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back to article IBM was wrong to force UK workers off final salary pensions – judge

A UK High Court judge has said that IBM breached its duties to Brit workers with a company pension by kicking a quarter of them off its final salary scheme in 2009. IBM's "Project Waltz" was implemented in 2009 to help the company meet its 2010 target for earnings per share (EPS) and cut costs. The scheme cut benefits to …

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Read between the lines

IBM's "Project Waltz" was implemented in 2009 to help the company meet its 2010 target for earnings per share (EPS) and cut costs.

and

"IBM <snip> remains committed to providing its employees and retirees compensation that is competitive and in line with market conditions."

Should read as

IBM remains committed to paying its employees and retirees as little as we can get away with so we can pay our shareholders more.

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Bronze badge

Re: Read between the lines

IBM remains committed to paying its employees and retirees as little as we can get away with so we can pay our shareholders more.

Well, yes. The primary duty of any company director is legally defined as to maximise shareholder value, after all it is the shareholders for whom they are ultimately working. Anything else - environmental friendliness, ethical practices, social goods or in this case employee compensation - can only be justified to the extent that it benefits the shareholder.

That isn't some particularly ruthless business attitude, it's the law. It has attracted plenty of criticism in the past for not allowing for companies set up in the pursuit of e.g. particular environmental goals, but that wouldn't cover IBM in any event. Like it or not IBM top brass are doing precisely what they are required to.

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Anonymous Coward

Re: Read between the lines

This is a common mis-understanding - that the interests of the stockholders are determined on a quarter-by-quarter basis by only how high the stock price rises or how much can be paid out in dividends. There is no law which requires them to behave in this way. They are required to act in the interests of the stockholders, and have a very broad range of options in how to interpret that directive.

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Bronze badge

Re: Read between the lines

This is a common mis-understanding - that the interests of the stockholders are determined on a quarter-by-quarter basis by only how high the stock price rises or how much can be paid out in dividends.

I never said that they were. Of course "shareholder value" is a vague concept and indeed in theory at least allows for value to be attributed to non-monetary or even intangible benefits. However, the primary goal must always be to maximise those benefits to the shareholder, however they are judged. That means any spending on the greater good can only be justified to the expect there is an ultimate payback to the company or its shareholders, whether that be good PR, avoiding boycotts or improving staff retention. Directors don't have discretion to invest in the public (or indeed employee) good if there is no benefit to the company.

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Silver badge

Re: Read between the lines

As has been said, 'Shareholder Value' can be interpreted in many different ways. In fact, so many that the directors may actually do pretty much whatever they like. After all, you can always argue some sort of shareholder value. So, directors are in reality given almost total freedom to do whatever they like. In return, the shareholder can vote (at AGMs etc.) at regular intervals to change directors etc. if they wish to. One such reason might be that the shareholder does not believe the director is giving shareholder value. That's the risk the director takes in his/her decisions.

So, IBM directors could quite happily not have done this and accepted lower EPS for a quarter and simply said they thought it was right. It is then up to the shareholders to do something about it. They can vote at elections etc. or do things like sell the shares, where if enough do so, the shareprice will fall heavily. Of course, this affects the value of the directors shareholding, which is a primary reason why they don't tend to do anything that could negatively affect the shareprice. Given good shareholder returns will always tend to raise the shareprice as ROI is good/improves.

It has become increasingly common for the employee to be considered a resource and dealt with in a pretty poor way in many companies. However, if you look at history, you soon realise that treating employees badly often results in the company doing rather badly, as has been said in earlier replies. So, now, some more enlightened companies are beginning to realise that treating employees reasonably and doing things like honouring contracts is actually good for the business in the long run, even if the short term is affected. Additionally, more shareholders are realising this as well.

After all IBM and HP (both companies that have treated their employees pretty poorly in the past) are doing so well now? Both seem to be heading downwards rapidly. Even if they can keep shareholder returns good for a few more years, it will come to an end at some point.

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Anonymous Coward

Re: Read between the lines

"Shareholder value" is not the right phrase and it is most certainly not the "primary goal" even if one were to take a liberal understanding of your term - assuming you are in the UK that is.

The correct phrase as used in the relevant Companies Act is "Duty to promote the success of the company [for the benefit of the members]" and is just one of seven statutory duties of directors. Moreover, in promoting the success of the company, the director must (by law) have regard to other factors which are contained within the Act and which include considering the interests of the company's employees, impact on the community and environment, and fostering relationships with both customers and suppliers.

Only by an extreme simplistic view can you interpret the act as saying that the primary goal of a director is to maximise shareholder value.

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Anonymous Coward

Re: Read between the lines

It has become increasingly common for the employee to be considered a resource and dealt with in a pretty poor way in many companies.

