IBM Responds to Overtime Lawsuits With 15% Salary Cut

bcmbyte writes "IBM in recent months has been hit with lawsuits filed on behalf of thousands of U.S. employees who claim the company illegally classified them as exempt from federal and state overtime statutes in order to avoid paying them extra whenever they worked more than 40 hours per week. The good news for those workers is that IBM now plans to grant them so-called "non-exempt" status so they can collect overtime pay. The bad news: IBM will cut their base salaries by 15% to make up the difference."

Hmm

[Tesen]

Maybe I am confused, now that they are classified non-excempt, does that mean the OT pay is retroactive? If so, grab money, cue job search...

Again.

[nesabishii]

I wonder how many times this will work, before large companies adjust their payrolls. Radioshack settled a similar lawsuit with their store managers several years ago, and lowered their base salaries to offset the new overtime payouts. I'd think they'd want to act preemptively, to avoid a lawsuit--I'm somewhat surprised IBM had succumbed to this practice.

Re:Hmm

[nesabishii]

Typically the settlement includes retroactive overtime pay for a limited amount of time, maybe a year or possibly even more. The new pay scheme is probably exactly equivalent to the old, but substitutes overtime hours for base pay, meaning wages stay the same. However, this doesn't account for the possibility that now, if their hours are reduced to below overtime, they are compensated much more poorly. It's a short term monetary gain (in the form of a settlement), for a net loss in wage security (as fewer hours now means lower wages, compared to under the "exempt" pay plans). So, jumping ship could be a smart move here, or at least an easier one with the settlement.

Re:regulated in contract or law?

[DoofusOfDeath]

Don't they have their salary regulated in contract? Or is it accept-or-be-fired (article doesn't tell)?

When I used to work for IBM (10 - 8 years ago), it was standard U.S. practice: each year, your manager calls you into a meeting and tells you what your new pay level is. You can accept it, or quit your job, or treat it like the beginning of a negotiation, which will in most cases get you labeled as a difficult employee.

It's pretty laissez faire, except that they can't base your pay level / pay level changes on race, religion, etc.

I don't understand

[chord.wav]

Somebody please explain me why engaging in war with your own employees, specially on such delicate matters as payment, is going to affect the stocks of the company in a positive way.

Wouldn't they ensure employee happiness so they perform better so the company earns more and be more productive etc etc?

Re:Free market

[eugene ts wong]

I live in Canada, and I have a friend who works for our tax collectors. He says that Canada won't take your land. You won't be able to sell it, and they can make life miserable for you in other ways, but you can keep on living under your roof and on your property.

That seems fair to me, by today's standards.

Re:Free Market

[rherbert]

Exempt employees get paid more because it's anticipated that they will work some uncompensated overtime. If you change from exempt to non-exempt, then your pay SHOULD be cut. You can't get the best of both worlds - unless you're a contractor. This is especially important for government contracts - you negotiate rates for certain job categories, and you're stuck with them. Your profit is limited by law, so you can't just absorb a 15% hit like this. So you've got to cut the salaries.

They need a Union

[Crazy Taco]

Let me start by saying that I am a very strong Republican conservative, and I normally hate labor unions, especially since most of them don't do much but collect money from workers and use it to buy politicians. That said, in this instance I absolutely think those workers should immediately unionize and walk off the job. IT workers are already treated as slaves just about everywhere, and it's about time they got paid for their overtime AND STILL recieved a salary commensurate with the difficulty of their jobs and the level of their education.

