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Armonk, New York March Dear Fellow Stockholders:
On behalf of the IBM Board of Directors, you are cordially invited to attend the Annual Meeting of Stockholders on Tuesday, April EMERGING STRONGER
Since I became your CEO last April, we have I am confident that these decisive moves for future growth will help ensure that your Company exits this turbulent period stronger. ENGAGING WITH OUR STOCKHOLDERS In Redesigned executive compensation Continued focus on environmental, social and
Continued focus on Board diversity Enhanced disclosure of ACTING WITH ENVIRONMENTAL AND SOCIAL RESPONSIBILITY We know that you, our stockholders, and This year, we took bold, decisive steps to
We have committed to the disclosure of additional diversity and inclusion data, including the disclosure of EEO-1 data in 2022 after the separation of the managed infrastructure services business is complete. We supported passage of anti-hate crime legislation.
We mobilized IBM and IBMers to help in the global battle against COVID-19, with numerous initiatives, including spearheading the COVID-19 High Performance Computing Consortium with the White House Office of Science and Technology Policy and U.S. Department of Energy to provide access to the world’s most powerful high-performance computing resources in support of COVID-19 research. We set a new goal to reach net zero greenhouse gas emissions by 2030 and updated our goals regarding renewable electricity and greenhouse gas emissions to reflect our strong progress. We provided stakeholders with comparable ESG data by reporting under the Sustainability Accounting Standards Board (SASB) framework. Our long-standing values have served IBM for decades. As the world continues to battle a global public health crisis, we are committed to building upon our strong legacy of responsible stewardship. I am proud of the work IBMers have done to reshape our future as a hybrid cloud and AI platform company and help our clients build the digital capabilities they need to thrive. Your Company is well positioned to emerge from this period stronger. On behalf of the Board of Directors, thank you for your continued investment and support of IBM. Very truly yours,
Chairman of the Board
Armonk, New York March 8, 2021 A Message from our Lead Director:
and Proxy Statement
3. Advisory vote on executive compensation. 4.
These items are more fully described in the following pages, which are a part of this Notice.
Stockholders of record can vote their shares by using the Internet or the telephone. Instructions for using these convenient services are set forth on the proxy card or the notice of Internet availability of proxy materials. If you received your materials by mail, you also may vote your shares by marking your votes on the enclosed proxy card, signing and dating it, and mailing it in the enclosed envelope. If you will need special assistance at the meeting because of a disability, please contact the Office of the Secretary, International Business Machines Corporation, 1 New Orchard Road, Armonk, NY 10504.
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be held on April Websites throughout this Proxy Statement are provided for reference only. Websites referred to herein are not incorporated by reference into this Proxy Statement.
Voting Stockholders will be asked to vote on the following matters at the Annual Meeting:
Governance Highlights (PAGE 7)
IBM Board of Directors(PAGE 10) Director IBM’s Board is composed of a diverse, experienced group of global thought, business, and
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| 2021 Notice of Annual Meeting & Proxy Statement | Proxy Summary | 3 |
DiversityOptimal Mix of skillsSkills and experienceExperience of director nomineesDirector Nominees
IBM’s directors collectivelycollaboratively contribute significant experience in the areas most relevant to overseeing the Company’s business and strategy.
The skills and experience of our board include, but is not limited to:
 | Public Company Board ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ 9 of 12 | |
 | Organizational Leadership and Management ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ 12 of 12 | |
 | Global Business Operations ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇10 of 12 | |
| Finance/Public Company CFO ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ 6 of 12 | |
 | Technology, Cybersecurity or Digital ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ 12 of 12 | |
| Government/Public Policy ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ ▇ 12 of 12 |
Board Refreshment in |  | >50% | Director Nominee Independence | | 92% | |||||||
2020 Board and | | 28 | 2020 Board and Committee Meeting Attendance | | >99% |
Strong Board Diversity
Tenure of director nominees
·The Board represents a deliberate mix of membersincludes directors who have a deep understanding of our business and members who bring new skills and fresh perspectives.
· Mix We have a deliberate mix of newage and tenured directors reflectingtenure on the Board, which reflects our commitment to ongoing and proactive Board refreshment.
| Gender and Ethnic Diversity | Tenure of Director Nominees | |
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Governance highlights (PAGE 18)
Effective Board leadership and independent oversight
· Lead independent Presiding Director with robust and well-defined responsibilities
| 4 | 2021 Notice of Annual Meeting & Proxy Statement | Proxy Summary |
· Executive session led by independent Presiding Director at each Board meeting
· Focus on proactive Board refreshment
Overview of IBM’s corporate governance
· Annual election of all directors
· Majority voting for directors in uncontested elections
· Stockholder special meeting right
· No stockholder rights plan
· Robust stockholder engagement process
· Proxy access NEW
Integrated Approach to Stockholder engagement highlightsEngagement
Stockholder engagement is a core IBM value that is a significant part of our ongoing review of our corporate governance and executive compensation programs. To that end, our investor outreach program is a year-round process that includes discussion of IBM’s business and long-term strategy, executive compensation programs and practices, corporate governance, and corporate responsibility and sustainability. These discussions ensure that our stockholders understand our key decisions and that we understand their priorities and concerns.
· Every year, we reach out to over 100of our largest investors, representing more than 70%of our institutional ownership.
· Our process also includes outreach to more than 250,000registered and beneficial stockholders, which represent a majority of our retail stockholder base.
· Since the 2017 Annual Meeting, representatives from senior management and the Board have met with investors that own, in the aggregate, more than 55%of the shares that voted on Say on Pay at the 2017 Annual Meeting.
Here is a summary of what we learned during those meetings, and how we responded.
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Engaging with Stockholders | Offer in-season engagement to stockholders owning, in the aggregate, a majority of shares that vote each year In 2020, engaged with 70% of institutional investors and >250,000 retail investors leading up to the Annual Meeting | ||||||||||||||||||
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Business Strategy and Finance | Board and Corporate Governance | Human Capital Management and Executive Compensation | Corporate Social Responsibility and Environmental Affairs | AI Ethics | |||||||||||||||
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Outcomes of Stockholder Engagement | ||
• Continued focus on Board diversity with 2 women directors and 2 ethnically diverse directors added in the last 3 years • Active Board refreshment with more than 50% of the Board added in the last 4 years • Executed world-class Chairman and CEO succession • Enhanced disclosure of Board oversight practices |
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• • Added diversity modifier to executive Annual Incentive Program • New CEO Target Incentive |
ESG REPORTING AND HUMAN CAPITAL MANAGEMENT • Provided stakeholders with comparable ESG data by reporting under the Sustainability Accounting Standards Board (SASB) framework • Board formally adopted a policy committing the Company to | ||
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Business Highlights
Business highlightsIn 2020, IBM took substantial actions to focus on hybrid cloud and AI capabilities and redefine itself as a platform-centric company positioned to drive sustainable growth. The Company expanded gross profit margin in the year, generated strong free cash flow realization, and reshaped the portfolio, including the announcement to separate the managed infrastructure services business into a new market-leading public company.
IBM is at the forefront of enterprise technology market opportunities. We have laid a strong foundation for the cognitive era.
20172020 Performance Highlights
Revenue
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| Grew Cloud revenues to over $25 billion with strong double-digit growth year over year, now comprising 34% of total IBM revenue Expanded our hybrid cloud platform to over 2,800 clients and 260 Global Business Services (GBS) engagements Red Hat delivered strong double-digit normalized (non-GAAP) revenue growth
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Compensation Highlights (PAGE 32)
Our compensation strategy supports IBM’s high value business model
What We Do | What We Don’t Do | |
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Tie a significant portion of pay to Company performance
No individual severance or change-in-control agreements for executive officers
| 6 | 2021 Notice of Annual Meeting & Proxy Statement | Proxy Summary |
Composition of the Board
Overview
IBM’s Board of Directors is responsible for supervision of the overall affairs of IBM. To assist it in carrying out its duties, the Board has delegated certain authority to several committees. Following the Annual Meeting in 2018,2021, the Board will consist of 13 directors, all of whom are independent except for Mrs. Rometty, IBM’s Chairman and CEO.12 directors. In the interim between Annual Meetings,annual meetings, the Board has the authority under the by-laws to increase or decrease the size of the Board and to fill vacancies.
Director Selection Process
The Directors and Corporate Governance Committee is responsible for leading the search for qualified individuals for election as directors to ensure the Board has the rightoptimal mix of skills, expertise, experience, and background.diversity of backgrounds. The Committee recommends candidates to the full Board for election.
The Board believes that the following core attributes are key to ensuring the continued vitality of the Board and excellence in the execution of its duties:
· experience as a leader of a business, firm or institution;
· mature and practical judgment;
· the ability to comprehend and analyze complex matters;
· effective interpersonal and communication skills; and
· strong character and integrity.
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diversity of background, including gender, ethnicity, talents and perspectives | experience as a leader of a business, firm or institution | mature and practical judgment | ||||||||||
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the ability to comprehend and analyze complex matters, including digital innovation | effective interpersonal and communication skills | strong character and integrity |
The Committee and the Board also focus on ensuring that the Board reflects a diversity of backgrounds (including gender and ethnicity), talents and perspectives.
The Committee and Board identifies candidates through a variety of means, including:
The Committee and the Board identify candidates through a variety of means, including: | ||
• recommendations from members of the Committee and the full Board • information the Committee requests from the Secretary of IBM | • suggestions from IBM management • a third-party search firm, from time to time | |
· information the Committee requests from the Secretary of IBM;
· recommendations from members of the Committee and the Board;
· suggestions from IBM management; and
· a third-party search firm, from time to time.
Any formal invitation to a director candidate is authorized by the full Board. The Committee also considers candidates recommended by stockholders. Stockholders wishing to recommend director candidates for consideration by the Committee may do so by writing to the Secretary of IBM, giving the recommended candidate’s name, biographical data and qualifications.
| 2021 Notice of Annual Meeting & Proxy Statement | IBM Board of Directors | 7 |
Director Skills and Qualifications
The IBM Board is composed of a diverse group of members, all leaders in their respective fields. All of the current directors have leadership experience at major domestic and international companiesorganizations with operations inside and outside the United States, or at academic or research institutions, or in government. Directors also have deep industry expertise as well as experience on other companies’ boards, which provides an understandingleaders of different business processes, challenges and strategies. Further, IBM’s directors have other experience that makes them valuable membersorganizations within some of the Board, such as public policy or regulatory experience that provides insight into issues faced by the Company.Company’s most important client industries and constituencies.
Building the Right Board for IBM: Key Director Attributes | ||||||||||||
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Business Operation, Innovation, Transformation and Digital Experience 100% of IBM Directors have led complex organizations For over a century, IBM has continuously reinvented itself to help its clients move from one era to the next. The ability to comprehend and analyze complex matters, including technology, is key to the IBM Board’s oversight of the Company’s innovation and digital transformation. All IBM directors have led large organizations, crucial experience for understanding and overseeing the scale, scope, and complexity of IBM’s business. | Industry Expertise Director-wide industry experience includes: • Information Technology • Financial Services and Insurance • Healthcare • Pharmaceuticals • Energy • Chemicals • Transport and Logistics • Manufacturing • Private Equity • Research and Development • Government IBM uniquely combines innovative technology with deep industry expertise, underpinned by security, trust, and responsible stewardship. IBM’s directors have experience leading organizations in a variety of industries that enhance the Board’s knowledge. Their perspectives on contemporary business issues and experience running data-intensive organizations are an asset to the Company and to our stockholders. | Diverse and Global Perspective Every IBM Director has IBM conducts business around the globe. Our business success is derived from an understanding of diverse business environments and economic conditions and a broad perspective on global business opportunities. The Board’s diversity and international experience is crucial for IBM, which operates in more than 175 countries around the world. | ||||||||||
The Directors and Corporate Governance Committee and the Board believe that the above-mentioned attributes, along with the leadership skills and other experiences of the Board members described below, provide IBM with the perspectives and judgment necessary to guide IBM’s strategies and oversee their execution.
| 8 | 2021 Notice of Annual Meeting & Proxy Statement | IBM Board of Directors |
IBM BOARD OF DIRECTORS -– EXPERIENCE AND SKILLS OF DIRECTOR NOMINEES
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David N. Farr |
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Andrew N. Liveris |
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| The following client industries provide a snapshot into the many key and diverse industries in which our directors have relevant experience. Many of our directors have experience in multiple client industries. |
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| 2021 Notice of Annual Meeting & Proxy Statement | IBM Board of Directors | 9 |
1. Election of Directors for aTerm of One Year
The Board proposes the election of the following directors of IBMdirector nominees for a term of one year. Below is information about each nominee, including biographical data for at least the past five years. If one or more of these nominees become unavailable to accept a nomination or election as a director, the individuals named as proxies on the proxy card will vote the shares that they represent for the election of such other persons as the Board may recommend, unless the Board reduces the number of directors.
Sidney Taurel is not a nominee for election, and his term on the Board will end in April. We are very grateful to him for his many valuable contributions and will miss his participation.
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Age: 47 Committees:
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Directors and Corporate Governance
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Global business
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Mr. Chenault, 66, joined American Express in 1981 and was named president of the U.S. division of American Express Travel Related Services Company, Inc. in 1993, vice chairman of American Express Company in 1995, president and chief operating officer in 1997 and chairman and chief executive officer of AXA S.A.
Relevant experience
Mr. Buberl, 47, joined Winterthur in 2005, which became a subsidiary of AXA in 2006. In 2008, he held until his retirementjoined Zurich Insurance Group as chief executive officer for Switzerland. Mr. Buberl
returned to AXA in 2012 as chief executive officer for AXA Konzern AG (Germany) and he became a member of AXA’s executive committee. In 2015, Mr. Buberl became the chief executive officer of AXA’s health business and a member of AXA’s group management committee. Mr. Buberl was additionally appointed chief executive officer of AXA’s global business line for life and savings and deputy chief executive officer of AXA in early 2018. Mr. Chenault now serves as Chairman2016. He was named chief executive officer and Managing Directorjoined the board of General Catalyst Partners, a venture capital firm.directors of AXA in September 2016. He is a member of the supervisory board of Bertelsmann, a member of the Climate Finance Leadership Initiative and the former chair of the Pan-European Insurance Forum. Additionally, during the past five years, he was a director of The Procter & Gamble Company and Facebook,AXA Equitable Holdings, Inc., a former subsidiary of AXA S.A.
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 | Michael L. Eskew Retired Chairman and Chief Executive Officer, United Parcel Service, Inc., a provider of specialized transportation and logistics services
Director since: 2005 Age: 71 Committees:
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Executive
Qualifications
Relevant experience
Mr. Eskew, 68,71, is IBM’s independent PresidingLead Director. Mr. Eskew joined United Parcel Service in 1972. He was named corporate vice president for industrial engineering in 1994, group vice president for engineering in 1996, executive vice president in 1999, vice chairman in 2000, and he was chairman and chief executive officer from 2002 until his retirement at the end of 2007. Mr. Eskew remained on the board of United Parcel Service until the end of 2014. He is a director of Allstate Corporation, Eli Lilly and Company and 3M Company. In addition, he is chairman of the Annie E. Casey Foundation.
 | 2021 Notice of Annual Meeting & Proxy Statement | Election of Directors |
 | David N. Farr Chairman,
Director since: 2012 Age: 66 Committees:
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Qualifications
Relevant experience
Mr. Farr, 63,66, joined Emerson in 1981 and subsequently held various executive positions. He was named senior executive vice president and chief operating officer in 1999, chief executive officer in 2000 and chairman and chief executive officer in 2004. Mr. Farr was named chairman, president and chief executive officer in 2005 and chairman and chief executive officer in 2010. In 2021, Mr. Farr announced his retirement as Chief Executive Officer and will remain Chairman of Emerson until May 2021. He is currently a member of the Executive Committee and the former chairman of the National Association of Manufacturers and is currently a director of the US-ChinaU.S.-China Business Council.
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 | Alex Gorsky Chairman and Chief Executive Officer, Johnson & Johnson, a global healthcare products company
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Executive Compensationand Management Resources (Chair)
Qualifications
Relevant experience
Mr. Gorsky, 57,60, joined Johnson & Johnson in 1988. In 2001, he was appointed president of Janssen Pharmaceutical Inc., and in 2003, he was named company group chairman of the Johnson & Johnson pharmaceutical business in Europe, the Middle East and Africa. Mr. Gorsky left Johnson & Johnson in 2004 to join the Novartis Pharmaceuticals Corporation, where he served as head of the company’s pharmaceutical business in North America.
Mr. Gorsky returned to Johnson & Johnson in 2008 as company group chairman for Ethicon. In early 2009, he was appointed worldwide chairman of the Surgical Care Group and member of the executive committee. In September 2009, he was appointed worldwide chairman of the Medical Devices and Diagnostics Group. Mr. Gorsky became vice chairman of the executive committee in January 2011. He was named chief executive officer and joined the board of directors in April 2012, and was named chairman in December 2012. Mr. Gorsky is a member of the Business Roundtable’s Board of Directors and Chairman of its Corporate Governance Committee. Mr. Gorsky also serves on the boards of the Travis Manion Foundation, Congressional Medal of Honor Foundation, the National Academy Foundation and the Wharton Board of Overseers.Advisors.
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Dr. Jackson, 71,Qualifications
Relevant experience
Admiral Michelle J. Howard, 60, is a retired United States Navy officer. Admiral Howard began serving in the United States Navy in 1982, after graduating from the U.S. Naval Academy. During her 35 years of service, she led sailors and marines as, at various times, the Commander of a ship, an Expeditionary Strike Group, a Task Force, and a Naval theater. In 1999, she became the first African American woman to command a ship in the United States Navy. In 2014, she was the first woman to
become a theoretical physicist atfour-star admiral in the former AT&T Bell LaboratoriesU.S. Navy and the first woman and African American to be appointed to the position of Vice Chief of Naval Operations, the second-highest ranking uniformed officer in the branch. Responsible for the Navy’s day-to-day operations, she focused on cyber culture and information security in the digital age, as well as gender integration. In 2016, Admiral Howard was appointed by the President to serve as commander of U.S. Naval Forces in Europe and Africa and the Allied Joint Forces Command in Naples, Italy, making her the first woman four-star admiral to command operational forces. She retired from 1976 to 1991, professorthe Navy in 2017.
Admiral Howard’s distinguished career in national defense has included both at-sea and ashore posts, placing her in key leadership positions within the areas of theoretical physicsat Rutgers University from 1991 to 1995,engineering, operations, and chairmanstrategic planning, and policy. Admiral Howard is a graduate of the U.S. Nuclear Regulatory CommissionNaval Academy and the U.S. Army Command and General Staff College. She was the J.B. and Maurice C. Shapiro Professor of International Affairs at the Elliott School of International Affairs at George Washington University from 1995 until2018 to 2020, where she assumed her current positiontaught in the areas of presidentcybersecurity and international policy.
 | Arvind Krishna Chairman and Chief Executive Officer, IBM Director since: 2020 Age: 58 Committees:
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Qualifications
Relevant experience
Arvind Krishna, 58, became the chief executive officer of the President’s Intelligence Advisory BoardIBM, and a member of the International Security Advisory Board to the United States Secretary of State. Dr. Jackson is a fellow of the Royal Academy of Engineering (U.K.), the American Academy of Arts and Sciences, and a member of the National Academy of Engineering and the American Philosophical Society. Dr. Jackson is a recipient of the National Medal of Science, the highest awardDirectors in science and engineering awarded by the U.S. Government. Dr. Jackson is a board member of the Council on Foreign Relations. She is a Regent Emerita and former Vice-ChairApril 2020. He was elected chairman of the Board of RegentsDirectors in December 2020. Mr. Krishna joined IBM in 1990. Mr. Krishna led the IBM Cloud and Cognitive Software business unit from 2017 to April 2020 and was a principal architect of the Smithsonian Institution, a past presidentacquisition of Red Hat, the American Association forlargest acquisition in the Advancement of Sciences, and an honorary trustee of the Brookings Institution. Additionally, during the past five years, sheCompany’s history. Mr. Krishna also served as athe director of Marathon Oil Corporation.IBM’s Research division from 2015 to 2020. Previously, he was general manager of IBM’s Systems and Technology Group, IBM’s development and manufacturing organization. Prior to that, he built and led many of IBM’s data-related businesses. He has an undergraduate degree from the Indian Institute of Technology, Kanpur, and a PhD. in electrical engineering from the University of Illinois at Urbana-Champaign.
 | 2021 Notice of Annual Meeting & Proxy Statement | Election of Directors |
 | Andrew N. Liveris
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Qualifications
Relevant experience
Mr. Liveris, 63,66, joined Dow in 1976 and subsequently held various executive positions, including vice president of specialty
chemicals from 1998 to 2000, business group president for performance chemicals from 2000 to 2003, and president and chief operating officer from 2003 to 2004. Mr. Liveris was named president and chief executive officer of Dow in 2004 and chairman in 2006. In 2016, he transitioned the president role and continued as chairman and chief executive officer of Dow until late 2017, when he transitioned to the position of executive chairman of DowDuPont.DowDuPont, a position he held until his retirement in July 2018. Mr. Liveris is a director of WorleyParsons, Saudi Aramco and NOVONIX Limited. Additionally, Mr. Liveris has served as a member of the President’s Export Council and as chairman of the President’s American Manufacturing Committee. Mr. Liveris is a former Executive Committee and now serves as a member of The Business Council, the President’s Task Force on Apprenticeship Expansion. Mr. Liveris also serves asformer chairman of The Business Council and the former vice chairman of the Executive Committee of the Business Roundtable, and as an Executive Committee member and former chairman of The Business Council.Roundtable. Mr. Liveris is also a trustee of the Minderoo Foundation of Australia, and The King Abdullah University of Science and Technology (KAUST), and is a former trustee of the California Institute of Technology and the United States Council for International Business (USCIB).Business.
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Ms. Olayan, 64, has been a principal and director of Olayan Investments Company Establishment, the parent company of The Olayan Group, since 1981. Prior to assuming the role of vice chairman in January 2018, she served as president and chief executive officer of Olayan America, heading The Olayan Group’s investment activities in the Americas for more than thirty years. Ms. Olayan is a director of Morgan Stanley. She has previously served as a director of Thermo Electron Corporation. She is also a member of the Executive Advisory Board of General Atlantic. She serves on the boards of the MasterCard Foundation, the Memorial Sloan-Kettering Cancer Center and the Peterson Institute for International Economics. Ms. Olayan is also a member of the Council on Foreign Relations and international advisory bodies affiliated with the Belfer Center for Science and International Affairs of Harvard University and the Carnegie Middle East Center.
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Retired Chairman and Chief Executive Officer,
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Audit
Mr. Owens, 72, joined Caterpillar in 1972 as a corporate economistQualifications
Relevant experience
Mr. McNabb, 63, served as chairman of The Vanguard Group, Inc. from 20042008 until his retirement in 2010.2018 and served as chief executive officer from 2008 to 2017. He joined Vanguard in 1986. In 2010, he became chairman of the board of directors and the board of trustees of the Vanguard group of investment companies.
Earlier in his career, Mr. McNabb led each of Vanguard’s client facing business divisions. Mr. McNabb served as the vice-chairman of the Investment Company Institute’s Board of Governors and served as its chairman from 2013 to 2016. He is a director of Alcoa Inc.UnitedHealth Group and Morgan Stanley.serves as a member of its audit committee. He is also a director of Axiom. Mr. OwensMcNabb is chairman of the executive committee of the Peterson Institute for International Economics, former chairman of the board of trusteesthe Zoological Society of Philadelphia and chairman of Ernst & Young’s Independent Audit Quality Committee. Mr. McNabb also serves on the Wharton Leadership Advisory Board, the Dartmouth Athletic Advisory Board, the Advisory Board of the Ira M. Millstein Center for Global Markets and Corporate Ownership at North Carolina StateColumbia University and wasis also a board member of CECP: The CEO Force for Good.
| 2021 Notice of Annual Meeting & Proxy Statement | Election of Directors | 13 |
 | Martha E. Pollack President, Cornell University, a leading research university that creates new technologies and achieves fundamental breakthroughs in understanding and improving lives around the world Director since: 2019 Age: 62 Committees:
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Mrs. Rometty, 60, joined IBM in 1981. She was elected senior vice
Relevant experience
Dr. Pollack, 62, is the president of Trustees of NorthwesternCornell University and a professor of computer science, information science and linguistics. She took office in 2017. From 2000 to 2017, Dr. Pollack held various positions at the BoardUniversity of OverseersMichigan with increasing responsibility, including dean of the School of Information, vice provost for academic and Managersbudgetary affairs, and finally, provost and executive vice president for academic affairs. Dr. Pollack is a fellow of Memorial Sloan-Kettering Cancerthe American Association for the Advancement of Science, the Association for Computing Machinery and the Association for the Advancement of Artificial Intelligence. Dr. Pollack has served as editor-in-chief of the Journal of Artificial Intelligence Research, a former president of the Association for the Advancement of Artificial Intelligence, a former member of the technical staff in the Artificial Intelligence Center at SRI International, a former member of the advisory committee for the National Science Foundation’s Computer and formerlyInformation Science and Engineering Division, and a former member of the board of directors of the Computing Research Association. Dr. Pollack also served on the President’s Export Council.Steering Committee of the Jacobs Technion-Cornell Institute, the academic partnership between Cornell and Technion-Israel Institute of Technology at Cornell Tech.
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 | Joseph R. Swedish
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Qualifications
Relevant experience
Mr. Swedish, 66,69, joined Anthem in 2013 as chief executive officer and was named chairman of Anthem’s board in 2015. He was the chairman, chief executive officer and president until late 2017 when he retired and became the executive chairman. chairman, a position he held until his retirement in May 2018.
Prior to joining Anthem, he was the division president of Hospital Corporation of America from 1993 to 1998, president and chief executive officer of Centura Health from 1999 to 2004 and then served as president and chief executive officer of Trinity Health Corporation from 2004 to 2013. Mr. Swedish became a director of Mesoblast Limited in 2018 and was named its chairman in March 2019. He is also a director of Centrexion Therapeutics. He also served as a director of the Blue Cross Blue Shield Association, the National Institute for Health Care Management, the Central Indiana Corporate Partnership, Inc. and as a member of the Business Roundtable. Mr. Swedish is currently serves asa member and past chairman of the Board of Visitors of Duke University’s Fuqua School of Business and as a directorwas the past chairman of America’s Health Insurance Plans (past chairman).Plans. He is a graduate member of The Business Council and a past member of the Duke Margolis External Advisory Board. He is also a director of CDW CorporationCorporation. Mr. Swedish also serves as Co-Founder and Proteus DigitalPartner at Concord Health Inc.Partners, a private equity firm focused on strategic investing in healthcare portfolio companies.
 | 2021 Notice of Annual Meeting & Proxy Statement | Election of Directors |
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Mr. Taurel, 69, joined Eli Lilly in 1971 and held management positions in the company’s operations in South America and Europe. He was named president of Eli Lilly International Corporation in 1986, executive vice president of the Pharmaceutical Division in 1991, executive vice president of Eli Lilly and Company in 1993, and president and chief operating officer in 1996. He was named chief executive officer of Eli Lilly and Company in 1998 and chairman in 1999. Mr. Taurel retired as chief executive officer in early 2008 and as chairman in late 2008. He became chairman of Pearson plc in 2016. He is also a member of the Board of Overseers of the Columbia Business School, a graduate member of The Business Council and a trustee of the Indianapolis Museum of Art. Additionally, during the past five years, he was a director of McGraw Hill Financial, Inc.