Hence the lovely IBM euphemism "resource actions" - which means firing expensive people and moving their jobs to Poland\Romania (India's too expensive now).

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Paris Hilton

Re: Read between the lines

The primary duty of a director is to maximise their bonus at all costs.

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Re: Read between the lines

"Like it or not IBM top brass are doing precisely what they are required to."

Thanks be to the powers of justice for the availability of a Reg reader to correct a judge's misunderstanding of the law.

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Anonymous Coward

Re: Read between the lies

"The primary duty of a director is to maximise their bonus at all costs."

And maximise their pension too.

Require the directors on the same fundamental pension scheme (and same "pay for performance") as the rest of the workforce and see what changes.

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BL6

Re: Read between the lines

I think their prime duty is to act within the law, which a lot of them seem to forget.

And even though some might not like it, there are still laws that cover employment, pensions

etc

Clearly Justice Warren thought IBM needed to obey the law too

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Silver badge

Re: Read between the lines

"I think their prime duty is to act within the law, which a lot of them seem to forget."

No, the real problem is which country's law applies.

In this case it would appear that those responsible forgot that they were dealing with a work-force based in the UK and treated them as if they were in the US.

A common mistake made by many Americans, they seem unable to realise that laws differ and that laws of the USA are not universal.

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Re: Read between the lines

In this case it would appear that those responsible forgot that they were dealing with a work-force based in the UK and treated them as if they were in the US.

A common mistake made by many Americans, they seem unable to realise that laws differ and that laws of the USA are not universal.

The gulf in differences in quite staggering... effectively in the US an employee has no rights whatsoever compared to the UK. AFAIK many of these rights come from contract law where both parties have to agree to contractual changes, rather than a company just making changes as they feel fit.

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@Nick

It depends to a large degree on the state laws. Only a handful of states (such as NY and Illinois) allow employment contracts to be terminated completely 'at will'. In these states, it's hard to tell the difference between being an employee and a contractor. But employment protection in the US is generally less than in the UK (which, in turn, is less than that across many areas of Western Europe).

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Anonymous Coward

Re: Read between the lines

No ! Shareholders have at best a residual claim on profits.

http://www.nakedcapitalism.com/2014/01/myth-maximizing-shareholder-value.html

This notion that anything and everything must be thrown at shareholders no matter what is completely false -- and never gets the challenge it deserves.

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Anonymous Coward

Re: Read between the lines

Exactly, people speak about "the shareholder" as if they have a single mind and set of goals. If you are a short term speculator looking for quarter or two stock price bump, you would be pleased to see IBM or other companies destroy their long term viability as long as the near term price hits the sell target and you can move on to the next deal. If you are a long term investor, that is not in your interest. The distinction is between the speculator (short term, non-fundamental related price fluctuations) and the investor (long term, interested in ROI through appreciation in value over decades through improving the fundamentals). Increasingly what is meant by "shareholder value" is short term speculator value which also aligns with the quarterly bonus culture. CEOs really don't have a lot of incentive to set the company on a 10-20 year growth path with large up front investments that impact short term profits. They are not going to be around in 10-20 years and it benefits them, personally, to focus on short term objectives with no long term vision (or only vague long term vision without investments). If the company falls apart in 10 years, that is someone else's problem and they will not be impacted.

The fundamental problem is that "professional managers" do not have a significant stake in the company, relative to founders. There is no way Larry Page, for instance (insert Bezos, Zuckerberg, etc), is going to hack Google to pieces to get short term profits. He 1) could care less about short term cash in bonuses, he has enough cash... the bonuses are chump change. 2) owns more stock than he could sell off in the short term without tanking the share price, so he is in for the long term 3) he doesn't care if Wall St is happy or not happy in the quarter because no one can fire him as he still owns huge blocks of equity..... The people brought in as professional managers want the short term cash, don't own enough stock, even if it is tens of millions, that they could not dump it all at a moments notice, and are concerned about being replaced if they don't hit short term goals.

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I must be one of those funny shareholders...

... that thinks happy and well paid employees work harder and will make more money for me. You know, they go that extra mile.

Quite how you expect to run a successful profitable company with say 80% of the workforce not giving a sh*t I don't know. I guess at that point you get rid of the 80% and replace them with £800+ a day contractors who whilst they still don't give a toss about your company, some still feel they have to give value for money.

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Anonymous Coward

Re: I must be one of those funny shareholders...

You are Thomas J Watson Jr (spinning in his grave), and I claim my five pounds.

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Anonymous Coward

Re: I must be one of those funny shareholders... @jason 7

You're not looking at the long/short term balance.

It used to be that IBM was a long term investment. Investors would buy the shares, knowing that over time, the value of the share would go up while also generating a reasonable dividend. It was valuable to keep the shares for a long time, and during that time, it was important that IBM continued to prosper. This relied on keeping a happy and skilled workforce.

