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    Highlights—April 23, 2005
  • Yahoo! News: IBM Employees Challenge Off-shoring, Executive Compensation and Retiree Issues at IBM Annual Meeting. Excerpts: Employees of IBM Corp. (NYSE: IBM - News), members of the Alliance@IBM, CWA Local 1701, will call on shareholders to support several critical resolutions at the IBM annual meeting set for Tuesday, April 26 in Charleston, S.C. Alliance members and other proposal proponents will be available in front of the Charleston Convention Center, 5001 Coliseum Dr., North Charleston, for media interviews beginning at 8:30 a.m., on April 26, prior to the meeting start. They will also address the annual meeting on key issues. IBM employees and retirees face many critical issues, such as the loss of jobs due to IBM's increased focus on offshoring and cost cutting that has hit employees and retirees hard, as well as the impact on workers of costly and in many cases, inadequate, medical benefits, said Lee Conrad, national coordinator for the Alliance. "IBM employees continue to be extremely concerned about job security," said Conrad. "Offshoring and the training of replacements is ongoing, employees are finding that the job performance evaluation system is being used as a club to force workers out of the company in lieu of public 'resource actions,' PC Division employees now find themselves working for a Chinese corporation, and there are rumblings of further job cuts following IBM's recent first quarter announcement." "Clearly the IBM that many employees and U.S. citizens remember no longer exists. It has become 'just another company,'" Conrad said. Further, IBM management now is blaming the pension plan for the financial woes of the first quarter, when in fact, the clever accounting practices of the past have finally caught up with the company, he added.
  • WSTM-TV Channel 3 (Central New York): IBM union organizers to speak out at Big Blue's annual meeting. Excerpts: A group trying to organize I-B-M's workers will be sending representatives from New York, Vermont, Colorado and other states to Big Blue's annual meeting in South Carolina next week. Alliance at I-B-M -- with its headquarters near the site of the company's first factory in Endicott -- will be supporting several resolutions at the shareholders' gathering in Charleston on Tuesday. Alliance president Linda Guyer says one resolution calls on I-B-M to restore its original pension plan. Another proposal calls on the company to evaluate the potential damage to the I-B-M brand name and reputation caused by outsourcing operations to other countries. Guyer says Alliance members will have a chance to directly question I-B-M chairman Samuel Palmisano about matters that are important to current employees and retirees.
  • The Register (United Kingdom): IBM may fix slump by firing 10,000 - analyst. Excerpt: IBM could cull up to 10,000 workers to make up for a disconcerting first quarter revenue shortfall, according to a top financial analyst. The question is whether these cuts will tidy the bottom line enough to offset what appear to be broad problems plaguing the company. During a conference call yesterday to explain a 9 cent per share earnings miss, IBM confessed it would consider a "sizable restructuring" but declined to detail what form this reorganization would take. Sanford Bernstein's meticulous analyst Toni Sacconaghi has predicted the restructuring will likely result in between 5,000 and 10,000 staffers losing their jobs. If there are job cuts, they will probably be tied to IBM's mainframe business and particularly mainframe workers in Europe, according to pundits. IBM's mainframe business suffered a double-digit drop in sales during the first quarter, and weak economies in Europe and Japan were blamed for the overall revenue miss.
  • Annex Research: Slammed and Dunked. Excerpt: IBM set a new all-time record in first quarter stock buybacks of $3.4 billion. Evidently the company feels that that is its preferred way of rewarding its shareholders (rather than through universal distributions, such as dividends, that are now taxed at slightly higher rates than capital gains). The fact that by definition it is only rewarding its former shareholders does not seem to trouble anyone at Armonk. Nor does it seem concerned that that capital might be better used if invested in the business. The fact that the company is no longer getting any "bang for the buck" in terms of stock price increases makes the continuation of this wasteful practice one of Armonk mysteries.
