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6, 2000 April, 2000

Highlights—April 20, 2013

  • Financial Times: IBM vows action following rare miss. By Tim Bradshaw in San Francisco and David Gelles in New York. Excerpts: IBM posted a rare miss on Wall Street forecasts on both revenues and profit on Thursday, but insisted it would take action this year to make up lost ground.

    After completing her first year as chief executive, Ginni Rometty admitted the IT bellwether “did not achieve all of our goals” in the three months ending on March 31. As a result, IBM plans to bring forward a workforce restructuring to the current quarter and may divest certain businesses.

  • The Wall Street Journal: IBM Takes a Beating. Shares Plunge 8% as Revenue Drop Rattles Investors. By Spencer E. Ante. Excerpts: After reporting profits that at least met Wall Street's expectations for 31 straight quarters dating back through the financial crisis to early 2005, IBM stumbled late Thursday. It posted a 1% dip in profit and a 5% drop in revenue that rattled investors and sent the stock down more than 8% Friday.

    It was the biggest decline for IBM's shares in eight years and a setback for new Chief Executive Virginia "Ginni" Rometty, who took over the job early last year. The company said the weakness came from poor execution by its sales force—an area the CEO used to run. ...

    IBM is still entrenched in many of the world's top corporations and governments. But analysts said the company might not have all of the technologies those entities want to buy.

    Companies built to exploit the Internet such as Saleforce.com Inc., which rents software over the Web, or Amazon.com Inc., AMZN +0.35%which rents computing power, are growing much faster than IBM and its older counterparts such as Hewlett-Packard Co. ...

    To get business back on track, IBM said it would focus on improving execution and spend around $1 billion on layoffs in the second quarter. IBM is also planning to divest some of its businesses. One possibility is selling its low-end server business. The company is in advanced discussions to sell its so-called x86 server business to China's Lenovo Group Ltd., 0992.HK +9.46%people familiar with the matter said.

  • Dow Jones Business News: IBM Sees Job Cuts as Profit Machine Slows. Excerpts: International Business Machines Corp. said it expects to ramp up job cuts this quarter after sales of some software and mainframe computer fell short of expectations. The Armonk, N.Y., company said it will reduce its work force in some areas more quickly this quarter to meet its per- share earnings target for this year of $16.70.

    Chief Financial Officer Mark Loughridge didn't disclose the number of layoffs, saying management hadn't yet approved final plans but expects to report close to $1 billion of accounting charges this year to trim its work force--more than last year--with heavier reductions planned for the coming months.

  • Yahoo! IBM Pension and Retirement Issues message board: "Re: RTP" by "teamb562". Full excerpt: My neighbor is in the x86 group (STG). They have NOT been told anything official and there has been no resignations. However, there has been hall talk on the subject for several weeks.
  • Hudson Valley (NY) Times Herald-Record: IBM plans 2nd quarter layoffs. Earnings, revenue in 1st quarter miss mark, CFO says. By Jessica Dinapoli. Excerpts: IBM did not get off to a good start in 2013, missing estimates for revenue and earnings per share, and Big Blue plans to lay off people in the second quarter to get back on track.

    Most of the layoffs, called "workforce rebalancing" by Big Blue, will happen outside the United States, IBM Chief Financial Officer Mark Loughridge said in a conference call with investors and analysts Thursday. He added that the layoffs will be concentrated in the second quarter, helping financial results later in the year.

  • Reuters: IBM mulling up to 1,400 job cuts in France: unions. IBM, a bellwether for the IT industry, is in the midst of a drive to boost profits by 2015 against an uncertain global economic backdrop.

    Local management has yet to officially outline whether there will be a formal job-cuts plan approved by U.S. headquarters, the union representatives said, but said the numbers had already been communicated.

    "Management is set to present a plan to cut between 1,200 and 1,400 staff over the next two years," said Pierry Poquet, secretary general of the UNSA union, who said a meeting was planned for April 25. ...

    IBM currently employs around 8,000 people in France, Heurtaux said.

  • Yahoo! IBM Employee Issues message board: "Re: IBM misses on 1Q2013 earnings report" by Paul Sutera. Full excerpt: One need only look at the layers of highly-compensated management to know why hardware sales are not profitable --enough. The increasing layers of management, as well as the large number of project managers "needed" to manage our bureaucratic processes has a lot to do with the bad quarter. Also the first world economies of the world are still shrinking...thanks to outsourcing. And ooops, they were our big revenue producers. If the Fortune 500 CEOs agreed to hold a moratorium on layoffs for even just one year, they could stop shooting themselves in the foot for long enough to have a slow recovery.
  • CRN: IBM In Talks To Sell x86 Server Business To Lenovo. By Kevin McLaughlin. Excerpts: Lenovo is currently the only company in negotiations to purchase IBM's x86 server business, according to one high-ranking industry executive tracking the deal, who spoke on condition of anonymity.

    The deal would encompass IBM's System x line, which includes Intel- and AMD-based tower, rack and blade servers. IBM is reportedly seeking $5 billion to $6 billion for its x86 server business, the executive said.

    Lenovo emerged as a desirable candidate because IBM is only interested in selling its x86 server business to companies it doesn't view as a threat to other parts of its business, the executive said. Lenovo fits that bill since it doesn't have storage, networking or converged infrastructure in-house, nor does it have much of a footprint in the data center, the source said.

    IBM also has informed employees in its 20,000-square-foot server product engineering (PE) lab, located in its massive Building 201 facility in Research Triangle Park, N.C., that they will become Lenovo employees effective June 1, a separate source with knowledge of the matter told CRN. ...

    IBM is looking to decrease its focus on hardware as part of its Roadmap 2015 (a plan some employees have branded "Roadkill 2015"), first announced in 2010 by then-CEO Sam Palmisano. The plan calls for boosting earnings per share to $20 and growing revenue in cloud, analytics and Smarter Planet solutions.

    IBM has cut staff and is expected to shed some business lines as part of the overhaul that Roadmap 2015 represents, one source close to IBM told CRN. "People have been expecting some kind of sell-off," said the source. ...

    In early 2009, amid mounting rumors of IBM exiting the server business, one of the company's executives tried to quell the speculation. "Let me be clear ... IBM is not exiting or selling its x86 server business," Adalio Sanchez, general manager for System x in IBM's Systems and Technology group, said in a memo to IBM partners.

  • Waterbury American Republican: Ex-IBM employees in Southbury eligible for trade act benefits. Excerpt: Former information technology services employees of IBM Corp. in Southbury, including leased workers, are eligible to apply for federal Trade Adjustment Assistance benefits, the state Department of Labor said Monday.

    Those eligible to apply for the benefits have or will lose their jobs or have hours reduced on or after Feb. 6, 2012, and on or before March 21, 2015, due to lack of work because of foreign trade, the department said. The state will mail eligibility notices to affected workers about the benefits, which can help them in searching for a new job.

