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    Highlights—April 30, 2005
  • Forbes: IBM CEO: 'Taking Aggressive Action'. Excerpt: IBM Chief Executive Samuel J. Palmisano told shareholders gathered at the annual meeting here that the company was "taking aggressive action" to remedy problems that led to a first-quarter earnings shortfall. The Armonk, N.Y., technology company had trouble closing deals at the end of the quarter, and "we attribute most of that to our own execution," Palmisano said. He didn't specify what actions might be taken, but said the company was "restructuring parts of our operations to reduce bureaucracy and move more of our people and resources out to the field, closer to clients." Analysts expect International Business Machines Corp. to cut jobs, particularly in lagging regions of Western Europe. Palmisano did say that he and about 50 other top executives had agreed to defer their own compensation increases "until we get our business back on track."
  • Poughkeepsie Journal: Major IBM job cuts are predicted. Excerpts: IBM Corp. likely will make job cuts amounting to 10,000 to 20,000 people shortly, says a brokerage analyst who covers IBM. The cuts will probably come from IBM Global Services, said Steve Fortuna of Prudential Equity Group, writing to clients in a newsletter this week. ''We believe that IBM management is now under pressure to staunch the bleeding in the stock price, and expect the company to announce headcount reductions in the range of 10-20K over the next week or so,'' Fortuna wrote. [...]
    Global Services is about half of IBM's business. IBM employs 329,000 worldwide. The last report in 2000 on how many worked in the mid-Hudson was 1,500. ''We continue to believe that the majority of IBM's problems are confined to the services division,'' Fortuna said, adding that this accounted for most of the earnings miss. IBM's earnings, at 85 cents a share, were an 8 percent gain over the year-ago number. But they were 9 cents below expectations, Fortuna noted. Talk of job cuts of up to 10 percent in Global Services and trimming elsewhere first surfaced two months ago, said Lee Conrad, organizer with Alliance@IBM, or Local 1701 of Communications Workers of America. ''This is what happens when they panic about the stock price going down,'' Conrad said. ''They throw the crew off the ship.''
  • Charleston (SC) Post and Courier: IBM defers executive pay raises. Excerpts: The big surprise at IBM Corp.'s annual shareholders meeting in North Charleston Tuesday came near the end, when the chairman and chief executive of the computer-services giant said he and his top 49 managers will postpone their salary increases until business "is back on track" at Big Blue. [...] "I think that says a heck of lot about the leadership of the IBM company," Palmisano said. [...]
    Despite the stock slide, a whiff of discord and an offbeat outdoor performance by a troupe of Keystone Kops, the shareholders meeting was fairly uneventful. The questions were firm but polite. The audience was attentive and orderly. [...] While annual meetings for big global companies typically attract demonstrators, no groups disrupted or protested the IBM gathering. However, a group of performers dressed as bumbling Keystone Kops showed up to draw attention to Big Blue's business relationship with an international security firm. Also, a small but vocal group of shareholder activists assembled near the entrance to the convention center beforehand to promote their proposals and air their grievances. They included current employees, former workers and retirees whose ideas were voted on at the meeting. "The executives won't listen to us any other way," said Ralph Montefusco, a union official with a New York labor-organizing group called Alliance@IBM.
    Michael L. Saville, who worked for IBM in management and other capacities for more than 30 years before retiring in 1998. He said he made the trip from Utah to ask management to investigate the risk that outsourcing jobs poses to IBM's reputation. Palmisano said at least twice in his comments that IBM cares deeply about its employees and retirees. That may be, but the dissent remains, dating back to changes the company made to its retirement benefits in the 1990s, said Robert Monks, a corporate governance expert. Vermont resident James M. Leas, a former IBM engineer and outspoken critic of those changes, said that otherwise loyal "IBMers" began to speak out after 1999, when then-CEO Lou Gerstner reduced retirement benefits while pumping up executive bonuses. "It was like being on a college campus in the 1960s" said Leas, now a patent attorney whose proposal to change the retirement policies got about 13 percent of the vote. At least two shareholders who were otherwise critical of the company credited Palmisano for responding to some of their concerns Tuesday.
    Earl Mongeon, an IBM manufacturing employee and union activist from Vermont, said he had been unsuccessful in the past in trying to convince management to hold question-and-answer sessions. He wanted those comments included in the official record. "I was trying for years to bring democracy back into the annual meeting," he said. This year, the company changed its policy. "I'm going to take credit for that," Mongeon said, pumping his fist. Janet Krueger of Rochester, Minn., was pleased to hear that the top 50 executives agreed to defer their raises, especially at a time when deep job cuts are likely. "If you're going to ask employees to take some pain, you better take some pain at the top," Krueger said.
  • Information Week: IBM Workers In Europe May Strike Over Offshoring. Excerpts: IBM workers in Europe may strike this week over what they say is the company's ongoing movement of jobs to low-cost countries such as India and China, according to union sources. Meanwhile, a U.S. employee group is asking IBM stock owners to vote on an anti-offshoring resolution at the company's annual meeting Tuesday. Trade unions representing IBM workers in Germany have called for protests at IBM locations countrywide on Tuesday. Employee groups at IBM France have voted to strike at facilities in Toulouse and Marseille on Wednesday. IBM workers are unionized in parts of Europe but not in the United States, though some U.S. workers belong to a loosely knit employee association.