  • Yahoo! IBM Finance Message Board: "Pension cost to be devastating for" by "ibmoptioneer". Full excerpt: There is always a positive and a negative spin to every financial event. Like looking at a half full or half empty glass. The pension is a smokescreen. Failure of executives to execute properly is the keyword here. True, they could have known that things were bad so why not pile all the bad news at once. The only problem is that if retention becomes a problem net new options issued will have to be expensed in 3Q and 4Q. This will be (as it should)a permanent variable hit on earnings. This event can also be a way to hide other problems from shareholder view. As analysts focus on the announcement and its effects, the options expensing is another focus, but then something else could be hiding in the works for the AGM. The unusual moves will definitely trigger a look-see by the regulatory and investigatory government entities. This is always the risk in executing an unusual move. My take is that barring other bad news at the AGM, things will stay stagnant until the restructuring is announced and analyzed by the street. Debt and debt service is a looming problem. Ratios were bad and now worse as the valuation declines. The pension thing is a self-created problem that Lou screwed up. They are just taking a payback for the vapor profits of the 90's. Sam would do good if he personally took out several key high level executives. Take the industrial sector, for example. Someone ought to pay for the -1% performance there. Same thing for the poorest performing technology or product area. The troops on the trenches now have to see some executive blood flowing or Sam faces a potential employee insurrection if he just cuts troops on the ground.
  • Yahoo! IBM Finance Message Board: "Watson Didn't Have Dash Board On PC" by "idoubtitagain". Excerpt: This type of failure will continue, until Executives (The contractors) stop looking at the employees as "On Demand" temporary resources, that live under the threat of constant "resource actions" that totally disrupt process informal networks.
    Watson knew that the success of any company is determined by employee loyalty to that company, long term employees and the respect that the company shows towards its employees. Informal networks are how work actually gets processed and done, those networks are based on experience, and no virtual "team rooms" with "reusable assets" will ever replace them.
    The approach of virtual "team rooms" full with "reusable assets", accessible to global resources using virtual tools, while looking good from a executive level related to "On Demand Employee's" to allow global resource transitions to reduce costs may look good on a presentation , however this approach is deadly, related to project interlocks and the project churn that takes place that affect the bottom line when employees are considered as temporary assets, employees and the intellectual capital associated are the most valuable component of a company, that is where profit and shareholder value derives from.
    The problem is that a great many executives come from sales, while the ability to schmooze individuals and generate sales may appear to be one of the most important quality of an executive, the lack of vision of many executives has serious impacts on the bottom line. Lack of vision at the top, related to understanding how things need to get done always affects speed of execution of business requirements being translated into company profits, customer satisfaction.
    Informal employee networks based on experience are the most critical factors in the success of a company not the ability of executives to reorganize companies, cut employees to cut costs and propose agendas. IBM has totally changed the way that it looks at its most important resource, the employee and has eliminated Watsons respect statements, related to respect for the individual.
    Whenever you see any indication that a company is planning a "reorganization", the disconnects flow from the top down, not from the bottom up, the failure is at the top and the leadership needs to be changed.
  • CNN/Money: 'Hocus-pocus' at IBM? Analysts cry foul. What did the company know and when did it know it? Analysts charge Big Blue misled them. Excerpts: International Business Machines Corp. may have looked like it fessed up to bad news on Thursday when it reported a big profit shortfall. But closer scrutiny makes it appear the company was less than straightforward over how bad the earnings miss was. The profit fell short of the mean analyst estimate by 5 cents per share -- a big miss for Big Blue. But after accounting for the company's guidance for expensing stock options, the miss was nearly twice that at 9 cents a share. Analysts said that IBM, in effect, led them to believe that it would take a larger hit than it actually did from a new rule that will require companies to record stock compensation granted to management and employees as an expense. Sanford C. Bernstein analyst Toni Sacconaghi called it "hocus-pocus" on the part of the computer maker, which has been struggling with slowing growth in the technology market.
  • The Four Hundred: IBM Comes Up Short in Q1 After March Fall Off by Timothy Prickett Morgan. Excerpt: IBM pulled a Carly Fiorina last Thursday and gave Wall Street something of a surprise as it closed its first quarter a bit lower than the street had expected. And that is why IBM also surprised the street by moving up its announcement of financial results from this week to Thursday--there's no sense in sitting on bad news, especially when you can run your numbers in the same news space as Sun Microsystems, which reported its financials that evening, too. [...] Loughridge said that IBM is aware of the execution issues it is facing, and that it has already instituted restructuring changes to its organization that it was planning for the future. Because of the softness in sales that IBM saw in March, the company is stepping up those restructurings immediately, which he says should bear fruit in the second half of 2005. He was pretty vague about what these restructurings were, and just as vague about what the problems they were designed to solve actually were, except to say that there were sales execution issues across hardware, software, and services lines and that IBM would be moving decision making close to the customer and increase the speed of sales execution--what he referred to as "lowering the center of gravity" of the sales process. It is an interesting string of words, but how you increase the speed of sales execution in a market with ever-lengthening sales cycles without using price as a lever is a bit of a mystery. He confirmed that analysts' current estimates for the second half "remain reasonable," and closed by saying that IBM was "driving to get there a different way, on lower revenue and more cost and expense savings."
