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Highlights—November 22, 2008

• Forbes: IBM's Chief Isn't Blue. By Robyn Meredith. Excerpts: i don't know about you, but I've had enough with waking up to bad news every day since the market turmoil began two months ago. I'm through with looking at clouds. I'm focusing on silver linings from now on. Which brings me to IBM Chairman and Chief Executive Samuel Palmisano, who insists, "This is a great time!" ...

  More and more of the future will take place in developing countries instead of mature markets like the U.S., Europe and Japan--all of which are now in recession. International Business Machines has already turned to India and China in a big way: About 75,000 of Big Blue's 385,000 employees are in India and more than 10,000 are in China. Those countries are a given for both revenue growth and cost cutting, for multinational companies large and small.

  But IBM is looking "beyond the BRICS," Palmisano said. While the West stagnates, IBM is expanding in 16 countries, including Indonesia, Vietnam, Mexico and various Eastern European nations. ...

  Yes, most of the salaries demanded in emerging markets are lower. But that's not all. Palmisano personally opened IBM's Shanghai research facility. The way he sees it, Western companies are finding new sources of potentially world-class talent and all the hiring activity helps create middle-class jobs--and consumers--in countries where those were scarce.

  He admits that hiring cheaper workers overseas sometimes displaces American workers. And he said the U.S. workforce needs to be better prepared for coming dislocations. IBM, which has hired so fast overseas, is encouraging employees to keep their skills up to date by offering "Personal Learning Accounts"--kind of like 401(k) accounts for continuous learning.

• The Four Hundred: Layoffs--Possibly Including Frank Soltis--at IBM Rochester. By Timothy Prickett Morgan. Excerpts: According to a posting on the Midrange-L mailing list, where a lot of the AS/400 intelligentsia hang out to talk and gripe, IBM apparently had some layoffs at the Rochester, Minnesota, home of the AS/400 and its successors. And, if what long-time and staunch AS/400 enthusiast Neil Palmer said in the post is true, the chief architect of what used to be called the System i until last year is getting ready to leave the building. ...

  More ominously, in a second posting at Midrange-L, Palmer says that one of the people who IBM will let go is none other than Frank Soltis, the architect of the System/38 and AS/400 and the man who was given the title of chief architect of its successor platforms but with not much more than a mandate to move to converged hardware, middleware, and now virtualization layers. IBM spokespeople were unable to confirm this as we went to press on Friday, but the departure of Soltis would not be much of a surprise. Money is power in this world, and in a decade the AS/400 has shrunk from a $4 billion or so systems business to maybe a little over $1 billion, not including tools and services. And while a lot of that $1 billion is still profit, and there are lots of services and other products that go into i shops, with the economy in the tank, IBM may very quickly have a lot of layoffs, not just in Rochester.

• The Register: Papermaster countersues IBM over Apple gig. 'Your chip secrets are safe with me'. By Austin Modine. Excerpts: Apple executive-in-waiting Mark Papermaster is countersuing his former employer IBM for attempting to bar his employment in Cupertino. IBM recently sued the former chip guru and longtime staffer in New York federal court, accusing him of breaking his non-compete agreement. Big Blue says his intimate knowledge of IBM's Power microprocessor technology makes him a security risk at Apple. ...

  Papermaster's counterclaim argues that the companies are not significant competitors and that he'll be doing completely unrelated work at Apple to what he was doing at IBM. He also claims the non-compete agreement is unreasonably broad in that it would restrict him from "working anywhere in the world based on the global scope of IBM's business" for an entire year. The claim also points out that Papermaster has lived and worked in Austin, Texas for nearly a decade while the non-competition agreement is governed by the laws of New York.

  "Mr. Papermaster has no substantial relationship to New York, in that he has resided and worked in Texas for the past 17 years, and he is going to work for Apple, which is a California corporation," the filing states. "Both states hold that such noncompetition agreements are unenforceable as a matter of public policy."

