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IBM chiefs order pay freeze at US services tentacle

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Update The employees at the Global Technology Services unit of Big Blue got some unwelcome but probably not unexpected news that there would not be a broad-based salary increase at the unit this year. There are also reports that IBM has frozen salaries of higher-level executives across the company, which the company has not confirmed.

Global Technology Services does hardware outsourcing, product maintenance, and other things lumped under an "integrated technology services" moniker and which is distinct in some way from "systems integration," and in the first quarter accounted for just a little over $10bn in sales, up a tiny 1.7 per cent from the year-ago period. But here's the rub: GTS had 14 per cent growth in the 40 growth markets outside of the United States and Western Europe when measured at constant currency, and by the way, these are the same markets where it is much cheaper to hire local employees to do the local work. And so, as has been the case since IBM nearly went bankrupt in 1993, IBM is once again putting pressure on US employees to get more work done for the same money.

Bob Zapfel, general manager of Global Technology Services for North America, and Richard Patterson, general manager of GTS strategic outsourcing delivery for the Americas, sent out this note to GTS employees on Monday, which Alliance@IBM, the fledgling union effort at Big Blue's US operations, got ahold of:

GTS Employees,

The Employee Salary Program takes into account a number of elements, including compensation competitiveness in markets we serve, our ability to attract and retain people with skills we need, our business performance, and other employee investments.

It is essential for a services business to provide value-added services to clients at competitive price points. Our objective is to ensure a competitive labor cost structure while moving aggressively into areas that are strategic to our clients and require innovative solutions. This is fundamental to driving clear return on investments for our clients and to increase opportunities for all IBMers.

To balance our ability to remain competitive with the need to invest in people who have high-demand skills, there will not be a broad-based salary program in GTS in 2012. Instead, we will target the 2012 investment to skill groups or focus areas as identified by each GTS line of business, based on local market needs. These decisions do not affect the significant investments IBM makes each year in talent in addition to salary, including bonus programs, recognition, promotions, and skill development.

Your manager or leadership team will communicate additional information to you over the next few weeks.

El Reg verified that this letter is legit with an IBM spokesperson, who added: "In Global Technology Services, there are targeted skill groups of employees that are eligible for salary increases in 2012. No executives in GTS will be eligible for salary increases."

IBM did not say what would happen with stock awards to GTS execs, but with IBM's shares kissing $200 a pop, this can add up to a fair chunk of change even if you don't get a raise.

And a report in the Times of India that IBM India is looking to give raises after a June-July employee assessment cycle is sure to ruffle some feathers back here in the States.

IBM had over 400,000 employees back in the early 1990s before CEO John Akers ran it aground, and more than half of them were in the United States, where IBM had substantial manufacturing and supply chain operations. IBM has since that time sold off or shut down many of those businesses – PCs, memory chips, high-end printers, disk drives, just to name a few – and has moved various systems and software engineering, application outsourcing and maintenance, and manufacturing work outside of the US and Europe. IBM's entire global supply chain was overhauled and moved to India many years ago, saving it billions of dollars. IBM has an $80bn cost base for doing business, and wants to remove $8bn of that by 2015, part of its roadmap for profits that former CEO Sam Palmisano put together and that new CEO Ginni Rometty is hewing to. IBM wants to be able to push operating earnings per share to $20 by 2015, almost double what it did in 2011.

A local tech site in the Research Triangle Park area of North Carolina where IBM still has a lot of hardware and software development is reporting that IBM will announce wage freezes across the company. WRALtechwire reports rumors of a much broader pay freeze, but it could be that the exec pay freeze at GTS is being confused with a broader pay freeze. We have a call logged into IBM's Armonk, New York HQ to see if there is an executive pay freeze affecting engineers, researchers, directors, and vice presidents, as WRALtechwire is reporting. There was no response yet at press time.

Bootnote: After this story ran, Doug Shelton, director of corporate communications at IBM, said that he there was "nothing more I can add to it as we have made no public announcement on the topic," referring to the rumors about an IBM-wide executive pay freeze. ®

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