said.
Another 20 percent said they were likely to end health coverage for future
retirees within the next three years, according to the report from the
nonprofit Kaiser Family Foundation and consulting firm Hewitt Associates.
For people currently retired, 71 percent of firms hiked retirees' contributions
to health insurance premiums, and 57 percent increased prescription drug
co-payments. Cutting retiree health benefits has been a trend for a decade
and may continue, the report said.
- ComputerWorld: IBM
trims 400 more jobs. Excerpt: IBM has cut about 300 U.S.-based software jobs and 100 positions in its services
division, a company spokesman said today.
- Dow Jones Newswire: Australia's
Telstra Urged To Keep IT Jobs At Home. Excerpt: Australian telecommunications company Telstra Corp. (TLS.AU)
said Wednesday it won't reverse a decision that may lead to 450 information
technology jobs moving offshore, even though the nation's government,
its biggest shareholder, has urged it to keep the jobs at home. Under
a new contract signed Tuesday with IT provider IBM Australia, as many
as 450 Australian-based jobs may shift to India over the next 18 months in
a move that will cut the cost of managing and developing the Melbourne-based
carrier's software applications.
- CIO.com: How
to Safeguard Your Data in a Dangerous World.
The mounting pressure to save money through
offshore outsourcing poses a special dilemma
for CIOs in the military-industrial complex. Excerpt: Raytheon Aircraft
ran into just that issue last summer, when it inked an outsourcing deal
with IBM. The company gave IBM control over support and further development
of its SAP system. IBM, for cost reasons, declared its intent to use
subcontractors in India on the application, which contains such sensitive
information as how to build the skin of a commercial jet. And that's
when Raytheon Aircraft CIO Doug Debrecht knew he had a problem on his
hands. Executives at his parent company soon confirmed his intuition.
They insisted that IBM not use foreign contractors until Debrecht came up with
a surefire way to keep them out of Raytheon's network. ...
When IBM and Raytheon initially discussed their outsourcing deal, IBM executives
tried to assure Raytheon CIO Debrecht that subcontracting to foreign workers would
not pose a problem. "They said, 'Oh we've done this before, and we know how to work
through these issues,'" he recalls.
That wasn't good enough for Debrecht, and he knew it certainly would not satisfy
executives at Raytheon headquarters. "Raytheon is very sensitive to such issues,
just like any defense company is. You read in the paper that this contractor violated
this or that export law and was fined millions of dollars," Debrecht says. "I don't
want to be the one to have to go to the CEO and say, Yeah, that was because of me."
- Associated Press: 45,000
People Quit AARP Over Medicare.
- AccountingWeb: PwC
to Settle Travel Expenses Lawsuit For $54.5 Million.
Excerpt: PricewaterhouseCoopers LLP has agreed to pay $54.5 million to
settle its part of a class-action lawsuit that contends the accounting
firm overcharged its clients for travel-related expenses. The lawsuit
also names Ernst & Young LLP, KPMG LLP and two other defendants
for fraudulently overbilling clients by millions of dollars collectively,
the Wall Street Journal reported. PwC’s preliminary agreement is the
first settlement in the case, which was filed in state court in Texarkana,
AR. A separate investigation by the U.S. Department of Justice is ongoing.
The lawsuit details the practice of professional-service firms negotiating
significant rebates with travel companies and credit card companies, overcharging
their clients, and pocketing the difference without revealing the practice.
| Coverage on H1-B and L1 Visa and Outsourcing Issues
- CNET News: Visa
program may aid foreign companies. Excerpt: U.S. companies
aren't the only ones taking advantage of statutes designed to allow
U.S. employers to hire foreign workers. Indian information technology
companies with operations in the United States actually are some
of the biggest applicants for H-1B visas and are heavy users of L-1
visas, according to a study by Rochester Institute of Technology
public policy professor Ron Hira and statistics culled from Securities
and Exchange Commission filings. ... Hira's paper, which is slated
to be published this year in the journal Technological Forecasting
and Social Change, cites government figures to show that India-based
companies Wipro, Tata Consultancy Services and Infosys Technologies
were among the top 15 H-1B petitioners between October 1999 and February
2000. Hira also focuses on the use of guest worker visas by three India-based
tech firms: Wipro, Infosys and Satyam Computer Services.
- Economic Times (India): Another
US state plans bill to check outsourcing. Excerpt: Two Wisconsin
state lawmakers have introduced a bill in the state senate that seeks
to restrict state contracts to companies that perform the services within
the United States, instead of shipping them overseas.
- TechsUnite.org: Washington
May Join Other States to Curb Offshore Outsourcing.
Excerpt: Two Washington state legislators have introduced legislation
designed to curb a recent trend of sending the state’s technology
work to be performed by foreign workers overseas. Rep. Sandra Romero
and Rep. Zack Hudgins, Democrats from the 22nd and 11th districts
are leading an effort to pass into law a measure that would prohibit
state agencies from outsourcing state contract work to foreign workers offshore.