Furthermore, this move by IBM is complete garbage. Google spends a heck of a lot more money on its employees than this, and it doesn't have any trouble with the "competitive pressures" cited by IBM. The reason it doesn't have any trouble is twofold:

1. By treating its employees fairly, it attracts much of the best IT talent around, and this talent in turn is very productive. Their employees probably produce more per hour than the employees most anywhere else through raw skill alone.
2. The really big reason Google doesn't have these competitive pressures forcing them to pay their workers nothing is because Google has good management and actually produces worthwhile, marketable products. When is the last time IBM produced something good that people wanted to buy? PCs? Gone... IBM completely lost out in that market. Operating Systems? OS/2 is dead. Lotus Notes/other office software? Horribly ugly, clunky, and not even close to as good as Microsoft products. IDEs? They have some, but they are horribly overpriced things like Rational Apex (an ADA IDE) that cost 30,000 dollars a license and are vastly inferior to Microsoft's Visual Studio. And while IBM helped birth Eclipse and still funds it to some degree, that is an OSS IDE, and a lot of it (plus a lot of the add-ons) were built by volunteers.
   Honestly, the only things they seem to produce anymore are a few supercomputers (and the market for those is clearly limited), some mainframes (again, limited and shrinking market), and some stupid "software development processes" like the Rational Unified Process (RUP). (News Flash for IBM: a process isn't a product. I can go out and make my own process that suits my work (which is what most people do), or use one of many free and well known process like Agile or UP). IBM also produces a lot of marketing speak and vague references to "services" that they can offer to companies (not sure what those actually are or why I would want them), they produce a lot of commercials about servers spiraling out of control, and they spend a lot of time on clearly stupid strategies like building a corporate office in Second Life and having a director of Internet and Virtual Worlds.
   With all that sort of vaporware and garbage products, it's no wonder that they are facing big competitive price pressures. They deserve the problems they are having. But the regular employees shouldn't be the ones penalized. The problems (and pay cuts) should be directly placed in the laps of their management, especially their top executives. IBM has repeatedly had the chance to conquer the world, and they blow it on stupid ideas every time.

Re:Free market

[TheRaven64]

And how exactly do you live if you don't work?

I don't know about where you live, but in the UK you can claim unemployment benefit (possibly known as jobseekers' allowance) while unemployed. You may also be exempt from council tax (property tax) and you don't pay income tax on your first £5000/year of income (then only 10% for the next few K). You can live without working, you just don't enjoy a particularly high standard of living.

Re:They get unemployment if they quit

[Registered Coward v2]

In most states if your employer cuts your pay and you quit, you get unemployment. A cut in pay is considered breach of contract on the employer's part and your rejection of the new terms is tantamount to you being fired. Hopefully enough IBM employees know of or learn of this and walk out, causing IBM to pay out substantial unemployment compensation.

That would be a rather short sighted and stupid thing to do, because:

1- unemployment doesn't make up for all of your salary and is often limited in duration; you have to be actively looking for a job as well. Why not do that with a salary?
2- you lose your benfits - medical; disability, retirement, etc - things many people cannot do without
3- what do you say when you're asked why you left - if I were interviewing someone who did that I'd wonder about their decision making ability - why not just milk IBM until you found a new job? Will you walk the first time something you don't like happens where I work?
4 - unemployment is an insurance system - companies pay premiums based on claims history - with a cap on the total cost. That's why some comapnies offer packages - to avoid premium increases and keep a low claims rate; where companies taht hire and layoff alot (seasonal work, for example) use it as "paid vacation" since they are already maxed out in premium costs so lying off seasonal workers (and then rehiring them later) has no added cost but saves them salary costs when work is slow. I don't know where IBM is on the premium scale but I doubt a lot of workers leaving would even be felt by them - the cost of hiring replacements would be more obvious. Of course, those that stay would get more OT and make more money - so the incentive is to wait out the exodus.

Of course, it also means the really good workers who can easily find jobs that will pay more will start looking - the cut is an added incentive to start exploring the market. That's the challenge companies face - the people most likely to leave ar ethe ones who are most employable - and are often teh very ones you want to stay while those that are less productive and valuable hang around becasue they have a good deal and don't wnat to lose it. If someone said to me - "I'm looking beacsue my base was just cut and even though I'll probably make it up on OT there's no assurance I will; and I don't mind working unpaid OT as an exempt employee because I like the steady paycheck and the slow times make up for the heavcy work periods so it all comes out in the wash..." I'd think that was a good reason for leaving.

