IBM: The Big Blue Employer

New York City is the home of at least three Big Blue Teams. Do you have a favorite one?

If you’re a fan of the National Football League, you’d likely prefer the New York Giants. Although that particular Big Blue Team actually plays across the Hudson River in the Meadowlands of northern New Jersey, the Giants are the pride of New York, having won two of the past five Super Bowls against the arch-rival New England Patriots.

Baseball fans, though, might instead name the Brooklyn Dodgers. Although Dem Bums moved to Los Angeles over fifty years ago, their fans still (in the words of long time Dodger Tommy Lasorda) bleed Dodger blue.

In the business world, however, the phrase Big Blue Team refers to IBM, the century old computer services firm with roots in New York City. Although the firm is now headquartered in the northern suburbs of Westchester County, it continues to maintain a solid presence in the Big Apple.

Why is IBM called Big Blue? For its blue logo, without doubt, and for its competitive industry strength as well. Nevertheless, its own employees have often employed the phrase in deference to its past history of paternalism and generosity as a corporate employer.

No Layoffs, Ever!

Although today’s IBM specializes in computer services, the firm spent much of the twentieth century involved in the introduction, development, and subsequent domination of several industry sectors involving business machines.

In fact, it began its existence as the Computing, Tabulating, and Recording Co. (CTR), and later changed its name to International Business Machines (IBM). The punched card machine, the mainframe computer, the electric typewriter, and the personal computer were all products of the vaunted IBM research and development laboratories.

In the post World War Two era of American global economic dominance, IBM joined other industrial icons such as AT&T, Eastman Kodak, RJ Reynolds, and Texas Instruments in adopting no layoff policies. Employees were guaranteed jobs for life, regardless of economic trends and business outcomes, as long as they fulfilled their professional responsibilities.

Like most other American firms, IBM’s no layoff policy and other employee benefits have been stripped away by senior management during the past two decades. And then, last week, Big Blue made a decision that severely impacted the firm’s retirement program.

I’ve Been Moved!

The decision may have surprised a few “old timers,” considering that IBM was widely respected throughout most of the twentieth century for its generous employee benefit plans. In fact, its employees would often joke that the acronym IBM stood for “I’ve Been Moved,” in recognition of the frequency in which they would be transferred from one city to another in furtherance of the company’s interests. Sizable pension plan payments, and other significant employee and retiree benefits, were perceived as compensatory rewards for lifetimes of corporate service.

But IBM shifted its employees from a traditional pension benefit into a 401k plan many years ago. Under 401k guidelines, employees must finance their own retirement needs by instructing their employers to withhold funds from each paycheck for depositing into tax deferred investment accounts.

Most companies also match each employee’s withholding payment with a supplemental corporate contribution on a paycheck-by-paycheck basis. Last week, however, IBM announced that it would only make a single annual “lump sum” payment to each employee’s retirement account in December of each year.

Timing Is Everything

Why will IBM delay all of its matching contributions to the month of December? One possible reason is that any employee who resigns prior to December will no longer receive any matching contribution. IBM, as a firm with more than 400,000 employees, experiences a significant number of employee resignations each year, and thus the firm will avoid a significant number of matching contributions by implementing this new policy.

Another possible reason, though, is that IBM will now reap a windfall benefit by investing its matching contributions from the time that each paycheck is paid until the time of its annual 401k deposit. As long as the investment markets are producing positive returns, employees will be unable to earn income on those matching funds during the course of the year.

Is IBM shortchanging its employees? On the one hand, one can argue that IBM is not burdened with any legal obligation to sponsor a 401k plan at all, and thus it can schedule its matching contributions as it sees fit. On the other hand, though, it is important to note that very few corporations have decided to follow IBM’s lead and implement this type of policy.

Presumably, then, very few of IBM’s employees will be referring to their employer as the Big Blue Team of pension generosity in the near future. Although last week’s announcement again places IBM at the forefront of managerial innovation, the beneficiaries of the firm’s new policy will not include its employees.