- BusinessWeek: The
Changing Face of Offshore Programming.
Yes, it's still the cheaper option -- but the price differential
is shrinking fast, and the hidden costs can be fierce. Excerpt: The
second area of hidden costs relates to business risks and requirements.
As many outfits doing business overseas for the first time are discovering,
there are few reliable standards for intellectual property protection
and contract enforcement. A contract is only as strong as your ability
to effectively enforce it. If you can't afford the enormous costs of fighting
an international legal battle, you should think twice about sending anything
proprietary overseas. In a future column, I'll tell you about two companies
I know fighting legal battles over intellectual property (IP) stolen by
- Bloomberg News: U.S.
Lawmakers Unable to Stop Shift of Jobs to India.
Excerpt: “The idea that corporate America is stepping up and hiring
again is ludicrous,” Stephen Roach, Morgan Stanley & Co.'s chief
economist, said in a Dec. 9 televised interview with Bloomberg News.
U.S. services hiring has been virtually unchanged during the past
22 months, in contrast to a 5 percent gain in the six previous business
cycles, Roach said. That means the U.S. is “in the hole” by
2 million service jobs, compared with a “normal” business cycle
upturn, he estimates. ... To answer the challenge, Microsoft Chief
Executive Steve Ballmer last month said in New York that the U.S.
must churn out more math and science graduates. That would raise the supply
of computer engineers -- and push down their salaries to about $50,000 a
year, he says. That's about what the average U.S. high school teacher earns.
- TechWeb News: Outsourcing
Contributes To IT Salaries' Downward Spiral.
Excerpt: The growing number of companies moving information technology
work to low-wage foreign countries has driven down salaries for many
IT jobs in the U.S., and the trend is expected to continue, a salary
research group said Wednesday. Overall, the premium paid for IT workers
with specific skills was 23 percent lower in 2003 than in 2001, and
the pay for certification in particular skills dropped 11 percent,
Foote Partners LLC said. ... There are areas in IT where jobs are
expected to remain onshore--at least for a while, Foote said. Those
jobs tend to require a deep understanding of a company's business
processes. Those jobs involve system architecture and prototyping,
data and process modeling, and other pre-implementation work. Work
related to security and network administration and management also appears
- TechWeb News: Outsourcing
Lands In Political Ring With Both Feet. Excerpt:
The debate about offshore outsourcing is getting hot in the run-up
to the November elections. Democratic presidential candidate John Kerry says
American companies that move jobs overseas should lose certain tax
breaks. At the same time, a group of tech-industry CEOs that includes
Dell's Michael Dell, Hewlett-Packard's Carly Fiorina, Intel's Craig
Barrett, and IBM's Sam Palmisano released a position paper arguing that the
computer industry needs unfettered access to global labor.
- WashTech News: Tech
Workers Meet with Sen. Kennedy's Staff on H-1B Issues.
Excerpt: Boston – A group of high-tech workers and local business
owners concerned about the displacement of U.S. workers by non-immigrant
visa holders met last month with members of Senator Edward Kennedy’s
staff to discuss the misuses of the H-1B visa program. Senator Kennedy
is the minority leader on the House Committee for Immigration. Each
person told his or her story of how the H-1B program has affected
them: how they were laid off while the hiring of H-1B guest workers continued,
how they have a high level of technical skill but are unable to find
work, and how they have been discriminated against in job interviews.
- ComputerWorld: IT
Workers Scoff at Vendor CEOs' Lobbying Efforts. Calls
to help stem U.S. job losses seen as insincere. Excerpt: A group
of influential high-tech CEOs last week released a report that calls
on Congress and the Bush administration to avoid protectionist trade
measures that could hurt the industry's global competitiveness and
lead to a further loss of U.S. jobs.
But IT professionals in the U.S. have a different message for Congress
and the industry's leading CEOs: Stop sending our jobs overseas. "What
goes around comes around," said Richard Gump, an
independent programmer who works on a contract basis in the insurance
and health care industries. "Now that they feel the pain, they
want the government to help them. Where were they when they were
laying employees off and sending their jobs overseas?"
- Minneapolis Star-Tribune: Outsourcing
hits legal services.
Excerpt: First it was the apparel workers -- the working class --
who saw their $10-an-hour jobs go overseas. More recently, the United
States has started to export to India the $35,000-a-year customer-service
center jobs from the likes of American Express Financial Advisors
and $50,000 technical-support positions from IBM and ADC Telecommunications
to India and elsewhere where educated, English-speaking workers are
hired for a tenth of the cost to communicate with U.S. customers
by phone and over the Internet. Now, six-figure lawyers and legal
support staffs are starting to sweat. At West, the Eagan-based legal-publishing
unit of Canada's Thomson Corp., there's a buzz over a small test
office in Bombay, India, where Indian lawyers may one day interpret
and synthesize U.S. court decisions for subscribers of Westlaw, the
online legal network relied upon by thousands of practicing U.S. attorneys.