• ZD-Net: Sun cuts 5,000 to 6,000 jobs. By Larry Dignan. Excerpt: Sun said Friday that it will lay off 15 percent to 18 percent of its workforce–or 5,000 to 6,000 people–as it restructures amid weak demand, a series of poor quarters and a business model that rallies around open source software. Add it up and Sun is looking to save about $700 million to $800 million annually.
• Computerworld: Can Obama reverse job offshoring? By Patrick Thibodeau. Excerpts: The chart above, prepared by IT services firm Affiliated Computer Services Inc. for investors, illustrates how this company is shifting jobs overseas. In the span of a few years, the offshore headcount has increased from about 25% to 35% of the company's workforce, now at about 63,000. And this Dallas-based company isn't moving low-level jobs overseas. It's going much deeper. "To have a greater financial impact, we will be moving a higher percentage of more complex, higher paying jobs offshore, including management and application development roles," ACS President and CEO Lynn Blodgett said during an investors call last week.

  Other IT vendors are doing the same thing. The only difference is that most of the other vendors don't produce charts for public consumption as detailed as the one above. Outsourcing vendors across the board are moving jobs overseas to cut their own costs and stay competitive with the Indian outsourcing firms.

  The tools that President-Elect Barack Obama has to change this trend, especially during a recession, aren't clear. All the outsourcing vendors have government contracts. And even if state, local and federal agencies bar the use of offshore development in some of their contracts, government agencies are using the same offshore developed software modules as the private sector. Any government agency that has a support contract today with a major vendor is getting support, in one form or another, offshore.

• National Public Radio (NPR): Retirement Tips For An Economic Crisis. What are your investment options if you're nearing retirement? Or if retirement's many years away? How can the Great Depression give us perspective on today's crisis? Guest host Lynn Neary talks with Gail MarksJarvis, a personal finance columnist for the Chicago Tribune for survival investment tips.
• Workforce Management: Retirement Out of Reach. With pensions and retiree health benefits largely things of the past—and financial markets devastating 401(k)s—companies are at risk of losing their competitive edge if they become storehouses of embittered older employees who put in only the minimum effort to keep their jobs. By Jessica Marquez. Excerpt: Even before the recent market melt­downs, David, a 47-year-old engineer who lives in Portland, Oregon, was worried about being able to retire in 20 years. With two young boys in school, a mortgage and only David working full time, he and his wife, Stephanie, were growing increasingly concerned about their lack of savings. So they met with a financial advisor. It turned out that they were right to be worried. "The advisor said that if we saved very aggressively, I might be able to retire in my early 70s," he says. "It wasn’t quite what I was hoping to hear." And that was before David and Stephanie, like millions of other Americans, saw their retirement accounts pummeled by the credit crisis and its effect on the stock market.
• New York Times: What Has Driven Women Out of Computer Science? By Randall Stross. Excerpts: ELLEN SPERTUS, a graduate student at M.I.T., wondered why the computer camp she had attended as a girl had a boy-girl ratio of six to one. And why were only 20 percent of computer science undergraduates at M.I.T. female? She published a 124-page paper, “Why Are There So Few Female Computer Scientists?”, that catalogued different cultural biases that discouraged girls and women from pursuing a career in the field. The year was 1991.

  Computer science has changed considerably since then. Now, there are even fewer women entering the field. Why this is so remains a matter of dispute.

  What’s particularly puzzling is that the explanations for under-representation of women that were assembled back in 1991 applied to all technical fields. Yet women have achieved broad parity with men in almost every other technical pursuit. When all science and engineering fields are considered, the percentage of bachelor’s degree recipients who are women has improved to 51 percent in 2004-5 from 39 percent in 1984-85, according to National Science Foundation surveys.

• New York Times: After Losses, Pensions Ask For a Change. By Mary Williams Walsh. Excerpts: Stung by outsize investment losses, some of the nation’s biggest companies are pushing Congress to roll back rules requiring them to put more money into their pension funds, just two years after President Bush signed a law meant to strengthen the pension system. ...

  Many of the companies now calling for relief have sprawling, mature pension funds with obligations so big they can dominate the companies’ own financial performance. Mr. Zion has identified nine big companies whose pension obligations are more than five times the size of their single largest liability on their balance sheets; six have signed the letter: the NCR Corporation, I.B.M., Rockwell Collins, the ITT Corporation, Northrop Grumman and the Pactiv Corporation.

