The Watson Fund for Supplementing the IBM Retirement Plan
Tom Watson Sr.'s Gift of Retirement |
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Published August 30, 2021
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When Peter E. Greulich started his research on Tom Watson and IBM in 2011, he saw this entry in the IBM Annual Reports: "The Watson Fund for Supplementing the IBM Retirement Plan." He, of course, thought it was money set aside for Tom Watson's retirement. Isn't that what most 21st Century Chief Executives would and have done?
He later learned that this fund was set up by Tom Watson for the benefit of his employees.
This is an amazing, forgotten slice of IBM history ...
... and Tom Watson Sr.'s generosity.
He later learned that this fund was set up by Tom Watson for the benefit of his employees.
This is an amazing, forgotten slice of IBM history ...
... and Tom Watson Sr.'s generosity.
The History of the “Watson Fund for Supplementing the IBM Retirement Plan"
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When the first, long-term IBM employees cashed their retirement checks, there were two sources of funds for their monthly income: (1) the “IBM Retirement Plan” and (2) the “Watson Fund for Supplementing" the IBM Retirement Plan [see the chart to the right].
The former was an Internal Revenue Service approved retirement plan that was funded by the corporation. The latter provided additional retirement income for employees through proceeds from Thomas J. Watson Sr.’s voluntary reduction of his commissionable earnings in 1942, 1946 and 1951 [see the chart below]. Although the total amount contributed to the “Watson Fund” is still being researched by this author, it is possible to produce a very conservative estimate of the chief executive’s contribution to his employees’ retirements. Over the last fifteen years of Tom Watson's life, from 1942 to 1956, the chief executive contributed approximately $17,000,000. In 2018 dollars, Watson Sr. personally invested $170 million in what he considered his most important asset: his employees. The United States once again needs chief executives who understand that it takes a supportive, engaged team of stakeholders to optimize profits. One of the critical components of this team is an engaged, passionate and enthusiastic workforce. |
Watson's contribution highlighted in red
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Tom Watson Sr. made personal sacrifices to keeps his employees engaged.
The Beginning of the Retirement Plan: 1945
In September, The Board of Directors authorized the establishment of a retirement plan which was approved by the Internal Revenue Service (IRS). Employees reaching age 65 with 10 or more years of continuous service received a retirement income from the corporation to enhance their social security payments. Under this plan, starting with an employee's retirement at age 65, the company added to each employees’ Social Security benefit whatever was necessary to provide a monthly retirement income of from $60 to $130 per month.
This retirement plan did not consider an individual's corporate earnings but was based solely on length of continuous service. All IBM employees received the same retirement income regardless of position or earnings. Tom Watson Sr. told the approximately 20,000 IBMers listening on a telephone hookup that, "We think this system is the fairest possible. It may be presumed that those with larger earnings during their period of service will have been better able to prepare for their own retirement." [See Footnote #1: Watson Sr.'s logic behind this decision].
This retirement plan did not consider an individual's corporate earnings but was based solely on length of continuous service. All IBM employees received the same retirement income regardless of position or earnings. Tom Watson Sr. told the approximately 20,000 IBMers listening on a telephone hookup that, "We think this system is the fairest possible. It may be presumed that those with larger earnings during their period of service will have been better able to prepare for their own retirement." [See Footnote #1: Watson Sr.'s logic behind this decision].
IBM Corporation contributed from $6 to $7 million to start the plan—cover start up costs. At inception, the Watson Fund paid 100% of the retirement plan’s first year’s pension payments. Its share of these retirement payments then gradually declined over the next eleven years to 20% by Watson’s death in 1956.
Although the retirement benefits through the “IBM Retirement Plan” remained unchanged until 1951, the company did increase retirement benefits in the interim years of 1946 through 1950. These increased benefits were paid out of the “Watson Fund for Supplementing the IBM Retirement Plan.” The “Watson Fund” was established in 1945 for the purpose of supplementing the income of employees retiring under the “IBM Retirement Plan.” It was named the “Watson Fund for Supplementing the IBM Retirement Plan” by IBM’s Board of Directors.
The Watson Fund was subsidized with amounts equivalent to the compensation which Watson Sr. would have received for 1942 and all subsequent years had he not voluntarily requested that World War II profits be excluded from the earnings on which his percentage compensation was computed and . . . that the rate of his percentage compensation be reduced.
In 1941, Watson Sr. reduced his percentage compensation by 50%—from 5% to 2.5%. Over the next fifteen years, he voluntarily reduced his commissionable earning percentage two more times: an 80% reduction in 1946 from 2.5% to .5%, and a 50% reduction in 1951 from .5% to .25% [See Footnote #2].
The table below reflects these changes and their positive effect on the Watson Fund.
The Watson Fund was subsidized with amounts equivalent to the compensation which Watson Sr. would have received for 1942 and all subsequent years had he not voluntarily requested that World War II profits be excluded from the earnings on which his percentage compensation was computed and . . . that the rate of his percentage compensation be reduced.
In 1941, Watson Sr. reduced his percentage compensation by 50%—from 5% to 2.5%. Over the next fifteen years, he voluntarily reduced his commissionable earning percentage two more times: an 80% reduction in 1946 from 2.5% to .5%, and a 50% reduction in 1951 from .5% to .25% [See Footnote #2].
The table below reflects these changes and their positive effect on the Watson Fund.
An Improvement in the Retirement Plan: 1951
In December, the Board of Directors amended the “IBM Retirement Plan” and the “Watson Fund for Supplementing the IBM Retirement Plan.” Under the revised plans, the company increased the amount each employee was entitled to receive to provide a monthly income from a low of $75 per month to a high of $240 per month based solely on length of continuous service, regardless of an employee’s earnings or position with the company.
In December 1950, the company created an irrevocable trust for the Watson Fund for Supplementing the IBM Retirement Plan. The amended plans were submitted to the Bureau of Internal Revenue on December 29, 1950 and approved by the Bureau on February 15, 1951.
Thomas J. Watson Sr. died in June 1956.
In December 1950, the company created an irrevocable trust for the Watson Fund for Supplementing the IBM Retirement Plan. The amended plans were submitted to the Bureau of Internal Revenue on December 29, 1950 and approved by the Bureau on February 15, 1951.
Thomas J. Watson Sr. died in June 1956.
[Footnote #1] When Watson Sr. announced the retirement plan, he said that this was the fairest way to distribute the available funds since higher-paid individuals were better able to find alternative investment sources to supplement their IBM and Social Security retirements. Because of this decision, there were more funds to be divided equitably between all employees. This was changed in 1956 by Watson Jr. at the time of his father's death.
[Footnote #2] Form 10-K, Annual Report for fiscal Year ending December 31, 1951. There are actually more reductions that this researcher has not had time to, as yet, document. This information is subject to change as new research reveals these other changes in Tom Watson's compensation.
[Footnote #2] Form 10-K, Annual Report for fiscal Year ending December 31, 1951. There are actually more reductions that this researcher has not had time to, as yet, document. This information is subject to change as new research reveals these other changes in Tom Watson's compensation.