    IBM union leaders in Europe blame recent layoffs and facility closings on the company's shifting of jobs to low-cost countries in Asia and Eastern Europe. In an E-mail distributed over the weekend to IBM's European workers, union officials outlined their position succinctly: "Our main slogans are no offshoring, no layoffs!" IBM employs about 100,000 workers in Europe. The company recently said it might close German offices in Hannover and Schweinfurt. [...]
    Meanwhile, the offshoring controversy is hitting IBM closer to home. Members of a U.S.-based employee group have succeeded in placing several pro-labor resolutions on IBM shareholder ballots. One resolution requests that IBM's board of directors establish an independent committee to study the effects of offshoring on the company's "brand name and reputation." Another resolution calls for "an end to age discrimination in retirement policies." Stockholders will vote on the resolutions Tuesday in Charleston, S.C., at IBM's annual meeting.
  • Reuters: IBM Execs Forego Pay Raise for Now -CEO. Excerpts: IBM's top 50 executives have agreed to forego any salary increase until business at the world's largest computer company recovers, its chief executive told IBM shareholders on Tuesday. Sam Palmisano, IBM chairman and CEO, surprised the 200 attendees at the company's annual shareholder meeting in North Charleston, South Carolina, by saying top managers would defer a salary increase until IBM's business gets back on track. [...]
    The salary freeze came to light in an unscripted response by Palmisano in the final moments of the annual meeting when an employee and frequent critic of the company, asked him if he would return some of the hefty 2004 pay package he received. Last year, Palmisano received $1.66 million in salary and a bonus of $5.175 million. He also received 250,000 options, which remain worthless unless the stock rises by more than one third from current levels, that could be worth $12.7 million or more eventually, IBM spokesman John Bukovinsky said. Palmisano's response to Linda Guyer, president of Alliance@IBM, an employee group backed by the Communications Workers of America, surprised the crowd with his response. [...]
    The IBM executive said he would not return any of the pay he received for 2004, but that salary and bonus increases for IBM's top executives have been canceled for the time being, Bukovinsky said. Palmisano said he and the other members of IBM's Worldwide Management Council had voted unanimously to defer any salary increases for themselves -- IBM's top 50 executives -- until results improve. He did not specify how long this might take. IBM, based in Armonk, New York, still plans to move ahead with agreed upon salary increases during 2005 for the rest of its employees, Bukovinsky said. Guyer could not be reached for comment on her reaction to Palmisano's pay freeze plan.
    • Janet Krueger comments. Full excerpt: It is also important to note Sam's exact language. He did not say they would 'freeze' their salaries or that they would 'cancel' their raises. He said they would 'defer' their raises... Which could mean they just can't 'collect' the money from their raises until some future point in time; check how the word 'defer' is used in the IBM proxy: http://www.ibm.com/annualreport/2004/annual/ps_roec_3.shtml:
      "IBM established the IBM Executive Deferred Compensation Plan (the "EDCP") in 1995. The EDCP allows any U.S. executive, including officers, to defer additional income and receive a Company match on the same basis as the IBM Savings Plan except that the Company match for the EDCP is credited only in units of IBM common stock which are not transferable to other investment alternatives during employment. In addition, participants can defer all or a portion of their annual incentive until termination of employment under the EDCP. In the event that the salary of a Company officer who is subject to the limits of section 162(m) of the Code exceeds $1,000,000, such officer may defer up to 100 percent of his or her salary. The EDCP is not funded and participants are general creditors of the Company. All investments in the EDCP increase or decrease based on the results of the actual IBM Savings Plan funds' performance, but the payments after employment ends are paid out of Company funds rather than the actual returns on a dedicated investment portfolio."
      He COULD have just been saying that their raises get directly deposited into their "EDCP" accounts until further notice... Of course, I continue to question whether someone with that level of compensation can actually feel any monetary pain! Sam's 12 percent raise in his world is somewhat equivalent to a dime laying on the parking lot in my world...
    • "Executives Delaying Pay Increases?" by "godzillajaws". Full excerpt: What a joke, if they really wanted to make a statement, they'd tie their salaries directly to the stock price, retroactive to the start of this year. Say an executive does not get his 5% increase on a $1 million dollar salary. That means nothing to him/her, they still get $1 million. But to a guy pulling in $50K, not getting a 5% raise is a big deal. Palmisano and his cronies have been pulling in huge raises while most workers have gotten 0% or slightly more in the last few years. And you can bet that the executives will define when "the company is back on target", so they get these raises. To me, they shouldn't get a dime increase until the stock tops $100. Otherwise, it's nothing but a big show with no substance. Unfortunately, they're a lot like Congress, all hot air and no real morals, voting themselves yearly pay increases that aren't merited. What a friggin joke.
  • Yahoo! Message Board: "Wackenhut Protest at IBM annual meeting", by Janet Krueger. Full excerpt: Over a dozen protesters dressed as cops, as well as several dressed as prisoners, protested in front of the IBM annual meeting yesterday in Charleston with some lively juggling and keystone cop routines... I haven't seen any news coverage of their show, but there is coverage of a similar protest at: http://www.tnimc.org/feature/display/3270. In his efforts to avoid calling on known IBM employee protestors, Sam called on a representative of Protects USA, who explained why they were running the protest, asking IBM to run a general audit and review of all the contracted services they purchase from Wackenhut. Sam replied that it sounded like there are some internal disputes going on between Wackenhut and Protects USA and that IBM, as a general policy, does not get involved in such matters.
