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Did IBM underpay its sales staff? Three lawsuits say yes. A jury could decide.

IBM has settled a lawsuit filed against it by a former RTP-based salesman who said the company shortchanged him on the commission for a big software deal with BB&T.
IBM has settled a lawsuit filed against it by a former RTP-based salesman who said the company shortchanged him on the commission for a big software deal with BB&T. Associated Press

IBM is trying to fend off lawsuits from a trio of its former salesmen who say the company shortchanged them when it came time to hand out commissions on high-dollar software licensing deals.

The federal lawsuits, filed by former Triangle-based sales reps Bobby Choplin, Tom Stephenson and Paul Vinson, allege IBM's upper management capped payments to them despite in-house assurances that they and other people on the sales staff had unlimited, uncapped earning opportunities.

"All these clients want only what IBM promised them," said Mark Sigmon, one of the lawyers who's representing the men. "They're not looking for a handout, they're not looking for anything special. IBM promised them something, and all they're asking for is what they were promised."

Choplin's case is the furthest along, and could reach a jury sometime this summer. But before it can, a judge has to decide if Choplin has enough of a legal leg to stand on to justify sending the case to trial.

IBM says he doesn't.

Choplin knew or should have known that the company "reserved the discretion to review and reduce" commissions, "particularly on large deals" like the one he and Stephenson worked on with Branch Banking & Trust in 2015, IBM lawyers Patricia Holland and Justin Barnes said in asking for the case's dismissal.

By IBM's account, the BB&T licensing contract was worth about $19 million. And the company acknowledges it reduced Choplin's prospective commission by $269,569, paying him $348,487 for his role in helping close the deal instead of $645,056.

Any licensing deal worth more than $10 million goes through an upper-management review to make sure sales reps get paid for their "relative contribution" to landing it and aren't benefiting from a too-low sales quota, Holland and Barnes said.

Like others on the sales staff, Choplin signed a six-month incentive agreement that specified IBM reserves the right to conduct those particular reviews and adjustments, they added.

The Stephenson and Vinson lawsuits aren't as far along, and to a degree are on hold pending the outcome of Choplin's case, Sigmon said.

Stephenson's filing contends he lost out on about $600,000 because of caps on commissions for the deal with BB&T and another with LabCorp. Vinson claims he lost $177,720 after landing an $11 million deal with Delta Air Lines in the first half of 2015.

Lawyers for the men contend IBM reduced the payments not for its stated reasons, but because upper-level managers had set up and were enforcing an informal, hidden budget for commission payouts. Under it, the salesmen faced cuts simply because they otherwise stood to make too much money.

The evidence for that contention comes in a set of emails from Randolph Moorer, vice president for software in the Mid-Atlantic region, and a deposition from Rick Martinotti, an IBM finance manager and the company's designated lead witness.

Moorer told one of his subordinates the company needed to "maintain an affordable expense posture on each transaction," by paying out only about 10 percent of a deal's value in commissions.

IBM sales reps earn a salary and a percentage of a deal's value, one that escalates if they top their six-month quota.

Stephenson, though a "high performer" in the BB&T and LabCorp deals, incurred reductions because "there was not sufficient budget to allow a full payout," Moorer said in that message.

A second message noted that Choplin's prospective commission would have consumed "28 percent of the available commission budget."

Because of those emails, Martinotti faced a grilling from one of Choplin's lawyers, Matt Lee, when he sat down for his deposition last October.

Martinotti said the 10 percent mark was only a guideline. "There is not a budget," he said.

He stuck to that as Lee showed and read to him the relevant messages from Moorer.

"He keeps referring to it as a budget, but he is just not correct about that?" Lee asked.

"It's not a budget, and again, I can validate that" because there were deals where IBM paid more than 10 percent of their value in commissions, Martinotti said.

"Your position would be he was being sloppy with his language, right?" Lee asked.

"Yeah," Martinotti agreed, a few minutes later adding, "There is no budget."

Legally, the lawsuits claim that IBM wronged the salesmen in several ways, including by violating North Carolina's Wage and Hour Act and common-law strictures against "unjust enrichment," fraud and negligent misrepresentation.

A judge's early review of Choplin's case knocked out a separate claim of unfair and deceptive trade practices, on the grounds that North Carolina courts usually don't apply that doctrine to employer-employee disputes.

Both sides have pointed out that similar sales-commission disputes involving IBM have surfaced in other states, in both federal and state courts. IBM's dismissal motion cited nine such cases, and Lee mentioned five more as he questioned Martinotti.

The company has tended to win challenges to its commission practices, at least to the extent that the sales reps filing them claim that IBM broke a contract.

The software-license sales involved in the North Carolina cases all occurred in the first half of 2015, a year that eventually saw IBM report a net income of $13.2 billion. It spent $20.4 billion that year on back-end administrative expenses, a category that includes sales commissions.

In his deposition, Martinotti told lawyers IBM had withheld a combined $43.4 million in prospective commissions in 2013, 2014 and 2015. Almost half of that, $20.3 million, came in the first half of 2015.

He said the company's view is that the $43.4 million should not have been paid and that the review process worked by finding anomalies.

"If you turn around and look at how much we actually released, it's much larger," Martinotti said, adding that IBM paid out "over $100 million" in commissions over the three years.

The lawsuits are playing out as IBM faces complaints about its labor practices on other fronts. The company has been through multiple waves of layoffs, prompting questions in the media social and otherwise about whether it's consciously trying to push out middle-aged employees in violation of age-discrimination laws.

Ray Gronberg: 919-419-6648, @rcgronberg

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