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Highlights—May 23, 2009
- Audit Integrity: IBM AGR Summary. Excerpt: International Business Machines Corp. is currently rated as having Very Aggressive Accounting & Governance Risk (AGR), receiving an AGR Score of 13 out of a possible 100. This places them in the 3rd percentile among all companies, indicating higher accounting and governance risk than 97% of companies.
- Jim Hightower: Taking Tax Dollars While Saying Adios to America.
Full excerpt: Have corporate chieftains become deaf, blind, and stupid – or are they just stupid? Check out IBM,
the computer giant that once prided itself on treating its employees right. These days though, workers for Big
Blue, as it is called, are being pounded black-and-blue by IBM's relentless policy of downsizing and offshoring
its American workforce. Less that 30 percent of the corporation's employees now live and work in our country,
and IBM continues to move more American jobs to low-wage nations.
Presently, the corporation is chopping some 5,000 more jobs in New York State – apparently sending the work abroad. IBM seems blind to the injury this causes in its own community. But injury turned to insult when the community learned that the company took $45 million from state taxpayers just last summer in exchange for a promise to keep jobs in New York. This double cross caused an uproar, but the company's top executives are tone deaf to public sentiment. In March, they heaped more insult on the American people – at the same time they were lobbying to get a chunk of federal stimulus money from us taxpayers, they submitted a patent application on a new computer system designed to help corporations send more American jobs overseas.
Could they possibly get any more stupid? Yes! IBM is now offering new job opportunities for workers being displaced. The only catch is they have to move to China, Slovakia, India or wherever their old job was sent. What a deal – you can keep your offshored job, but you have to offshore yourself! Oh – and you also have to work for the low, low, low local wage rate.
Why should our tax dollars finance such stupidity? Rep. John Hall and others are sponsoring HR 1874, the Patriot Corporations of America Act, to support companies that do not abandon our country and our communities. For information, call Hall's office: 202-225-5441.
- Seeking Alpha: IBM:
Reflating the Corporate Bubble, GE-Style. On Tuesday, IBM announced a $3b share-buyback and 10% increase to
their dividend, despite a 10% decrease in revenue in Q1. Judging by moves like this, the concept of deleveraging
doesn't seem to have taken hold with many big companies. Unfortunately, it doesn't look like financial wizardry
is going away in the near future.
Using Debt to fund Buybacks and Dividends. It was just last October that IBM raised $4 billion from bond sales. They paid a fairly high price too, with yields ranging from 6.5% for the 5 year bond, to 8% for the 30 year bond (details here). Now they announce a $3 billion share repurchase, and a boost to the dividend?
Layoffs Too? Official numbers are hard to find, but it appears that IBM has laid off up to 10,000 workers in North America this year. Public companies have a responsibility to shareholders to maximize ROI. At times that requires getting rid of some dead wood. But is it really prudent to lay off 10% of your U.S. workforce, while ramping up spending on share buybacks and dividends? That must be horrible for employee morale and loyalty.
I can’t think of a better way to describe IBM’s strategy here than “jacking up the dividend, then doing a big ol’ share buyback to lure in longs and scare off shorts, resulting in a short-term pop in our stock. Yes, we have a bunch of liabilities that we should probably pay off first, but we’ll deal with that later“. Hmm, that doesn’t exactly roll off the tongue. Maybe if The Treasury Dept was in charge of naming it, they’d give us a catchy acronym like JUDDBSBLLSSRSTPOSYWHBL...
Will the buybacks, layoffs, and dividends that IBM purchased be worth the cost? I’m skeptical to say the least. They may succeed in temporarily juicing the stock, which is probably what management wants to happen. That allows for bonuses and profits from employee stock options. But will these moves be good for IBM 10 years down the road? I highly doubt it.
Sketchy moves like this buyback should discourage investors from buying IBM. Wall St, however, was predictably impressed. The logic must have been along these lines, “yield good, money good, earnings good. buy ibm.” I haven't seen any concern about their balance sheet mentioned. There are so many better companies to own other than IBM, I don’t get it. Among other tech companies, I’d take Apple (AAPL) over IBM any day, even at current valuations. ...