  • Wall Street Journal: Clouds, Not Clarity, Develop When IBM Expenses Options. By Charles Forelle. Excerpt: Two weeks ago, International Business Machines Corp. said it would begin expensing stock options in the first quarter, months before the deadline to do so. Recent "implementation guidance" dished out by the Securities and Exchange Commission had removed uncertainty about how the calculations should be done, the company said, and expensing would provide investors more clarity. But the move appeared to have an ancillary benefit to IBM itself: It cushioned the blow from a substantial earnings shortfall announced Thursday, making the earnings miss appear less drastic than it actually was.
  • Motley Fool: Getting Creative With Options Expensing By Dan Bloom. Excerpts: Options expensing is set to become a requirement by January of next year. This is a victory for investors, but during the transition you should expect many companies to find creative ways to use the switch to investors' disadvantage. [...] Here's a new twist on the options expensing game: Imagine a company is going to announce disappointing earnings. How can it minimize the impact to its stock price? Well, how about announcing a week or so before releasing earnings that it will start expensing options immediately? What? You don't see how this will help?
    Consider this real-life example: The company says the options charge will be $0.14 per share for the quarter, resulting in quarterly earnings of $0.90 per share. Nine days later, the company announces quarterly earnings of $0.85, resulting in a $0.05 earnings miss. Ouch! Wall Street doesn't take kindly to that kind of disappointment. Digging into the results, though, shows that the options expense was... no, not $0.14, but $0.10. And you have to really dig. The amount of the options charge was not included in the earnings release.
    Stick with me. We're almost done. Had the company given the true options charge of $0.10 in its earlier guidance, the expectation would have been for earnings of $0.94 instead of $0.90, resulting in a much larger $0.09 shortfall. Double ouch! Traders who respond to the headline number without looking at the fine print would likely lash the company's stock more severely in the latter case. So, who did this? None other than tech bellwether IBM. It announced earnings last Thursday afternoon, and on Friday the market erased almost $7 from the share price, amounting to more than $11 billion of market value. Why don't companies that engage in this sort of behavior worry that they erode investors' trust? I wonder what other kinds of tricks and twists await us before options expensing becomes mandatory.
    • "dawg4691" comments. Full excerpt: Sam, please resign! After this latest debacle, its the least you could do. Why can't IBM get a CEO that will return some trust and integrity, to this once great company. This "creative accounting", started by Lou, and continued by Sam has brought disgrace and shame to the people that built IBM. Why not resign before you're lead out in handcuffs and a raincoat over your head? I can remember when IBM was the industry standard for integrity. It sure seems a long time ago.
    • "idoubtitagain" comments. Full excerpt: IMO,the start of loss of integrity, can be traced to the IBM removal of Watsons principles of respect for the individual, as a guiding relationship and attitude of executive contractors and the company, towards non executive contractor employees. Gerstner added to it by his focus on executive contractor compensation at the cost of everything Watson had built into IBM at the start. We are now seeing the results of all of that.
  • Yahoo! message board post by "idoubtitagain". Full excerpt: People forget for some reason, that employees and their associated intellectual property are the most valuable resource of a company and that executive contractors looking at employees only like "On Demand" tools of production, can cause serious impacts to employee moral, damage to product delivery cross tower matrix interlocks that are driven by informal long term employee relationship networks, can seriously impact the bottom line and affect shareholder return.
  • Yahoo! message board post by "retired_in_89". Excerpt: I sold IBM shares at $319 and have seen it as high as $360 before a 2 for 1 split. However the price was NOT due to manipulation, sales of divisions, sales of assets, buyback of stock, or using pension fund surpluses to create vapor profits. It was simply due to good products, dedicated employees, and, as a result, the satisfied customers who had good reason to trust us. Oh yeah! And IBM even managed to give fairly regular COLAS to its retirees through whose efforts as employees it succeeded so well.
  • New York Times: Passing the Buck, by Paul Krugman. (Editor's note: This is a "must read" article). Excerpts: the United States spends far more on health care than other advanced countries. Yet we don't appear to receive more medical services. And we have lower life-expectancy and higher infant-mortality rates than countries that spend less than half as much per person. How do we do it? An important part of the answer is that much of our health care spending is devoted to passing the buck: trying to get someone else to pay the bills. [...]