• Yahoo! IBM Pension and Retirement Issues message board: "Re: Biz lobbies for a pension break" by "ibmmike2006". Full excerpt: In the late 80's there were 125,000 defined benefit pension funds, today there are less than 17,000. How is that possible? Everything is possible if you have support of our Government, you know who those guys are, the three branches, Judicial, Congress, and the President. Have you ever wondered how the Fortune 500 had such outrageous profits in the 90's?

  Ever heard of Vapor Profits? Where do you think the defined benefit pension funds disappeared to? Do you think that the defined benefit pensions funded the Fortune 500 profits via the back door with the blessing of our Government thanks to the financial lobbyists? CEO compensation increased from 40 times entry level employees wages to 400 times in that period. Did those companies invent something that increased their profits? Naw, the profits were enhanced from the Pension funds.

  Today there is talk about government bailout of EVERYONE. Ted Turner was on a talk show on how he never got bailed out by the government when CNN was in trouble early on, he convinced private investors to get him out of hot water.

  There lies the problem, all the "skimmers" who make money skimming off wall street investments are looking for someway to cover their butts and not be sued for $billions by those they skimmed from before the crisis by having the taxpayer pick up the tab for their risky losses. So far, looks like Poulson and the rest of his financial bank buddies are on their way to pulling off the biggest heist of the American Taxpayer in History.

  Ken Chenault of American Express, IBM board of directors member, was in major magazines bragging how well he managed American Express to record profits last year. Today, he is asking Congress for $2.5 Billion. As Jay Leno said, "When I get my bill from American Express, can I send a note with my bill to take my payment from the "bailout" money I am paying for in taxes? Fat chance of that.

  There seems to be a love affair with our government with the banks and hedge fund managers, making billions of dollars last year. How did they do that?

  Have you ever heard of "skimming off the top"? They used to call that embezzlement. When a stock option is exercised, it is skimming from the IRA's, pension funds, mutual funds, stocks, 403b's, 457's, and 429's of the American people. When you read of banks making huge profit, did they make something? No, they skimmed off the top, and no one, in our government was watching them. When you read about American Express making $billions in profit, did they make something? No, they just charge 29% interest if you are one day late on a statement mailed 7 days before the due date of the bill.

  Henry Poulson, US Treasurer is worth $700 million thanks to stock options from Goldman Sachs as CEO in 2006. Now he is dolling out $700 Billion to his old company, Goldman Sachs and his other "de-regulated" buddies in the financial banking system.

  Have you noticed how the price of gas has dropped in half? Could it be that the Commodity Futures Trading Commission is doing their job and not looking the other way when it came those 10 commodity futures companies making $13 billion in profit in 2007?

  What the hell is going on here? Who is watching out for the American people today?

  If you fly in a helicopter, 100,000 feet in the air with radar that cuts through all the baloney, spin, press releases, rationalization, political speak, and just plain bunk, it should be clear how all these few guys are putting billions of dollars in their sock. It is not from inventing something or making something, it is skimming with financial schemes from those who invent, make things, and work for a living, namely the American people.

• Yahoo! IBM Retiree Information Exchange message board: " Re: IBM wants to step away from Retirement obligations" by "madinpok". Full excerpt: What IBM and other companies are asking for is a change in the laws about how quickly they have to make up any underfunding in their pension plans.

  Under the Pension Protection Act of 2006, the rules were tightened to force companies to calculate the value of their pension plans so that they better represented the value of the investments the plan has at a given point in time. Previously, the value was average over many years to smooth out sudden increases and decreases in the market value. That long term averaging was viewed as bad because it allowed some companies to hide the fact that their plans were seriously underfunded and to avoid taking any action until it was too late.

  The new rules attempted to fix that, but now have their own "bad" aspect, at least from the companies' point of view. In a large, sudden down turn like the stock market it is currently experiencing, many pension plans have become underfunded - at least for the moment. This will require the companies to contribute some large amounts of money to the plans. But in a year or two, it is likely the stock market will recover, making those contributions unnecessary in hindsight.

  The trouble is, there is no way to tell. Maybe the markets will recover quickly, maybe they won't. If you are an employee/retiree, you'd like to see the pension plan fully funded so you can be assured of your pension in the future. If you are the company, you'd rather not put up any extra money right now when the economy is bad. Having to do so might make the financial health of the company worse.