Back to IBM’s balance sheet. It certainly isn’t as bad as GE’s, but it ain’t pretty either. The announcement Tuesday may give IBM shares a temporary boost and scare off potential shorts. But in the long run it will degrade their balance sheet further, and reinforce the cycle of debt. Here are some highlights from their Q1 2009 balance sheet:
- Debt/equity ratio of 2.28x. That’s quite high, especially for a mature tech company
- $18b in unfunded pension liabilities, plus $11.4b in “other unfunded liabilities”
- $9.8b in short-term debt, plus another $21.1b in long-term debt
- $12.2b in cash, $1 million in short-term investments
- $37b in total current liabilities, and $44b in current assets
The last bullet-point is the most concerning. It means that IBM's current ratio is only 1.18x, which indicates that their short-term liquidity situation isn't great. In our current economic environment, why are they scraping by with minimal liquidity, and simultaneously increasing the dividend and instituting a $3b share-buyback? They could be putting that money towards paying off their substantial total debt of $30.9b. Instead, it seems they plan to keep re-financing and rolling debt over for eternity. Who knows, they might be forced to sell back those repurchased shares much lower eventually (GE was forced to sell shares at a ~20 year low, after huge buybacks at much higher prices).
- Selected comments from the above article follow:
- Layoffs are important because the company is touting its success on one hand, yet laying off its employees on the other. From an investment perspective, this presents a mixed message. From an integrity standpoint, it makes some question management's decision making. From an operational standpoint, it also has an impact on employee morale and loyalty. Even the "safe," high achieving employees (the ones with all the intellectual property), will question why the company is supposedly doing well yet laying off employees. They will ask if they are next, and why they would want to stick around a firm that does not support its employees, even though it is making a lot of money.
- I am shocked at the way corporations like IBM are openly and publicly violating existing employment laws, especially the ones related to discrimination and terminations and then shamelessly lobbying for stimulus dollars. Intentional employment discrimination is illegal and IBM is guilty and should be busted.
- Yahoo! IBM Employee Issues message board: "Job cut action day in NY" by Lee Conrad. Full excerpt: Calling all IBMers, retirees and ex-IBMers! Mid-Hudson Valley Action Day!! Join us in a rally against job cuts, offshoring and tax breaks for IBM. Date and time: Wed. June 3rd at 12:30 pm Location: Corner of Route 9 and Spackenkill Plaza Poughkeepsie, NY.
- Newsday: Retirement Plan (humor).
- New York Times: Bill
Would Guarantee Up to 7 Paid Sick Days. By Steven Greenhouse. Excerpts: A long-stalled effort to guarantee
American workers paid sick days takes a big step forward Monday with the introduction of legislation by Congressional
Democrats.The proposal went nowhere during the presidency of George W. Bush, but as a senator and then a presidential
candidate, Barack Obama backed it, and Michelle Obama embraced the idea last week in a talk to business leaders. ...
The bill, the Healthy Families Act, would be binding on employers that had 15 or more workers. It would guarantee employees one paid hour off for each 30 hours worked, enabling them to earn up to seven paid sick days a year. They would be entitled to claim their days when they or a child, a parent, a spouse or someone else close to them became ill. ...
The legislation’s preamble notes that nearly half of private-sector workers and three-fourths of low-wage workers do not receive paid sick days. Far too often, advocates say, such employees feel compelled to go to work even when ill, because they fear being fired or at the least losing the day’s pay. Ms. DeLauro recalled that at a meeting with wives of men serving in Iraq, one of them complained that her employer had threatened to fire her because she took two days off when her child was ill.
- Employee Benefit Adviser: Inching
toward plan termination. Excerpts: Companies with frozen pension plans are more likely to consider investment
strategies that will eventually allow them to terminate the plans, rather than continue them, Aon Consulting reports
in the brief titled “Ready 2012: Pension Pulse Survey.” The Chicago-based HR consulting firm surveyed about 70
U.S. employers with more than 100 frozen defined benefit plans, totaling plan assets of over $50 billion.
