IBM: Behind the Monolith

Working at IBM: Intense Loyalty in a Rigid Culture

By Dennis Kneale, Staff Reporter
The Wall Street Journal

Apr 7, 1986

Last November, Dan Wilkie took a trip to the woodshed.

Mr. Wilkie, then the general manager of IBM's big site in Boca Raton, Fla., was summoned to IBM headquarters in Armonk, N.Y., to face the "MC," the management committee. An employee survey had tracked the first morale drop in Boca Raton in five years. IBM's seven top executives wanted to know why -- and what was being done about it.

Organizational changes and the industry slump had strained the personal-computer division, whose first and only president had just been reassigned; its headquarters was being moved to New Jersey. Mr. Wilkie outlined the problems and his plan to resolve them.

Such trips "demonstrate how important (morale) is to the very highest levels in IBM," says Mr. Wilkie, now the president of Tandon Corp. Employees seem remarkably happy in the secure, insular world of IBM -- and IBM goes to unusual lengths to ensure things stay that way. When annual surveys pinpoint problems in the smallest pockets of the $50 billion giant, the company's top guard isn't shy about intervening at the local level.

Although IBM is stereotyped as impersonal and monolithic, workers speak of individuality and the IBM family. They have no union and no mandatory raises. But many say they don't need either, cognizant that IBM has never had a real layoff and happy with its rigid and protective employee policies.

"I don't know what a cult is," says a 20-year veteran in middle management, "and what it is those bleary-eyed kids selling poppies really do. But I'm probably that deeply committed to the IBM company."

His loyalty was sealed years ago. After a rival passed him over for a promotion, he used IBM's "Open Door" policy that lets workers bypass bosses to have complaints investigated. The rival was reprimanded, he says, and he later received his promotion. "That did it for me. I could never leave the company."

Most IBMers spend their entire careers at IBM, and more than 70% of its professionals come straight from college. IBM's U.S. turnover rate was only 2.8% last year. An IBM morale index used since 1958 is at its highest level ever, up 9% in the 1970s and up an additional 6% by 1985. In interviews with IBMers in four cities (some of which were arranged by IBM but conducted without company officials present), workers describe a protective, patriarchal employer that respects their views and rewards their achievements.

But working there has a price. Some IBMers doubt their impact in a company that doubled in size in six years and may double again by 1990. A few leave because of it. "The hardest thing," one employee tells another at headquarters, "is to equate what you do every day with the direction of the corporation. There are so many wheels and cogs, you sometimes wonder if someone is driving the engine."

Even the most ambitious know they can rise only so far among 6,000 "high-potential" people listed in computerized replacement tables for filling the top 1,500 jobs; thousands more are on local "hi-po" lists kept at each IBM site. "There are rockets and there are planes. I'm a plane," says David C. Wong, an IBM salesman. He says he isn't willing to leave Chicago to make the frequent moves required by IBM's rapid path of promotions between line and staff jobs.

Moreover, all IBMers face what can be mind-numbing bureaucracy. Everything they do is quantified and measured. Their performances are rated on a 1-5 scale each year; only 8% get a top-notch 1. Salespeople must sell so many computers; a production manager must turn out so many terminals. "We're all measured, it just comes in a little different form," says Dick Dougherty, the general manager of IBM's manufacturing and development site at Research Triangle Park, N.C.

Some critics say IBM puts its rigid rules ahead of people. The company speaks of "respect for the individual" but tests the urine of applicants to screen drug users; it says this respects current IBMers. IBM once reassigned a sales manager for dating someone at a rival company. She quit, sued and won a $300,000 award that was upheld on appeal. IBM says it likes maverick "wild ducks," a favorite phrase of former Chairman Thomas Watson Jr. But ex-IBMer Michael Shabazian says: "Wild ducks get looked at, crazy ducks get fired."

A few say IBM's benevolent image is pure ruse. "It's inexcusable for IBM to represent itself as an I-care-about-you company when in fact they don't give a damn," argues Jane Laughlin, who says she was pushed out of her IBM sales job in Peoria, Ill., last year after she failed to meet sales quotas. She wrote an "Open Door" letter to IBM President John Akers, complaining that she was "harassed, criticized and badgered in the guise of 'help.'" His response, dated last April 12, said IBM only tried to help; he thanked her for 22 years of service and wished her luck.

But such negative views are rare. IBM motivates its 405,000 employees by preaching an unwavering religion, rewarding thousands and singling out "the individual," no matter how tiny his contribution. Big units are broken into small departments of a dozen people; one manager for every nine or 10 workers speaks with them constantly.