  • Glassdoor IBM reviews. Selected reviews follow:
    • Don't believe the hype” Current Field Service in Glendale, AZ. Pros: -Pads your resume; -Helps you acquire industry experience; -If you are lucky enough to have a good manager (which is rare) you can have flexibility and opportunities to develop. Cons: -They outsource everything they can, so your job is constantly in jeopardy. -Long hours without care or concern about work/life balance. -Compensation is below industry standard. -Benefits are below industry standard. -Little to no appreciation or recognition for work done. Advice to Senior Management: If your company has been profitable for the past 4 years, it's time to quit "tightening the belt" and give back to the employees whose backs you have built your wealth upon.
    • Once Was A Great Place to Work! Not True Today!” Current Enterprise Software Sales in Chicago, IL. Pros: Aggressive software acquisition strategy. Ability to work from home. A great place to start ones career and build a foundation of skills. Cons: Subjective performance reviews. Monthly driven quota objectives versus quarterly. Too few reps make their quota objectives with quota assignment tied back to Wall Street expectations versus reality. Too many layers of top management who add little value. IBM is supposed to be "family friendly" but taking vacation days is not encouraged.
    • World class company, below average compensation” Current Employee. Pros: Access to the best of the best, and all with the name of IBM on your resume. IBM has their fingers in almost every aspect of life, and working for this company opens up opportunities beyond those available with other employers. Cons: You have to learn to roll with the punches. Globalization and cost factoring are an every day reality that even IBM is susceptible to. If you're expecting to get a good raise or a fair bonus, then think again, because that won't happen here. Your real compensation is working on the projects and with the people, and using that to further your career. Advice to Senior Management: Recognize your top talent by what they do, not just who they are. Reward your rank-and-file people appropriately, and remember that the size of the reward is sometimes much more significant than the fact that they're getting one in the first place.
    • The bean-counters have taken over and they know how to shoot themselves in the foot!” Former Information Developer in Tarrytown, NY. Pros: Benefits were fine - but there wasn't time to enjoy them! Cons: No longer understand that saving money by cutting essential infrastructure is a bad thing. M&A process doesn't pay attention to essentials, and if it's not in the budget, god help you! Advice to Senior Management: Monetary incentives to save money encourage people to hide problems. Not good.
    • “Good place to learn, bad place to stay” Current Graduate Consultant in Melbourne (Australia). Pros: Security. Some very clever people. Great view. Cons: Corporate politics. Processes for everything. Little freedom for creativity.
    • Excellent management and growth possibilities” Current Applications Development Specialist in Phoenix, AZ . Pros: - Management is very friendly; - Excellent training and learning environment; - Work from home days occasionally; - Great benefits. Cons: The only con I can think of is that advancement won't happen very quickly. Advice to Senior Management: Continue the good work, it shows even at the lower levels.
    • Grindshop” Former Senior Software Engineer in Austin, TX. Pros: Mostly nice people to work with, at least the ones not scared of losing their jobs and backstabbing people to keep it. Many projects to choose from, this company really does do it all. Pay is good if you can get hired in at the right rate.

      Cons: Management is grinding their employees out, expect to be hired on for a position only to pick up one or two extra jobs within a year of working there. Miserable work environment, morale is very low and gets worse with the constant fear that layoffs are coming. Difficult to move jobs unless a project falls apart, constantly being told you are either too valuable to move or that you don't have the right skills.

      Advice to Senior Management: Take better care of your employees, don't wait until they are on the way out the door to finally allow people to move around. Hire people to replace those who left, expecting employees to shoulder the growing burden of leaving employees gets tiresome and weighs on morale. Quit doing the trickle layoffs, it keeps people constantly on edge.

    • Excellent company with breadth and depth, a balance of excitement and stability” Current Employee. Pros: Opportunity to work on big complex deals and projects; large accounts; access to the best in technology and business. Cons: Management hierarchy is strict, and rules of etiquette, formal. Few if any checks for bad management practice. Escalations are discouraged. Advice to Senior Management: Keep the bar on integrity high, and always find ways to encourage great work.
    • An excellent learning experience” Former Linux Developer (Internship) in Markham, ON (Canada). Pros: * Decent pay; * Interesting projects -- IBM has their hands in a lot of cool stuff; * Lots of opportunity to move around (and up); * Work with the best equipment (IBM makes some of the best servers, storage units, etc.); * Big company, meaning nice perks like travel, up-to-date equipment, etc. Cons: * Situated in Markham ;* I was doing my internship during the recession of 2008. I was quite put off by the fact that I saw many senior-level people shown the door around January of 2008, while, at the same time, IBM was continuing to hire interns for cheap labour. Ultimately, I decided to go to grad school instead of accepting the full-time offer of employment that they made to me. Nevertheless, I had a great time there and learned a lot.
    • IBM is an innovative company and the job as an engineer is stimulating, but the employee morale and atmosphere is poor.” Current Mechanical Engineer in Research Triangle Park, NC . Pros: IBM is an innovative company and the job as an engineer is stimulating. The work environment is professional and flexible. Cons: The overall morale and atmosphere at IBM is low. Salaries and benefits are well below competitors. The facilities, specifically in RTP, are poor...most employees work in a tiny cubicle in an industrial style building. Advice to Senior Management: Management should improve employee morale by providing more competitive incentives to work for IBM.
    • Not what it used to be” Current Development Engineer in Poughkeepsie, NY. Pros: IBM is a huge company and because of that there are many opportunities for long term employees to go overseas to China or India which are the only growth ares in IBM. They offer decent salaries after 20 years. Cons: They are working towards a $20 per share earnings target by 2015. That has resulted in very deep, often ill advised cost cutting. There is no incentive to work hard and the bonus salary plans have been gutted to meet the 2015 goal. Employees come last at IBM, don't ever forget it. Advice to Senior Management: Don't forget who got you where you are.
    • Very rewarding. Lots of freedom to work” Current Research Staff Member in Bangalore (India). Pros: IBM is a big company with many avenues to progress and make a big impact. Few other companies offer the variety of work and colleagues that IBM does. Cons: The con of working in a large company is the difficulty in making the elephant dance. In many places IBM is a big government bureaucracy so getting things done can be hard. Advice to Senior Management: Move to a slightly more bottom up responsibility architecture
    • Good workplace, not a job for everyone” Former Information Developer in Toronto, ON (Canada). Pros: The facility is great, my manager was very understanding and encouraging, and most of the experienced developers and managers are friendly. Cons: Very bad learning environment due to lack of standardized educational material or procedures. Very help based system of work, you have to constantly ask for help, asking for help itself is a waste of time in my opinion. Advice to Senior Management: Could use a little more experienced/skilled employees to help the new comers. As well as classes and one on one sessions where new comers will be taught for a few months, before they are left to their own.
    • Smart nice people in a big old ship” Current Employee. Pros: People work at home/time flexibility work life balance. Cons: Constant headcount reduction; heavy handed processes; many divisions doing similar/same things. Advice to Senior Management: Have clear values and visions and act on them. Reduce portfolio of stuff. You can't keep cutting people to show profit, but then keep/manage/maintain all the stuff.
    • Caste Hierarchy” Former Report and SQL Analyst in Boulder, CO. Pros: Very good place to learn enterprise business intelligence - worked with Fortune 500 companies and their data. IBM are the experts at BPM - you live and breathe it everyday. Cons: They don't hire contractors - period. While it was good to get experience, after a while it was blatantly apparent I was never going to become one of the privileged class - a full time IBM employee. Saw too many good people leave. Advice to Senior Management: Quit taking the attitude that contractors are scum - hey! some are even former employees who "keep the lights on".
    • Disappointing to say the least.” Current Employee. Pros: Extensive training is available on line. Cons: Layoffs and cut backs always a threat. Advice to Senior Management: Stabilize work force in the U.S.
    • Bureaucracy” Former Project Manager in Boulder, CO . Pros: IBM has the staff to handle a critical situation. Cons: Amazingly bureaucratic. Answer to everything is create another tool, another database... Advice to Senior Management: The people who develop and sell a solution to a customer should deliver the solution. If the direction is truly to deliver the same widget repeatedly, then STOP giving customers the option to customize, because the delivery organization being built to support standardization cannot deliver custom solutions for the widget price.
    • “Great experience” Former Employee. Pros: Great company to work for. Excellent benefits and great co-workers. Strong belief in work/life balance and was able to work from home as needed. Cons: Poor integration of people from acquired companies. Difficult to move within the company from one position to another. IBM is a very large company so it takes a long time to learn and fit into its internal system, if you do at all. The PBC's not working as it is designed to be. The evaluation of performance and promotion process is not clear. Advice to Senior Management: Make use of the experienced workforce in the US. Managers should help with employee career development.
    • Buying EPS; not interested in thinking about employees” Current Employee. Pros: Can work on every technology and move about Still has very sharp Distinguished engineers.