“The majority of plan sponsors wants to terminate their frozen plans quickly, but doesn’t have sufficient assets to do so,” says Cecil Hemingway, U.S. retirement practice leader at Aon. “Survey participants told us they made the design changes associated with closing their pension plans (soft freeze) or ending future benefit accruals (hard freeze). However, without addressing the investment paradigm, they are leaving themselves open to significant future risk,” he adds.
New on the Alliance@IBM Site
- IBM Italy Union questions
executive perks. Excerpts: We’d like to inform you that we have started in
Italy a national campaign against IBM manager’s excessive bonuses. In the middle
of the economical global crisis, and during 9600 job cuts in IBM US, the management
of GTS department of IBM Italy reserved for themselves a large reward and in
addition went on a free holiday to a famous and expensive resort. Our cost estimate
for this holiday is between $40000 and $150000. This waste of money by IBM Italy
management is not fair and is offensive in the opinion of IBM workers. ...
Revenue and dividends are going only to the investors, and year after year more bonuses are going to IBM managers. This is having a negative affect on the morale of IBM employees. Bonuses to corporate management are under scrutiny by President Barack Obama’s administration. Management bonuses are also under the control of Sam Palmisano, our CEO and Corporate Social Responsibility offices. We will no longer accept these excessive benefits to IBM managers. We ask IBM to reinvest money in the direction of IBM workers (main stakeholders of this company), and especially to the employees that have not received salary increases for 7 or 10 years. On top of this many education course are cut due to low funds.
- Job Cuts Status & Comments
page
- Comment 05/19/09: the long arm of IBM's abandonment of the US workforce: From the Harrisburg, PA area "Due to IBM outsourcing jobs to Argentina, a number of staffing agency employees have lost their jobs, Jen Boyer, branch manager for the Harrisburg Office of Manpower International, said. Last week, Manpower International received notice that 17 of their employees would be laid off when IBM decided to transfer their jobs to Argentina, Boyer said. "It's shocking; it's definitely shocking," she said. Some employees will be working until the end of June, others until the end of July, Boyer said. Although unemployment has reached its highest level since 1984, the Harrisburg area's unemployment rate of 7 percent is still one of the lowest in the state, David Black, president and CEO of the Harrisburg Chamber of Commerce and CREDC, said. -union member-
- Comment 05/19/09: Quit on my own accord as after many years of service. Working at IBM stopped being fun,
and is certainly not the IBM I signed up for years ago. I know some pockets of quality folks still hanging on,
figuring they will wait for a severance package or another pie-in-the-sky perfect job. Some people were college
hires and IBM is all they know. My advice to them is if you can work at IBM, you can work anywhere.
Find a place that will provide you with meaningful work and will treat you decently. If it's not very meaningful, make sure you get compensated well working for some other corporate behemoth. Scary, but when has the world ever had certainties? Speaking of certainties, last I checked there is no legal guarantee for IBMers of a severance package... -sector7g-
- Comment 05/19/09: For anyone in Canada with a disability who has been RA'd due to their job moving to a GDF, see a lawyer. There are laws in Canada in regards to accommodation and from what I am reading, IBM is violating them. See: http://www.ofl.ca/uploads/library/disability_issues/ACCOMMODATION.pdf -helpothersreceivejustice-
- Comment 05/19/09: Letting people go who are close to retirement kind of makes sense in this climate. Assume that a person with a "normal" lifestyle at the age of 60-65 should not have any debts, no mortgage, no studying children anymore and in great need to enjoy the last phase of life without working. Besides that it does not make sense for IBM to invest in somebody who will go on retirement in a few years anyway. Compare this with laying off people who are in their midlife, still have a long career path ahead, with kids growing up, a fat mortgage and all other burdens that somebody typically has at the age of 35-45. I think the age discrimination act should be taken seriously to protect people over 45, but not the ones over 60. The ones over 60 should make space for new generations. I think that targeting the older workers is the least painful approach, in terms of finances. -GetReal-
- Comment 05/20/09: BTW, it's been 10 years since the great pension heist and you USA IBMers still haven't woke up and unionized! If you wait much longer, say, through 2010 there will not be much IBM presence in the USA. The "guy just stating the facts from someone on the inside" is right and I can understand why he is being so blunt about it. -anonymous-
- Comment 05/20/09: The reason they have not cut the Severance is simple, it does not cost IBM anything to provide the severance. All the costs are charge to the Pension Fund. In addition IBM takes a tax break, that's why they always say they are taking a charge of X Million, they are writing it off even though they are not paying it. Seems to me like someone needs to tell the IRS and get somebody to spend a little time behind bars. -Anonymous-
- Comment 05/20/09: The Business Week article "Why I Love Exxon" challenges IBM's job cuts. Because of IBM's $1 Billion dollar advertising budget, IBM is almost untouchable in the media. Thanks to those who are taking an activist role to promote IBM worker rights and get the message out. Even though changes happens one person at a time, change is happening. See below link. http://www.businessweek.com/smallbiz/content/may2009/sb20090519_070871.htm?campaign_id=yhoo -John-
- Comment 05/20/09: Hey GetReal - IBMers over 60 have had their pensions cut, some as much as 30%. They have not had the luxury of time to grow a 401k to replace it, and many of the 401ks were just about wiped out in the recent crash. Many analysts now say that people will have to work until they're 75 to make up for these hits to their planned retirements. It's not up to you to go around pointing fingers and deciding who needs a job and who doesn't, especially if you lack a thorough understanding of what has happened to older workers in the US. -Anon-
- Comment 05/20/09: IBM is monitoring the access of all employees - where they go, what they do using their laptops. The process which will display on your task manager is wmiprvse (wmiprvse.exe). You can find more information about this here -> http://www.neuber.com/taskmanager/process/wmiprvse.exe.html There is nothing you can do about it, they have the right to install what they want on their laptops. If you do need to access the network - make sure it is legitimate. -MD-
- Comment 05/20/09: To GetReal, I think you need to get real. People in this age group have had their retirement savings hammered by the economic situation and have little time to recover even if they continue working. After they lose their job they have little chance of getting another job especially in the same salary range. You think these people continue to work at IBM for the fun of it? -anonymous-
- Comment 05/20/09: I was resourced after 35 years of service April 27. Elected retirement. After doing a lot of phone calls and writing, IBM is correct , the subsidy of 65% for COBRA does not apply. They are telling me that since I have two alternatives for medical coverage retirement coverage which will run me $1700 month for a family of 4 or TEMP COBRA $397 for 12 months, as compared to the subsidy of $138 month, I do not qualify and the IRS has made this ruling! So once again we get screwed again! -Anonymous-
- Comment 05/20/09: Had a discussion with my 2nd line manager a few days ago. Apparently, all is not well in the GR-world. IBM is having problems meeting deadlines for offshoring the accounts. There are problems in the BRIC with employee turnover. Many of the employee's are leaving on their own and others are being fired because they don t have the necessary level of skills). They also are having problems getting the skills they need as fast as they need them. -miss understanding-
- Comment 05/21/09: Try to kill off wmiprvse.exe in the Windows Task Manager processes. Actually I thought this wmiprvse.exe was a worm (of the infamous Windows OS based "run always" variety) on my laptop. If you can't kill the process I went one better before I was RA'ed and removed wmiprvse.exe from my laptop and cleaned up the Windows registry to totally remove it. And then I would inspect every time that IBM ISSI routine that installs and updates software on the laptop more closely. Aw, shucks, I guess I was RA'ed because I don't have TECHNICAL skills. Your loss now IBM! Of course IBM is using this to find folks who they are targeting for future RA's. You can bet they want to find some IBMer looking at this website on their laptop so don't do it on the IBM laptop! Do it on your own PC. Yes, IBM is monitoring for this. They will deny the existence of the Alliance but IBM fears it for sure! -bigbrowatching-
- Comment 05/21/09: I've been looking for a job as a Software Engineer since I was laid off in February... I noticed that IBM has a job posting for Boca Raton so I checked it out... I'm so surprised, it's for an intern... -cut-loose-in-Feb-
- Comment 05/22/09: A msg posted on the w3 site states IBM is moving the salary increase date from June 1st to July 1st. Something about aligning with the cycle of sales teams. Sounds like another lame excuse to save 1 months worth of salary payments across the board. -miss understanding-
- Comment 05/22/09: For -just-me- The rumor I heard June's RA will be announced between 5/26-5/29. Supposedly it will not be as big as the last RA. Can't confirm which divisions or sites to be affected. -anonymous-
- General Visitor's Comment
page
- Comment 05/21/09: IBM's comeuppance is on its way... I suggest that all current and former employees move the funds in their 401Ks, pensions, and ESPPs out of IBM stock. There is going to be a backlash once the ramifications of IBM's move to GDFs and GDCs is felt by their customers. There is a current upswing based upon their smoke-and-mirrors movement of funds between buckets in their accounting depts, but in the end there will be a fallout after accounts are closed, the Oracle/Sun alliance succeeds, etc. The stock results that we are seeing are purely short term. There is no long term plan, or they would not be dumping their most experienced employees overboard. -Pickles-
- Comment 05/22/09: -indian_ibmer- Yes, seems like IBM is replacing Indians with more Chinese and supplemented by Brazilians now more than ever. Compared to Indians, the Chinese are much cheaper and Brazilians are cheap as well since their economy is always in at least a recession with sky high inflation. IBM is only using resources (work units) in countries when they remain dirt cheap. Once they find a cheaper venue they direct their recruiting and hiring efforts there. I suspect we will soon see IBM hiring in Africa. The Africans are cheaper than the Chinese as a work resource. Join the Alliance since it is aligned with the rest of the globes unions to stop corporations from exploiting global workers. -anotherBRIC-
- Pension Comments page
- Raise and Salary Comments
- PBC Comments
- International
Comments
- Comment 05/18/09: Country = UK; Union Affiliate = none; Job Title = IT Specialist; IBM Division = GTS / ITD; Message = No Salary Improvement Plan in the UK this year - just been confirmed. Wonder what happened to the "60% of IBMers will get raises this year" quote from Big Sam's letter from the full year results? Maybe the 60% to get raises are all in India or something. Another year of pay erosion to look forward to. Makes you wonder why you bother really. -AnonUK-
News and Opinion Concerning Health Savings Accounts, Medical Costs and Health Care Reform
- New York Times: Health Plans Would Add to Controls on Insurers. By Robert Pear. Excerpt: The government could rein in aggressive marketing practices of health insurance companies, regulate their premiums and allow workers to drop out of group health plans to seek a better deal on their own under legislation being developed by leading Democratic senators.
- Financial Post (Canada): U.S.
health care terminal. By Diane Francis. Full excerpt: Universal health care is a cornerstone of smart economic
policy. If a worker in Canada or Europe or Japan has lost his or her job this recession, it's a psychological
and financial blow.
But if a U. S. worker loses his or her job, the family faces financial ruin if sickness strikes any member because they are without health-care coverage. Bridge coverage is available but unaffordable for anyone but the wealthy.
Worse yet, if a major illness is diagnosed during unemployment, a workers becomes unemployable, bringing on a life sentence of poverty.
Little wonder, then, that consumer spending has ground to halt in the United States, which makes the economic meltdown that much harder to combat or ever solve.
This underscores the fact universal health care is not just smart and fair social policy but also smart economic policy. But this fact may get lost in the shuffle as the vested interests in the lousy health-care system in the United States start their propaganda.
In fact, there are so many economic advantages to universal health care that it's puzzling why the Republicans, conservatives and business interests haven't been pushing for it. Here's are the economic advantages to decent, universal health care:
- The United States spent 16.2% of its GDP on health care plus up to 3% more on litigation over medical bills while other countries spend 10% and nothing on litigation because bills are paid by everyone. This is America's No. 1 competitive disadvantage going forward.
- People with serious illnesses are uninsurable and are stuck in jobs they cannot leave or remain unemployed because they are unemployable.
- Tens of millions of uninsured people end up with health problems that become a drain on society and the U. S. economy in the long run.
- U. S. doctor, nursing, hospital and drug costs are out of control because of the profit motive, compared to countries where universal health care provides the basic underpinning. U. S. costs are higher because doctors can over-service those with health insurance, and patients can over-demand. Litigation also leads to over-doctoring as well as high expenses in the form of malpractice insurance.