| Peter R. Voser Retired Chief Executive Officer, Royal Dutch Shell plc, a global group of energy and petrochemical companies; Chairman, ABB Ltd., a global group of power and automation companies
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Qualifications
Relevant experience
Mr. Voser, 59,62, joined Shell in 1982 and held a variety of finance and business roles including chief financial officer of Oil Products. In 2002, he joined the Asea Brown Boveri (ABB) Group of Companies as chief financial officer and a member of
the ABB Group executive committee. Mr. Voser returned to Shell in 2004, becoming a managing director of The Shell Transport and Trading Company, p.l.c. and chief financial officer of the Royal Dutch/Shell Group. He was appointed chief executive officer of Royal Dutch Shell plc in 2009 and held that position until his retirement in late 2013. Mr. Voser was named chairman of ABB Ltd. in 2015.2015 and was the interim chief executive officer from April 2019 until February 2020. He is a director of Roche Holding Limited and Temasek.Temasek, as well as Group Chairman of the Board of PSA International Pte Ltd, Singapore, a Temasek subsidiary. Mr. Voser is also active in a number of international and bilateral organizations. Additionally, from 2011 until 2019, he was a director of Roche Holding Limited.
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 | Frederick H. Waddell Retired Chairman and
Director since: 2017 Age: 67 Committees:
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Qualifications
Relevant experience
Mr. Waddell, 64,67, joined Northern Trust Corporation in 1975 and has served as the chairman of the board sincefrom November 2009.2009 until his retirement in January 2019. He previously served as chief executive officer from 2008 through 2017, as president from 2006 through 2011 and again from October to December 2016, and as chief operating officer from 2006 to 2008. Additionally, Mr. Waddell is a member of the Board of Trustees of Northwestern University and a director of AbbVie Inc.
Mark Fields and W. James McNerney, Jr. are not nominees for election, and their terms on the Board will end in April 2018.
| THE BOARD RECOMMENDS YOU VOTE FOR EACH OF THE NOMINEES INTRODUCED ABOVE. |
| 2021 Notice of Annual Meeting & Proxy Statement | Election of Directors | 15 |
BoardGovernance and Governancethe Board
Members of the Audit Committee, Directors and Corporate Governance Committee, and the Executive Compensation and Management Resources Committee are non-management directors who, in the opinion of the Board, satisfy the independence criteria established by the Board, and the standards of the Securities and Exchange Commission (SEC) and the New York Stock Exchange (NYSE).
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*As noted above, Mr. Fields and Mr. McNerney are not nominees for election, and their terms on the Board will end in April 2018.
Audit Committee
MEMBERS: Michael Eskew (Chair), David Farr, James Owens and Peter Voser
NUMBER OF MEETINGS IN 2017: 6
AUDIT COMMITTEE FINANCIAL EXPERTS: Michael Eskew, David Farr, James Owens and Peter Voser
Charter: http://www.ibm.com/investor/governance/audit-committee-charter.html
The Audit Committee is responsible for reviewing reports of IBM’s financial results, audit results, internal controls and adherence to IBM’s Business Conduct Guidelines in compliance with applicable laws and regulations, including federal procurement requirements. Concurrent with that responsibility, set out more fully in the Charter, the Audit Committee performs many other functions, including:
·selecting the independent registered public accounting firm and reviewing its selection with the Board;Refreshment
·annually preapproving the proposed services to be provided by the accounting firm during the year; and
·reviewing the procedures of the independent registered public accounting firm for ensuring its independence with respect to the services performed for IBM.
The Audit Committee chair, pursuant to authority delegated by the Audit Committee, may approve engagements with the independent registered public accounting firm that are outside the scope of the services and fees approved by the Committee, which are later presented to the Committee.
The Board has determined that each member of the Committee qualifies asOn at least an Audit Committee Financial Expert as defined by the rules of the SEC.
Directors and Corporate Governance Committee
MEMBERS: Shirley Ann Jackson (Chair), Mark Fields, Hutham Olayan, Joseph Swedish, Frederick WaddellNUMBER OF MEETINGS IN 2017: 5
Charter: http://www.ibm.com/investor/governance/director-and-corporate-governance.html
The Directors and Corporate Governance Committee is devoted primarily to the continuing review and articulation of the governance structure of the Board. Concurrent with that responsibility, set out more fully in the Charter,annual basis, the Directors and Corporate Governance Committee performs many other functions, including:reviews committee assignments and discusses whether rotation of Committee members and Committee Chairs is appropriate to introduce fresh perspectives and to broaden and diversify the views and experiences represented on the Board’s Committees.