    I got the distinct impression from Sam's body language that he was wishing he had taken a question from one of us instead! He had time for one more question from the floor after that, and actually let Linda Guyer have the mike -- she asked the question that triggered Sam's commitment to 'defer' raises for himself and 50 other top execs for an undetermined length of time.
  • Vault Message Board: "Question for SP at ASM" by Linda Guyer. Full excerpt: The annual shareholder's meeting was held yesterday in Charleston SC. A few of us rabblerousers were there. After much hounding (since last year's meeting) from a particular shareholder, they decided to move the Question and Answer period of the meeting to *before* the adjournment of the meeting. A sound and logical decision. We'll see now if we can get a transcript of the meeting. When I asked my question to Sam, I mentioned cost cutting in IBM, low raises for most employees, and the disappointing 1st quarter. Then I asked if in the interest of shared sacrifice, would he consider giving back some of the 12% raise he received last year. His response was that they are keeping the salary increase for employees this year with no delay (not quite true, it moved from May to June) and that the top 50 execs would delay their raises. But I guess he isn't willing to take a pay cut. My question got some applause from the audience!
  • Yahoo! Message Board: "Execution issues" by "samneedsnewglasses". Full excerpt: The funny irony about the so called execution issues is that the 3rd and 4th line managers will now demand even more inspection and the weekly transaction updates that are demanded will now become daily exercises. The actions management typically comes up with are actually counter productive. Executives simply think if sales enters more opportunities in the beloved IBM opportunity management system, all will be well. We are run by a bunch of anal bean counters and we are no longer a sales organization. That is the issue.
  • The Journal News (Westchester, Rockland and Putnam Counties in New York): IBM shareholders to put company on the spot. By Allan Drury. Excerpts: Ralph Montefusco has no illusions that he and his allies who attend today's IBM Corp. shareholder meeting in South Carolina will muster the power to force lightning-fast change at Big Blue. His group, Alliance@IBM, will urge shareholders to approve resolutions on pension choice, executive pay and offshoring. Montefusco, an organizer with Alliance@IBM, said it is nearly impossible to gauge how any of the proposals will fare at the meeting since large institutional shareholders own such massive chunks of the company. [...] "The beauty of this and of participating in this is to bring our issues in front of the shareholders, the ones who are motivated enough to go to the meeting," he said. "This is the only chance we have to directly address the CEO and the board of directors. That's the value of doing this — bringing the issues forward," he said.
    Shareholders will vote on four proposals opposed by the company and supported by the Alliance. One introduced by Michael Saville, a former company employee now living in Riverton, Utah, is proposing that the board appoint a committee to study whether the company's image could be hurt by its offshoring practices. Saville said he believes the company's use of cheap labor in India and China shows it has lost its appreciation of its American workers. He believes those workers, not the executives or Wall Street, built the IBM empire. "It's the IBMer out there in the customer's office that makes IBM," he said. [...]
    Donald Parry, a retired IBM systems engineer from Jacksonville, Fla., wants the company to stop including pension fund income when determining executive compensation. The proposal got 36 percent support at last year's annual meeting.
    The meeting also demonstrates how small shareholders can shine a spotlight on the practices of a mammoth company. Janet Krueger of Rochester, Minn., owner of 30 shares, proposes that the board offer clearer statements in its public filings of the money, benefits and other compensation executives receive. Palmisano made $6.8 million in salary and bonuses last year, according to the company. He also got long-term incentive payouts of $1.68 million and $316,206 in other compensation. Palmisano also exercised 40,984 stock options worth $2.8 million. He had $30.92 million in unexercised options at the end of last year. He also had $3.98 million in options still unvested.
    Members of the alliance and others who support the proposals will be in front of the Charleston Area Convention Center at 8:30 a.m., 90 minutes before the annual shareholder meeting is called to order, to speak about their issues. Unlike last year, when union members and their supporters, marched outside the meeting in Providence, R.I., Montefusco does not expect any demonstrations. Those at last year's rally protested offshoring and pension changes. Whereas last year's meeting was within a three-hour drive of the company's headquarters in Armonk, this year's meeting is some 800 miles away, he noted. That makes it hard to mobilize employees and others to appear at the meeting and demonstrate, he said.
  • Yahoo! Message Board: "Explanation of IBM 2005 Pension Costs" by "madinpok". Full excerpt: If you go back a few years and study the annual reports, you'll see that when the stock market tanked around 2001, IBM continued to claim significant vapor profits from the pension fund based on projected returns of 9.5 and 10%. You'll also see huge "unrecognized actuarial losses" that represent the fact that the market really went down and the fund lost money ($4 billion in 2001 and $12 billion in 2002).
    Over time, those vapor profits need to be balanced out against the actual losses that took place. So IBM now has to recognize the difference as pension costs and has to contribute money to the pension fund to close the gap. It's easy to blame the costs on the pension plan. But the real fault is the fact that they claimed vapor profits when there really weren't any in order to improve the bottom line and fill their own pockets with larger bonuses.
  • Coverage of previous IBM shareholder meetings is available here:
  • Yahoo! Message Board: They realize morale is bad...WOW! by "dont_be_a_sheep_anymore". Excerpts: Can you imagine that IBM is actually doing something about the bad morale after all these years. Why? I only imagine is because the executives' golf buddies are probably ribbing them about what a cheap company they are, and how unhappy any of their friends and relatives are that work for IBM. So ultimately this will affect signings and business, and their compensation. Only when it affects their pockets will anything change.