- Detroit's three automobile companies have gone bust in large measure due to "legacy" or gold-plated health-care promises. This is not unique to the auto sector and has driven many jobs offshore in manufacturing
Canada has a better health-care system than does the United States. Even developing nations, such as Ecuador or Mexico, look after the basic needs of their populations better than the United States looks after its citizens.
As an American living in Canada, I find it embarrassing that the United States -- rich and smart --has such a mediocre health-care system.
I find it embarrassing that even educated and financially astute Americans buy the lies that the AMA and others spew about Canada and other "socialized" medical schemes.
Facts are that governments in the United States are suckers. They cover the high-risk populations --indigent, elderly and veterans -- and leave the gravy to the private-sector health insurers. These companies, by the way, make profits off their operations that are the same size as Canada's entire health-care tab for 32 million people
It's pretty shameful, but delusions persist and the medical myth-makers are girding for battle. But Americans are capable of skepticism and deep down most realize their health-care system is sick, maybe terminal, and needs treatment as soon as possible.
- New York Times op-ed: Blue Double
Cross. By Paul Krugman. Excerpts: That didn’t take long. Less than two weeks have passed since much of the medical-industrial
complex made a big show of working with President Obama on health care reform — and the double-crossing is already
well under way. Indeed, it’s now clear that even as they met with the president, pretending to be cooperative,
insurers were gearing up to play the same destructive role they did the last time health reform was on the agenda. ...
On Monday, just a week after the White House photo-op, The Washington Post reported that Blue Cross Blue Shield of North Carolina was preparing to run a series of ads attacking the public option. The planning for this ad campaign must have begun quite some time ago.
The Post has the storyboards for the ads, and they read just like the infamous Harry and Louise ads that helped kill health care reform in 1993. Troubled Americans are shown being denied their choice of doctor, or forced to wait months for appointments, by faceless government bureaucrats. It’s a scary image that might make some sense if private health insurance — which these days comes primarily via HMOs — offered all of us free choice of doctors, with no wait for medical procedures. But my health plan isn’t like that. Is yours?
“We can do a lot better than a government-run health care system,” says a voice-over in one of the ads. To which the obvious response is, if that’s true, why don’t you? Why deny Americans the chance to reject government insurance if it’s really that bad?
For none of the reform proposals currently on the table would force people into a government-run insurance plan. At most they would offer Americans the choice of buying into such a plan.
And the goal of the insurers is to deny Americans that choice. They fear that many people would prefer a government plan to dealing with private insurance companies that, in the real world as opposed to the world of their ads, are more bureaucratic than any government agency, routinely deny clients their choice of doctor, and often refuse to pay for care. ...
The medical-industrial complex has called the president’s bluff. It polished its image by showing up at the big table and promising cooperation, then promptly went back to doing all it can to block real change. The insurers and the drug companies are, in effect, betting that Mr. Obama will be afraid to call them out on their duplicity. It’s up to Mr. Obama to prove them wrong.
News and Opinion Concerning the U.S. Financial Crisis
"It is a restatement of laissez-faire-let things take their natural course
without government interference. If people manage to become prosperous, good. If they starve, or have no
place to live, or no money to pay medical bills, they have only themselves to blame; it is not the responsibility
of society. We mustn't make people dependent on government- it is bad for them, the argument goes. Better
hunger than dependency, better sickness than dependency."
"But dependency on government has never been bad for the rich. The pretense of the laissez-faire people is that only the poor are dependent on government, while the rich take care of themselves. This argument manages to ignore all of modern history, which shows a consistent record of laissez-faire for the poor, but enormous government intervention for the rich." From Economic Justice: The American Class System, from the book Declarations of Independence by Howard Zinn.
- New York Times op-ed: Workers
Walk the Plank. By Bob Herbert. Excerpts: I’m sure everyone is thrilled
to know that the high rollers on Wall Street are bouncing back. With
profits on the rebound, the big shots at the biggest institutions are
on track, as The Times reported Sunday, to make as much money this year
as they were hauling in before the mega-recession began.