    Isn't competition supposed to make the private sector more efficient than the public sector? Well, as the World Health Organization put it in a discussion of Western Europe, private insurers generally don't compete by delivering care at lower cost. Instead, they "compete on the basis of risk selection" - that is, by turning away people who are likely to have high medical bills and by refusing or delaying any payment they can. Yet the cost of providing medical care to those denied private insurance doesn't go away. If individuals are poor, or if medical expenses impoverish them, they are covered by Medicaid. Otherwise, they pay out of pocket or rely on the charity of public hospitals. So we've created a vast and hugely expensive insurance bureaucracy that accomplishes nothing. The resources spent by private insurers don't reduce overall costs; they simply shift those costs to other people and institutions. It's perverse but true that this system, which insures only 85 percent of the population, costs much more than we would pay for a system that covered everyone.[...]
    And the costs go beyond wasted money. First, in the U.S. system, medical costs act as a tax on employment. For example, General Motors is losing money on every car it makes because of the burden of health care costs. As a result, it may be forced to lay off thousands of workers, or may even go out of business. Yet the insurance premiums saved by firing workers are no saving at all to society as a whole: somebody still ends up paying the bills. [...]
    Think about how crazy all of this is. At a rough guess, between two million and three million Americans are employed by insurers and health care providers not to deliver health care, but to pass the buck for that care to someone else. And the result of all their exertions is to make the nation poorer and sicker. Why do we put up with such an expensive, counterproductive health care system? Vested interests play an important role. But we also suffer from ideological blinders: decades of indoctrination in the virtues of market competition and the evils of big government have left many Americans unable to comprehend the idea that sometimes competition is the problem, not the solution. If link is broken, view Adobe Acrobat version [PDF--31KB].

Coverage on H1-B and L1 Visa and Off-Shoring Issues
  • iSeries Network: More H-1B Workers Are Coming In; More R&D Is Going Out. By Mary Lou Roberts. Excerpts: Some see indications that the job market is looking brighter for iSeries workers and IT workers in general. Others, who feel strongly that offshore outsourcing and an influx of foreign workers on visas are crippling the breadth of opportunity for U.S. workers, take pleasure in the projections of a recent Gartner study that about 80 percent of customer-service outsourcing projects will fail. If true, certainly jobs will come back home again. But to some, the long-term employment picture is still looking grim, thanks to continued concerns about H-1B visas and a new trend to "outsource innovation."
    An H-1B is a visa issued to foreign professionals who come to work in the United States for up to six years. Under the program, U.S. companies can hire foreigners in "specialty occupations," says H1Base, one of several companies that specialize in matching foreign job applicants with U.S. firms looking for workers. As the company's Web site states, "the employer does not need to demonstrate that there is a shortage of qualified U.S. workers and, consequently, a labor-certification process can be avoided. Aside from documenting that the position offered is in a specialty occupation ... the employer need only verify that the H-1B visa worker is being paid the prevailing wage for the work being performed and that employment of a foreign worker is not harming conditions for U.S. workers." "Specialty occupations," of course, include computer science, engineering, financial analysis, and management consulting. "H1-B visas remain a serious concern for IT workers in this country," says Marcus Courtney, an organizer for the Washington Alliance of Technology Workers. "They've now expanded who can come in as workers under H-1B."
  • TechWeb: North America To Have Fewer Developers Than Asia/Pacific. Excerpts: North America is expected to have fewer software developers than the Asia/Pacific region beginning in 2006, due primarily from automation techniques and increasing productivity in North America and the trend among companies to move jobs to low-wage countries, a market research firm said Tuesday. China and India are expected to experience the highest compound annual growth rate in the number of professional software developers through 2008, increasing by 25.6 percent and 24.5 percent, respectively, International Data Corp. 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 of this week's posts follow.
  • "Is SP arrogant, or just clueless?" by "silentskeptic". Full excerpt: I'm surprised there hasn't been much discussion of SP's little speech to employees last Friday. (Probably that's because the sensible people here are already gone.) But I've never seen anything so appalling in my life. I'm still steaming over it a week later. The message was basically "I have a great strategy, and you guys screwed it up, so you'll pay the price." Does this guy have no shame? (Never mind, that's rhetorical, I guess.) I mean, what happened is the usual end-of-quarter pull-forward of things that make the numbers look good failed (as it had to at some point). That's why he was so fixated on "we didn't get deals closed at the end of the month" (although I don't get how closing deals that don't bring revenue in yet are going to change earnings 5 cents per share, but I'm not as smart as the Mensa Den up in Armonk). I can just picture him running around the bean counters offices yelling "FIND ME 5 CENTS A SHARE NOW!".