Those efforts seek to manage big growth that can make IBMers feel insignificant. The company stresses that one person can make the difference. That idea is an oft-stated corollary to the IBM tenet of respect for the individual, one of the basic beliefs set out decades ago. The others: excellence and service. New managers receive 80 hours of training steeped in the beliefs.

"They are the most important thing," says Mr. Akers. "We can't come off that position one iota."

IBMers cite personal crises as examples of the company's respect. A few years ago, Douglas Burke took a promotion that meant moving from Atlanta to Macon, Ga. But weeks later his baby daughter Jennifer almost died of kidney failure. He feared falling off the fast track, but knew his daughter's illness left him unable to handle the new job. So he told IBM he couldn't keep the job, and in 24 hours was offered three new posts. He took back his old Atlanta job -- without penalties -- and moved up after Jennifer's health improved. Today, he is an Atlanta branch manager.

Such moves win long-lasting loyalty. But more frequently, IBM uses rewards and recognition-merit raises, bonuses, IBM-logoed luggage or simply dinner for two or bulletin-board praise. Nowhere is that more effective and more effusive than in the IBM sales force of 10,000 marketing representatives.

"Reps" are first among equals in IBM. Every man who ever ran the company rose through their ranks, beginning with Thomas Watson Sr. They are the main reason for the company's tight hold on the computer market. IBM treats them accordingly, motivating this army of politely aggressive blue suits with tons of cash, intense peer pressure and enough rah-rah rallies to rival a college fraternity. The rewards begin in IBM's 250 U.S. sales branches, where size is limited to 100 to 200 people to instill a small-team spirit.

Each January, branches stage glitzy "kickoff" meetings replete with slogans, skits and mascots. Monthly meetings often close with a dramatic tale about an unnamed rep; finally, the person is named and comes forward to accept an award amid crackling applause. "It takes your breath away, it really does," says Diana Ingram, a Chicago rep who has received four awards in less than four years at IBM.

IBM reps can earn more than $100,000 a year, but half their pay relies on meeting strict sales quotas. The competition is fierce; many branches post charts that rank each rep. Says Mr. Wong, the Chicago rep: "There were times when I had sleepless nights. There is a lot of pressure when your name and your life -- not your life but you feel like it's your life -- your salary, are on the line." The pressure is too much for some; he recalls a Chicago rep who was fired after forging a customer's signature on an order form.

Mr. Wong tripled his salary in his first full year as a sales rep in 1980, making 203% of his quota. He won an award: a briefcase lined with 5,000 neatly stacked $1 bills, plus a $5,000 check to split as he saw fit between two support people. Now he works on a dozen-member team with only one account, Sears, Roebuck & Co., selling only one product line.

But no matter how many computers Mr. Wong sells, he doesn't make his quota unless his entire team does. If the team falls short, its manager doesn't meet his quota, set by the branch manager. The branch manager must meet a branch quota set by a region -- which is pushing to meet a larger quota of its own, set by a division.

Mr. Wong says, to him, IBM is only as big as his own Branch No. 088, and that, to customers, he is IBM. Still, bureaucracy gets in his way. Recently, to learn about some product changes that hadn't yet been announced, Mr. Wong had to "escalate" his request through nine layers spread over a regional office, two divisions and two parent groups. Six weeks passed before he received approval to hear a half hour's worth of facts; the changes turned out to be insignificant. "On an account like Sears, that's almost a day-to-day thing," he says.

IBM designs quotas so that about 80% of the reps succeed. When they do, the company acts as if they have achieved the impossible. They attend the pinnacle event of the year -- the Hundred Percent Club. This three-day "recognition event" rewards reps with banquets, entertainment and paeans from IBM executives. The best are named club officers. Those in the top 10% go to the Golden Circle weekend, an annual event that includes spouses.

Recognition events are staged for other IBMers: Administrative staffers have the "Leadership Forum"; systems engineers have IBM Symposiums; customer engineers (installers and repairmen) have IBM Means Service awards; product developers have technical conferences.

But those events aren't as lavish, and fewer people are invited. "That's mainly because (others) don't have their skin in the game the way the marketing rep does," says Doris Isaacs, an IBM director of systems engineering. She says only half as many systems engineers are invited to Symposiums.

At IBM's 10,000-employee site at Research Triangle Park, Mr. Dougherty for three consecutive years staged his version of the Hundred Percent Club: the Forum, for the top 5% of the 6,000 people he oversees. But he didn't hold a Forum last year because of the industry slump -- even though it would have cost no more than each of the four "Clubs" staged annually for the sales force. "If there is an elite group in IBM, it is marketing," he says.

But Mr. Dougherty uses as many other forms of reward as he can conjure up. Several dozen bulletin boards are littered with snapshots of workers getting a handshake and a bonus check for excellence. The boards were one result of Mr. Dougherty's own visit to the IBM management committee a few years ago when a survey showed morale declining in his domain.