The growing legions of the unemployed can be forgiven for not shouting hallelujah. It’s a little like watching the drunken driver who plowed into your family car and caused untold havoc and heartache, suddenly pulling up one morning, no worse for the wear, in a sparkling new vehicle.
The folks who led the nation to this financial abyss are the ones being made whole on the taxpayers’ dime. We can look after them, all right. But we can’t seem to get credit flowing in any normal way again; we can’t stanch the terrible flow of home foreclosures; and we’re not doing nearly enough to address the most critical need of all: putting people back to work. ...
“With the erosion of social and corporate safety nets, tightening credit and declining home equity, most Americans have little financial cushioning to survive a job loss. Without a steady paycheck, 50 percent of Americans say they could not meet their financial obligations for more than a month — and, of that, a disturbing 28 percent couldn’t support themselves for more than two weeks of unemployment.” ...
The financial industry is seen as essential, but millions of American workers are not. They’re expendable. If as much attention, energy and resources were given to the effort to put Americans back to work as has been given to putting the banking industry back on its feet, you’d have fewer Champagne toasts on Wall Street but a lot more high-fiving in family homes across the country.
- New York Times: Taking
Long View on Pay at Banks. By Richard Beales,
Rob Cox and Una Galani. Excerpts: Incentives in finance need to
change. Paying bonuses for short-term paper gains on money held up
for years, with no downside risk for the bankers, makes no sense for
shareholders or governments, the ultimate rescuers of troubled banks.
It’s this system that fostered the debacle at A.I.G. Financial Products.
It’s also wishful thinking to expect the industry to regulate itself. Banks may be penitent for the moment, and some have voluntarily revised pay programs to reduce incentives for excessive risk-taking. But the contrition won’t last, so it’s only reasonable for authorities in the United States and elsewhere to try to address these flaws.
The right approach is to set sensible rules that govern broad, structural aspects of compensation. This means requiring incentive pay to have a heavy equity component and barring bankers from gaining access to such holdings for years. Very large annual bonuses should also be subject to so-called clawbacks in future years.
- CNN/Money: Bank execs paid via insurance on workers. Tax-free benefits reportedly used to pay bonuses, deferred pay and pensions. By Catherine Clifford. Excerpt: Major financial institutions -- including Bank of America, J.P. Morgan Chase, Wachovia and its parent, Wells Fargo -- are taking increasing amounts of life insurance policies against their employees, and naming the company as the beneficiary, the Wall Street Journal reported. The company receives a tax-free benefit when the employee dies, whether that employee is still working at the company or not, the report 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 sample posts follow:
- "Do
the numbers really add up?" by "wonderaboutibm". Full excerpt: I need help. My mind is
too constrained to answer the following case-study question: IBM brass told the stock analysts earlier this week
that even with a 7% drop in revenue in 2009, an EPS of $9.10 was still expected. So let's do some math:
Assuming the 7% drop, revenue in 2009 would drop from $103.6b to $96.3b. But to keep an EPS of $9.10, gross expense (revenue - earnings) would have to drop from $91.5b to $84.7b (I assumed a buyback of 75m shares, typical for recent years, but the calculation is not too sensitive to share buyback, unless the stock involved back is truly h46217527uge.)
So in effect, IBM is predicting a huge decrease in gross expense. But $6.8b? Not even huge US layoffs much larger than what we have seen so far would save that kind of money in 2009. Fantastic jumps in software and services margins? Doubtful to me. Can somebody show me how to pull this rabbit out of the hat?
- "Did someone say STOCK BUY-BACKS" by "no_ky". Full excerpt: If you lower the number of shares, you increase the payback per share. If you borrow the money to buy the stock back, then you can get more leverage in reporting your numbers.
- "Where's the Raise?" by "justadeveloper". Full excerpt: Did you see the on the IBM web site that raises will be effective on July 1, 2009? What happened to June 1st? Then it was moved to June 15? It seems every year the employees are the ones to get stiffed with the raises coming in later and later. The excuse given this year was so everyone would be aligned with sales. Why should I care if I get my raise when sales does. We all know that this is a smoke and mirror tactic to avoid and shift expenses for tax reasons!
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