    OK, Mr.P, on to some specific points - First and foremost, Mr. CEO, your FIRST responsibility in a situation like this is to give a Mea Culpa. Doesn't matter what the circumstances are, you take the blame FIRST. It's the honorable thing to do. Finger pointing (which was the essence of the whole "we failed ourselves" speech) is dishonorable - totally. You should be ashamed. I didn't hear a SINGLE mea culpa in there, just a lot of self-congratulations on how great your strategy is. Well, guess what, your strategy is not good, it sucks, and the market has recognized this for some time. This was just crystal clear confirmation. Limited economic rationale can be made for it in specific cases, but it's NOT a $500B opportunity.
    Hey, you know what else? Maybe p*ss*ng off all of the talented people and having them leave in huge waves might be affecting contract performance? Why have we been thrown off at least two BTO contracts (and, I have it on good outside authority, are on the verge of being thrown off another) for lack of performance? Why are we losing money on some of the projects we're touting as great successes? When you're not giving yourself a stiffie thinking about how great you are, think about that for a while. "We failed to execute." No, I didn't. I met my billability targets and did my job, so leave me the hell alone. "We need to tighten our belts." And what the f*ck have we been doing for the last three years? I ain't got a notch lower than the one I'm on, pal. "Don't worry, it won't affect you, the changes will be made at the top." Yes, and Santy Claus is bringing my real bonus check over tonight. Do you really think we're that stupid? (again, rhetorical) Oh, there was more, but I'm running out of lunch hour. But it was absolutely amazing. I was physically ill afterward. Any other comments from those who saw it?
  • "You let your your coworkers down" by "Frank_Reality". Full excerpt: Sam's presentation reminded me of teachers who punish the whole class rather than a couple of guilty delinquents responsible for the problem. What that does is tick off the good students, thus losing their support. Done often enough, the students lose all respect for the teacher and total chaos is the end result. I see the recent events as proof that the "elephant can't dance", regardless of what Gerstner claimed. It comes down to speed of execution - the layers upon layers of interlocking executive management prevents the company from responding quickly to customer requests and market demands. It's not the big that will overcome the small - it's the fast will devour the slow. There are a lot worse ways to fix the problem than to eliminate about three layers of executive management who do little more than build their own kingdoms - counting from the top, eliminating the 3rd, 4th and 5th layers would do just fine. But that will never happen.
  • "Hmmm... should I, or shouldn't I?" by Linda Guyer. Full excerpt: Shall I listen to the replay? ... Hmmmm, how angry do I really want to be when I go into that meeting? I have gone every year since 2000 and SP has been a remarkably different person at the meeting than LVG was, who was incomparably arrogant. Mother Theresa, the Pope and the Dalai Lama could be in the audience and I'm sure Lou would spit on them like everyone else. Although I know SP must have vicious competitiveness in his soul to have made it to CEO, he puts on a good outward appearance of the slap-on-the-back friendly salesman. Should be interesting this year...
  • "It wasn't illegal, was it?" by "Old_Project_Manager". Full excerpt: saw first hand how IBM got around the restrictions to hiring H1 visa and bringing them into the US during the dot-com boom. Back before BIS even got started, in 1999, I was ordered by HR to post IBM job vacancies for IBM ERP Consultant jobs on my cubicle wall at my Customer's location. The idea was that no IBMers would see them and that after two weeks I would notify HR that there were no Internal applications. They would then process the paperwork to bring in the Indians whose names were already on the notices I posted, so HR could keep straight who was supposed to fill what job.
  • "Well..." by "CandorSense". Full excerpt: The code is that the position has to be one that cant be filled locally. I suppose HR could claim they tried. So it's gray.. I know that in the aggregate, INS should have figured out it was being scammed. One quick cure would be to pull the visas of any Indian working here on H or L status and send them home. Imagine the effect on unemployment in high tech. There are actually a number of web-sites to help Indians scam the system and in India, storefronts to assist. As I mentioned, it seems this isn't even an embarrassment to Indians who no doubt think the rules apply only to lower caste people.