- CNN/Money: Offshoring
At both state and national levels, politicians are rushing to introduce
anti-offshoring laws. Excerpt: In December, the State of Indiana cancelled
a $15 million contract to upgrade its computer system. Why? Because
workers from India would have been working on the government job.
The Hoosiers garnered national headlines. But Indiana isn't the only state
that's backtracking from contracts that involve hiring foreign workers,
a process called "off-shoring."
- CNET News: Offshoring--a
hot 2004 campaign issue? Excerpt: So far, the
Democratic presidential debates and the candidates themselves have
focused on manufacturing jobs. They haven't spent much time talking
about what happens as white collar jobs such as engineering and software
design flow offshore. IBM will move as many as 4,730 U.S. programming jobs
to India, China and elsewhere, The Wall Street Journal reported last month,
which would be just a small part of what Forrester Research has described
as an exodus of 3.3 million U.S. service industry jobs over the next 15
this point, the presidential candidates seem only to be grasping
that jobs in the manufacturing sector are going overseas," said Marcus
Courtney, a union organizer with the Washington Alliance of Technology
Workers, part of the Communications Workers of America. "They don't
seem to grasp that the economy has changed and that service jobs
at every level, including highly paid engineering jobs, are going
overseas just like the manufacturing jobs did." In 6 to 7 weeks,
after the bruising first round of elections thins the ranks of candidates,
the Washington Alliance of Technology Workers plans to join with other
labor and left-wing activists to bring IT outsourcing into the election. "After
both the Iowa caucuses and the New Hampshire primary, the field of presidential
candidates is going to be shortened," Courtney
said. "It's going to be much easier for us to target messages to
those candidates when the field likely will be cut in half."
- Links to many other articles about offshore outsourcing are available
at Your Job is Going to
Secrets. Excerpt: Did IBM knowingly expose their high-tech workers
to dangerous chemicals used in manufacturing computers that caused
cancer, conceal this fact and then lie to them about it? That is the
core issue in a landmark trial, nearly 20 years in the making, which
began this past October in California Superior Court in Santa Clara
County, the heart of Silicon Valley, and is expected to end this spring.
The lawsuit punctures the carefully cultivated image of high-tech manufacturing
as a ‘clean’ industry. The reality is that making computer
components is actually a chemical-dependent process that uses some
of the most toxic substances, powerful acids, solvents, heavy metals and
toxic gases—ever created.
- San Jose Mercury News: Doctor
links cancer cases to IBM plant. Excerpt:
California's top occupational health doctor told a jury Tuesday that
exposure to workplace chemicals caused two former IBM workers to develop
cancer. The testimony by Robert Harrison was the first time an expert
witness has directly linked chemicals used at IBM's San Jose manufacturing
plant to Alida Hernandez's breast cancer and James Moore's non-Hodgkin's
lymphoma. Harrison is chief of the California Department of Health's
occupational health surveillance and evaluation program. Hernandez
and Moore are alleging in Santa Clara County Superior Court that IBM
knowingly exposed them to chemicals that made them ill and hid that information
- Binghamton Press & Sun-Bulletin: Ex-workers:
IBM said to keep quiet. Excerpt: Former IBM workers, some weeping, charged
publicly Thursday that the company routinely flouted safety measures
at the expense of workers, who they said were coerced and bullied into
keeping quiet. "Placing workers on chemical lines was used as punishment
for those who made waves," said James Little, a 15-year employee who
now works for IBM's successor, Endicott Interconnect Technologies. "I
was reprimanded by management for stopping a machine leaking chemicals.
During safety audits, we were told not to offer any information we
were not asked for." His comments, and others like it Thursday night,
are a significant departure from a general reluctance from IBM workers
in the Southern Tier to publicly criticize the company.
... Darlene Walker, who worked for the company from 1978 to 1993,
said IBM "put me through heck." She said she developed health
problems, including cancer, she believes are related to chemical exposure
on the job. When she brought the matter to her managers, she charged
was threatened. I was told to keep my mouth shut ... We need to
help past IBMers and protect current IBMers."
- To contact attorney William Deprospo, regarding chemical exposure: Phone:
+1.888.463.6426 or email: email@example.com
- Alliance@IBM expects continued job cuts at IBM, over the coming months.
Please send any information to firstname.lastname@example.org
- ThinkTwice December 2003/January 2004 Newsletter [PDF--243 KB]. Articles in this issue
- IBM Retirees Shocked by Health Care Increases
- An open letter to The IBM CEO
- New Band Changes to Affect
- The Utimate Takeaway—Your Health
- Former IBM
Suit on Age
in Job Cuts
- Legislative Actions Relating to
- Rollback Health Care Increase
- Australia IGS employees bring
IBM to negotiation table.