What looks like happening at the moment is that the current board have made a promise to get the value of the shares up to a certain level in a certain timeframe, by any means possible (including asset sales, savage cost reductions and stated intentions to move into current en-vogue technologies to try to tempt investors in new technologies).

If I were a cynic, I would suggest that the board have made a promise to certain shareholders with regard to individual share value (this we know), with the expectation that when this value is reached, there will be a rapid divestment of the shares by certain holders to maximise their gain. Having achieved this (or possibly at the same time), the board will resign, taking their share value and guaranteed exit package, leaving a company who's share price has just dived, with no realistic business plan or saleable products, and a diminished workforce who are not only de-skilled, but also demotivated.

Of course, this can't really happen, can it.

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Alien

Most managers ...

... should be able to increase dividends even if turnover is declining by using basic cost reducing, efficiency improving approaches with optimising sales, or contract, income generation no?

Tsk!

Foolish earthlings!

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Now how many more years...

...before they will collect?

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Re: Now how many more years...

Dunno about the court awards but as an aside...

I started over paying into AVCs aged 24 so I could retire at 55. I was in an excellent final salary scheme too.

Now at age 43 my pension has been pushed back to age 70.

From at least four IFAs I've questioned hard, the real truth is most of us under 50 wont be retiring any time soon if at all.

The sh*t will hit the fan pretty soon as the figures just don't add up. Tough job finding around £35000 for every £1000 you want in annual pension.

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Anonymous Coward

Re: Now how many more years...

"the real truth is most of us under 50 wont be retiring any time soon if at all."

The 99% vs the 1%,

Please don't fall for the "divide and rule" trap where the older ones are being blamed by the younger ones.

This is about those whose financial standing is not at risk (the 1%) vs those whose financial standing, maybe more, is now perilous (as is their hope of retirement).

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Re: Now how many more years...

Absolutely - having just reached the *10 years to go* mark The DWP wrote to tell me that I am also caught in the "work till you drop" ideal that seems to be in vogue amongst the non working decision makers that ruin.... (oops Freudian slip there) ....I meant... run this country. All the tinkering with pensions that goes on in the UK highlights the con that this whole system is just a giant ponzi scheme designed to fleece the working man for the benefit of the city con men. Its sad to see a company like this treating its staff with such contempt.

Shareholders will see no value if the best and brightest get so pissed of that they walk.

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Anonymous Coward

Re: Now how many more years...

I left IBM a few years ago when it was clear that IBM Global Services in the UK was taking the piss in terms of reduction of benefits for employees and a strangulation of department budgets.

I'm now happily working for a competitor, winning business from IGS with a reassuring degree of regularity.

While I don't pretend to have been one of the best or brightest at IBM, they certainly lost a valuable employee and I wasn't the only one to walk.

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Devil

Re: Now how many more years...

Just read that Australia has 35% of its over 65s living in poverty. Housing is extremely expensive, and population pressure means that it's not a property bubble so much as an endless shortage. Unless you own your dwelling by the time you retire, you will be hard pushed to pay the rents that are being asked. The new conservative Oz govt also just foreshadowed pension age rising to 70. They should snap up some of the urban brownfields sites as manufacturing industry leaves due to the high cost base and exchange rate. That way they'd have some appropriate land to build new workhouses.

Personally, unless I am lucky enough to have a fantastic job by age 60, I will do everything in my power not to be compelled to slog away for the last years of my life where I have a decent chance of good health and mental capability. I don't need to go on endless overseas trips like some Australian baby boomers seem obsessed with, I just want to spend a few years of decent physical and mental health actually living my own life on my own terms for a change, and I am prepared to live in a very simple way to achieve that. Swapping those ten good years for ten more crappy years of feeble ill health at the end of my life is a worthless bargain. If I later start to run out of money or health or brain, I'll already have the requisite resources for the next step... from Exit International.

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ha you think you'll get to retire

What a laugh. Retirement is a thing of the past. Now you work until you die. So don't bother paying money to a pension, any increase in value will be sucked up in fees.

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Joke

Re: ha you think you'll get to retire

Don't be so negative.

In reality you will sell off whatever pitiful assets you have managed to aquire in 40 years of graft, move as far South (Spain, Portugal etc) as you can to avoid being a drain on the NHS and then drink yourself to death.

In the scripted words of Eddie Hitler "You're born, you keep your head down, and then you die.... if you're lucky!"

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treating employees like s**t

seems to be an IBM trademark - I spent 18 months working for them between 2004-2006 and I can honestly say never again. productive, committed members of staff harried and hounded to the point where the majority of them would go and get better jobs somewhere else...leaving the managers that did the harrying sitting there, scratching their arses and wondering why they can't hang on to any decent staff. cretins all.

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