    So do you think IBM would fix things things? Lets make another wasted position to brainwash employees to make them think things will get better, and have a bunch of focus groups to they can let off some steam. A director of employee satisfaction or whatever that new morale position is called. This will solve nothing. Many employees are making thousands less than they did a few years ago, while their benefit costs go up, and their cost of living goes up.
    IBM management has to wake up to address this before they lose more time, and the good employees leave. Yes, they will be the first to go, because they have the most to offer outside the company. IBM has too many wasted positions. People that don't sell, fix or manufacture something. They have flooded the company with people that either just hang around customer sites looking for sales leads, people that watch numbers and remind or pester employees to do things they are supposed to be doing anyway, and more and more layers of redundant management.
    IBM will never be able to pay competitive salaries again until they cut out all this wasted manpower. We have to share the revenue from every piece of hardware, software or service with too many people. Did you ever get on a conference call for even the simplest thing lately? There are dozens of employees from all over the country with their hand in the pot.
  • Yahoo! Message Board: "Re: So, whaddya think?" by "catmandu4". Excerpt: And I am one who HAS given up (at least as far as the ASM is concerned). I go from location to location and watch the fear among the troops. The bean counters have won (for now, at least) and we are micro managed to the nth degree. We have to report via SEVERAL different reporting tools so we spend 20-25% of our time simply filling out reports. And multiple people are filling out the same report at the same time so the data will be "accurate". It is bean counter heaven. If our apologists think that is of value, then they are getting their money's worth. However, every minute I spend on those reporting tools is minutes I am not in front of customers or putting proposals together. If some darn fool needs to know everything everyone is doing at the expense of generating revenue they should be shot. But, they are not, they are rewarded and rise ever higher in the management chain. I have seen similar things in cycles in the past but never to this degree. In the "olden" days, some senior exec would wise up and stop this bureaucracy. In today's world, I do not see that happening.
  • BusinessWeek: IBM's Restructuring Blues. The tech giant's overhaul of its workforce contributed to disappointing first-quarter results. Now, analysts are expecting a further shakeup. Excerpts: IBM started off the year with a strategy aimed at "lowering the center of gravity." The idea consisted of revamping a 330,000-person workforce to reduce expenses, shift work to lower-cost countries, and strip out bureaucracy. So far, the program has mainly lowered Big Blue's stock price and employee morale. Workers in Western Europe, in particular, are up in arms over the staff cuts. More than 2,000 positions are likely to be eliminated in France, Germany, and Sweden. Word is hundreds of tech-services jobs will shift from Western Europe to Hungary. HUGE CHARGE? On Apr. 26 some 600 unionized employees rallied outside IBM's German headquarters in Stuttgart, and similar protests are planned in France. "People are angry about how this is being done," says Gerhard Rohde, a director at Switzerland's Union Network International, a labor coordinating group. [...]
    Now analysts and investors are waiting for the other shoe to drop. IBM has hinted at a major charge for staff cuts -- which analysts estimate at 10,000 jobs. News on a restructuring is expected before CEO Samuel J. Palmisano's annual analyst briefing in June. Analyst Benjamin Reitzes of UBS expects the charge to be several hundred million dollars. He estimates that if Big Blue cuts its workforce by 10,000, it will be able to save $1 billion a year on a pretax basis. He's concerned that disappointing revenue growth in IBM's traditional info-tech services business may signal that the 2002 acquisition of PricewaterhouseCooper's consulting business may not be working out as hoped. And Reitzes believes Palmisano should consider naming a chief operating officer to improve execution.
  • InformationWeek: IBM Restructuring Could Bring Staff Cuts And Management Changes. Excerpts: A restructuring at IBM in the wake of the company's disappointing first quarter could include cuts in services employees and organizational changes. The company's revenue grew just 1%, excluding currency-related gains during the period, and its per-share earnings of 85 cents fell short of Wall Street expectations of 90 cents. The lackluster performance led CFO Mark Loughridge to concede during a conference call Thursday that "some sizable restructuring activities" are pending. Details of the changes will come in the next three months and will be "primarily designed to move decision making closer to the customer," he said. Yet analysts and insiders already are speculating on job cuts. [...] As a result, IBM may be poised to shake up its services business. The company could be planning staff cuts within its U.S. services arm of up to 10%, says Lee Conrad, who heads Alliance At IBM, an employee group connected to the CWA union. "We've been getting reports from our members that cuts of that level are in the wind," he says. An IBM spokesman calls the claim "speculative fabrication."
  • Personnel Today (United Kingdom): UK IBM staff fear the axe. Excerpts: IBM is considering cutting hundreds of jobs from its UK outsourcing division, it emerged today. The computer giant has begun to consult staff about the proposed job cuts, reports Personnel Today's sister publication, Computer Weekly. IBM declined to comment on the number of possible job losses, but staff said that about 650 UK jobs were expected to go. The consultation comes after IBM reported quarterly results last month which fell below analyst expectations. [...] Peter Skyte, national officer for union Amicus, which represents IBM workers, said, “In the past IBM has paid lip service to consulting the workforce and we shall be looking very closely at how the company approaches this. "We are particularly keen to ensure that highly skilled IT professionals are not made compulsorily redundant.”