  • "IBM Culture" by "CONsulting_2_long". Full excerpt: Sorry in advance for the caustic comments. The key point of you question was success at IBM, not in general or not ideally. At IBM,
    • Must hit utilization target that will prevent you from taking vacation
    • Must attend all internal conference calls to pledge allegiance to all 7 of your matrix bosses
    • Must NEVER question leadership -- NEVER, no matter how dumb the directive
    • Must have religious devotion to the right Partner that will do something for you -- careful to pick correctly, an incorrect choice will lead to being targeted for pain and suffering
    • Must learn IBM software/middleware products
    Those are the key to success. And being nice to clients, solving problems and adding value are all secondary.
  • "More things you'll need (more than you want to know)" by "silentskeptic". Full excerpt: - An intense, overwhelming lack of desire for professional satisfaction, money, or upward mobility. - Low enough vocabulary skills that you do not know the meaning of the words "bonus" or "training". - A total commitment to the BTO (or whatever the hell we're calling it these days) god, regardless of any sense it might make. - None of those pesky family commitments that prevent you from doing mundane work Saturdays and Sundays. - A keen ability to view the warped circumstances around you as normal, or even better, beneficial, and keep an attitude of Stepford ignorance of all the things going down the toilet around you. - A love of time-consuming project and performance review cycles that have results that are spit out randomly, whether or not you are a good performer or not. And, for when all that wears off, the name of at least two good headhunters...
  • "Recording my calls?" by "CandorSense". Excerpts: On the topic..I would like to see IBM cut some costs where it would have a real impact.
    1. Cut the PDF effort and all that surrounds it. Bury it. Thousands of hours spent by people who need to do real work for Zero gain and benefit. A huge piece of crap that only an idiot would use for any important purpose given that the content in 99 44/100% pure crap.
    2. Cut 50% of all staff above Associate Partners. Nuff Said.
    3. Dump tie-lines and all associated costs/infrastructure for the 100,000 odd people who will never answer a tie line call.
    4. Drop PWC as Audit team, hire upstart firm for 1/2 cost because, as if, PWC or any of the other big dudes ever earns a cent of what they charge (ala Enron, Worldcom and 1/2 trillion loss on Savings and loans that were all audited).
    5. 50% cut in Mass Media Marketing Spend. Would you buy services from IBM because of the posters you see on the jetways as you trudge off the plane?
    6. Cut 50% of staff above Associate Partner...(it is worth repeating).
    7. Close all call centers in India and don't replace (hey it is as if we have had none since we moved them there anyway so no big loss in function).
  • "Agree with all of it" by "Dose of reality". Full excerpt: But there are a few problems: The only real purpose of the PDF is to provide legal cover for HR. There is so much external hyper-sensitized scrutiny, and so many lawsuits-in-waiting, that the appearance of a controlled, documented appraisal system is one of the foremost objectives of any HR department. It doesn't matter if it is accurate, efficient, or informative, it just has to appear to be scientific. It would be much better to just leave it up to practice leadership to decide the best way to manage, retain, and incentivize staff. They are the only ones who are in a position to apply financial resources in an optimal manner.
    We could never dump PwC audit, since any other firm coming in would have a field day with the blind eye they have turned to the games we have been playing for the last ten years. On media, I was in a large hotel chain recently, surfing through the 30 or so TV channels, and came across a channel that had a static text message on 24 hours a day in bold print: "On demand business". Now won't that just compel someone to pick up the phone and call IBM?!

Coverage on Social Security Privatization
  • Newsweek: This Bet May Cost You Big, by Jane Bryan Quinn. The plan to reform Social Security will mean a double cut in benefits. Returns from private accounts are unlikely to cover both. Excerpt: When the president argues for privatizing Social Security, he hammers home a single point: it's a better financial deal for the young. If they all had personal investment accounts, they'd wind up richer than if they stuck with the government plan. Some unlucky people would fall behind, but not enough to matter (and besides, "it won't be me"). But how many of the young (not to mention the middle-aged) might fall on the "unlucky" side? A larger number than you think. What's more, you'll be getting a double cut in Social Security benefits—a fact that the White House hasn't exactly advertised. Investment returns from private accounts can potentially make up for one of the cuts, but they're unlikely to cover both.