  In my opinion, the companies are trying to take advantage of the bad economy to try and loosen up on the regulations. I don't view that as a sign that they want to walk away from their obligations completely. Just that they want some greater latitude in funding their pension plans. But if a company is not healthy, that may increase the risk of the retirees getting the short end of the stick.

  Although the Pension Protection Act of 2006 says that plans should be 100% funded, it also recognizes that plans may become underfunded due to fluctuations in asset values.

  Companies whose pension plans are underfunded have 7 years to get the plan back to 100% and must amortize the amount of the underfunding over that period. That is, they must add a significant portion of the underfunded amount each year.

  If the underfunding is due to a market downturn, it is likely that the market will reverse itself during that time and help close the gap. However, the company can not assume that will happen and contribute nothing in the hope that the market will take care of the problem.

  In the case of IBM, IBM's U.S. pension fund had a value of $57,191 million at the end of 2007 and obligations $46,323 million. Thus, it was over funded to the tune of $10,868 million, or 23%.

  A report from someone over on the IBMpension group says that the pension fund has lost 22% so far this year. If that is correct, that would suggest that the current value of the fund is about $44,609 million. That means it would now be underfunded by $1,714 million, or 3.7%

  With 7 years to close this gap, IBM would have to contribute about $244 million to the fund this year to be in compliance with the Pension Protection Act. They could easily make that contribution out of cash on hand (IBM had $9,755 million in cash as of Sept 30, 2008). Or, IBM might chose to contribute shares of stock to the fund, as they have done in the past.

  The ERISA regulations prevent IBM from removing money from the pension fund without incurring severe penalties. Also, even if IBM were to terminate the pension plan, they are still obligated to pay each and every employee and retiree their vested benefits.

  In addition, IBM can not simply dump the pension plan and turn it over to the Pension Benefit Guarantee Corporation. The PBGC would only get involved if the pension plan was underfunded and IBM went bankrupt. Then, the rules of the PBGC would come into play and the pensions of some retirees might be reduced. For 2008, the PBGC guarantees pensions up to $51,750.00 (this is an age 65 amount).

  Despite the significant downturn in the market, I see no signs that make me worry about the IBM pension fund and IBM's ability to keep it fully funded at this point. Sorry for the long post. I hope it helps put you at ease.

• Yahoo! IBM Retiree Information Exchange message board: "Re: Russian Roulette" by Kathi Cooper. Full excerpt: When planning for that doughnut hole, President Elect Obama would: 1) close the doughnut hole in the Medicare Part D prescription drug program. 2) allow the federal government to negotiate for lower drug prices for the Medicare program. 3) allow seniors to import safe prescription drugs from overseas. 4) eliminate subsidies to the private insurance Medicare Advantage program. (assumes his election platform comes to fruition, a high probability given all Democratic congress) http://www.hr.cch.com/news/benefits/111008.asp
• Yahoo! IBM Employee Issues message board: "Re: I'm now an ex-IBMer and am accelerating my move back to New York City" by Michael Nalasco. Full excerpt: As a former IBM'er myself, here is some hope and advice:
  • You will find that you can make a better wage once you leave IBM. IBM got away with paying low wages for years because they told their employees that they would have a long career, so the employee put up with low wages. Once I left IBM and Vermont my wages when up 20K/year from where I left IBM.
  • Now that you at back in the real world, you are free. Every company I have worked at since IBM treated me fairly in an appraisal, PBC's are garbage! No one else I have worked for since IBM used a pyramid, or bell curve to appraise employees. Essentially, they either want you to work for them or they want you to leave.
  • Use your network to find a new job. Using this chat room is a good start, but call all of your former co-workers and friends and see if they can help you. That is your biggest asset by far. Believe me, your friends (at IBM) will need you and your network when IBM fires them too.

  Keep your chin up, above all don't give up, and good luck, Thanks, M. Nalasco.