However, knowing IBM, this is what they planned--with the current economic downturn, they probably want to decrease their payroll anyway and in so doing bolster their stock price. Still, it's critical (IMHO) that employees who quit know they can file for benefits so they don't get double-shafted by IBM.

The amount of moeny at stake here is small for IBM (and even they say it probably will result in no net change in what they pay out for salaries); but the potential liability is large so they needed to protect themselves going forward. So ratehr than give everyone overtime at their current salry; they adjusted salaries to match anticipated overtime costs. No surprise there. What it does mean is employees now lose during down time - you can save salary costs by cutting back on hours for non-exmept employees during slow periods; and some may run the risk of winding up as part-timers which, if the benefits structure is different, has a greater impact as well.

If you are reglarly working OT and feel underpaid then find another job. I worked for a comany that expected 1600 billable hours a year - they didn't care how i reached that number; and if I worked 4 80 hour weeks and then had 4 weeks with no work they still paid me the same salary every month - a deal I thought was fair - beach time in exchaneg for crazy hours when working.

Re:Free market

[Fujisawa Sensei]

Unemployment is taxed in the US; the government just doesn't take the taxes out up front. Unemployment is only good for a certain number of weeks, it is not pertetual.

Re:Hmm

[Builder]

This is one of the main reasons I always negotiate overtime into my contracts (and recently into my permanent role contract). If it doesn't cost the company anything, they have no reason NOT to work me as hard as they can.

Getting paid overtime also protects against incompetent bosses to an extent. They can't hide the amount of extra work they're pushing you for from their own management or the financial crew, so at least even if you can't get through to them, there is a chance of someone else slapping them. This has really improved the quality of my life in the past and the new boss was more competent, so the amount of overtime went down.

Re:Seriously

[HankB]

Those would be the same gutless slaves who sued their employer in the first place?

C'mon. There's two sides to this story and if you don't consider both, you will continue to blather mindless tripe like this.

If someone is working 45 hours/week, this will net them slightly more, but only if the OT pay is straight. If it is time and a half, then the employee will actually make more. If the employee winds up putting in 50 or 60 hour weeks, they get even more yet.

Isn't this what they sued for?

Re:Typical.

[gEvil (beta)]

The employees sued successfully to have their rights enforced. From there on IBM used the fact that their original contract has been declared null and void and changed the salary offer on the table.

Minor nitpick, but the article says that one of those lawsuits was settled. This means that it didn't go to court and was not "declared null and void." It's possible that that might have happened had the case actually gone to trial, but it didn't, so we'll never know.

Re:Typical.

[beavis88]

How very odd - an AC had replied to my original post, and I retorted. The AC's reply now seems utterly absent, making me look like I'm insane.

Or maybe I am just insane. But I really don't think so. Seriously...

Re:Hmm

[RoverDaddy]

Exactly (your last statement). In the US, if you're a full-time employee not covered by a union, you probably aren't working under a contract but an employment agreement. Either you or the employer can walk away at any time. You can ask for more money, they can drop your pay, etc. Then you both get to decide whether you want to continue the relationship. Now, if they don't pay you what they already agreed for work already completed, that's a different story. Then legal issues enter into the picture.

Re:regulated in contract or law?

[Anonymous Coward]

We had on our site, an SE from IBM who actually got pushed into that trap. His evil manager took a great disliking to him and at his inevitable last review was warned that due to his difficult employee status he would either be terminated at his next (imaginary) infraction, and that it might be a good idea to accept a resignation package. His hand was forced. Meanwhile, to replace his skill sets in order to accomodate our needs, they now have FIVE SE's on site. Each has a tiny niche of knowledge.

If IBM is so nerved out by wages, they ought to hire illegals :-)

Re:Hmm

[Amiga Trombone]

I agree with what you are saying. In fact, you have a good point about how the salary method can be actually advantageous.

It may be advantageous in a few cases, but the effected employees know that in this case, it won't be.