      • death by a thousand cuts. Pension got replaced by higher 401k which is now just matched once a year in lump sum
      • every group pads sizings 2x. Management pads another 2x. Nothing ships even if you hit all your dates because test team needs 6-9 months to test
      • bonus and raise has 0 correlation with what actual profits or what CEO says to shareholders about record profits in annual letter. In last 12 years have never seen a bonus higher than 6-8% even with 1 rating (top 3-4% of performers)
      • Orwellian double speak about everything.
      • even the restrooms are falling apart now.
      • supposed to be open door policy. But line managers hate it if you write to senior execs without going through them
      • even a laptop refresh can take 5 years

      Advice to Senior Management: Think strategically like amazon; stop managing quarter to quarter. don't lie to employees about raises and bonus being bad due to challenging environment

    • Be very aware” Current Program Manager in Raleigh, NC. Pros: IBM is a highly participatory environment. Everyone seems to be included in everything which tends to make meetings massive and frequent. There's a deceptive lack of structure and formality about most things so you're free to do your job with a great deal of latitude in how you do it. There is still plenty of older hands who know how to get things done vis a vis the organization.

      Cons: You will probably never see a pay increase, ever. It's possible you'll get a token bonus of 1% every decade but other than that, no. There's always some excuse; the economy is bad, the sector is bad, the industry is bad, you're too far above the midpoint, someone missed their numbers, blah blah blah. Which is fine, except you still have to go through this silly review process where your goals and statements were handed to you by first line management and then you have to write a term paper defending every trivial item on it. There is essentially NO job movement. None. You have to be able find your own replacement to move even laterally and that person has to find theirs and so on

      Organizationally if you wind up in a staff role or servicing IBM's own business to itself you can count on spending most of your time in meetings talking about meetings to plan meetings which will be intended to gather information on which to discuss further meetings. To sum up it's "Office Space" meets the Soviet Union.

      Advice to Senior Management: It would be refreshing to hear senior management just admit to the worker bees they really don't care whether they live or die or how good or bad a job they do as long as they contribute to the fiefdoms they oversee. What matters is process uber alles. At least we'd all know openly what we already suspect.

  • Alliance for Retired Americans: Friday Alert. This week's articles include:
    • Tell Your U.S. Rep. to Co-Sponsor Cicilline Resolution Opposing the Chained CPI
    • Alliance Supports Sen. Rockefeller’s Bill as Way to Achieve Medicare Savings
    • AFL-CIO Releases New Database to Track CEO Pay
    • Recommended: New PBS Documentary “Age of Champions”
    • Alliance Members in Missouri, Ohio, Penn., and New Mexico Focus on Health Care
    • More Retirees Claim Early Social Security Benefits During Recession
  • Reuters, courtesy of Yahoo! News: In immigration debate, some query skilled-worker shortage. By Sarah McBride and Noel Randewich. Excerpts: As the wrangling over immigration reform intensifies in the Congress, the tech industry is lobbying hard to raise the limit on H-1B visas, which allow non-U.S. citizens with advanced skills and degrees in "specialty occupations" to work in the country for up to six years. ...

    Yet some U.S. tech workers and academics say that the shortage of talent is exaggerated, that many of the jobs could go to out-of-work computer professionals in the United States, and that the program serves mainly as a source of cheap labor. ...

    The 200,000-member U.S. chapter of the Institute of Electrical and Electronics Engineers rejects the claim of a broad shortage of tech workers and opposes more H-1Bs. "What these companies are doing is to replace Americans with lower-cost foreign workers," says Russ Harrison, senior legislative representative at the IEEE.

    Rather than more H-1B visas, the group favors giving foreign workers permanent residency, which Harrison said would help boost wages and increase job mobility for newcomers. ...

    But wages in the tech industry are rising more slowly than those in the economy as a whole. For example, pay for applications software developers, a specialty in high demand, have risen just 8.9 percent in the five years through mid-2012, compared with a 12.5 percent increase for all occupations in the U.S. economy.

    "It is extraordinarily unlikely for a severe shortage to happen in a way that doesn't result in very large wage increases," said Kirk Doran, an economist at the University of Notre Dame who studies immigration and labor.

    "We know what a labor shortage looks like: there should be both much lower unemployment than other professions and much higher wage growth. If either of these are not present, then I don't buy the shortage hypothesis." ...

    The United States issued 129,000 H-1B visas last year - almost double the official cap, since workers at universities and some other workplaces don't count toward the limit. Those with graduate degrees from U.S. universities have their own quota of 20,000, a limit the tech industry hopes to see removed.

    The three-year visas can be extended to six years, so there are likely hundreds of thousands of H-1B workers, half of them in computer-related fields, according to government data. There is no exact count of H-1Bs in use at any given time. ...

    Bea Dewing, 61, a database designer, blames growing competition from immigrant workers for hampering her career over the past decade. "It's very unfair from the standpoint of American workers," said Dewing, who has been out of steady work since August, when she said she was laid off from Tata Consultancy Services, an Indian software services firm which had placed her at a New York-based financial services company. ...

    Computer and Internet companies spent an estimated $132.5 million on lobbying last year, according to the Center for Responsive Politics. Tech executives including Cisco Systems Inc Chief Executive John Chambers and venture capitalist John Doerr of Kleiner Perkins Caufield & Byers flew to Washington last month to discuss immigration reform with the White House and Congressional leaders.

  • In These Times: How to Save Retirement (It’s Simple, and It’s Not Chained CPI). President Obama is wrong: Social Security is not the problem–it’s the solution. By Steven Hill. Excerpts: The real monster under the bed is not the long-term solvency of Social Security, as the deficit busters in both parties would have us believe. Rather it is the fact that, due to the failure of the current retirement system, millions of Americans are facing an insecure and underfunded retirement. A more realistic assessment reveals that the solution to America’s retirement crisis lies in the opposite direction—expanding Social Security, not cutting it. In a new policy paper entitled “Expanded Social Security” (which I co-authored), the New America Foundation shows how to create a more robust retirement system in an affordable way that actually could decrease the total amount of national wealth being expended on today’s unstable system.

