One more step toward the fungibility of the Employee

International Business Machine, AKA IBM, AKA Big Blue, just announce another step in their program to overhaul their pension program.  Here is the link.  Many years ago they converted from a defined benefit plan to a defined contribution plan.  New employee had no choice it was the defined contribution plan for them.  Retired employees and some soon to retire were allowed to stay in the defined benefit plan.  The rest of IBM employees were converted to the defined contribution plan from the defined benefit.  The amount of each employee defined benefit was calculated buy a disinterested third party hired by IBM (believe that and I will make you a great deal on some sea side property in Kansas) and an appropriate amount (given the growth assumptions) was placed in to the defined contribution plan for each employee.

The defined contribution plan was not that bad, IBM did have a matching contribution to the plan.  That contribution was made at the end of every pay period.  But gosh that is a great deal of money to tie up in an accounts that IBM cannot use, it is all those pesky fiduciary rules and regulations created to conform to ERISA of 1974.

So now IBM has decided that rather than make their matching contribution at the time that the employee makes his contribution, they will hold their contribution back until the end of the year, and make one lump sum yearly contribution.  That way IBM can still use the funds for their own needs.  IBM makes a defined benefit contribution of between 6 and 10 percent for each employee depending on the employee contribution.

With 95,000 employees in the United States, and an average salary in the 80K$ dollar range we are looking at some serious money in the range of 456 Million Dollars.  That is some serious change that the corporation could be using rather than have it tied up in employee retirement accounts.  If the employee turn over rate is near 5 percent, well that nearly 23 Million Dollars that the corporation gets to keep, it is truly good to be the king.

IBM is just recording IOUs for their contribution to each employee and they are put into an account and if the employee is still with company come the time that the lump sum is paid they get it.  The bad news for the employee is that they must still be employed by IBM when the lump sum is paid, otherwise no joy.  IBM is being a true sport to those employees who retire before the date that the lump sum is paid, they will still get IBM contribution, but they are not doing that out of the kindness of their heart, that is the law.

In the spring of this year IBM announce a plan for selected individuals, those close to retirement by the end of 31 December 2013 the option of working 60 percent of their schedule, being paid 70 percent of their rate, but with full benefits with a guarantee of their employment until their retirement date or 31 December 2013 which ever came first.

Given that IBM was “rebalancing its workforce” an IBM spokesman characterized this program as being “rather unique”.  If an employee did not join this program well then they would certainly be subject to resource actions, since according to the same IBM spokesman “IBM will continue to rebalance its skills and resources based on customer needs”.  Which was a nice way of saying you will be leaving sooner rather than later.

Another whack job by those lovable bastards that are drawing the big bucks enjoy, and making the hard decisions.

Fungible Employee’s

America’s slow long-term employment recovery, one possible source is the Fungible Employee and their increased use.

First a little definition is required.  A good is considered to be fungible if one unit of the good is substantially equivalent to another unit of the same good of the same quality at the same time and place.

Having sat in on a great many management meeting where one of the major topics was reduction of operating cost as a means to increase profit, it became clear that many of my much younger managers had a complete and utter lack of sensitivity to or for our employees.

Many of these B school graduates were on a quest, for something more holy than the grail.  They were on the quest of the fungible employee.  These managers wanted to replace as many of our current employee with as many fungible employee as possible.  We were in the business that was quickly gravitating to what many in our industry considered to be a commodity.   So profit margins were being hammered every quarter.  Our competitors were pushing for market share just as we were. Product pricing was being squeezed.   Competitors are trying to differentiate his or her commodity from the other guy’s commodity in an attempt to justify their products cost.

It just like I remember from air combat training once you are in the merge it quickly becoming a knife fight to the bottom, both side losing energy as the fight spirals closer and closer to the ground as each side expends energy in an attempt to gain an advantage until some become a smoking hole.  Some of the competitors have deeper pockets and other revenue streams so that they could stay in the fight longer, others were not so fortunate.

Never in any of the discussions did I here an utterance about competence or quality, or what would it do to our product, or for that matter what it would do to the company’s reputation.   Almost every single discussion concern cost, and those that did not concern cost concerned plans to acquire these fungible employees.

The have many names, the most common being temp worker, and they did not have to work for a temp agency.  To some extent contract employees can be considered fungible in that they also have some of same endearing qualities.  I do not remember any discussions about reduction in demand for our products.  When I asked once about this, after I pulled all of the arrows out, I knew not to ask again.

I am no longer with that company, for even my position was determined to be fungible.  Funny thing is that for a significant percentage of the individuals in those meeting many also found that their positions were fungible.  I am much luckier than many of them I could afford to retire, and so I did, many of the others are still looking for the next Eldorado, to them I say Bonne Chance.

The following is a list of the endearing qualities of the fungible employee.  It is not meant to be exhaustive, but it does contain what I consider to be some of the more important elements that senior management finds attractive.

1.              Fungible employees have no hidden cost, all their costs are known.

2.              You do not have to find work for them when your contracted tasks are completed, they can be released.

3.              They are no long term or reoccurring commitments of corporate or company resources (Sick Leave, Retirement Contribution, Health Insurance).

4.              No employment taxes owed to the government.

5.              Reduced Human Resources department.

6.              Reduced or elimination of training costs.

7.              No Unemployment payments or claw backs.

8.              Can be released at any time for any reason, no justification required.

9.              No expectation of increased costs as they gain mastery of their tasks.

10.          Short term commitment

11.          Cost can be renegotiated at the end of term.

For the employer it is a really great deal.

For the employee it is a really sucky deal.

Here is what the fungible employee gets out of the deal, and what a deal it is.

1.              No employment stability in your life (The company has no plans to bring you on full time no matter how good of job you do).

2.              Your earnings can be highly variable, depending on employment situation (You will work only when you are needed and not a moment longer).

3.              You could or will be responsible for all of your employment taxes.

4.              You could or will be responsible for all of your retirement contributions and or programs.

5.              You could or will be responsible for all of health insurance cost.

6.              You are responsible for your own training.

7.              Your ability to borrow from financial institutions is questionable. (Your employment history is pretty shaky).

8.              Get sick at your own peril.

9.              Take a vacation at your own peril.

10.          Slack off just a little at your own peril.

11.          Get injured at your own peril.

12.          If you do not like the deal, do not take it, we will find someone else.

13.          You are a commodity get use to it. (Welcome to the Brave New World).