First, while we're allegedly going to be making up the loss in overtime, we've been here long enough to know the other shoe will eventually drop. When management wants to make cuts, they'll start with cutting OT hours. They do that with contractors already. This effectively means you aren't going to be seeing that 15% again.

Second, consider your vacation pay, bonuses, and other bennies, are figured on your base salary, not on what you earn with overtime.

Any way you look at it, this is a pay cut.

Re:Hmm

[Bryansix]

That's not really the point of the wage laws. Not all people work in jobs where they are there to be productive all the time. Some positions are there to monitor things so when things go wrong they can respond and fix them. Like in a helpdesk call center or any head of an IT department in charge of say email. When email goes down the employee is expected to stay and work overtime and they should be compensated for that. In addition if a department just needs extra coverage JUST IN CASE something goes wrong then the worker should be paid for that overtime as well. The employee is not just being paid for production but also FOR THEIR TIME that they are at the job and away from doing any of the billions of things they would rather be doing then working for the man.

Re:They need a Union

[Bryansix]

I agree with all of your points except the last one (point 2.)

People don't seem to understand that IBM has a gross income in the Billions of dollars (that's with a B) because they succesfully transistioned from a company that produced products to a company that sells services and has a major R&D pipeline which creates patentable and then licensable products and ideas. How do I know this? Because I was a stock holder and I got the annual report every year.

People now outsource major projects to IBM and it accounts for a majority of their business. In addition the stuff their R&D department comes up with doesn't always make the news (neither did BASF R&D until they launched those comercials) but it's substantial and lucrative.

"something good that people wanted to buy?" Huh?

[sirwired]

When is the last time IBM produced something good that people wanted to buy?

What planet are you living on? IBM is, and has been since the day it was founded as the Tabulating Machine Company by Herman Hollerith in the 1880's, the largest provider of electronic IT to the businesses of the world.

For the $98.8 Billion they made in revenue last year, somebody must think they have something worth buying; like:

Mainframes: The world's largest IT systems still run on IBM Mainframes because they simply pretty much never break, and they have had continuous, complete, software and hardware backward compatibility for about forty years. (As in, you can theoretically take a functioning punch-card reader from the '70's, a succession of interface adapters, a stack of cards, and use them to boot a mainframe fresh off the assembly line in New York without changing a single line, er... card, of code.) This sort of stuff is important to large businesses, who hate re-writing major, working, systems. I have personally seen an insurance company still using reel-to-reel tape connected to a mainframe only a couple of years old. (They received employee data from the state on the tapes.)
Chips: All three major game consoles use IBM processors.
Software: Somebody must like Lotus Notes, because a lot of people still use it. IBM also produces the DB2 database, Tivoli management software, WebSphere middleware, Rational dev tools, and a host of other products.
Services: IBM is the largest provider of IT services spanning the whole spectrum of services a business might want to provide from hardware field service to management consulting.
Servers: They still have the largest market share for servers.
OS'es: Plenty of folks still purchase z/OS, i/OS, and AIX. OS/2 was small potatoes in comparison...

Oh, also, the Rational Unified Process is more than just a book with some suggestions in it. There is also a large suite of tools to back it up. And for large I/T projects involving very large teams of programmers, it doesn't pay to just make up a development process on the fly.

Lastly, Google does indeed spend more per employee than this, but all the "scut" work at Google (i.e. Hardware Maint., customer service, etc.) is farmed out to contractors, who don't get Google benefits or Google pay.

SirWired

Re:Free Market

[ciggieposeur]

It was doing perfectly fine.

No it wasn't. In the early 1900's some workplaces had a 12 percent mortality rate.

Let me repeat that: 12 PERCENT MORTALITY RATE.

Let me repeat that again: There was statistically a 12% chance that you would DIE for every 1 YEAR you worked.

In 1908 US Steel began to record safety incidents and worked to minimize the accident rate in a "safety first" program; in 1913 the Department of Labor was formed to coordinate a federal response; by 1915 the National Safety Council was established to improve working conditions in multiple industries. Without this effort, there was a good chance the US would have gone Communist before 1930.