    Here’s the dilemma that the U.S. faces. Since World War II, retirement has been conceived as a “three-legged stool,” with the three legs being Social Security, employer retirement plans and private assets (centered around homeownership). But the first leg, the one based on employer-based retirement plans, has been hacked back to a nub.

    Occupational pensions with a guaranteed payout have declined to near obsolescence since the mid-1980s. Today, less than 15 percent of all private sector workers and 32 percent of those in large companies have these pensions, a decline of 62 percent from the peak.

    Unfortunately, the replacements for pensions—401(k)s, IRAs and other tax-favored private savings vehicles—have proven disastrous. These were sold to American workers as the new and improved versions of traditional pensions, but in the recent financial crash, individuals lost a total of $2.8 trillion in value of their 401(k)s or IRAs. ...

    Even before the crash, the dirty little secret was that these savings vehicles chiefly benefited the affluent, who could afford to accumulate large amounts of savings in the tax-deferred accounts. Of the $165 billion the government will spend this year to subsidize individual retirement savings through programs such as 401(k)s, nearly 80 percent will accrue to the top 20 percent of earners. ...

    In short, two of the three legs of America's retirement system have been sawed off, and half of all Americans are at risk of not having sufficient retirement income. Three-fifths of low-income households are at risk of not having sufficient retirement income to maintain their pre-retirement standards of living after age 64 (which were low standards to begin with).

    The U.S. retirement system has become an unstable one-legged stool. Suddenly Social Security, which always has been viewed as a supplement to private savings, is the only leg left for tens of millions of American retirees.

    That's what makes the current debate over Social Security, and Obama’s proposed cuts, so puzzling. While Social Security is facing a funding shortfall two decades away, nevertheless it has proven to be far more stable and successful than the other two legs of the stool. Yet many critics of Social Security not only are proposing cuts, but also an expansion of the failed 401(k)s and IRAs in order to compensate for the allegedly necessary cuts in Social Security. ...

    In reforming America’s retirement security system, we should build upon what works, not what has failed. Instead of compounding failure by expanding private benefit plans that are subject to the whims of the stock market and mostly have benefited the affluent, we should substantially expand the successful and popular Social Security program. ...

    The New America Foundation plan, called “Expanded Social Security,” proposes a two-part, or “double-decker” plan (much like Medicare is divided into parts A, B, C and D). The current Social Security program (to be renamed Social Security A) would remain an earnings-based, defined benefit plan, where workers would accrue benefits based on lifetime earnings. In addition, this plan would be supplemented by a second part, Social Security B, which would be a universal flat benefit for all retired Americans. Combined, Social Security A and B would be set at a level to meet the goal of replacing 60 percent of income for a middle-income earner. ...

    This does not have to be an expensive proposition. Currently, the overall retirement system, including not only Social Security but also private components such as disbursals from tax-favored employer and individual retirement plans, consumes about 13 percent of the nation’s gross domestic product. But this expanded Social Security system, combined with a smaller private savings component, would use up an estimated 12.4 percent of GDP. That might sound like a small difference, but in a $14 trillion economy, it amounts to about $80 billion in potential annual savings. ...

    In addition to increasing the retirement security of most Americans, Expanded Social Security would result in other benefits for the broader macroeconomy. It would make each individual’s retirement plan portable from job to job, so that she or he would be able to pay into their retirement no matter where they work. It also would act as an “automatic stabilizer” during economic downturns, keeping money in retirees' pockets and stimulating consumer demand, especially among low- and middle- income individuals who are more likely to spend an extra dollar on goods and services than are affluent individuals.

  • Wall Street Journal: When Rolling Over, Make Sure You Don't Get Squished by Costs. By Ian Salisbury. Excerpts: When it comes to rolling over retirement accounts, a new government report suggests that job switchers are ignoring what may be their best option: pouring savings into a new employer's 401(k).

    For many investors, the term "rollover" is synonymous with moving money from an employer-sponsored plan like a 401(k) into an individual retirement account. But it also is an option to move those assets sitting in an old 401(k)—or other defined-contribution plan like a 403(b)—into a similar plan at the new job.

    New research from Congress's investigative arm, the Government Accountability Office, suggests that paperwork hassles and a hard sell from IRA providers mean investors too frequently overlook the latter option. "It's unnecessarily hard to do the right thing," says Alison Borland, a retirement strategist at benefits company Aon Hewitt, which estimates that investors roll $9 into IRAs for every $1 that goes into a new 401(k).

    Investing pros agree that cashing out retirement savings is hardly ever wise. But there are benefits to both of the other alternatives: IRAs typically offer a wider range of investment options, while 401(k) plans offer lower costs, particularly if they are sponsored by a big employer. ...

    Retirement savers in retail mutual funds—the type widely available in IRAs—pay annual fees averaging $101 per $10,000 invested, roughly double what investors in big 401(k)s pay, according to investment consultant Callan. Such differences can compound into thousands of dollars in lost retirement income after decades of saving, according to Callan's defined-contribution practice leader, Lori Lucas. "I don't think participants really understand the cost advantages," she says. ...

    What makes IRAs so popular? One big factor, according to the GAO report, is aggressive industry marketing, including sales pitches delivered through "educational" 401(k) materials and misinformation delivered by call-center representatives.

  • InformationWeek: IT Salary Survey 2013: 11 Career Insights. By Christ Murphy. Excerpts: IT is consistently cited as one of the most-promising U.S. careers, even with the rise of offshore outsourcing. As with most professions, however, compensation is rising only modestly. The IT field still pays well, with staffers earning $90,000 in median total compensation and managers earning $120,000, the 2013 InformationWeek U.S. IT Salary Survey finds. But compensation for staffers is flat compared with last year and up only 3% for managers.

    Compensation varies substantially by skill and industry. Staffers focused on enterprise application integration earn a median $110,000, those in general IT earn $73,000 and those on the help desk earn $55,000. A few staff specialties such as cloud computing ($130,000), Web security ($118,000) and mobile ($111,000) pay even higher, though our survey sample sizes are small for those areas. Staffers with the IT architect title make a median $130,000. ...

    Working for a big-name employer goes only so far. This is probably the most unequivocal statement I can make from our Salary Survey: IT pros aren't impressed by your fancy company name. In our survey, prestige/reputation was rated dead last on the list of job qualities that matter, the third year in a row it came in last. Just 9% of managers and 6% of staffers put it among their top seven priorities.

  • US News & World Report: Why 4 Percent Annual Withdrawals are Still Safe. By David Ning. Excerpts: Due to the lower expected returns of stocks and bonds going forward, retirement planners have been preparing savers to accept a lower safe withdrawal rate for a few years now. But with the original 4 percent annual withdrawal rate already too low for many people to sustain a comfortable lifestyle, what's a future retiree to do?

    Luckily, chances are high that you don't need to change anything with your savings and spending habits to adjust to these lower forecasts. Here are a few reasons a 4 percent withdrawal rate could still work for you...