• Washington Post: Growing Sense Of Outrage Over Executive Pay. By Heather Landy. Excerpts: The public's indignation over lavish executive pay has rippled beyond the circles of activist investors and corporate governance watchdogs, who for years have wrung their hands over compensation practices. It has spread even beyond grass-roots community organizers and public policy think tanks to people who make their living in the financial industry, like money manager William Fitzpatrick. "This is a topic that doesn't really get a whole lot of attention during more benign economic times, but clearly this is something that really got away from us. As a profession, we really kind of fell asleep at the switch here," said Fitzpatrick, who helps oversee about $1 billion at Optique Capital Management in Milwaukee.

  Compensation is being scrutinized as never before, especially on Wall Street, where the year-end bonus season is coinciding with a government bailout of finance companies. At a time when the average taxpayer already is feeling stretched, public money is being used to support an industry that paid out $33 billion of bonuses last year. Wall Street itself blames the compensation system for playing a role in the credit crisis by encouraging excessive risk-taking. ...

  "Wall Street, when I began my career, had no public companies. They were private partnerships where executives had their personal wealth at stake, and they developed their risk-reward system when it was their own money at risk," said Jeffrey Sonnenfeld, an associate dean at the Yale School of Management. "They've kept that system, but it's other people's money at risk now. That's kind of outrageous." ...

  Greg Coleridge, a director of the committee, said the pay issue is a new manifestation of economic injustices that have long concerned the Quaker social action group, and one that has struck a nerve with members. "We have public dollars coming from taxpayers, people who are having an increasingly difficult time in our corner of the world in Ohio, being transferred" to Wall Street, said Coleridge, who works in Cuyahoga Falls, north of Akron. "The leverage these dollars provide gives someone inside government an opportunity, and maybe in fact the responsibility, to provide some kind of limit on executive pay."

• Yahoo! IBM Retiree Information Exchange: "Russian Roulette" by Wilmer Haas. Full excerpt: Selecting a Medical/Prescription Plan for IBM retirees is a game of Russian Roulette - the only difference is that no matter when you pull the trigger (select a plan) - the gun goes off! IBM and the other insurance providers have the at their disposal, to insure you don't, the most powerful computer systems in the world and the enormous data base on costs and probabilities of occurrence. We have, on the other hand, our puny home computers and some history of our expense to predict what will the best deal for us in the future year of 2009! IBM and the suppliers always win!

  Case in point: One option that looks pretty good for us over 65 gang is the IBM Aetna "Medicare Open Plan". What you don't find in the info they have supplied is that for prescription there is a "donut hole" . You enter the Hole when the "total costs", that is what you pay and what they pay (without subtracting the rebates and discounts the drug suppliers give Aetna) reaches only $3,700. After that you pay 100% until you leave the Hole by amassing $4,100 of your out of pocket costs.

  For any couple over 65, this rule applies to each person separately and for many of us we will reach the hole before the year is out! So be forewarned and fore armed! Wilmer Haas a 1990 San Jose retiree.

• Time: More Company Benefits Come Under the Knife. By Jeremy Caplan. Excerpts: When the ax isn't enough, out comes the scalpel. Having laid off tens of thousands of workers, corporations and small businesses are looking for new fat to trim. In September, 2,269 companies had mass layoffs, according to Sirota Survey Intelligence, each affecting 50 or more employees. But many companies are still bleeding cash and desperately searching for novel ways to eke out savings.

  That's why benefits are the next big target. For every employee who makes $75,000, a company typically spends $30,000 more in benefits. So for employees who still have jobs after cost-cutting layoffs, the potential for more pain lies ahead. Health insurance is traditionally the revenue drain that budget hawks focus on, with costs averaging $10,000 per employee (about $6,000 for singles and $14,000 for those supporting a family). "I expect that by January, the number of people without health insurance will rise above 50 million as companies scale back," says Bruce Raynor, president of Unite Here, a labor union that represents half a million workers in a variety of industries. (Read "Putting Health Care on an Energy Diet.")

• CNN/Money: Georgia outsources IT in 2 large contracts with IBM, AT&T. Excerpt: Georgia has awarded a pair of big computer contracts to IBM and AT&T. The outsourcing is expected to save the state $180 million over several years. Ninety-two Georgia Technology Authority workers will lose their jobs under the plan. One eight-year, $873 million contract was awarded to IBM and a second five-year $346 million contract went to AT&T. Each was the sole bidder.