  • Washington Post: Greenspan: Playing the Fool Or the Scoundrel? By Steven Pearlstein. Friday, October 29, 2004 (before the November election). Excerpts: Oil prices soar above $50 a barrel with little prospect of returning to more normal levels anytime soon. Not to worry, says Fed Chairman Alan Greenspan, new sources of energy are just over the horizon. House prices continue rising several times as fast as everything else, driven by record levels of household debt. Not to worry, says Greenspan, the debt is manageable and housing isn't susceptible to speculative bubbles. [...]
    The nation's current account deficit heads toward 6 percent of gross domestic product, a level unheard of for a major industrial economy. Not to worry, says Greenspan, financial markets will gradually bring things into balance. The urgent question before us today is: What has the chairman of the Federal Reserve been smoking? I will leave it to others to speculate on Greenspan's motive for taking his one-man Dr. Pangloss show on the road in the months leading up to a hotly contested presidential election. But what are we to say about a Fed chairman whose biggest economic concern a few years ago was that the government was projected to run such a big budget surplus that it could eventually force the Treasury to invest some of it in corporate stocks and bonds? There aren't too many people worrying about that one any more. Of course, one reason we're worrying about record deficits rather than record surpluses is that Greenspan gave his seal of approval to a series of tax cuts that the country could ill afford.
  • Washington Post: Greenspan Renews Warning on Budget Deficits. By Nell Henderson. Thursday, April 21, 2005. Excerpts: Federal Reserve Chairman Alan Greenspan said today that his support for tax cuts in early 2001 unintentionally encouraged policies that helped swing the federal budget from surplus to record deficits. In addition, he said for the first time explicitly that he expected tax increases to be part of any bipartisan agreement on deficit reduction. [...] "The federal budget deficit is on an unsustainable path, in which large deficits result in rising interest rates and ever-growing interest payments that augment deficits in future years," Greenspan said in his prepared testimony. "But most important, deficits as a percentage of [gross domestic product] in these simulations rise without limit. Unless that trend is reversed, at some point these deficits would cause the economy to stagnate or worse." Greenspan called for "major deficit-reducing actions" and acknowledged that tax increases may be part of an agreement between the two parties. Republican congressional leaders have ruled out tax increases to shrink the deficit. On the contrary, they are pushing to extend expiring tax cut provisions and to pass new tax breaks for energy companies.
  • Los Angeles Times: Clouds in a 'Healthy' Economy. Excerpts: Alan Greenspan must be more worried than he is letting on. Thursday, the Federal Reserve chairman soothed the markets while testifying before a Senate committee, but he was awfully testy when asked about his previous support for the Bush tax cuts. A central banker in the twilight of his career, Greenspan is eager to distance himself from this administration's disastrous economic stewardship. Yes, he agreed tax cuts were warranted, he argues, but only if the surpluses — remember those promised surpluses? — had held up. "They didn't listen to all of what I was saying," the Fed chief said, hopeful that history will absolve him.
    The administration's reckless deficits are making Greenspan's job rather difficult these days, so he is understandably bitter, if not contrite. The Federal Reserve is trying to control inflation without slowing economic growth — a tough assignment any time you have soaring fuel and commodity prices combined with consumer unease. One reason Washington's fiscal folly makes the Fed's job even tougher is that global disapproval of the nation's economic mismanagement drives down the value of the dollar, and for a nation as hooked on imports as we are, a depreciating currency contributes mightily to inflation.
  • New York Times: A Tax Benefit for Big Donors Often Bypasses Idea of Charity. By Stephanie Strom. Excerpts: George B. Kaiser, a publicity-shy oilman who built a fortune estimated at $4 billion by snapping up busted petroleum businesses in Oklahoma, set aside roughly $1 billion for charitable endeavors from 2000 to the end of last year. In exchange, he can now deflect taxes on much of his own income over the next several years. But it turns out that only $3.4 million of the money he set aside has gone to charities. The rest is sitting in an obscure philanthropic entity called a supporting organization, so named because it is created to support a specific charity or charities. Supporting organizations are attractive to donors because they offer the generous tax benefits associated with donating directly to charities and operate much like private foundations, but without a foundation's more onerous requirements.
    Donors get those perks because they agree to relinquish control over the money. But since they appoint the organization's board, they can retain a great deal of influence over it. Regulators and lawmakers suspect that many wealthy people have used these organizations more for tax planning than for any charitable aim and are pushing for tighter rules as part of a broader crackdown on charitable tax exemptions. "I'm deeply disturbed that with a good number of supporting organizations, people are taking multimillion-dollar tax deductions for what they claim are contributions to charity, yet too often the result is a thimbleful of benefit to charity," said Senator Charles E. Grassley, the Iowa Republican who is chairman of the Senate Finance Committee.
  • New York Times: The Oblivious Right. By Paul Krugman. Excerpts: According to John Snow, the Treasury secretary, the global economy is in a "sweet spot." Conservative pundits close to the administration talk, without irony, about a "Bush boom." Yet two-thirds of Americans polled by Gallup say that the economy is "only fair" or "poor." And only 33 percent of those polled believe the economy is improving, while 59 percent think it's getting worse. Is the administration's obliviousness to the public's economic anxiety just partisanship? I don't think so: President Bush and other Republican leaders honestly think that we're living in the best of times. After all, everyone they talk to says so. [...]