  • Atlanta Journal-Constitution: Reality can't be altered or ignored. Excerpts: If you can't change reality, change the perception of reality. [...] If the White House promises Congress that a new Medicare drug benefit will cost no more than $400 billion — and threatens to fire government analysts if they tell the truth, that the real cost will be closer to $530 billion — does that mean taxpayers won't have to pay the bill of $720 billion, which is the latest reality-based estimate? [...] Every administration tries to manipulate public perception, but this is something different. In many cases, this administration actually believes in the false reality it tries so hard to create. It weaves an illusion around itself of how the world really works, then makes policy based on that illusion. [...] t is impossible for anyone, either as individuals or as nations, to have a complete and accurate grasp on reality. The best we can ever do is guess and be willing to adjust our concept of reality based on new information. But to the Bush administration, those adjustments to reality are signs of weakness. Its working principle is that if reality doesn't conform to ideology, it is reality that must be altered, because the ideology is fixed and not to be questioned. In the short term, that can pay political benefits. But in the long run, you pay a serious price if you let your perception of reality diverge too far from reality itself.
  • Common Dreams: Your Risk, Their Gain, by Scott Klinger. Excerpts: Would you be upset if someone spent millions of dollars to put your future retirement funds into a casino, while taking no risks with their own future? Say hello to the Wall Street CEOs whose companies are aggressively lobbying for Social Security privatization. Because of their bloated compensation packages, these CEOs pay Social Security taxes only a few days a year. The President has leaned on his Wall Street patrons to help with his faltering Social Security crusade. They have stepped forward, albeit blushing from embarrassment at their conflict of interest. These firms and their CEOs will handsomely profit from administering private accounts and collect billions of dollars in management fees. Meet Kennedy Thompson, CEO of Wachovia Corporation, one of the Wall Street financial firms that have been most active in efforts to privatize Social Security. The company supports the pro-privatization Alliance for Worker Retirement Security and Citizens for Sound Economy. Thompson is on the board of the Securities Industry Association, Wall Street's principal lobbying group, which has advocated for Social Security privatization for over a decade. As the country's third largest retail brokerage firm, Wachovia is well positioned to cash in on the establishment of private accounts, such as those advocated by President Bush. In 2004, Wachovia CEO Thompson hauled in $13.3 million in executive compensation. He was essentially done paying his Social Security taxes for the year at end of January 2. [...]
    So the average 'Joe' taxpayer pays an elephant-sized rate of Social Security taxes that is 152 times that of the flea-sized rate paid by CEO Thompson. If Thompson paid the same effective rate as Joe Taxpayer, he would have paid $1,654,644 in Social Security taxes, instead of $10,900. In 2004, the CEOs of the 26 leading Wall Street firms advocating for social security earned an average of over $17.7 million. Because of the earnings cap, they were done paying their Social Security taxes an average of four days into the new year. Seven of the CEOs were 'taxpayers for a day.' Their salaries were so gargantuan, they exceeded the $87,900 earnings cap in eight hours or less.
  • New York Times: Private Accounts, Public Accountability. By Martin Mayer. Excerpts: SO few specifics of President Bush's Social Security proposal have been made public that it is difficult to say which will make trouble. But one person who should be seriously concerned about the details is Alan Greenspan, chairman of the Federal Reserve. According to many reports, the Bush plan would require retirees who have chosen "personal accounts" to use most or all of the money in those accounts to purchase annuities to supplement the payments that will remain after the government recalculates their Social Security benefits. How large an annuity that retirees can buy - and thus what standard of living they may expect - will be determined largely by interest rates set by the Federal Reserve. That's a lot of power to concentrate in one conference room on Constitution Avenue. [...]
    Most people concerned about the security of their pensions in a world of personal accounts worry that the money would be invested in an Enron. As advertised, diversification would take care of most of that problem. But you can't diversify time. If President Bush's proposal had been in effect for the last 30 years, an American retiring in the spring of 2000 - having earned an average income and built an average personal account in index funds - would retain a personal account at least a third larger than the personal account of his younger brother, who had the same income and the same investments but retired in the spring of 2003. And this difference would have resulted not from anybody's working harder or investing more intelligently or more fortunately. It would stem simply from the accident of having been born a couple of years later. Over the years, central banks have learned to cope with irrational and arbitrary government policies. This one may be a step too far. Alan Greenspan should weigh in on the debate.
