Friday, July 30, 2010

The Case of the Disappearing Pension

In 1975 Jack started working for a large US Corporation.

“You’ll have great benefits,” his parents said.

“As long as you do a good job, you’ll never have to worry,” his new boss said.

Making the decision to accept the job was easy. Jack was really pleased to be working for a company that was the leader in its industry, and was known for taking care of its employees. In fact, on his first day, he learned that, “Respect for the Individual,” was one of the company’s core values.

Jack set out to be the best employee he could be, always striving to do excellent work, and believing that if he did his best, the company would take care of him. He planned to work for thirty or thirty-five years, and then take an early retirement. “Why not?” he thought, the pension plan was designed to allow him a nice bump in those later years of his career.

As the years went on, Jack felt some pressure to put in more hours, and saw some years where he got an evaluation that was less than he expected, and sometimes he even had to go twenty-four months without a raise. But he loved his job, and he believed that his boss would take care of him.

In the early eighties when his employer offered a tax-deferred savings plan he took advantage of it, but only up to the employer match. He didn’t feel the need to put in the full amount allowed by law – after all, his monthly pension checks should replace about 75% of salary when he retires.

Then in the mid-nineties Jack’s company announced a change to the pension plan. Employees who were within five years of eligibility for retirement remained on the old plan, but everyone else saw a significant change to the pension plan. That nice bump Jack was expecting in his later years disappeared. He would only get about 65% of his salary in retirement.

Now in his early forties, Jack increased his 401K contributions to make up for the loss. Despite seeing many friends and colleagues let go in resource actions, Jack still trusted that the company was doing the right thing, and he remained tremendously loyal to the company.

In the late nineties, the company did something Jack thought he’d never see – they announced that anyone who wasn’t already forty years old would be shifted from the existing defined benefit pension plan to a cash balance plan. Jack’s colleague Jill missed the age cut-off by just one month. She would be lucky to get half of what she expected to get when she first joined the company. It was the first time Jack was happy about his age – at least he was still taken care of.

Jack was now maxing out his 401K contributions, and even took advantage of the additional amount he could set aside when he turned fifty, but retiring at age fifty-five now seemed out of the question.

The company announced more changes in the mid-2000’s, this time primarily affecting older workers like Jack. Employees were told that their pensions would be frozen. This meant that Jack’s pension would no longer accrue additional value. The last few years he worked up to that point would be the final years used to decide what his pension payout would be, regardless of how many more years he worked or whether he got another salary increase. Jack’s expected pension value at retirement was now less than half of what he thought he’d get when he first started working for the company thirty years earlier. Even if he worked to age sixty-five, it was impossible to make up what he had lost.

The company tried to lessen the blow by agreeing to put in additional contributions to Jack’s 401K plan for the next few years, but before he could take advantage of that benefit, Jack found himself caught up in a resource action, and forced to take early retirement with less-than-adequate pension and retirement savings.

A real life story…

While dates and specific plan changes may vary from what my fictional character Jack experienced, this story is far from fiction for many private sector employees who have seen their retirement wither away.

The Boston College Center for Retirement Research estimates that the number of employees covered by a defined benefit retirement plan (the ones we think of as traditional pension plans) declined from 62% in 1983 to 17% in 2007.

Especially badly hit are those who started working in the seventies and early eighties (who were in their mid-thirties to late forties when changes to traditional pensions started to occur). Many of these employees started working before tax-deferred savings plans were introduced, and joined Corporate America when the fairy-tale that their employers would take care of them was still real.

In a brief entitled “Why Are Healthy Employers Freezing Their Pensions?” the BC Center notes that mid-career employees with high years of service have far more to lose from pension freezes than their younger counterparts. Even with enhanced 401K rates, as in my example, the study notes that employees fifty and over lose from a freeze.

Those who were able to retire before the shift from defined benefit plans to cash balance and 401K plans took place are the luckiest of the bunch, and younger employees are able to take advantage of many years of accrual in a cash balance plan. But the BC study notes that these younger workers are at risk if they fail to take advantage of their benefits and invest wisely. The message to those joining Corporate America today is clear – save, save, save.

What’s your take on how corporations are changing their pension plans? What has it meant for you?

Friday, July 23, 2010

Are You Where You Want To Be?

Recently Seth Godin wrote a blog post entitled What’s the Point? which challenged readers to think about whether the work they are doing is actually worth spending time on.

In addition to questioning the value of a specific project, many of us with long corporate careers wonder how we got to where we are. Moving from job to job within a large corporation often lands us far from where we thought we might be going when we took that job out of college. All in the name of …


Too often in corporate careers success is defined by everyone around us – and quickly becomes very little about us, and all about the company.

Our careers are shaped by managers who give us career advice that often follows a cookie-cutter mold, by HR professionals who create the standard and accepted career paths, by company-assigned mentors who are more focused on what has worked for them than what will work for you, and by executives who too-often view the employees as pawns on a big chess board to help them achieve their goals.

Ask yourself these questions:

  • Did you take that new job or accept that promotion because you felt like it was expected, not because it was a good fit for you?
  • Did you move to a new organization for “career growth” even though you loved your job and still had a lot more to learn where you were?
  • Did you follow the path that your boss or mentor told you was the “sure way to get ahead” (possibly to find doors closing as soon as you headed down that path)?
  • Did you go after that promotion, or that certification, or that special assignment just because you felt you needed to keep up with the raised bar?
  • Do you define success by comparing yourself to how everyone around you is doing?
  • Do you listen more to your boss, your spouse, or your mother more than yourself?

If you answered “yes” to any of these questions, or if the person staring back at you as you look in the mirror before you leave for work each morning isn’t smiling, it may be time to check in with yourself.

What is your inner compass telling you about whether you are headed in the right direction? How do you define success?

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Friday, July 16, 2010

Creativity is the New Black

IBM recently released the results of its 2010 IBM Global CEO Study titled Capitalizing on Complexity. The study is based on conversations with over 1500 CEOs across all sectors worldwide.

Not surprisingly, the study cites complexity as the biggest challenge that CEOs face today. The study goes on to note that we live in a world that is more uncertain, volatile and complex than ever before. I think most of us would agree that the rules are always changing. Technology is coming at us faster than we can absorb it. There is more data to be consumed than ever before.

We live in an era of constant change.

Yet, the study identified some organizations that navigate change masterfully. What’s different about the CEO’s of these companies?


Creative leaders are thought to innovate more. They drive change in business models and revenue models. In plain English, they have new ideas. They create new products. They come up with new ways to get things done. And they don’t sit around on their butts very often. They are constantly taking action, or – as the study said – “continuously re-conceiving their strategy”. Creativity is noted as the single most important trait for navigating through the complexity.

But few of us get to be CEO. Heck, most of us never even get to talk to the CEO, so what does this mean for the typical employee?

This is where the study gets interesting… it suggests that more communication is needed. Not just communication from the top down, but also from the bottom up. It also suggests that creativity needs to exist at all levels (or in the words of the paper, “the entire organization must be equipped to be a catalyst for creativity”.) The study recommends that creative employees be recognized and rewarded.

Yes, creativity is in vogue.

I think we can expect to see HR teams hustling to update leadership assessment tools updated with a box to check off for “creativity”. But is it too much to hope for that the next time you propose to your boss that your team should do things differently that you won’t be accused of bucking the system? Or that the next time you have a brilliant idea for a new product that you might actually get the funding for it? That you will instead be rewarded for the creative genius you are?

What do you think?

Friday, July 9, 2010

Making the Wrong Call

We expect our bosses to understand what we do and how well we do it. We expect to be rewarded and compensated fairly. We expect that the decisions made will be the right ones.