One bulletin praises a group for 97% participation in the site's cost-effectiveness program; 278 workers submitted ideas that saved $1,784,552. The 10 workers on Tony Lovette's shift formed a "1500% Club" after each one submitted 15 successful ideas. The awards include a check, although "it's not the money people are after," he insists. The similar, companywide IBM Suggestion Program paid workers almost $60 million from 1975-84 for ideas that saved $300 million.

Mr. Dougherty also devotes time to IBM's "Speak Up" program, in which employees submit questions or complaints on notes dropped into slotted boxes. A full-time Speak Up coordinator retypes them without names and forwards them to him. At his site of 10,000 people, he writes 600 responses a year, beginning each one, "Dear IBMer. . . ."

Those efforts pay off. "I have a voice here," says John Parrish, who runs robots on a production line on the site. He was amazed an entire line is halted just so workers can review new production figures and hear announcements. Last year, he submitted 10 ideas to the IBM Suggestion Program and received bonus checks for four of them. His most recent -- to save time by having a robot, rather than workers, remove faulty circuit units from the line -- brought more than a week's pay.

"I've never worked anywhere else where I could speak out, be heard and they would take action," says Mr. Parrish, who had worked in union shops before and considered it "wasted time. Everything was said for you." At age 43, he hopes to spend the rest of his career with IBM. "Here they respect you," he says. "They treat you as a person."

How IBM Employee Benefits Stack Up

Employees say one of the biggest benefits of working for IBM is the benefits. And compensation experts rank IBM's offerings among the best in U.S. industry. For example:

-- IBM spends more than $6 billion annually on benefits, or about $15,000 for each employee -- almost twice the $7,842 average cited in a 1984 U.S. Chamber of Commerce survey of 1,154 companies.

-- IBMers get 12 paid holidays each year compared with 10 at most companies. Paid vacations run from two to five weeks (the maximum for 20-year employees), and unused time builds up over the years -- so much so that IBM has asked workers to take their vacations this year to cut accrued expenses and to idle production. Michael Carter of Hay/Huggins Co., a benefits consultant, says only 15% of 900 companies in a recent survey let unused vacation time build up indefinitely; almost 40% force workers to "use it or lose it."

-- A sickness plan pays the full salaries of IBMers sidelined by illness for up to 52 weeks in a two-year period -- twice as long as the norm, says Prof. Jerry Rosenbloom of the University of Pennsylvania's Wharton School. Moreover, most companies offer 100% of salary for only a short time and then lower the rate. In the Hay/Huggins survey, 40% of surveyed companies give an eight-year employee his full pay for only the first six to 12 weeks of his illness.

-- A special assistance program aids IBMers with children who are handicapped emotionally, physically or mentally. It pays more than 75% of most costs and up to $50,000 over the child's lifetime. At other companies, such expenses are usually part of insurance and medical plans, and some costs aren't covered.

-- IBM offers adoption assistance, paying 80% of the costs of adopting children -- up to $1,750 per child. Only 4% of the companies in the Hay/Huggins survey have similar programs.

-- An unusual retirement education program pays up to $5,000 to IBMers and their spouses for training in fields like real estate to prepare for life after IBM. Many employers hold benefits seminars and give financial advice, but few reimburse retirees for outside training. "That's innovative," says Prof. Rosenbloom.

-- A mortgage-financing program helps employees buy new homes, another seldom-offered benefit.

-- A college scholarship competition gives employees' children four-year awards of $8,000 to $32,000; since 1957 IBM has handed out $17 million to 3,175 students. By comparison, only 34% of industrial companies in the Hay/Huggins survey give scholarships, and most of those award fewer than 10 a year.

-- The IBM retirement plan has various options that grow more lucrative as years of service increase. For example, a 35-year veteran whose salary averaged $40,000 a year from 1974 to retirement last year would get an annual pension, including Social Security, of $30,500 or 76.3% of salary. Hay/Huggins says the average rate is a bit less than 70% of annual compensation. (In 1984, IBM eliminated mandatory retirement at age 70, although it still requires certain top executives to give up their posts at age 60.)

Still, IBM isn't perfect. Its disability plan pays 75% of salary for the first 18 months but falls to rates as low as 40% thereafter. "It's a little weak. One of the biggest risks employees face is the long-term kind of coverage," says Prof. Rosenbloom of Wharton. IBM's medical, hospitalization and life-insurance plans are no better than the norm. Its survivor benefits are more generous than most (three times salary vs. two times salary at many companies). But single, childless people aren't entitled to any survivor benefits at IBM.

Copyright Dow Jones & Company Inc