    What's going on? Actually, it's quite simple: Mr. Bush and his party talk only to their base - corporate interests and the religious right - and are oblivious to everyone else's concerns. The administration's upbeat view of the economy is a case in point. Corporate interests are doing very well. As a recent report from the Center on Budget and Policy Priorities points out, over the last three years profits grew at an annual rate of 14.5 percent after inflation, the fastest growth since World War II. The story is very different for the great majority of Americans, who live off their wages, not dividends or capital gains, and aren't doing well at all. Over the past three years, wage and salary income grew less than in any other postwar recovery - less than a tenth as fast as profits. But wage-earning Americans aren't part of the base. [...]
    But Americans are feeling a sense of dread: they're worried about a weak job market, soaring health care costs, rising oil prices and a war that seems to have no end. And they're starting to notice that nobody in power is even trying to deal with these problems, because the people in charge are too busy catering to a base that has other priorities.
  • New York Times: A Private Obsession. By Paul Krugman. American health care is unique among advanced countries in its heavy reliance on the private sector. It's also uniquely inefficient. We spend far more per person on health care than any other country, yet many Americans lack health insurance and don't receive essential care. This week yet another report emphasized just how bad a job the American system does at providing basic health care. A study by the Robert Wood Johnson Foundation estimates that 20 million working Americans are uninsured; in Texas, which has the worst record, more than 30 percent of the adults under 65 have no insurance. And lack of insurance leads to inadequate medical attention. Over a 12-month period, 41 percent of the uninsured were unable to see a doctor when needed because of cost; 56 percent had no personal doctor or health care provider. Our system is desperately in need of reform. Yet it will be very hard to get useful reform, for two reasons: vested interests and ideology. [...]
    The most striking inefficiency of our health system is our huge medical bureaucracy, which is mainly occupied in trying to get someone else to pay the bills. A good guess is that two million to three million Americans are employed by insurers and health care providers not to deliver health care, but to pass the buck to other people. Yet any effort to reduce this waste would hurt powerful, well-organized interests, which have already demonstrated their power to block reform. Remember the "Harry and Louise" ads that doomed the Clinton health plan? The actors may have seemed like regular folks, but the ads were paid for by the Health Insurance Association of America, an industry lobbying group that liked the health care system just the way it was. [...]
    But vested interests aren't the only obstacle to fixing our health care system. We also have a big problem with ideology. You see, America is ruled by conservatives, and they have a private obsession: they believe that more privatization, not less, is always the answer. And their faith persists even when the evidence clearly points to a private sector gone bad. I could cite many examples of this obsession at work. But a particularly good illustration of ideology-induced obliviousness is the 2004 Economic Report of the President, which devotes a whole chapter to health care that can be read as a sort of conservative manifesto on the subject.The main message of that report is that U.S. health care is doing just fine. Never mind the huge expense, the low life expectancy, the high infant mortality; it's a market-based system, so it must be good.
  • Newsweek: How We Drive Our Jobs Away. The most recent government action in American health care has made things much, much worse. The result: a fiscal black hole. By Fareed Zakaria. Excerpts: Which part of North America makes the most cars? If you answered Michigan, you would have been right for 100 years. But you would not be right anymore. Last year the Canadian province of Ontario surpassed Michigan in car production. Of course, most of the cars made in Ontario are manufactured by America's Big Three—General Motors, Ford and Daimler-Chrysler. These companies are shifting production out of the United States for one overwhelming reason: massive health-care costs. An American worker costs them more than $6,500 in health care per year. In Canada, which has a government-funded and -run health-care system, the cost to the employer per worker is just $800. While the Big Three are an unusual case, they highlight what might turn out to be the most significant threat to the competitiveness of American firms in an increasingly global economy: our out-of-control health system.

Coverage on H1-B and L1 Visa and Off-Shoring Issues
  • New York Times: 'What, Me Worry?' By Thomas L. Friedman. Excerpts: Let me translate Mr. Gates's words: "If we don't fix American education, I will not be able to hire your kids." I consider that, well, kind of important. Alas, the media squeezed a few mentions of it between breaks in the Michael Jackson trial. But neither Tom DeLay nor Bill Frist called a late-night session of Congress - or even a daytime one - to discuss what Mr. Gates was saying. They were too busy pandering to those Americans who don't even believe in evolution. And the president stayed fixated on privatizing Social Security. It's no wonder that the second Bush term is shaping up as "The Great Waste of Time." [...]
    "For the first time in our history, we are going to face competition from low-wage, high-human-capital communities, embedded within India, China and Asia," President Lawrence Summers of Harvard told me. In order to thrive, "it will not be enough for us to just leave no child behind. We also have to make sure that many more young Americans can get as far ahead as their potential will take them. How we meet this challenge is what will define our nation's political economy for the next several decades." Indeed, we can't rely on importing the talent we need anymore - not in a flat world where people can now innovate without having to emigrate. In Silicon Valley today, "B to B" and "B to C" stand for "back to Bangalore" and "back to China," which is where a lot of our foreign talent is moving.
  • Boston Globe: A plan to offshore . . . just 3 miles out. By Hiawatha Bray. Excerpts: Here we are, with thousands of American software engineers clamoring for more work, and these two guys have a plan to carry even more jobs offshore. Not to India this time, or to China. Just . . . offshore. They figure three miles out in the Pacific should be far enough. Roger Green is a software entrepreneur. David Cook was once a supertanker skipper who spent 15 years hauling crude oil through the world's sea lanes. Now the two men have announced a remarkable venture called SeaCode, a company that plans to hire 600 superb software designers from every corner of the world and house them in a luxury cruise ship just out of reach of US immigration law -- but close enough to bid on multimillion-dollar US software contracts. [...]