  • New York Times: Senator to Try New Strategy on Accounts for Retirees. By Robin Toner and Richard W. Stevenson. Excerpts: The Senate Finance Committee chairman, Charles E. Grassley, said Thursday that he would try to produce a Social Security bill with the support of Republicans alone, in an effort to jump-start a legislative effort now stymied by solid Democratic opposition. [...] Mr. Grassley's decision, first reported Thursday in USA Today, reflects the deep political resistance to Mr. Bush's Social Security plan. Even writing off the Democrats, it will be very difficult for Mr. Grassley to hold all 11 Republicans on his committee for a plan that includes private accounts paid out of payroll tax revenues, as Mr. Bush proposes. Senator Olympia J. Snowe, a moderate Republican from Maine on the committee, has repeatedly said she opposes the creation of such accounts. There are nine Democrats on the committee, and none have broken ranks.

New on the Alliance@IBM Site:
  • Alliance@IBM Press Release for IBM Stockholder Meeting. Excerpts: Earl Mongeon, Alliance Chapter representative from Vermont, questioned the stockholder meeting process as it has been run in the past. "This meeting is the stockholders meeting, not the Board of Directors and CEO's meeting. Putting the question and answer section after the adjournment is undemocratic and infringes on the rights of stockholders for full disclosure and dialogue. It's time to put good corporate governance back in the IBM stockholder meeting," said Mongeon. Alliance members are encouraging support for these resolutions:
    • #4 Pension and Retirement Medical. This resolution calls for an end to age discrimination in retirement policies by allowing all employees, regardless of age, to choose the promised pension and retirement medical insurance plan that were in effect prior to 1995 and 1999, when IBM unilaterally adopted drastic cuts and changes.
    • #5 Executive Compensation. This resolution directs that the compensation of senior executives will be determined without taking into account "income" that is derived from current defined benefit pension plans. That means senior executives will be compensated on their actual performance, not the additional earnings generated by "pension income."
    • #6 Expensing Stock Options. This resolution requests that the board of directors establish a policy of expensing the costs of all future stock options issued by the company in the annual income statement.
    • #7 Disclosure of Executive Compensation. This resolution calls on the board of directors to establish a policy of full and transparent disclosure of all compensation issued.
    • #8 Offshoring. This resolution requests that the board of directors establish an independent committee to investigate, evaluate and report on the risk to the damage to the company's brand name and reputation resulting from its on-going outsourcing initiatives.
  • AFL-CIO: Workers Join Lawmakers in Launching Employee Free Choice Act. Excerpts: Working families are pushing hard to pass legislation that would remove unfair obstacles employers routinely use to thwart workers’ freedom to form unions. The Employee Free Choice Act (H.R. 1696 and S. 842), introduced in Congress today by Reps. George Miller (D-Calif.) and Peter King (R-N.Y.) and Sens. Edward Kennedy (D-Mass.) and Arlen Specter (R-Pa.), would reform the nation’s basic labor laws by requiring employers to recognize the union after a majority of workers sign cards authorizing union representation. It also would provide mediation and arbitration for first-contract disputes and establish stronger penalties for violation of the rights of workers seeking to form unions or negotiate first contracts. [...]
    Some 57 million U.S. workers say they would join a union if they could, based on research by Peter D. Hart Research Associates. But when workers try to gain a voice on the job by forming a union, employers routinely respond with intimidation, harassment and retaliation. During union election campaigns, management routinely coerces employees to convince them not to choose union representation. According to a survey of NLRB election campaigns in 1998 and 1999 by Cornell University scholar Kate Bronfenbrenner, private-sector employers illegally fire employees for union activity in at least 25 percent of all efforts to join a union. Employees not fired fear losing their jobs if they support union representation. According to the Bronfenbrenner survey, management forces employees to attend group anti-union presentations in 92 percent of all union campaigns. Brent Garren, senior associate counsel for UNITE HERE, told a House subcommittee this past September that 79 percent of workers agreed workers are “very” or “somewhat” likely to be fired for trying to form a union.
  • Job cut alert! Alliance@IBM is receiving information that a resource action is about to happen in IGS. Please send any information to endicottalliance@stny.rr.com.
  • View the Think Twice show [Video, approximately 1 hour, requires RealMedia Player] Editors' note: We highly recommend this video. In it you'll meet leading activists at the Alliance@IBM, hear about the history of the Alliance, get updates on Alliance activities around the country, and hear about the shareholder proposals of interest to IBM employees.

"The test of our progress is not whether we add more to the abundance of those who have too much; it is whether we provide enough for those who have too little." — Franklin D. Roosevelt
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