IBM: Record profits yet pay cuts

January 23, 2008 8:43:23 AM PST
Even as IBM Corp. reports record profits, thousands of its U.S. employees are staring at pay cuts. It's the result of IBM's response to a lawsuit in which the company was accused of illegally withholding overtime pay from some technical employees. IBM settled the case for $65 million in 2006 and has now decided that it needs to reclassify 7,600 technical-support workers as eligible for overtime.

But their underlying salary - the base pay they earn for their first 40 hours of work each week - will be cut 15 percent to compensate.

IBM spokesman Fred McNeese said the move would not save the company any money, because the affected employees generally should find that overtime pay makes up for the salary cut.

However, internal documents obtained by The Associated Press indicate that many workers will lose money.

These documents, prepared for managers who have had to break the news to their underlings, say that one-third of the affected workers - more than 2,500 people - generally do not work enough hours to make up for the 15 percent cut in base pay. IBM is offering a one-time "transition payment" to reimburse affected workers for the losses they suffer in the first three months.

One slide presentation says managers should try to spread assignments around so that more employees work enough to pass the threshold - 5 hours of overtime per week - at which their new time-and-a-half pay would make up for the reduction in base salary. But the document also acknowledges that "hot skills and customer commitments may limit (the) opportunity to redistribute overtime."

IBM's McNeese would not comment on the documents' specific points. He said IBM had been paying these technical-support people at "market rates," and to grant them overtime without a corresponding reduction in base pay would make them too expensive.

One document, labeled a confidential "Q&A for customers," lists this sample question that an IBM client might ask: "What has been the reaction of employees who are being reclassified?"

The suggested response for managers: "They understand this is something we must do under current interpretations of the law and to remain competitive within our industry."

It is clear, however, that many employees are furious.

They worry that opportunities to work more than 40 hours per week - the point at which federal law requires overtime pay for eligible workers - will be reduced now that IBM has an incentive to trim employees' time on the clock.

One 20-year IBM veteran who usually works 50 to 52 hours a week - enough to come out ahead now that she can get paid overtime - expects to see her hours reduced.

"Anybody who's been in IBM knows that when they look to cut costs, that's where they're going to cut it," said the employee, who spoke to the AP on condition of anonymity because she fears reprisals from the company.

Even if they make enough overtime to compensate for the lower base pay, the IBM workers' now-reduced salaries will carry corresponding reductions in what they are eligible for in life insurance benefits and vacation or sick pay.

"I was so angry I could hardly speak, and it takes a lot to make me angry," the longtime employee said. "I just don't know how IBM expects us to take this and just run with it."

Most of the affected workers make less than $100,000, according to Lee Conrad, national coordinator for the Alliance at IBM, a Communications Workers of America union local that represents a small percentage of IBM employees. The group is considering pickets at IBM sites to protest.

On the surface, it would seem a surprising time for any IBM employees to find their compensation going down. The Armonk, N.Y.-based technology company earned $10.4 billion in 2007 and just raised its profit targets for 2008.

But more and more, IBM is depending on workers other than the ones hit by this change. IBM owes much of its current success to its increasing emphasis on international markets and on cheaper overseas labor. IBM's U.S. work force has remained around 125,000 in recent years, even as the company's overall head count has risen with international hires.

The decision on overtime stems from the settlement of a federal class-action lawsuit in San Francisco in which 32,000 technical workers accused IBM of illegally withholding overtime pay.

IBM had considered the employees highly skilled professionals exempt from overtime rules as defined in the Fair Labor Standards Act. The plaintiffs alleged that they were not executive decision-makers or creative types who can be ineligible for overtime.

Though that case was settled late in 2006, McNeese said IBM needed until now to determine how to comply with federal overtime laws. "We still think it's ambiguous," he said.


On the Net:

Comments on union page about the cuts: