IBM: The Compensation and Benefits Plan

The compensation and benefits plan of IBM is always included in its Corporate Responsibility Report every year. This document is considered to be thorough in providing exhaustive information about the pay and benefits available for different sections of employees. It is noteworthy that the company prefers to cover the extra distance in describing and clarifying the issues and decisions behind the plan of compensation. According to the IBM Corporate Responsibility Report,

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“Today, IBM’s overall compensation strategy is designed to deliver market-based, performance driven pay in all segments of our business portfolio, and to reward appropriately our highest contributors. We do this through a combination of base salaries and variable performance-driven bonuses. Our goal is nothing less than to sustain and renew the highest performing, most effective culture in business. To do that, we seek to hire, measure, and reward the individuals who create that culture every day” (IBM Corporate Responsibility Report, 2009).

IBM has displayed commitment in providing a workplace environment whereby workers feel wanted and respected for what they are. The company is of the opinion motivation has to be fostered within the corporate structure on a permanent basis. Examples in this regard are creating an active working environment, making the working process full of fun and excitement, encouraging involvement of employees in more functions in giving them a wider working choice, increased responsibilities, facilitation of team work, creating a continuous learning environment, allowing workers to set their objectives and framework for measuring results, enabling an environment that encourages consistent improvements, creating an appreciative atmosphere and assisting workers in understanding the importance of their jobs and work. IBM is in full agreement that any organization has to create a culture that supports and rewards collaboration. The company has also made attempts in introducing meaningful ways for improvement and advancement. It can thus be concluded that IBM has an HR Policy that is effective and harmonizing in nature.

IBM is known to be doing an excellent job in nourishing its policies of human resources that have resulted in fostering immense value for the company’s human capital. As compared to other Fortune 100 companies, IBM and GE are most widely distinguished for their steady efforts in not only focusing on their people from within but also in publicly stating their commitment to human capital to all stakeholders.

The strategic value of the plan as a source of competitive advantage

The compensation strategy of IBM is essentially based on two important principles; to remunerate workers for their individual efforts and to distinguish specifically those employees that additionally contribute to the overall success of the company. The new compensation plan of the company which is called Personal Business Commitments (PBC) was initiated in 2002 and entails that all employees whether the chairman or the new recruit, must put forth their annual yearly goals in writing at the start of each calendar year. Employees who perform exceptionally well can thus be identified by way of performance appraisals that are carried out at the middle and end of each year. The purpose of such exercises is to identify the top performers, provide opportunity for and to caution poor performers and to enhance answerability for supervisors and managers.

Up to 2002 not much emphasis was made on setting goals and achieving objectives that were well defined. It was for the first time that first level managers in IBM had the authority to impact payment of bonus and other financial incentives to employees. Prior to that, only fixed payments were made for work done irrespective of the quality of output. It’s a good sign that all employees who perform exceptionally well, irrespective of their rank in the hierarchy are entitled to get ownership of equity which also includes options for purchasing stocks. The presence of such opportunities for employees creates immense value for the compensation and benefits plan of the company in being a source of competitive advantage.

In its entirety, the salary structures in IBM are on the basis of job roles of employees. All roles performed by employees are entitled for performance bonuses in one way or the other. Those who have service responsibilities get bonuses based on performance, executives are entitled for incentive payments and sales executives receive performance bonuses from the commission pool set up by the company. IBM is known to consistently endeavour in ensuring that its employee salaries are at par with the best market rates for workers with similar job profiles.

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The internal alignment structures of the plan

In view of the nature of IBM’s business structure and the fact that it keeps acquiring companies and selling some of its business divisions, the internal alignment is constantly changing in terms of reorganizations of job roles and compensation plans. Another reason for the frequent internal changes is because the reorganization of services assists in enabling the company to quickly execute the required actions in supporting the company objective of achieving growth in earnings over the long term. Internal reorganization plays an important role in enabling IBM to improve the development of its competency levels. IBM Global Business Services provides strategy recommendations, redesigns internal business structures and develops the technical plans to achieve the goals of the company.

Although an industry leader, IBM is not protected from economic slides and has to make choices in regard to cutbacks that tend to focus in areas that do not entirely aim at achieving corporate goals. When resorting to downsizing all line managers are given some parameters on the basis of which workers have to be reduced. The managers then evaluate employees on the basis of performance and current roles as related to their salaries, after which layoff decisions are taken. Sometimes a particular project may be faced with a cut in project cost and managers have to decide in reducing the headcount in keeping with the project objectives. However, IBM has a policy whereby employees are relocated and even if an employee is to be officially terminated, he is given time of up to three months. Managers have the responsibility to assist such employees to search for other jobs internally within the company by networking and using the in house Job Opportunity Bank. Employees whose services are terminated and are unable to find suitable alternatives within the company are offered severance packages on the basis of number of years of service in the company. IBM also pays some money to such employees on account of education expenses to help them in building their skills further and to search for new jobs. The company is proactive in counselling employees about its present financial status and makes them aware and prepared about what may be in store for them in the coming future.