We have been trained to expect perfection from our leaders.

And yet, everyone makes mistakes. Yes, even bosses and authority figures sometimes make the wrong call.

Well-meaning bosses have been known to sign their teams up for commitments that they can’t deliver on. They may have appraised one employee unfairly, or promoted the wrong employee. These mistakes often mean very little in the grand scheme of things, but sometimes they can create chaos within a team, or even result in employees losing their jobs.

Recently the sporting world brought us two examples of authority figures making the wrong call. First, there was the case of the “imperfect” game, when baseball umpire Jim Joyce called a Cleveland player safe at first base, upsetting what would have been a perfect game (i.e. no one reaches base) for Detroit pitcher Armando Galarraga. Everyone agreed that the replays clearly showed that it should been called an out, but NBC Sports and other news outlets reported that the decision would not be overturned. Sure, the Detroit Tigers still won the game, but the record books will never credit Galarraga with what he accomplished.

Even more recently, World Cup soccer brought us another example of the wrong call when referee Koman Coulibaly disallowed what should have been the game-winning goal by the United States in their match against Slovenia. We all saw it – Maurice Edu’s kick in the 86th minute went straight into the net. Experts agree that Edu was not offside, and yet his goal was simply wiped away with the wrong call. The team was never given an explanation for the call.

What makes the first of these example exceptional and noteworthy was umpire Jim Joyce’s apology to Galarraga. He admitted that he made a mistake.

All bosses make mistakes – even good bosses. One difference between an okay boss and a great boss is that the great boss will admit that he made a mistake and strive to do better the next time.

Have you been affected by a boss or leader who made the wrong call? What impact did it have on you?

Wednesday, July 7, 2010

A True Life Soap Opera – Galleon Revisited

Public figures – celebrities, politicians, and others who put themselves in the public eye, are fair game for the media to talk about. But I doubt that Bob Moffat ever expected his life would be an open book when he started working for IBM 30 years ago as a programmer.

Generally we know very little about the private lives of corporate executives, including those at the top.

Now, thanks to a career-fatal indiscretion, a guilty plea in the Galleon Insider Trading Scandal, and this Fortune article, I know far more about Robert Moffat, Jr. than I ever wanted to know.

Moffat is due to be sentenced at the end of July.

Friday, July 2, 2010

In Defense of Goldman-Sachs

Wall Street is the enemy. And if banks are bad, then surely Goldman-Sachs must be the Big Bad Wolf, right?

In recent weeks Goldman-Sachs executives have been paraded in front of hearing committees and held up as an enemy to the people. I can’t help myself. I have an opinion about this.

What is Goldman guilty of really?

The court will decide whether they actually “misstated and omitted key facts about a financial product tied to subprime mortgages”, as the SEC complaint alleges. Specifically, the SEC is saying that Goldman created a CDO (Collateralized Debt Obligation) for the hedge fund Paulson & Co. based on mortgage-back securities (specifically the ones that seemed most likely to fail), and that Goldman didn’t tell potential buyers that Paulson was shorting (or betting against) them. Does that make them responsible for the entire financial crisis?

What Goldman is most guilty of is making money when seemingly everyone else was losing money.

Let’s get real. Goldman-Sachs is an investment banking firm. They invest in securities going up, and they invest in securities going down. They are supposed to create investment vehicles. They regularly take out insurance policies on their investments. They are supposed to balance their risk – that’s their job. Their ultimate responsibility is to their shareholders.

They are supposed to make money.

If we are so desperate to find a scapegoat for the financial crisis, perhaps we should start with this list:

  • The consumers who purchased houses they couldn’t afford
  • The banks that agreed to give mortgages to these customers
  • The investment rating companies who over-rated the mortgage-backed securities and the CDOs
  • The buyers of the securities who failed to fully understand what they were buying
  • The lawmakers who failed to regulate financial products

It’s just starting to feel a little bit too much like a witch hunt. What do you think?