    The plan is to purchase a cruise ship and refit it as a lavish floating hotel. There'll be private rooms for 600 software engineers and plenty of creature comforts. ''They are fed, housed, and their laundry is done for free," Cook said. There'll be a crew of 300 to attend to their needs; there'll even be free medical care. But this ship is also a floating software factory, with workers toiling around the clock, while clients buzz in by helicopter to check up on them.
  • CNET News: Gates wants to scrap H-1B visa restrictions. Excerpts: Microsoft Chairman Bill Gates slammed the federal government's strict limits on temporary visas for technology workers, saying that if he had his way, the system would be scrapped entirely. "The theory behind the H-1B (visa)--that too many smart people are coming--that's what's questionable," Gates said Wednesday during a panel discussion at the Library of Congress. "It's very dangerous. You can get this idea that the world is very scary; let's cut back on travel...let's cut back on visas."

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.
  • "Can you handle the truth?" by "Dose of reality". Excerpt: While it may be a bitter pill to swallow, let me tell you what is going on at BCS. We are having a heck of a time trying to sell work into this market. Without going into the gory details that are all over this board, suffice it to say that most of the real sales and management talent has either departed due to being screwed the last few years, or is actively looking. We also have the wrong business strategy, a bunch of cost-cutting amateurs instead of growth oriented leaders, and BCS is the abused weak sister at IBM. We are expected to work miracles and we get no credit for what we do for the rest of IBM. Abuse flows downhill.
    Behind these front lines, you have bloated support functions like finance and HR, with very little accountability, way too much power, and all the customer service orientation of a 1980s vintage airline baggage handler. Their general MO is to put on a pretense that they are effective in their jobs, but service to you is just a very remote means to an end. Many of them are 9 to 5ers whose main talent is getting connected so that they can’t be touched. They are not evaluated based on their service to you, and it is rare to find one that will work to further your career on any level. They get the most credit for finding creative ways to cut costs and raise targets, regardless of the long term impact on the company. It is a poisoned culture, if ever there was one.
  • "Worst company I have ever worked for" by "deepocean". Excerpt: IBM is absolutely the worst company I have ever worked for in my 20 year career. I joined as part of the PwC acquisition and have tried my best to make a career at IBM work. My efforts have been rewarded with salary decreases, no bonuses, and repeated cries from completely useless and uninspiring managers to work more billable hours. Client satisfaction and useful industry solutions are only given lip service. My biggest fear about working for IBM was that clients would think we would always be trying to sell them IBM "solutions" they don't want or need . . . which is exactly what is expected of IBM consultants. What's worse, we're expected to understand and sell stuff that really doesn't even exist. Let's be honest . . .On Demand is nothing but marketing bullsh*t. The amount of bureaucracy and incompetence I have seen at IBM is unbelievable! I would never have believed such a mess could exist within IBM had I not witnessed it personally. If the Board and executives of this company are not completely replaced soon with people with a brain and good business ethics, this company is finished. Wake up stockholders!
  • "Wanted to make it work" by "deepocean". Excerpts: Again, you can't tell me it has anything to do with the market rates right now . . . I can do the math. It has more to do with way too much overhead and poor management. At PwC the partners and consultants did everything from sales to delivery. The consultants also did their own billing and collections. IBM has layer upon layer of bureaucracy that costs way too much money . . . thus they can't compensate the consultants who are actually doing the work fairly. IBM has sales executives and delivery executives at every intersection of geography and industry and service line and then there are layers built on all of those intersections. Even worse, there are two groups that do pretty much the same thing (AMS and BCS) but have separate layers of management. You've got to be kidding! When was the last time some of those people actually added any value or billed a client for some work that was done? Or do they simply exist to tell everyone else to work harder and dream up a bunch of stupid sh*t that we should try to sell to our clients (that they really don't want)? Those people are nothing but professional leaches. Not much better than an Amway sales pyramid! IBM is a big, stupid, bureaucratic mess! The sooner the organization (or more likely, the stockholders) realize that reality, the sooner proper steps will be taken to fix it. That means . . .fire your ass and people like you and get some smart people running the show!

Coverage on Social Security Privatization
  • Economic Policy Institute: Social Security's fixable financing issues. Shortfall in funds is not inevitable. By L. Josh Bivens. Excerpts: In 1982, an imminent shortfall in Social Security--the projected inability of Social Security's finances to meet the next year's benefit payments--prompted action by Congress. Adopting several of the recommendations of the bipartisan Greenspan Commission, Congress instituted a series of changes to the Social Security program that increased tax revenues dedicated to the program, and decreased the benefits Social Security pays out. These changes led to a balance (actually, a very small surplus) in the 75-year planning horizon that is traditionally used to grade the system's solvency.
  • Washington Post: A Gambler Decides to Raise the Stakes. By Dana Milbank and Jim VandeHei. Excerpts: President Bush made a huge gamble last night in a bid to restore momentum to his flagging proposal to restructure Social Security -- and to his presidency. With two in three Americans disapproving of the way Bush has handled Social Security, many political observers thought it would be prudent for Bush to cut his losses and negotiate a bipartisan compromise on Social Security, perhaps without the personal accounts he has promoted for the past several months. [...] Instead, Bush held a prime-time news conference and doubled down on his bet. He continued to press for private accounts while adding a proposal that would cut Social Security spending by $3 trillion over 75 years -- openly defying the longtime belief that proposing cuts in the beloved program is bad politics.
