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3/12/2010
10:08 AM
Bob Evans
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Global CIO: Why IBM CEO Palmisano Earned His $24.3 Million

Layoffs, though unfortunate, helped IBM outperform most of the global marketplace as it prepares for continued growth.

IBM recently laid off an estimated 2,500 workers, and our hearts go out to them and their families. IBM also recently disclosed that CEO Sam Palmisano earned $24.3 million for 2009, and some groups are screeching about the injustice of it all: how, their argument goes, can a company lavish such riches on one man while 2,500 of his employees are losing their jobs?

And while that argument is certainly steeped in class warfare and misplaced emotion, it is certainly not based on economics or logic.

Because the real connection between Sam Palmisano's 2009 compensation package of $24.3 million and 2,500 IBM workers losing their jobs is that without Palmisano's ongoing leadership and willingness to make difficult—often excruciatingly difficult—decisions over the past decade, a whole lot more IBM employees would be out of work right now.

Companies are not in business to employ as many workers as they possibly can. That's a nice ideal but in practice it's terribly flawed, and IBM's own history shows a stark reminder of this.

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For decades, the company had a no-layoff policy: IBM workers had jobs for life, with employment security that even a tenured professor might envy. That policy worked just fine in IBM's early days but became almost fatal starting in the 1980s when competition surged, new technologies like the PC arrived, global dynamics came into play, and IBM began to suffocate under the weight of its bloated, unimaginative, and internally faced culture.

When Lou Gerstner too over as CEO in the early 90s, he started the job of overhauling a culture that had become far too concerned with sustaining the status quo and employee comfort, and begain building a new culture based on external performance, customer responsiveness, and market leadership. One of the world's largest and most insular organizations was about to be turned inside-out.

The great work—the company-saving work—that Gerstner began has been continued and in many ways accelerated by Palmisano, who's aggressively accelerated Gerstner's attempts to unify the formerly splintered company and ensure it's not wasting any energy on internal politics and is instead focusing all of its efforts on customers.

Here's an example of how that's playing out, as described in a recent Wall Street Journal article: "The company ended a 'team-based bonus' for the top executives that ran from 2002 to 2009. It ended, the company said in an annual report last year, because "integration is now part of the management culture."

Another significant part of the Palmisano-driven culture is a willingness to sacrifice some revenue by exiting high-volume, low-margin businesses, such as PCs. As a result, IBM's 2009 financial results outperformed not only the tech industry but also most of the corporate world, and more of the same is expected for 2010:

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