Conference 7.286::digital

2762.0. "IBM PERKS....Business as Usual?" by MEMIT::SILVERBERG_M (Mark Silverberg MLO1-5/B98) Wed Nov 03 1993 09:30

 IBM - As losses mount, so do the complaints about company perks
	{The Wall Street Journal, 27-Oct-93, p. A1}
  In May 1993, IBM was in the throes of the worst crisis in its history.  But
 you wouldn't have guessed that had you wandered into the Breakers resort in
 Palm Beach, Fla., between May 5 and 13.
   There, IBM was staging its annual "Golden Circle," a celebration for 330 of
 its best salespeople and their spouses.  IBM flew in Bob Newhart for stand-up
 comedy.  It hired Larry King to stage a mock talk show on current events.  For
 evening entertainment, the money-losing computer giant rented a museum and
 treated everybody to  veal and salmon, a five-act circus, casino games and
 Liza Minnelli, performing in person.
   Once the world's most profitable company, IBM spent decades addicting itself
 to perks, parties and one of the most elaborate corporate bureaucracies.  Now,
 when it can least afford them, IBM is finding its old habits hard to break.

   Mounting Losses
   Within the past eight years, IBM has moved to eliminate 180,000 of 405,000
 jobs, chopped a billion dollars from its yearly research budget and written
 off $28 billion.  Yesterday, it reported a 4th straight operating loss - $48
 million - as its vast mainframe-computer business continued to slip.  The
 results brought IBM's net loss for the year so far to $8.37 billion, one of
 the biggest deficits in business history.
   IBM has made sweeping cutbacks in its perks and expenses.  Yet the company
 still maintains three country clubs for its employees, with golf courses,
 bowling alleys and skeet-shooting.  It still ships employees to its own
 management school, which has a landscaped 26-acre campus, tennis courts and a
 160-room hotel.  It still runs an in-house television network, leasing a
 satellite 24 hours a day to beam shows about IBM to TV sets around the
 empire.  Executives crisscross the globe in search of fat to eliminate - on
 nine private jets, one of corporate America's bigger private fleets.
   IBM routinely does things first-class in countless smaller ways.  One
 example: in the midst of record losses last year, it spent $75,000 to produce
 a 12-minute film instructing employees how to use a new phone system.
   And even after years of cuts, IBM still spends millions employing legions of
 people to pour over the minutest details of its daily affairs.  It has a
 personnel department of 2,859 people, more per employee than 75% of other
 large companies.  And it has five professional namers whose job it is to
 oversee the naming of IBM products.
   Many such expenses are standard at big corporations.  At IBM, executives
 call them vital and affordable for a company with $65 billion in annual
 revenue that, even in distress, still has 267,000 employees in 140 countries.
   But no other company right now is suffering losses and layoffs to compare
 with IBM's.  To many employees and shareholders who are casualties of IBM's
 troubles, its continued big spending is galling.  "You think of all the other
 ways they could cut back, and they're not doing it," says Dorothy Warmack, a
 personnel administrator laid off in June after 15 years at IBM.  "I think they
 should be a no-frills kind of company now.  If they could save a couple of
 hundred people's jobs, I think that's what they should do."

   Trappings of Success
   IBM offers the starkest example of a problem facing countless companies
 struggling with recession and retrenchment: How do you continue to justify the
 expensive old trappings of success while asking so many to sacrifice?  On the
 other hand, when does cost-cutting run so deep that it hurts a company's
 culture and morale?
   In the case of IBM, what bothers critics isn't so much the financial impact
 of IBM's surviving frills, but rather the timing and appearances.  In
 December, IBM announced that it expected to impose layoffs for the first time
 in half a century.  A week later, IBM promptly unveiled one of its flashiest
 marketing efforts, spending a reported $8 million to sponsor the annual Fiesta
 Bowl in Tempe, Ariz.
   News stories expressed amazement that hard-hit IBM was spending millions on
 football games, and sportswriters hooted at the event's nerdy new name: the
 IBM OS/2 Fiesta Bowl. ("IBM means It Baffles Me" read an Arizona Republic
 headline.)
   IBM's troubles also didn't keep it from buying a float in the Rose Bowl
 parade last New Year's Day.  It was festooned with flowers, a Tudor house, and
 schoolchildren pecking away at multimedia computers.  A spokesman says IBM
 spent about $200,000 on the float, "a small investment for the recognition we
 got."
   But the sight of its dismayed Wesley Merchant, who took an early-retirement
 package after 28 years with IBM because he worried he would be laid off
 otherwise.  Soon afterward, IBM cut retirees' benefits.  "Here they say they
 don't have any money, and then they turn around and drop a quarter of a
 million dollars to buy a big flowerpot that's going to last only a few hours,"
 he says.
   IBM plans an even bigger marketing extravaganza for the coming Winter and
 Summer Olympic Games.  It is one of a handful of companies that will pay about
 $40 million each to be official sponsors - the most expensive
 sports-sponsorship deal ever.  Already IBM has four employees shuttling back
 and forth to Lillehammer, Norway, site of the 1994 Winter Games.  (IBM says
 the precise cost of its sponsorship isn't clear because it is paying entirely
 in products and services.)

   Dismayed Shareholders
   Many IBM stockholders also feel aggrieved.  IBM was long considered the
 safest of all blue-chip stocks.  Its steadily rising share price and generous
 dividend made it the mainstay of thousands of investors' portfolios.  IBM
 stock has lost nearly 75% of its value in the past six years.  This year, IBM
 hurt shareholders further by chopping its annual dividend 79%, to $1 a share.
   "The bonuses and perks are in the ozone, they're from corporate Mars, and
 they don't reflect the performance of the company," says IBM shareholder
 Gilbert Jannelli, a Clearwater, Fla., optometrist, who has tried to monitor
 the big expenses that endure at IBM.  "My veins are starting to blow in my
 neck."
   IBM is hardly the only company finding it difficult to wean itself from the
 luxuries success afforded.  A new study of perks at 1,000 companies found only
 modest cutbacks in the past six years, despite lots of talk in Corporate
 America about getting lean and mean.  Hay Group, the benefits consultant that
 funded the study, found that nearly a third of large companies surveyed still
 treat executives to country-club memberships, down from 42% in 1987.
 Chauffeurs: down to 11% from 14%.
   "When you're talking about perks, you're not just asking companies to
 replace old habits with new habits.  You're asking them to give up pleasure,
 with no compensation - except maybe the survival of the company," says Edward
 Lawler, a University of Southern California management professor.

   Resistant to Change
   IBM, he adds, "is the most difficult organization i the world to change.  It
 had a combination of the strongest culture, the most revered management
 systems and the highest success.  All the conditions for change were absent."
   IBM officials give a sober business rationale for each criticized "frill":
 The TV broadcasts cuts down on travel expenses for speeches and classes.  Just
 because the times are bad, IBM can hardly abandon high-profile marketing
 events.  The airplanes save executives' valuable time as they hop across IBM's
 extraordinarily far-flung domain.
   As for the parties and the country clubs, executives say they want IBM to be
 an attractive place to work, especially in these had times.  "Look, the people
 who remain are high performers and need to be rewarded," declares IBM senior
 VP Gerald Cznarecki, a bank turnaround veteran who joined IBM in May as CEO
 Louis Gerstner's top aid for administration and human resources.  "You can't
 find one company anywhere that does not have clear, sharply focused
 recognition events for top performers."