  • FrontLine Press Release: “The Retirement Gamble” Excerpts: For most Americans, traditional retirement is now a pipe dream: Six in 10 people believe they’ll have to delay retirement, just 14 percent are very confident they’ll be able to live comfortably once they stop working, and 17 percent believe they’ll never retire at all.

    Who is to blame?

    The Retirement Gamble, airing Tuesday, April 23, at 10 p.m. on PBS (check local listings), is an eye-opening investigation of a financial services industry that may be draining your retirement savings with every passing year. ...

    Using his own retirement fund as a case study, Smith undertakes an investigation that has implications for every working American. Through interviews with Wall Street executives at the helm of the mutual fund industry, professionals of all ages who are trying to navigate the retirement crisis, and current and former financial advisers who may or may not have their clients’ best interests at heart, he investigates the rise of the 401(k)—a product Americans buy without knowing its true cost. ...

    Whether you’re just starting your professional career, or nearing what you hope will be your golden years, The Retirement Gamble is essential viewing if you hope to one day retire.

  • Kiplinger: Strategies to Pump Up Your Lifetime Income. Low bond yields have raised troubling questions about whether the 4% withdrawal rule still holds up. Here is what works, and what doesn't, when it comes to stretching a retirement nest egg. By Eleanor Laise. Excerpts: Many retirees and financial advisers use the "4% rule" to calculate how much to spend from a portfolio each year in retirement. The rule is simple: Retirees who spend 4% of their initial wealth from a balanced stock-and-bond portfolio, adjusting the dollar amount annually to keep pace with inflation, can be highly confident that their portfolio will survive 30 years.

    But researchers lately have raised troubling questions about whether the 4% rule holds up under today's market conditions. Much of the academic research supporting the rule is based on long-term average returns for stocks and bonds. As retirees know all too well, today's bond yields are anything but average. Intermediate-term government bonds delivered average annual returns of 5.5% between 1930 and 2011, according to Morningstar's Ibbotson Associates, but yielded less than 1% at the end of 2012. ...

    While low bond yields have undermined the 4% rule, they reinforce the value of delaying Social Security for many retirees. For each year you delay claiming Social Security benefits beyond full retirement age, you get an inflation-adjusted benefit boost of 8%. Compare that to the inflation-adjusted yields currently available in the bond market—specifically, on Treasury inflation-protected securities. They're negative for maturities of ten years or less. "The government's offer is pretty good relative to current interest rates," says Jason Scott, managing director at retirement-advice firm Financial Engines' Retiree Research Center.

New on the Alliance@IBM Site
  • Job Cut Reports
    • Comment 04/15/13: -Rumors- What? IBM sell off a business unit(s). Never happen said the Copier folks at Kodak, The Typewriter folks at Lexmark, The PC folks at Lenovo, The Storage folks at Hitachi, The Global Network folks at A.T+T The Printer folks at Ricoh and any I may have missed. The one thing consistent about this is none of them got enough people organized to stop the madness so the madness continues, and will continue till the last U.S. employees turn out the lights and hand the keys to the realtors selling the buildings. Then as the weeds grow in the parking lots and the fences rust away people will lament, you know working at IBM sure beat being unemployed. Maybe we should have done something to keep our jobs here in the U.S. instead of waiting for someone to save us. Organize now! What are you waiting for? Live better, work Union. -Exodus2007-
    • Comment 04/16/13: Will IBM sell off its parts? Sure, why not? They have already dumped tens of thousands of their own people in the past few years while reporting record profits. They have more than doubled the price of shares, they have upended the 401K plan, they have ever so slowly removed the small but meaningful benefits of employees over years and years. -Clam-
    • Comment 04/19/13: IBM stock in free-fall after (gotta sit down and then lay down on a couch for this one) MISSED EARNINGS PER SHARE for 1Q2013. What a shock; now will come the horror. You can bet it will mean at least one thing: imminent headcount reductions and a sure RA. I bet some contractors are told today is last day. A lot of the rest of the contractors and then employees hear by May 1. IBM will do whatever to make EPS of $16.70 which is their YE target except fire Ginni. IBM Is no JC Penney but damn close to it now. No wonder Sam bailed with the super platinum parachute, then Daniels (pissed off he was not a CEO candidate apparently), and that nasty condescending Hoey (who thinks he is better and bigger than he is and light years better than the average IBMer) communique. Now is the time IBMers: to join the Alliance. IBM management can't fudge the financial numbers now. IBM shows a weakness that can be attacked. -now_is_time-
    • Comment 04/19/13: After a spate of top contributor ratings I got a 3 this year and looks like I have to get out by June. Is that normal being edged out like this in ibm? Don't know whether to believe my manager and hr. There is no formal pip. Any feedback appreciated. -goingsoon-
    • Comment 04/19/13: With system X news it looks like Ginni's garage sale has started as many people predicted. -seller-
News and Opinion Concerning Health Savings Accounts, Medical Costs and Health Care Reform
  • Boston Globe: Employer Health Insurance in Rapid Decline Across U.S. -- and Not in MA. By John McDonough. Excerpts: A new report on state-by-state trends in employer-sponsored health insurance (ESI) caught my eye both for the national and Massachusetts trends, comparing 1999/2000 with 2010/2011. Bottom line from the Robert Wood Johnson Foundation-funded State Health Access Data Assistance Center: big changes nationally and in most states, and not so in Massachusetts. Some key findings:

    The percent of non-elderly who obtain health insurance from their employers declined from 69.7 to 59.5 percent over the decade, a stunning 10.2% drop -- public coverage increased by 3.1% in the same period.

    The share of private firms offering health insurance dropped from 58.9 to 52.4%, and the "take up rate" (the percent of workers accepting employer offers) fell from 81.8 to 76.3%.

    Most, not all, states saw sizable drops in employer coverage, and the range of individuals covered by employers varied from New Hampshire (#1) at 73.8% to New Mexico (48.0%).

    The proportion of firms offering coverage was in rapid decline going back to 2000, well before the passage of the Affordable Care Act/ACA/ObamaCare. The decline did not stop in 2010 nor did it accelerate. It's a long-term trend. ...

    I still recall the numerous confident predictions of naysayers that the 2006 Massachusetts health reform law would spell the end of employer health insurance in Massachusetts. Didn't happen. Instead, look at these data points from the report...

    What does this report tell us?

    The rapid decline of employer-based health insurance in the U.S. continues. The ACA may slow or accelerate the trend, but it's a trend far older than the ACA. Instead, the ACA is providing an option for workers in those firms without other ways to find health insurance coverage.

  • Cincinnati Business Courier: Here's what Humana's CEO has to say about the future of health insurance. By James Ritchie. Excerpts: The health care system of the future will likely come with fewer guarantees, said Bruce Broussard, CEO of Humana Inc. In other words, rather than offering a health plan, employers will probably begin offering specified payments and telling their employees to buy their own insurance.

    “What happened to retirement is probably going to happen to health care,” Broussard told me Wednesday.

    The shift, from defined-benefit to defined-contribution plans, is exactly what happened when 401k retirement accounts replaced pensions.

