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You might think that slashing pensions would save the company some
money and be good for shareholders. You might also think saving
that money might justify establishing age discrimination at IBM.
But what if no money was saved and the only ones to benefit were
top executives?
IBM's cost for pensions was already zero, so it saved no money.
IBM pays nothing for retiree pensions because IBM expects the separate
$61 billion pension trust fund to earn almost twice as much in interest
as it pays out to retirees. IBM has paid no money into this fund
for the last seven years. Generous pensions--that cost IBM nothing--gave
IBM tremendous competitive advantage in attracting and retaining
talented employees. Mr. Gerstner collects a pension under his specially
negotiated contract, a clear illustration of this competitive advantage.
But IBM ripped up that competitive advantage in 1999 when it forced
employees younger than 40 into a cash balance plan that slashed
their pensions. IBM also revoked long promised lifetime medical
insurance for employees younger than 50. This is age discrimination.
Mr. Gerstner will tell us that IBM surveyed 75 companies and found
that 3/4 of them do not have huge pension trust funds that provide
pensions at no cost to the company. But Mr. Gerstner will not tell
us whether the survey showed that any of these companies implemented
age discrimination, as IBM did when it divided its employees into
the three permanent groups based on their age on June 30, 1999.
IBM stands alone among corporations in blatantly discriminating
based on age.
To its credit, IBM stopped saying explicitly that money saved from
slashing pensions is now being spent on other employee benefits.
But its response to this resolution printed in the proxy booklet
suggests just that. Normally if you don't buy one thing you can
use the money to buy something else. Not true for pension trust
fund money. By law it can only be used for pensions. The alternate
programs touted in the proxy booklet in response to this resolution
were actually funded with real IBM dollars not pension fund savings.
The savings from slashing pensions all remain in the pension fund.
Not one dime came in to IBM. Adjusting other benefits cannot explain
slashing pensions that cost IBM nothing.
IBM omits mentioning the real reason it slashed pensions, which was
to boost executive incentive pay that is linked to reported profit.
Here is how the scam works. Under a pension fund accounting rule,
IBM can boost the report of IBM profit by slashing pension. Boosting
profit may sound good to investors at first, but none of the $1.45
billion accounting rule profit boost actually gets transferred to
IBM from the pension fund. It's just an accounting rule treatment.
Analysts and institutional investors routinely discount this illusory
profit so it did not boost the IBM stock price and there was no
advantage to stockholders. Since the Enron scandal, the huge accounting
rule profit is more embarrassment than advantage.
But the accounting rule boost to profit hiked up executive incentive
pay. IBM's five top executives got $17 million in long term executive
incentive compensation in part because of the lift given by the
pension fund boost to profit-despite the fact that IBM profit from
operations fell the last two years in a row. That is 17 million
reasons a year why Mr. Gerstner slashed pensions.
Although this accounting rule profit is illusory, it is IBM's fastest
growth engine. More than half of IBM's growth in profit over the
last five years has been from the growth of this vapor profit. It
is now 18% of IBM's after-tax profit. During the past five years
revenue growth was only 2.5% per year and profit growth from company
operations was only 3.5% per year. But vapor profit has grown at
a compound annual rate of 52% per year. To more than double the
apparent profit growth of the company, Mr. Gerstner resorted to
slashing pensions to take advantage of the accounting rule.
But slashing pensions and retirement medical made IBM less competitive
and IBM's competitor's more competitive. Thousands of talented and
dedicated IBMers with up to twenty years of service felt betrayed
and deceived and left IBM to join competitors. As at Enron, the
accounting rule boost to profit backfired. IBM's pension fund heist
to increase executive pay damaged the company, the stockholders,
and the employees.
IBM employees protested long and hard, not just for themselves,
but to protect the company and its values of trust, honesty, and
integrity. Their protest made national headlines, leading to Senate
hearings, finally leading IBM to restore retirement pay for some
35,000 of the effected employees. Last year, in the largest of the
protest actions, over 3000 IBM employees and retirees signed on
to an open letter to Mr. Gerstner.
To get IBM back on track executives should focus on real company
operations rather than pension fund manipulations. IBM should end
age discrimination by providing all employees with the same pension
and retirement medical choices still available to the oldest of
the three groups of employees, like myself. IBM can then truthfully
declare itself to be an equal opportunity employer and restore trust
that its promises will at last be kept. Thank you very much.
James Leas, 802 864-1575, 802 734-8811(cell), jolly39@juno.com,
vermontpatentlawyer.com
37 Butler Drive, S. Burlington, Vermont 10503
James Leas has been an engineer with IBM for twenty years. He worked
in IBM's patent law department for the past nine years. He is currently
on a leave of absence from IBM, and is pursuing a career as a Vermont
patent lawyer.
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