   Sandwiches in Plastic
   All the while, IBM's team of cold-eyed cost-cutters is moving quickly to
 slash $7 billion from the company's $27 billion annual expense budget.  The
 personnel staff has shrunk 56% since 1986.  IBM says it has cut its management
 school's budget 45% in the past five years and might sell it if the
 real-estate market weren't so weak.  When visitors call on Mr. Cznarecki, he
 serves then plastic-wrapped sandwiches and soda in a paper cup.
   Mr. Cznarecki acknowledges that come spending looks unfair to ex-employees.
 "You can't justify to somebody who has been laid off any expenditure above and
 beyond the salary they got," he says.  But he vows: "There's a very real
 no-nonsense gut-level understanding that this company has to downsize its
 staffing levels and downsize how it spends money."
   Nevertheless, expensive vestiges of the great IBM empire still flourish.
 The most cherished of all, the 50-year-old Golden Circle, dates back to IBM's
 paternalistic founder Thomas J. Watson, legendary for his extravagant employee
 pep rallies.
   In 1939, Mr. Watson spent a million dollars, fully 10% of IBM's profit that
 year, to ship 10,000 employees and guests on chartered trains to the World's
 Fair in New York.  Each year he put up an enormous tent city in IBM's original
 factory town of Endicott, N.Y., to play host to the Hundred Percent Club, for
 salesmen who met their quotas.  As a band played, salesman would sign the
 official club song:
	"We're proud to be IBM Star Salesmen
	 The records prove conclusively our quotas we have made,
	 We all enjoy that grand and glorious feeling
	 Expressed in Mr. Watson's smile - Oh boys! It's truly great."

   Today, in a White Plains, N.Y., office complex, IBM has a department with a
 staff of 18 called "recognition events" to produce its employee parties and
 other gatherings.  The productions range from modest "dinners on the town" to
 longer "leadership club" bashes and the Golden Circle, the pinnacle of all IBM
 rewards.
   The recognition-events team devotes special attention to "the Circle,'
 overseeing the lyrics of each specially commissioned song and the contents of
 every celebrity speech.  This year's extravaganza had as its theme, "Passion,
 Power and Promise."  With lasers sweeping and smoke billowing, a rock trio
 strutted across the stage singing:
	"You are the passion, the power and the promise,
	 You are the finest, you're out in front and leading the way!
	"You are the passion, the power and the promise,
	 A leader for tomorrow, no doubt about it, this is your day!"

   In addition to Ms. Minnelli and the other big-name acts, IBM rounded up a
 country combo called the Dixie Chicks, trend-spotter Faith Popcorn, a video
 about quality, and a pep talk about creativity.  Mae Jemison, the first black
 woman in space, spoke about setting life goals.  A mime and a laser beam
 wrestled for five minutes and then performed together - an IBM lesson in
 teamwork.  In the afternoon, guests took private tennis and golf lessons.
 Then everyone got a 14-karat-gold charm representing a rainbow and a mime.
   IBM spent about $3 million on the Cirle and about $30 million more on less
 glitzy versions of the production for 8,000 employees qualifying for its
 "leadership clubs."  It calls this money well spent to motivate its most
 productive people, and some outsiders agree.  "There's malaise throughout the
 company, and probably the best money you can spend is to keep up the morale of
 those people on whom you count," says Uwe Reinhardt, a Princeton University
 economist.

