IBM Responds To Overtime Lawsuits With 15% Salary Cuts

IBM in recent months has been hit with lawsuits filed on behalf of thousands of U.S. employees who claim the company illegally classified them as exempt from federal and state overtime statutes in order to avoid paying them extra whenever they worked more than 40 hours per week.

The good news for those workers is that IBM now plans to grant them so-called "non-exempt" status so they can collect overtime pay. The bad news: IBM will cut their base salaries by 15% to make up the difference, InformationWeek has learned.

The plan has been greeted with howls of protest from affected workers.

The payroll restructuring goes into effect Feb. 16 and applies to about 8,000 IBM employees classified as technical services and IT specialists, according to internal IBM documents reviewed by InformationWeek and sources at the computer maker.

The plan calls for a "15% base salary adjustment down across all units with eligibility for overtime," the documents state. The move is a direct response to the employee lawsuits -- at least one of which has apparently been settled.

"To avoid protracted litigation in an area of law widely seen as ambiguous, IBM chose to settle the case -- and to conduct a detailed review of the jobs in question," the documents state.

The documents were used in an IBM management meeting held on Dec. 23.

IBM also plans to lobby state and federal officials for changes to employment legislation that would allow high-tech companies to escape current overtime thresholds, according to the documents. "IBM believes aspects of the wage and hour laws have not kept pace with the realities of the modern workforce. The company will continue to press the government to update and clarify the law in this area," the documents state.

Under the salary adjustment, an IT specialist at IBM earning $80,000 per year would see his or her pay cut by $12,000 per year, the documents show.

But IBM states it won't save any money because workers will gain back lost salary through overtime pay.

The company also claims that maintaining the affected workers' current salaries while granting them overtime would result in "costs that exceed competitive levels."

Some IBM workers fear they'll end up working more -- for less money. "In one swoop, everything I've worked for the last seven years is gone. All the extra time and hours ... have done nothing but give me a 15% pay cut," one employee wrote on a job board maintained by an IBM workers' group called Alliance At IBM.

Indeed, IBM's internal documents show that one third of the employees who will see their pay cut aren't currently working overtime. "Managers will be asked to distribute overtime equitably across their teams to the extent possible and practical," the documents state.

Some IBM workers said they're particularly upset that the cuts come just days after IBM announced quarterly and year-end financial results that exceeded financial analysts' expectations. Referring to IBM CEO Sam Palmisano, one employee wrote that "Sam promised Wall Street a good 2008 -- that will come at the expense of more U.S. workers."

In a lawsuit filed against IBM last July in California, three IBM salesmen claimed they regularly worked more than 40 hours per week but were never paid overtime and didn't receive mandatory meal and rest breaks.

The suit was one of several, similar actions filed against the company in recent months. In one case, IBM said it would be liable for back pay of more than $5 million if the plaintiffs prevailed.

IBM officials didn't immediately return calls seeking comment for this story.