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IBM Cuts Base Salaries by Switching 7,600 Workers to Nonexempt Status

January 24, 2008
Related Topics: Compensation Design and Communication, Wages and Hours, Workforce Planning, Latest News
IBM confirmed Wednesday, January 23, that it will reclassify 6 percent of its U.S. workforce into pay scales that will lower base salary but will allow workers to earn overtime pay.

The transition, slated to occur on February 6, will move 7,600 of Armonk, New York-based IBM’s IT specialists from the classification of “exempt” to “nonexempt” professionals in order to make them eligible for overtime under the Fair Labor Standards Act. The company is making the move in response to the overtime suit Rosenberg v. IBM that it settled for $65 million in 2006.

“Although we think that the law and regulations are ambiguous,” IBM spokesman Fred McNeese says, “we felt that we needed to reclassify these people to remain in compliance.”

McNeese says that the base salaries of these employees will be lowered when they are reclassified or their total compensation will end up in excess of market rates. He says that the transition is “cost-neutral” for the company, neither increasing nor decreasing costs.

Compensation on average is expected to remain roughly the same for these employees, he says.

Filed by Tommy Fernandez of Financial Week, a sister publication of Workforce Management. To comment, e-mail

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