One day before IBM Corp.'s highly anticipated first-quarter 2001 earnings report, a group of IBM employees held a press conference to call attention to a controversial resolution regarding pension benefits scheduled for a vote at next week's shareholder meeting.
Held Tuesday at the office of U.S. Representative Bernie Sanders, an Independent from Vermont and a longtime supporter of the employees' cause, the press conference centered on an "Open Letter to Mr. Lou Gerstner" sent by the group and endorsed by an array of IBM staffers, shareholders, and retirees.
The letter focuses on the ongoing furor over IBM's dwindling pension benefits. The company has gradually restructured its pension plan throughout the 1990s, with two big changes in 1995 and 1999. The open letter, sent on April 5, criticizes IBM for paying millions to Chairman and Chief Executive Officer (CEO) Louis Gerstner in salary, bonuses, and options while simultaneously cutting employees' pension and retirement medical insurance benefits.
The letter's authors aim their vitriol at IBM's use of an arcane accounting trick that allows the company to write off the difference between its pension fund assets and liabilities. For fiscal year 2000, the accounting device added US$1.17 billion in "cost and expense reductions" to IBM's balance sheet. An IBM spokeswoman said that after factoring out taxes and costs, the net effect on IBM's books for 2000 was an added profit of less than $250 million.
The U.S. Securities and Exchange Commission (SEC) recently warned companies to take greater care in reporting and explaining their pension fund earnings and obligations. In 1999, IBM came under fire for not prominently disclosing its $638 million in pension income.
The open letter authors took particular exception to IBM's pension-plan trimming and " executive enrichment scheme," that provides Gerstner with one of the industry's most lucrative compensation packages.
Last year, Gerstner received a performance-based bonus of $8 million, on top of a $2 million annual salary and a $3.59 million payout from the company's long-term incentive plan. He also exercised share options worth $59.9 million, slightly less than the $87.7 million in options he cashed in 1999, and was granted options on another 650,000 shares. At the end of 2000, Gerstner held $269 million in combined exercisable and unexercisable options, according to an IBM SEC filing.
The real goal of the open letter and the press conference was to draw attention to next week's shareholders meeting and the employee-backed "Stockholder Resolution on Pension and Retirement Medical," said IBM employee James Leas. A 20-year veteran of the company currently working as an advisory engineer in the patent law department, Leas has been spearheading the pension fight for more than a year, even though he's grandfathered into the older pension plan and unaffected by recent changes.
The resolution requests that IBM offer all employees a chance to opt in to the company's previous incarnation of its pension plan, and guarantee that its newer cash balance plan provide a payout equivalent with the older plan. The resolution was first introduced at last year's shareholder meeting, where it attracted 28 percent of the vote, the largest affirmative vote in IBM history for a stockholder-introduced resolution.
But this year, the reintroduced resolution will be without two of last year's most powerful advocates: Institutional investor advisory services Proxy Monitor and Institutional Shareholder Services have withdrawn their support for the resolution this time around, the Washington Post reported.
IBM denies the accusations of Leas and others involved in the open letter.
"The letter is extremely misleading, and there are a number of inaccuracies in it," said IBM spokeswoman Carol Makovich. "It is inappropriate and highly misleading for Mr. Leas to continue to suggest that IBM executives are deliberately building a surplus into the pension fund for their own benefit." She also noted that the pension fund surplus is highly variable and dependant on market conditions.
IBM isn't the only company facing pension fund issues. A Wall Street Journal story in July 2000 analyzing the issue cited Lucent Technologies Inc., Motorola Inc., Ameritech Corp., and Dow Chemical Co. as other tech industry firms that have recently altered their pension plans in controversial ways.
The companies can, in some ways, be viewed a victims of their own largess. In a letter sent to institutional investors on March 28 urging them to vote against the pension proposal, IBM noted that 75 percent of its competitors -- including Cisco Systems Inc., Microsoft Corp., Oracle Corp. and Sun Microsystems Inc. -- do not have pension plans.
IBM's first-quarter earnings announcement and conference call will take place after the market closes on Wednesday. Its annual stockholders meeting will be held Tuesday, April 24, in Savannah, Georgia.