   Better Than Money
   IBM flew Mr. Reinhardt to the Golden Circle to chat about health-care
 reform with Larry King.  Mr. Reinhardt found the occasion perfectly
 appropriate.  "If I were the CEO, I'd do it, too," he says.
   Some may wonder whether Larry King live and some gold jewelry really do lift
 a salesman's spirits.  It appears they do at IBM.  The company recently tried
 offering some top performers about $2,000 in cash in lieu of the trip to the
 leadership-club event.  Most chose the trip.
   IBM says it has cut the budget for the Golden Circle and the leadership
 clubs in half in the last three years - by keeping them just as deluxe as ever
 but inviting fewer employees.  Next year it plans to invite more employees to
 the Golden Circle but will eliminate the leadership clubs.  That would still
 leave the budget at roughly $20 million.
   Says Mr. Cznarecki: "We don't want to cut them out completely - it's so
 critical to being able to motivate and reward people's performance.  At the
 same time, I think IBM has done a very solid job of saying, "'We've got to
 change these.'"
   Another IBM tradition still prospers in the Hudson River Valley town of
 Poughkeepsie, N.Y., site of an IBM factory for half a century.
   "Private, Members Only," reads the sign on a stone portal topped with green
 lanterns.  A long driveway leads to the gleaming stone and glass clubhouse,
 where visitors can lunch on an outdoor deck.  Beyond stretches a rolling
 green vista with an 18-hole golf course, six tennis courts, three swimming
 pools, a jogging course and five ball fields.
   This is one of the three country clubs IBM keeps for its employees.  They
 are another holdover from the era of Thomas Watson, whose severe portrait
 watches over the entrance to the Poughkeepsie club.
   Mr. Watson built the first club in 1931, in an old speak-easy in Endicott.
 He charged employees a dollar a year to join and offered free dinner three
 nights a week, "to give IBM wives a break from cooking," wrote the founder's
 son and successor, Thomas Watson, Jr., in his memoirs.

   And a Private Beach
   The clubs have evolved into vast playgrounds.  The Poughkeepsie club also
 has an eight-lane bowling alley, four squash courts, a weight room and a
 shooting range.  The Endicott club now has golf, swimming, tennis, bowling,
 indoor shooting and a skeet range.  A third club in Sands Point, N.Y., has a
 private beach on Long Island Sound.
   Fees have gone up since Mr. Watson's day - to $17.12 a year in Endicott, $25
 a year at the other clubs.  A day of golf costs $7 to $13 (about one-fourth of
 what most private clubs charge members).
   IBM is moving to cut the country clubs' budgets and occasionally rent their
 facilities to outsiders.  Using such measures, the Poughkeepsie club is
 expected to pay its own way next year.  IBM won't disclose the clubs' cost to
 the company, but calls it "relatively small numbers in the scheme of things."
   Inside IBM, the new Gerstner team of executives agonized over what to do
 about the clubs.  "The IBM company was founded on the belief that we would
 respect the individual," says Mr. Cznarecki, invoking the credo of founder
 Watson.  The clubs, he says, "are such an important part of the tradition and
 culture of the people there that to totally eliminate them would be a dramatic
 statement that we no longer care about them."

    Whats your point ?
    

    I have no objections to the basic idea of COE.  It clearly fits into
    the "pay for performance" model that this company has long espoused.
    
    My feeling is: if a sales rep does terrific business for a year, then
    he/she should receive compensation to match.
    
    What I dislike about the implementation of COE is the fact that many 
    others besides bag carrying salesfolks somehow "qualify" for "rewards."
    
    If we consistently implement a "pay for performance" policy, then I
    say "Long Live COE!" 
    					andrew

    imagine...whats going on around HERE folks !
    

    Hey,be grateful that IBM is throwing around it's money. When they go
    down the toilet,we'll be no.1
    
    Ken

    Remember, COE is not just a sales event, it is a company-wide event with
    many functions represented.  We didn't have Liza, or Larry, we had Kool.

    re:.5
    No, if IBM ceased to exist, H-P or Fujitsu would be #1, based on
    current sales, depending upon exchange rates.

    Hong Kong this year

    No argument if there was a "black-and-white" set of criteria for
    qualifying for COE, but, the process remains less clear than the origin
    of the Universe. If sales peopl automatically attend because they make X
    times their budget, fine. But the recent COE in Hawaii was rife with
    people who were long-considered to be "dead wood" but had political
    connections. Why not have exacting criteria for management and field
    consultants (et al) that says "go/no go" irrespective of whether the
    sycophant factor was high? I have attended when I didn't exactly
    understand what criteria I'd met, and wasn't even nominated when I
    received a note from a Senior Sales manager that I had "saved a $10M
    order" for Digital. In the final analysis, COE causes more resentment
    and animosity than incentive when political allegiance begets
    nomination.