  • New York Times: Drug Makers Use Safety Rule to Block Generics. By Katie Thomas. Excerpts: For decades, pharmaceutical companies have deployed an array of tactics aimed at preventing low-cost copies of their drugs from entering the marketplace.

    But federal regulators contend the latest strategy — which relies on a creative interpretation of drug safety laws — is illegal.

    The Federal Trade Commission recently weighed in on a legal case over the tactic involving the drug maker Actelion, and earlier this month a federal suit was filed in another case in Florida. ...

    The new approach is almost elegant in its simplicity: brand-name drug makers are refusing to sell their products to generic companies, which need to analyze them so they can create the copycat versions. Traditionally, the generic drug makers purchased samples from wholesalers. But because of safety concerns, an increasing number of drugs are sold with restrictions on who can buy them, forcing the generic manufacturers to ask the brand-name companies for samples. When they do, the brand-name firms say no. ...

    Advocates for generic drugs say the practice could limit access to the low-cost drugs, which they say have saved more than a trillion dollars over the last decade. They say the companies that have most aggressively pursued the tactic tend to be those with drugs that are nearing the end of their patent life.

  • AARP: How the Affordable Care Act Helps You. Find out what benefits are already in effect. By Robert Romasco. Many benefits are already in effect:
    • A number of insurance plans, including Medicare, now cover more preventive services, such as colonoscopies and mammograms, with no out-of-pocket costs to you.
    • The law has been gradually closing the Medicare Part D coverage gap, the "doughnut hole." In 2013, if you reach this gap, you receive a 52.5 percent discount on your brand-name prescriptions and a 21 percent discount on generics. Savings increase each year until the gap is closed in 2020.
    • Insurers can't drop your coverage even if you become sick or disabled.
    • Parents can keep their adult children on their health insurance until they reach age 26.
    • Plans can't limit how much they pay for your lifetime medical costs. Beginning January 2014, the law also prohibits annual limits on the dollar amount of coverage for an individual.
    • Plans can't deny coverage for children under age 19 who have preexisting conditions. The provision extends to people of all ages in 2014.
    • Health insurance marketplaces, often called exchanges, will open in every state, making it easier for people without insurance, small businesses and self-employed workers to buy private health insurance. Coverage begins January 2014, but by this October, any American can compare plans and buy health insurance online.
    • The ACA is also making Medicare more secure through cost savings that extend the program's financial life by several years. For the latest information on the ACA and for a personalized guide to how the law works for you, try the interactive tool on our aarp.org website.
  • Huffington Post: It's CEO Pay Shock, Not Premium Rate Shock, That We Should Be Outraged About. By Wendell Potter. Excerpts: While many Aetna employees were lucky to get two percent raises last year, Bertolini's compensation nearly quadrupled. That's right, quadrupled.

    Aetna disclosed in a filings last week with the U.S. Securities and Exchange Commission that Bertolini's total compensation in 2012 was $36.36 million, up from $9.7 million in 2011. If you include the $11.1 million in stock awards he was given that will vest later, his 2012 total jumps $47 million.

    Bertolini's "pay shock" so angered many current and former Aetna workers that several of them posted scathing comments on the Hartford Courant's website.

    "All Aetna employees should be picketing outside the office building in protest of this disgrace," a former Aetna employee wrote. "What kind of leader gives his employees 2% while his earnings nearly quadruple???? Totally selfish."

  • Minnesota Medicine, courtesy of Physicians for a National Health Program: Beyond Obamacare. How a single-payer system can save health care in the United States. By Dave Dvorak, M.D., M.P.H. Excerpts: As Minnesota’s physicians, health care leaders and legislators grapple with the complex changes brought by the Affordable Care Act (ACA), many are concerned that even after the law is fully implemented, hundreds of thousands of people will remain uninsured while health care costs continue to spiral.

    What if there were a simple, streamlined solution that would guarantee health coverage for every Minnesotan while saving the state billions of dollars? A growing number of Minnesota physicians are endorsing what they consider to be such a solution: single-payer health care. Weary of having to comply with hundreds of different insurance plans’ administrative requirements while their patients are denied needed tests and treatments, these physicians are drawn to the simplicity, cost-effectiveness and truly universal coverage offered by a single-payer system.

    Their views were supported by an independent analysis last year demonstrating that with a state-based single-payer system, every Minnesotan could have comprehensive coverage while the state would save billions annually. ...

    At the root of these problems is the fact that we have a fragmented, highly inefficient system. Employed Americans younger than 65 years of age have job- based insurance, if their employer chose to provide it; the elderly and disabled are covered through Medicare; the poor by Medicaid; military veterans through the Veterans Administration; and American Indians through the Indian Health Service. Persons who do not fall into any of those categories must try to purchase individual coverage in the private market, where it is often prohibitively expensive or unobtainable if they have a pre-existing health condition.

    Owing largely to this fragmentation and inefficiency, a staggering 31 percent of U.S. health care spending goes toward administrative costs, rather than care itself. Inefficiency exists at both the provider and payer level. To care for their patients and get paid for their work, physicians and hospitals must contend with the intricacies of numerous insurance plans—which tests and procedures they cover, which drugs are on their formularies, which providers are in their network. Meanwhile, private health insurance companies divert a considerable share of the premiums they collect toward advertising and marketing, sales teams, underwriters, lobbyists, executive salaries and shareholder profits. The top five private insurers in the United States paid out $12.2 billion in profits to investors in 2009, a year when nearly 3 million Americans lost their health coverage. ...

    Under a single-payer system, the way society pays for health care would change, but the market-based health care delivery system would remain. Physicians and hospitals would continue to compete with one another based on service, quality of care and reputation. The chief difference is that they would bill a single entity for their services, rather than numerous insurers.

    Individuals would benefit immensely by having continuous coverage that is decoupled from their employment. This would alleviate “job lock,” in which people remain in undesirable employment situations in order to maintain coverage. In a single-payer system, individuals could choose to see any provider, in contrast to the current system in which choice is restricted to those who are in-network. Deductibles and copays would be minimal or eliminated, removing cost as a barrier to obtaining needed care.

  • Families USA: New Health Insurance Tax Credits for Americans (PDF). Excerpts: Starting in 2014, the Affordable Care Act will extend health coverage to millions of Americans. This will be done, in part, by offering tax credits to help low- and middle-income Americans afford private coverage. These new tax credits, which will offset a portion of the cost of health insurance premiums, will soon become a reality, allowing many previously uninsured individuals and families to purchase quality health coverage.

    This report takes a closer look at these premium tax credits, which will help Americans with incomes up to four times the federal poverty level ($94,200 for a family of four in 2013) afford coverage. The unique structure of the tax credits means that people will be protected from having to spend more than a set percentage of their income on health insurance premiums. These premium tax credits will take effect in January 2014, following open enrollment that begins in October 2013. ...

    Most of the people who will be eligible for the tax credits will be in working families and will have incomes between two and four times poverty (between $47,100 and $94,200 for a family of four based on 2013 poverty guidelines). However, because the size of the tax credits will be determined on a sliding scale based on income, those with the lowest incomes will receive the largest tax credits, ensuring that the assistance is targeted to the people who need it most.