The external strategies used to execute the plan

Acquisitions by IBM are an essential part of its external strategies that have important bearing on the execution of the compensation plan across different levels of employees. Acquisition has built upon the company’s strategy to leverage consulting in its businesses and software and IT services which further helps in developing tools that assist clients in optimizing and transforming their respective businesses. It is also possible to bring in place the best practices of asset management and service management for IBM and IT to be further utilized by clients in different industries. With the integration of a new company into IBM, the employees of the acquired company are taught and apprised about IBM culture. The acquired companies are permitted to retain their own culture in terms of style of working, vacation schemes and employee benefits and salaries. IBM facilitates both sides to swap information and to share feelings and feedback in regard to the merger. The new managers are encouraged to speak about their erstwhile organization, cultures, arrangements and people. IBM will engage in downsizing only when several employees perform duplicate functions and avoids layoff by trying to relocate employees in different functions. The HR facilitates the acceleration process of mergers and acquisitions by providing training, information and infrastructure to new employees.

Employee compensation is now the largest investment being made by IBM and it has to be handled in a way that the company’s revenue and profit growth are tracked closely. The company has also to deliver the compensation investment so that it directly reveals the company’s commitment in paying and rewarding the best performers in keeping with their contribution for the company’s success. In order to ensure that this happens, IBM has made important changes in the employee payment schemes. IBM has specifically targeted a part of the salary provisions towards Market Based Adjustments which are devised in ensuring that workers are paid in the true spirit of competitiveness. The company has focused on incentives instead of base pay from 2007 onwards in most countries and after the market based salary adjustments are done the remaining provisions are used in rewarding top performers.

The use of incentives in the plan

Top Contributor Awards acknowledge employees in IBM who perform much better than their peers in terms of contributing to the company’s growth and profitability. Major changes have been made in the incentive plans of the company. In focusing on the profitable growth of the company, a program has been introduced which is called Growth Driven Profit Sharing Program that has replaced the Performance Bonus Program. The program provides for the sharing of profit and revenue growth with employees who contribute in driving such growth. The company will provide for funding on the basis of growth results so that accumulated opportunities can be seen.

IBM provides incentives to its employees in encouraging them to maintain healthy life styles. The company invests in well being and prevention which is very helpful to both employees and the business. It is well established that a healthy workforce experiences a better quality of life at the workplace and at home also. Employees who are able to detect health related problems earlier are the ones who can get well sooner and thus end up spending less on health care. Although health care costs have increased, IBM has enhanced its investments on preventive care and wellness. In encouraging workers to effectively utilize wellness programs and to make possible recurring habits of adopting healthy life styles, IBM has provided worker incentives for participating in its Healthy Living Rebate program. Under the scheme, IBM has enabled the provision of over 600,000 rebates to employees for engaging in health care activities that relate to physical activity, nutritional guidance, giving up smoking and children’s health (Zimbio, 2009).

The role of benefits in the plan

The benefits for employees in IBM relate to different programs and are devised to recognize individual employees for making specific achievements for the company. The base pay is the regular salary payable to all employees while the variable pay relates to annual bonus that varies according to individual performance criteria. All employees who do not fall under the incentive plans are given variable pay which varies upon the performance of the employee and his or her unit. Commissions and incentive pay are applicable in the case of employees engaged in sales activities and the compensation in this regard varies upon the achievement of given sales targets and objectives. All sales executives and employees who are assigned to work under incentive and commission programs fall under this category. Stock options are benefits that are given to employees with crucial roles and categories. The program is not on a very large scale and emphasizes on retaining employees through such offers. Recipients are given the choice to purchase company stocks at a locked price. Benefits also accrue to employees by way of awards and recognition. All employees can become recipients depending upon the nature of the awards and any other given restraints. The awards are basically given to individual employees as also groups in recognition of specific and extraordinary achievements.

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The Flexible Benefit Plan (FBP) is an important part of the total compensation to employees in IBM and allows them the flexibility to plan their compensation. The Plan enables employees to devise their specific package that caters to their individual requirements. The Flexible Benefit Plan empowers the employee to make a sensible choice to get maximum utility from his or her compensation. The FBP includes benefits such as reimbursement of medical expenses, conveyance expenses, holiday travel assistance and house rent allowance. IBM also provides different options for health care for employees to devise for themselves the best coverage that meets his or her individual needs and those of the family. Employees get health care facilities from the day they join the company and are covered under Group Term Medical Insurance and life insurance (IBM Benefits, 2009).

The processes and structures used to manage labor costs

With increasing labour costs and growth of the global economy, workforce has become an important competitive differentiator. Efficient management of workers is a crucial strategy to streamline processes and to reduce costs in a global market that is becoming more and more competitive. Hence a key strategy is to hire and manage highly skilled workers in a very cost effective manner so as to gain a continued competitive advantage. IBM understands that in seeking to optimize human capital tools will have to be employed that assist in forecasting the demands of the workforce, addressing the prevailing gaps in skill availability, forecasting evolution of the work force and engaging in consistent planning. IBM has tied with Human Capital Management mainly for its IBM Global Business services (GBS) and created a system of models and instruments to be used in helping its departments in optimizing the work force to reduce labor costs, hold on to vital skills, deploy employees proficiently and support tactical talent planning pronouncements. IBM systematically studies trends in the work force in forecasting dynamics of human resources and takes staffing decisions by keeping the long term business objectives in mind. It keeps track of trends and dynamics in the work force in regard to hiring, releasing, promotions and transfers as also the projection and modelling of work force dynamics for the future made on the basis of past patterns and technical probability computation.

IBM uses its Workforce Evolution and Optimization (WEO) methodologies to make adjustments and strategic decisions in relation to its business objectives (Odis, 2009). IBM has taken initiatives to optimize work schedules in terms of capacity planning in regard to daily operations. It has adapted the Shift Work Optimized Planning and Scheduling (SWOPS) system that allows flexibility in optimizing work schedules as required by the need of the business. The system can make predictions about work load as related to different tasks and activities and complement resources and the skill requirement in meeting labour regulations and other restraints. The company believes in capacity planning, sizes up its teams and gives essential inputs and support for the composition of the work force and acquisition of skills. The SWOPS systems enable schedule reports for managers, supervisors and workers which further help in boosting employee confidence by encompassing preferences of workers.

The means of communicating the plan to the employees

IBM has a policy in place that enables all employees to use communication channels in interacting with management on different issues such as complaints, compensation issues and any form of harassment. There are channels for maintaining direct contact between management and employees and the company complies with all applicable rules and regulations in regard to wages and about communicating with employees about compensation matters and changes as made in them from time to time. All issues related to minimum wages, incentives and benefits are forwarded to line managers to be further conveyed to employees so that they can discuss and opt for the options as felt convenient to their working environments. All elements of compensation whether they are related to over time, piece rates or exemption classifications are required to be placed before the worker unions for discussion and finalization and then placed via internal means of communication before all employees.

IBM employees have the option to participate in blogs whereby online collaboration platforms have fundamentally changed the way employees work and communicate with the management and with each other. IBM has empowered its employees through online discourses where they are counselled and informed on all matters of their work including compensation, benefits and incentives. IBM is an innovation based company and believes in constructive exchange of views between management and employees. This growing concept of user generated web content such as blogging, networking and social web applications have emerged as a significant area for a learning and engaging environment (Highlights, 2009).

The IBM Employee’s Union is however critical on some aspects of the employee compensation approach adopted by the company. It says that IBM cannot be trusted for the claims of enhancing employee welfare because most of them are empty promises. The union has alleged that Market Based Adjustments in compensation are essentially calculated moves that are based on extensive ongoing research based on salary surveys. Such tactics have resulted in employees being underpaid by way of compelling them into job families that have led to reduced pay scales. IBM has been accused of outsourcing jobs to low cost countries and has brought changes in pension plans a number of times. The management has been charged with spending billions of dollars on allowing senior executives to buy stocks. Employees feel cheated in losing a big chunk of retirement funds after the company made changes in the retirement medical plans. In changing variable pay to performance bonus and creating hype that it is an approach to bring in growth and profit sharing, the employees have not got a fair share in terms of increased salaries and benefits. The anger of the IBM Employee’s Union is evident from the following post available on their website,

“Remember, too, that IBM has changed other programs, such as the pension plan several times, finally scrapping it in favor of a risky 401(K). Executives claim they can no longer afford it, in spite of the Billions the company makes in profits and spends on stock buybacks.

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A lawsuit for age discrimination was filed against IBM.

The company’s claims “vindication” because it won on appeal, but many employees feel cheated since they’re losing a big chunk of their retirement money.

The company also changed the retirement medical plan, again to its advantage, not the employees.

Change, change, change – a lot of it going into the company’s pockets, not yours” (Alliance @IBM, 2009).

References

  1. Alliance @IBM, Can You Trust IBM’s New Employee Compensation Program?
  2. Highlights— 2009, IBM Employees News and Links.
  3. Odis, Focus on Workforce Analytics.
  4. Zimbio, Why IBM’s 401(K) is the Leader of the Pack, 2009.
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