How Mr. Gerstner used the pension fund to get more millions for himself speech to stockholders and IBM Board members by IBM employee, James Marc Leas, April 24, 2001

You might think that slashing pensions would save the company some money and be good for shareholders.

But IBM's cost was already zero, so it saved no money. IBM pays nothing for retiree pensions because the $70 billion pension trust fund earns almost twice as much in interest as it pays out to retirees. The pension fund is growing without any IBM funding. It has a $10 billion surplus, and IBM has paid nothing for pensions for the last six years.

Mr. Gerstner will tell you that the savings from slashing pensions were spent for other employee benefits--higher pay, stock options, and stock purchase plan. 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 not be used for pensions. The alternate programs he will tout were actually funded with IBM dollars not pension fund savings. The savings from slashing pensions all remain in the pension fund boosting the surplus.

Part of the pension fund surplus boosts IBM profit under an accounting rule. That may sound good at first, but none of the $1.171 billion accounting rule profit boost is transferred to IBM from the pension fund. It's just an accounting rule treatment. Analysts and institutional investors discount this illusionary accounting rule part of IBM profit so it did not boost the stock price and there was no advantage to stockholders.

But it did boost executive pay which is based on the profit report, including the accounting rule profit. IBM's five top executives got $28.9 million in executive incentive compensation in part because of the pension fund boost to profit. That is 28 million reasons a year why Mr. Gerstner slashed pensions.

I will tell you something about regular IBM employees. We work hard to meet and exceed our targets and we don't look to retirees or the retirement trust fund for help to meet them.

Although this accounting rule profit is illusionary, it is IBM's fastest growth engine. Accounting rule profit soared 68% last year to $1.171 billion and is now 15% of IBM's overall profit. The growth in vapor profit was more than IBM's total profit growth. In other words, without this profit boost from the pension fund IBM's profit would have declined. Slashing pensions helped executives look good and get the bonuses and executive incentive pay even though profit from real company operations declined.

At last year's annual meeting Mr. Gerstner declared that the charge of an "inflated income statement was vacuous and not true." This year the SEC required IBM to publish the full amount of that inflated income statement in the annual report on page 57, $1.171 billion.

At the stockholder meeting last year Mr. Gerstner also said that the massive cuts in retirement benefits were necessary for IBM to remain "competitive in the marketplace."

In fact, slashing pensions and retirement medical made IBM much less competitive and IBM's competitor's more competitive.

Thousands of incredibly talented and dedicated employees left IBM to join competitors. IBM had to hire thousands of new employees to replace them. Many programs were delayed. Costs went up. That is why profits from real company operations declined last year.

The pension and medical cuts were especially a problem for lower paid workers.

In the largest protest action ever at IBM twenty two hundred IBM employees and retirees have signed on to an open letter to Mr. Gerstner during the past three weeks. It is time for pension fund manipulations to stop, for executives to focus on real company operations, and for the board to restore earned retirement pay and retirement medical.

Jesse Jackson will be joining stockholders, employees, and retirees at a news conference and rally outside this convention center after this meeting ends. Mr. Gerstner, I would like to invite you to speak at this rally too.

I have the open letter to Mr. Gerstner and 70 pages filled with signatures of 2,238 IBM employees and retirees. You can get a copy of the open letter from me or see it on the Internet at http://members.nbci.com/btvpension/lettertolou.htm

James Marc Leas
802 864-1575
802 769-9824 (IBM)
jolly39@juno.com

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