  • New York Times: Bush Cites Plan That Would Cut Social Security Benefits. By Richard W. Stevenson and Elisabeth Bumiller. Excerpts: President Bush called Thursday night for cutting Social Security benefits for future retirees to put the system on sound financial footing, and he proposed doing so in a way that would demand the most sacrifice from higher-income people while insulating low-income workers. [...] Under the proposal, first developed by Robert C. Pozen, an investment executive, benefit cuts would be imposed gradually on future retirees. The cuts would fall most heavily on people at upper income levels. The cuts would be less, but still substantial, for middle-income workers. Low- income people would suffer no benefit cut at all. Politically, the plan has the advantage, in the White House's view, of being attractive to moderate Democrats by making the system more progressive.

New on the Alliance@IBM Site:
  • Federal Court: IBM on wrong side of the law. Speech to IBM stockholders meeting by James Marc Leas, in support of Resolution 4: Stockholder Proposal on Pension and Retirement Medical. Charleston, SC April 26, 2005. Excerpts: Mr. Palmisano, when you and Mr. Gerstner slashed long promised retirement pay and retirement medical in 1999, you created an unprecedented groundswell of protest among tens of thousands of IBM employees who knew instinctively that your actions were illegal and immoral. They were not just angry that you were stealing earned compensation from them when they were old and most in need. They were not just angry because you broke promises made to them over decades that retirement pay and retirement medical insurance were a secure part of their earned compensation, that retirement pay was safely held in an separate pension trust fund, and that this fund would be used for the exclusive benefit of retirees. They were also angry because by breaking trust with employees you were putting the whole IBM company at risk. [...]
    When you and Mr. Gerstner reneged on the promised and earned pension and retirement medical, you blew the competitive advantage provided by a $70 billion pension trust fund, you blew the fierce loyalty, and you blew the trust of IBM employees. And when IBM employees found that Gerstner had made the decision and Palmisano maintained the decision for self serving reasons many talented IBMers, including many inventors left to join the competition. IBM paid a heavy price to put Mr. Gerstner and Mr. Palmisano's pay at risk. Reneging on promised retirement pay is a good part of why IBM missed deadlines and why sales and profits stagnated these past five years, and why IBM was forced to leave or sell businesses that used to be very profitable.
  • Analysis of IBM's revenue, profit, and vapor profit. Excerpts: While revenue and profit have been stagnant, vapor profit grew rapidly and then declined rapidly. Vapor profit is the paper boost to IBM income from pension fund accounting rules. It is purely an accounting rule treatment: no money is transferred to IBM from the pension fund. For example, vapor profit in 2003 was $692 + $111 million = $803 million. For 2004 the vapor profit had shrunk to only $-95 million. The IBM pension fund holds $76.0 billion for retirees (p. 82 of the 2004 annual report). In years past this fund helped attract and retain highly qualified employees--providing pension at little or no cost to the company. Pension works to attract and retain employees only if they can trust that it will be there when they retire. When IBM converted to cash balance plan in 1999 it destroyed the trust essential for IBM to benefit from its pension plan. Thus, IBM gave up an enormous competitive advantage. In the table below, the after tax profit column is subdivided into "vapor profit" and "all other profit."...
  • IBM France Employees strike over job cuts. Excerpt: "Almost all of the staff on duty in IBM Toulouse went on strike. The ITS Maintenance service was closed in the whole South of France (Bordeaux/Toulouse/Montpellier/Marseille). In the office building 80% on strike. It is more difficult to say how many of our co-workers were on strike in the remote locations, or at customer site. The bedsheet posted on the wall of the office is in full sight from the highway below (management made us remove it during the morning ). Local press is reporting on the parallel strikes in Marseille and Toulouse."
  • Verdi protests layoffs at IBM. Excerpt: Some 750 IBM employees and trade unionists gathered on Tuesday April 26 in front of the German IBM headquarters in Stuttgart. The protest was triggered by IBM's announcement in March to close down two subsidiaries in Hanover and Schweinfurt, leading to some 600 dismissals. Although IBM had locked all the exits quite a number of headquarter employees joined the protest demonstration. Many other protesters had come on buses from Frankfurt, Düsseldorf, Hanover and Schweinfurt. Many protesters carried ver.di flags and posters blaming IBM for bad management. Though most of them were IT professionals not normally taking to the street to express their anger, the colorful demonstration looked no different from other demonstrations. They blew whistles and shouted angrily, when speakers pointed the finger at IBM management for trying to please the stock markets and increasing short-term profits through laying off employees. The first protest rally was held in Hanover during CeBIT - the large IT fair. Stuttgart was the second protest and more action is expected in coming months.
    UNI's Gerhard Rohde conveyed a solidarity message to the demonstration and said that the IBM strategy was wrong and counterproductive. "In order to stay competitive in global markets this company has to take care of their human capital," said Gerhard. "People who are de-motivated, intimidated and unhappy with the company's behaviour cannot perform at their best." Most prominent speaker was Frank Bsirske, Verdi President and President of UNI Europa. He said that the company had violated legal regulations as laid down by German company constitutional law. He urged management to re-think the closure of subsidiaries, which, he stressed, was not justified economically as the company is in good shape. He also expressed concerns that this was only the first step of a major overhaul of IBM's global service business. He said that ver.di is determined to fight any forced dismissals and that those made redundant should be offered alternative jobs in the company.
  • 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.

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