Out of curiosity, do the people who *resent* COE decline the trip when they're 
told they've won it?

If only they'd see what they get for *working hard* then maybe we'd get more 
productivity out of people.

We should stop resenting it and we should be striving to win it!!  Then and only 
then we'll see improved sales, profits, and overall working conditions.  Is it 
such a hard message to get accross?

Here's a good idea, let's cancel COE and all other awards for that matter, just 
to please the employees who resent it.  That way, we'll get more productivity out 
of people.  Makes sense right?  Wrong!!

I say, if you keep working hard enough then odds are someday you'll win it and 
you WILL like it.

/Mario

I sure hope you don't resent COE or awards in general because you're not 
eligible for them.

I wasn't eligible to win either 4 years ago but I pushed for our department 
to start being eligible for them and someone listened and realized it was 
the way to go.  Now we're eligible for COE, cash awards, pat-on-the-back 
dinners, quarterly awards, etc...  They're incentives and are part of the 
Quality program.

IMO, everyone in this company should be eligible for some kind of recognition 
award to reward the top performers.  Maybe we should be striving for making 
more people eligible for them and not striving for eliminating the ones that 
already exist.  If you're going to put some of your energy into doing 
something for the company it should be something positive, not negative.

/Mario

    A one who has won it four times (and gone to them all) I think it is
    the stupidest program in the company.  You must compete against other
    DEC reps instead of competitors (Only the top 10% of population goes). 
    Working hard has nothing to do with it, neither does profitability or
    net revenue.  It is percent of "arbitrary" budget that wins.  I sat a
    table with a rep who was 165% of a 900k budget.  I was 128% of $47m but
    was only there because it was my 10th DEC100.
    
    Just stupid.......down with COE.
    

I earned a Software Services Excellence Award in 1987 and went to Hawaii.  I
thoroughly enjoyed myself and it was a great morale booster.

However, given today's state of the company, if I was eligible to go and could
go, I think I would feel a little guilty about the extravagance of it all.  Not
that I would turn it down, mind you...

Paul

    If it were something I could earn and I felt I had really earned it,
    would I go?  Quite likely.
    
    But I would *still* resent seeing it be given to people who had not
    earned it!  
    
    To motivate people to work hard, the award has to be seen to be 
    awarded based on working hard.  If it is seen to be awarded based
    on politics, then politics is what it will motivate people to do.
    
    As somebody else said, metrics drive behavior.  Fortunately, metrics
    are not all that drive behavior, or we'd be in even worse trouble.
    
    	Larry

    
    US News and World Report had an article about 4-5 issues ago (I think)
    that talked about reward systems.  My memory is a bit fuzzy on it, but
    the article said that researchers are coming to the conclusion that 
    reward systems don't work and can in fact be counter-productive and 
    that this seemed to be true whether one looked at a parent rewarding a 
    child for good behaviour or at COE-type corporate rewards.
    
    If I remember properly, the article suggested that rewarding someone
    for what amounts to good behaviour tended to devalue the good behaviour 
    and contributed to the individual thus seeing the good behaviour as a
    means to an end rather than inherently valuable.
    
    I think its probably fair to say that most top performers are motivated
    by their own internal drive and not by things like COE - at least
    that's been my observation.  Its nice that the company recognizes people
    who perform well, but awards like COE particularly in the current
    enviroment, seem to be as divisive to morale as they're purported to be
    in support of. 
    
    

    
    
    I think the best reward system would be a Digital (collective) reward
    system.  If the company makes it's number, everyone gets a bonus.  This
    would stop much of the bickering and infighting we see in the
    corporation.
    
    
    Mike

.17

Well we had that a short while ago here in the UK (effectively UK makes
it's figures we all get a bonus) it doesn't stop infighting it just means 
non-sales staff gripe there's not much tehy can do about increasing sales
and there's only so much cutting back expenses they can do without quitting the 
job and their work had no reflection on whether they were rewarded etc etc
etc contd page 94............