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Why
the Layoffs?
by James Marc Leas
June
11, 2002
IBM recorded
its second highest profit ever last year, $7.7 billion after taxes and
$8.4 billion the year before. IBM accumulated $14.3 billion in cash flow
from operations last year. Revenue was $85.9 billion. IBM is awash in
money. But it continues to sell off plants and lay off workers, particularly
focusing on older workers.
The after tax annual savings from laying off about 5000 IBMers nationwide
is only about 0.3% of IBM's revenue and 3.2% of profit. And these relatively
small after tax savings of $0.24 billion only begin to accrue months from
now, considering the severance payments paid the laid off workers. Since
IBM has an incredibly productive work force that on average earns about
$6 in revenue for every dollar IBM spends on salaries and benefits, layoffs
have traditionally not been the best way for IBM to save money.
The layoffs and plant sales are a product of a distorted accounting and
executive compensation scheme. For example, executives have included one-time
sales of assets in the profit report, and then counted that boost to profit
in reaching their profit targets for executive incentive pay.
Similarly, they have boosted the per share profit report--and their own
paywith massive stock buy backs and by slashing pensions under a
pension fund accounting rule.
Similarly, the relatively small number of dollars IBM can show as profit
from the layoffs help executives reach their profit target--though with
minimal advantage to stockholders.
Although IBM’s revenue and profit remain near peak, stripped of most
such trickery, IBM’s growth in these numbers for the past five years
has beenmeager.
o Revenue growth averaged only 2.5% per year for the past 5 years.
o Profit grew only 3.5% per year for the past 5 years when vapor profit
is stripped away. Vapor profit is the paper boost to IBM income from pension
fund accounting rules. It is purely an accounting rule treatment: no money
is transferred to IBM from the pension fund.
o Vapor profit growth was 56% of IBM's reported after-tax profit growth
these past five years.
o Vapor profit accounted for 19% of IBM's after tax profit in 2001 and
13% of IBM's pretax profit.
In other words, revenue and profit from real company operations have been
little better than static, albeit at a very high level. Executives have
pushed profit reports up to double digits by accounting rule trickery,stock
buybacks, plant sales, and layoffs to reach their profit targets. There
are two conclusions: First the high level of sales and profits mean no
layoffs were needed. Second, the static growth in sales and profits means
executives were not truly entitled to incentive bonuses.
Yet, during a period when IBM has been laying off thousands of employees,
cutting pensions, and boosting costs for retirees’ medical, one individual
at IBM raked in hundreds of millions. In other words, rather than saving
the company money, there has simply been an enormous shift of resources
from tens of thousands of workers to one person. That person is IBM Chairman
Lou Gerstner.
If adjustments are needed for IBM to remain competitive in the marketplace
the executive compensation scheme should be changed to better focus executive
interest on actions that build company revenue and profit and that serve
customers.
Another adjustment is also urgently needed: employees and communities
must no longer be powerless in the face of decisions made by self-serving
top executives. At one time we could trust IBM executives to do the right
thing for the company and communities. That was when executive compensation
was much lower and, like other employees, top executives worked hard to
build company value. No longer. Now top executives have one and only one
goal: accumulating hundreds of millions for themselves.
We saw what needlessly happened at Enron from unbridled executive greed,
and we are determined not to let it happen to IBM and to Vermont. In response
to the degeneration of top executive management at IBM--and many other
large companies--we must create an effective organization of employees,
retirees, contractors, family memberseveryone associated with IBM
to protect ourselves, the company, our communities, our states, and the
nation as a whole from powerful self-serving executives. By asserting
the power of those who have a strong stake in IBM’s success, including
hundreds of thousands of employees, we can help executives focus on creating
value for customers instead of focusing on their own enrichment.
James Marc Leas is a former IBM employee who helped lead opposition to
the pension and retirement medical heist in 1999. He recently opened his
own patent law practice in Vermont.
Law Office of James Marc Leas
37 Butler Drive, S. Burlington, VT 05403
802 864-1575; 802 864-9319 fax; 802 734-8811 cell
www.vermontpatentlawyer.com
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