|
Good morning and congratulations Sam on your recent promotion.
Since we are in Louisville, home of the Kentucky Derby I can say
that you are following in a great line. The Watsons, Al Williams,
Vince Learson, and Frank Cary. I'm sure that Phase I and the great
instructors you had also helped. By the way, I have altered your
grade to consistently exceeds requirements.
Let's take a look at my proposal. Resolved: the stockholders request
that the B of D adopt a policy that executive compensation will
be determined in the future without regard to any pension fund money
that acctg rules may require the company to treat as income, so
that the compensation of senior executives will more closely reflect
their performance in managing the business.
This proposal is based on performance. It is important to note that
the actual amount of pension income that IBM counted in the Consolidated
Statement of earnings was $1.450B or 15.3% of IBM's earnings. The
$437M quoted in the ISS analysis that IBM prefers to use is the
vapor profit above reduced by actual contributions to the defined
contribution plans and the executive pension fund. Since these are
actual expenses, it is not appropriate to use them to offset the
amount of imaginary profit gained from the employee pension fund.
The fact that IBM executives are able to collect extra bonus pay
based on this income is particularly disturbing when you observe
that the surplus in the pension fund dropped by $10.52B during the
same year. The loss in pension fund assets was over 100% of IBM's
income before taxes and is now listd in the accounting statement
as a deferred loss that will reduce IBM's income over the next 7
years.
This leads to another subject that I feel is at the heart of this
proposal And that is TRUST. Trust between mgmt and employees, trust
between mgmt and retirees,trust between mgmt and shareholders.That
is what we had in the days of the Watsons and Vince Learson. That
is one of the things that they and IBM were great.
But times change and in light of the Enron situation, where employees,
retirees, and shareholders were hurt, and other events over the
past few years the B of D needs to resolve the mistrust, the conflicts
of interest. real or perceived, that exist. We can debate endlessly
on whether executive incentives caused the IBM directors to reduce
their long term commitment to retirement security, or whether those
reductions were simply an unfortunate result of changes in the economy
and business climate.
What we cannot debate is that executive incentives and actions
created a very real doubt in the minds of employees and retirees.
If at some point in the future further actions are required would
it not be better for all parties concerned if the perceived conflicts
and mistrust did not exist?
There are areas of conflict that need to be addressed if we areto
rebuild the bond that once existed between mgmt, employees and retirees.
Some of these are medical coverage, COLAs, layoffs, plant closures
and aspects of globalization that are of interest to employees.
These need to be addressed, explained, and discussed in an open
environment.
Let me quote from Professor Lawrence E. Mitchell of the George Washington
University, "managing a corporation means keeping an eye on
the goods and services being produced, it means cultivating a consumer
base that will stick with the company. It means assembling and training
a workforce that will remain committed to the corporation's mission
in good times and bad. It means understanding that the health of
the business depends on the health of our economy and our society,
and it means paying attention to the effects of the corporation's
behavior - both positive and negative...
How then can we trust the executives of this company when we see
them calculating bonuses based on pension income accrued in previous
years, while not forcing them to accept any penalty at all for huge
pension losses in the current year? Executive incentive programs
should reward them for successfully accomplishing the points cited
by Professor Mitchell. They should not reward them for manipulating
pension funds. My proposal would help focus executive attention
on the business.
This proposal is a first step in resolving these real conflicts.
It is good for shareholders.
It is good for employees.
It is good for retirees and it will help you, Sam, in what I perceive
as your most important job. Restoring the trust that has been lost
between IBM mgmt, employees, and retirees over the last few years.
That is why it makes sense for the business, for the employees,
for the stockholders and for the executives.
I ask for yor support. Thank You.
|