  • Kaiser Health News: Health Insurance Actuaries In the Hot Seat On ‘Rate Shock’. By Jay Hancock. Excerpts: Few aspects of the Affordable Care Act are more critical to its success than affordability, but in recent weeks experts have predicted costs for some health plans could soar next year.

    Now health law supporters are pushing back, noting close ties between the actuaries making the forecasts and an insurance industry that has been complaining about taxes and other factors it says will lead to rate shock for consumers.

    "Most actuaries in this country -- what percentage are employed by insurance companies?" Sen. Al Franken, a Minnesota Democrat, asked an actuary last week at a hearing of the Committee on Health, Education, Labor and Pensions. ...

    The committee was discussing a study published last month by the Society of Actuaries (SOA) predicting that, thanks to sicker patients joining the coverage pool, medical claims per member will rise 32 percent in the individual plans expected to dominate the ACA exchanges next year. In some states costs will rise as much as 80 percent, the report said. ...

    Undisclosed in the SOA report was the fact that about half the people who oversaw it work for the health insurance industry that is warning about rate shock. The chairman of society committee supervising the project was Kenny Kan, chief actuary at Maryland-based CareFirst BlueCross BlueShield. ...

    The SOA "portray themselves as this nonpartisan think tank when in fact everything about the study is by people who have a vested interest in the outcome of the study," said Birny Birnbaum, executive director of the Center for Economic Justice, a Texas group that advocates on behalf of financial and utility consumers.

    To perform the research, the society hired Optum, sister company of UnitedHealthcare, the country’s biggest private health insurer. ...

    Health-act supporters complained that that the actuary society's study predicting a 32 percent increase in claims didn't account for key factors, including the potential for competition to lower prices, the subsidies people will receive to buy the coverage and the fact that next year’s plans will be more generous than this year's.

  • Washington Post: Want to know the future of Obamacare? Take a look at Fort Dodge, Iowa. By Sarah Kliff. Excerpts: The city has a population of 25,136 and a median income of $38,015. It is apparently named after a Wisconsin senator, which seems a bit strange for a city in Iowa. But most pertinent to the Affordable Care Act, Fort Dodge is one of the 32 sites across the nation testing out the health law’s vision for moving Medicare from a program that pays for volume to one that pays for value. ...

    Right now, most Medicare payments are paid on volume; doctors get a set fee for each surgery they complete and patient they see. This can create some messed-up incentives for hospitals, which tend to make more if their patients are sicker and spend more time in treatment.

    One study I wrote about yesterday found that a hospital earns nearly twice as much on a patient who has a surgical complication vs. one who has a perfectly routine procedure.

    In Fort Dodge, this is changing. UnityPoint Health (which was, until this week, named Iowa Health System) is one of the 32 Pioneer Accountable Care Organizations that volunteered to have part of their Medicare payments tethered to a set of quality metrics.

  • Physicians for a National Health Program: Public and private payment of hospital complications. Relationship Between Occurrence of Surgical Complications and Hospital Finances. By Sunil Eappen, MD; Bennett H. Lane, MS; Barry Rosenberg, MD, MBA; Stuart A. Lipsitz, ScD; David Sadoff, BA; Dave Matheson, JD, MBA; William R. Berry, MD, MPA, MPH; Mark Lester, MD, MBA; Atul A. Gawande, MD, MPH. Excerpts: We found that under private insurance and Medicare, which cover the majority of US patients, the occurrence of surgical complications was associated with higher hospital contribution margins. Depending on payer mix, efforts to reduce surgical complications may result in worsened near-term financial performance. ...

    Comment: By Don McCanne, M.D. In reporting this JAMA article on surgical complications and hospital finances, headlines throughout the nation are stating that hospitals profit from surgical errors. The story that should be reported is that private insurers have been richly rewarding hospitals for surgical complications, whereas Medicare has largely avoided paying these rewards.

    Specifically, private insurers pay an average of $39,000 more for surgical complications whereas Medicare pays only $1,700 extra. Obviously the government has done a much better job than the private sector in ensuring value in our health care purchasing, not to mention providing incentives to improve performance. ...

    Medicare's prospective payment system using DRGs (745 diagnosis-related groups) has improved payment levels, but it still provides an incentive for the provision of excess care. There is a better way. Hospitals should receive global budgets based on legitimate costs, just as our fire and police departments are budgeted. Periodic re-budgeting will compensate for changing medical and community requirements. Of course, incentives catering to passive investors should be removed by converting all hospitals to nonprofit status.

News and Opinion Concerning the "War on the Middle Class"
Minimize "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.

  • AlterNet: America's New Math: 1 Wall Street Hour = 21 Years of Hard Work For the Rest of Us. It's perverse: the top 10 hedge funds managers make as much as 196,000 registered nurses. By Les Leopold. Excerpts: The new Rich List is out -- yet another example of financial pornography. While nearly 15 million Americans still can't find jobs due to the 2008 Wall Street-created crash, the top hedge manager, David Tepper, earned $1,057,692 an HOUR in 2012 -- that's as much as the average American family makes in 21 years! ...

    Together the top 10 hedge fund managers waltzed off with $10.1 billion in 2012, which is more than enough to hire 250,000 entry level teachers or 196,000 new registered nurses. ...

    It's not just that these financial gurus are filthy rich. It's that they are the richest of the rich and we don't even know what they do. Overall, hedge fund managers make 50 to 100 times more than our top athletes, movie stars, CEOs, lawyers, writers, doctors and celebrities. Yet, their activities are treated like state secrets. ...

    Many hedge funds (and we don't know how many) make their money through illegal insider tips. If you know something big is about to happen to a company that no other outsider is supposed to know, you're betting on a sure thing. So far U.S. Attorney Preet Bharara has nailed about 70 hedge fund honchos for obtaining illegal tips. The billionaire Raj Rajaratnam tried, found guilty and put away for nine years. And the third richest hedge fund earner in 2012, billionaire Steven Cohn, is watching as several of his high-level employees succumb to federal indictments. He could be next. ...

    Here's a game for fun and profit that is both legal (for now) and foolproof. You set up your ultra-high-speed computers right next to the stock exchanges so that you get the feed a few nanoseconds before the rest of the world. Then with the help of expert programmers you use that information to automatically jump in ahead of normal investors, so that you buy stocks that others want, jack up the price a little bit and then sell them back to these normal speed buyers. This means that when the rest of us hit the buy button on E-Trade, a high frequency algorithm has probably jumped in there before us, bought the stock we want, and is selling it back to us for a few pennies of profit. They do this millions of times a minute, racking up from $5 to $20 billion a year. It's like a hidden private sales tax that goes into the pockets of high frequency traders. Our pension funds and 401ks are fleeced as well.

  • New York Times: A Tax System Stacked Against the 99 Percent. By Joseph E. Stiglitz. Excerpts: No one enjoys paying taxes, and yet all but the extreme libertarians agree, as Oliver Wendell Holmes said, that taxes are the price we pay for civilized society. But in recent decades, the burden for paying that price has been distributed in increasingly unfair ways.

    About 6 in 10 of us believe that the tax system is unfair — and they’re right: put simply, the very rich don’t pay their fair share. The richest 400 individual taxpayers, with an average income of more than $200 million, pay less than 20 percent of their income in taxes — far lower than mere millionaires, who pay about 25 percent of their income in taxes, and about the same as those earning a mere $200,000 to $500,000. And in 2009, 116 of the top 400 earners — almost a third — paid less than 15 percent of their income in taxes. ...

    With such low effective tax rates — and, importantly, the low tax rate of 20 percent on income from capital gains — it’s not a huge surprise that the share of income going to the top 1 percent has doubled since 1979, and that the share going to the top 0.1 percent has almost tripled, according to the economists Thomas Piketty and Emmanuel Saez. Recall that the wealthiest 1 percent of Americans own about 40 percent of the nation’s wealth, and the picture becomes even more disturbing. ...

    The United States stands out among the countries of the Organization for Economic Cooperation and Development, the world’s club of rich nations, for its low top marginal income tax rate. These low rates are not essential for growth — consider Germany, for instance, which has managed to maintain its status as a center of advanced manufacturing, even though its top income-tax rate exceeds America’s by a considerable margin. And in general, our top tax rate kicks in at much higher incomes. Denmark, for example, has a top tax rate of more than 60 percent, but that applies to anyone making more than $54,900. The top rate in the United States, 39.6 percent, doesn’t kick in until individual income reaches $400,000 (or $450,000 for a couple). Only three O.E.C.D. countries — South Korea, Canada and Spain — have higher thresholds....

    Most of the Western world has experienced an increase in inequality in recent decades, though not as much as the United States has. But among most economists there is a general understanding that a country with excessive inequality can’t function well; many countries have used their tax codes to help “correct” the market’s distribution of wealth and income. The United States hasn’t — or at least not very much. Indeed, the low rates at the top serve to exacerbate and perpetuate the inequality — so much so that among the advanced industrial countries, America now has the highest income inequality and the least equality of opportunity. This is a gross inversion of America’s traditional meritocratic ideals — ideals that our leaders, across the spectrum, continue to profess. ...

    As Americans look at some of the special provisions in the tax code — for vacation homes, racetracks, beer breweries, oil refineries, hedge funds and movie studios, among many other favored assets or industries — it is no wonder that they feel disillusioned with a tax system that is so riddled with special rewards. Most of these tax-code loopholes and giveaways did not materialize from thin air, of course — usually, they were enacted in pursuit of, or at least in response to, campaign contributions from influential donors. It is estimated that these kinds of special tax provisions amount to some $123 billion a year, and that the price tag for offshore tax loopholes is not far behind. Eliminating these provisions alone would go a long way toward meeting deficit-reduction targets called for by fiscal conservatives who worry about the size of the public debt. ...

    Yet another source of unfairness is the tax treatment on so-called carried interest. Some Wall Street financiers are able to pay taxes at lower capital gains tax rates on income that comes from managing assets for private equity funds or hedge funds. But why should managing financial assets be treated any differently from managing people, or making discoveries? Of course, those in finance say they are essential. But so are doctors, lawyers, teachers and everyone else who contributes to making our complex society work. They say they are necessary for job creation. But in fact, many of the private equity firms that have excelled in exploiting the carried interest loophole are actually job destroyers; they excel in restructuring firms to “save” on labor costs, often by moving jobs abroad. ...

    One of the reasons for our poor economic performance is the large distortion in our economy caused by the tax system. The one thing economists agree on is that incentives matter — if you lower taxes on speculation, say, you will get more speculation. We’ve drawn our most talented young people into financial shenanigans, rather than into creating real businesses, making real discoveries, providing real services to others. More efforts go into “rent-seeking” — getting a larger slice of the country’s economic pie — than into enlarging the size of the pie.

    Research in recent years has linked the tax rates, sluggish growth and rising inequality. Remember, the low tax rates at the top were supposed to spur savings and hard work, and thus economic growth. They didn’t. Indeed, the household savings rate fell to a record level of near zero after President George W. Bush’s two rounds of cuts, in 2001 and 2003, on taxes on dividends and capital gains. What low tax rates at the top did do was increase the return on rent-seeking. It flourished, which meant that growth slowed and inequality grew. This is a pattern that has now been observed across countries. Contrary to the warnings of those who want to preserve their privileges, countries that have increased their top tax bracket have not grown more slowly. Another piece of evidence is here at home: if the efforts at the top were resulting in our entire economic engine’s doing better, we would expect everyone to benefit. If they were engaged in rent-seeking, as their incomes increased, we’d expect that of others to decrease. And that’s exactly what’s been happening. Incomes in the middle, and even the bottom, have been stagnating or falling. ...

    Society can’t function well without a minimal sense of national solidarity and cohesion, and that sense of shared purpose also rests on a fair tax system. If Americans believe that government is unfair — that ours is a government of the 1 percent, for the 1 percent, and by the 1 percent — then faith in our democracy will surely perish.

  • New York Times opinion: The Furtive Tax. By Linda Sugin. Excerpts: April 15 is dreaded as the deadline for filing income tax returns, but in fact every day is tax day for most working people. That’s because more than half of all Americans pay more in payroll tax than in income tax. That includes nearly everyone in the bottom half of the income distribution.

    We don’t file annual payroll tax returns because payroll taxes have one rate and they aren’t adjusted for individual differences that affect taxpaying ability. Your bill remains the same regardless of how many children you support, your medical or education expenses, or your charitable contributions. No standard deduction or personal exemption either: payroll taxes apply to the first dollar. ...

    Payroll taxes produce 40 percent of total federal revenue, but they are largely invisible. This is unfortunate because they play an important role in the overall balance of the federal tax burden, which falls much more heavily on income from work. Income from investments is not subject to the payroll tax, and it is also more lightly taxed than wages under the income tax.

    Because people with high incomes earn a much greater percentage of their total income from investments — and, crucially, because much of that investment income is wealth accumulation that has not been liquidated — tax law favors the rich far more than most people realize. The money that has been gained on investments that have appreciated but have not yet been sold is not taxed and may permanently escape tax under current law.

    This might sound reasonable — why should I pay taxes before I cash out? — but it is actually where the tax system is especially inequitable. Poor people with no savings cannot benefit from the tax preferences for investment, and middle-income workers often pay tax at a higher rate than rich investors, a problem made famous by Warren Buffett. ...

    At $70,000 total income, the worker pays almost $20,000 in federal taxes, roughly half in payroll tax and half in income tax. The investor with $70,000 in capital gains pays less than a fifth of that. This is not just an abstract discussion; it means that the 25-year-old trust funder is paying less in tax than his counterpart who fixes computers for a living. ...

    April 15 is as good a time as any to think about how we can readjust the federal tax burden so that both workers and investors pay their fair share to finance the many and varied federal programs — including retirement security — that we deem worthy of our tax dollars.

If you hire good people and treat them well, they will try to do a good job. They will stimulate one another by their vigor and example. They will set a fast pace for themselves. Then if they are well led and occasionally inspired, if they understand what the company is trying to do and know they will share in its sucess, they will contribute in a major way. The customer will get the superior service he is looking for. The result is profit to customers, employees, and to stcckholders. —Thomas J. Watson, Jr., from A Business and Its Beliefs: The Ideas That Helped Build IBM.

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