·recommending qualified candidates to the Board for election as directors of IBM, including the slate of directors that the Board proposes for annual election by stockholders at the Annual Meeting;
·advising and making recommendations to the Board on all matters concerning directorship practices, and on the function and duties of the committees of the Board;
·making recommendations to the Board on compensation for non-management directors;
·reviewing and considering IBM’s position and practices on significant issues of corporate public responsibility, such as workforce diversity, protection of the environment, and philanthropic contributions; and
Executive Committee The Executive Committee is empowered to act for the full Board in intervals between Board meetings, with the exception of certain matters that by law may not be delegated. The Committee meets as necessary, and all actions by the Committee are reported at the next Board of Directors meeting. The Committee did not meet in 2020. Members: Arvind Krishna (Chair) Number of meetings in 2020: 0 Michael L. Eskew Alex Gorsky Frederick H. Waddell ·reviewing and considering stockholder proposals, including those dealing with issues of public and social interest.
As discussed above, the Committee is responsible for recommending qualified candidates to the Board for election as directors of IBM. The Committee recommends candidates based on their business or professional experience, the diversity of their background (including gender and ethnic diversity), and their talents and perspectives.
Executive Compensation and Management Resources Committee
| 16 | 2021 Notice of Annual Meeting & Proxy Statement | Governance and the Board |
MEMBERS: Sidney Taurel (Chair), Alex Gorsky, Andrew Liveris, James McNerneyNUMBER OF MEETINGS IN 2017: 5
Audit Committee |
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Members: Michael L. Eskew (Chair) David N. Farr F. William McNabb III Peter R. Voser Audit Committee Financial Experts: Michael L. Eskew David N. Farr F. William McNabb III Peter R. Voser Number of meetings in 2020: 10 | Key Responsibilities: The Audit Committee is responsible for reviewing reports of IBM’s financial results, audit results, internal controls, and adherence to IBM’s Business Conduct Guidelines in compliance with applicable laws and regulations, including federal procurement requirements. Concurrent with that responsibility, set out more fully in the Charter, the Audit Committee performs many other functions, including: | |||||
• selecting the independent registered public accounting firm and reviewing its selection with the Board; • annually preapproving the proposed services to be provided by the accounting firm during the year; | • reviewing the procedures of the independent registered public accounting firm for ensuring its independence with respect to the services performed for IBM; and • meeting with management prior to each quarterly earnings release. | |||||
The Audit Committee chair, pursuant to authority delegated by the Audit Committee, may approve engagements with the independent registered public accounting firm that are outside the scope of the services and fees approved by the Committee, which are later presented to the Committee. The Board has determined that each member of the Committee qualifies as an Audit Committee Financial Expert as defined by the rules of the SEC. Charter: http://www.ibm.com/investor/att/pdf/auditcomcharter.pdf | ||||||
Charter: http://www.ibm.com/investor/governance/executive-compensation-and-management-resources.html
Directors and Corporate Governance Committee | |
Members: Frederick H. Waddell (Chair) Thomas Buberl Number of meetings in 2020: 4 | Key Responsibilities: The Directors and Corporate Governance Committee is devoted primarily to the continuing review and articulation of the governance structure and practices of the Board. Concurrent with that responsibility, set out more fully in the Charter, the Directors and Corporate Governance Committee performs many other functions, including: | |||||
• recommending qualified candidates to the Board for election as directors of IBM, including the slate of directors that the Board proposes for annual election by stockholders at the Annual Meeting, and planning for future Board and Committee refreshment actions; • advising and making recommendations to the Board on all matters concerning directorship practices, and on the function and duties of the committees of the Board; • making recommendations to the Board on compensation for non-management directors; | • reviewing and considering IBM’s position and practices on significant public policy issues, such as protection of the environment, corporate social responsibility, sustainability, and philanthropic contributions; and • reviewing and considering stockholder proposals, including those dealing with issues of public and social interest. | |||||
As discussed above, the Committee is responsible for recommending qualified candidates to the Board for election as directors of IBM. The Committee recommends candidates based on their business or professional experience, the diversity of their background (including gender and ethnic diversity), and their talents and perspectives. Charter: https://www.ibm.com/investor/att/pdf/IBM-Directors-and-Corporate-Governance-Committee-Charter.pdf | ||||||
The Executive Compensation and Management Resources Committee has responsibility for defining and articulating IBM’s overall executive compensation philosophy, and administering and approving all elements of compensation for elected corporate officers. Concurrent with that responsibility, set out more fully in the Charter, the Compensation Committee performs many other functions, including:
·reviewing and approving the corporate goals and objectives relevant to the Chairman and CEO’s compensation, evaluating her performance in light of those goals and objectives, and, together with the other independent directors, determining and approving the Chairman and CEO’s compensation based on this evaluation;
·reviewing IBM’s management resources programs, including overseeing, along with the full Board, the succession-planning process of the CEO and other senior management positions;
·approving, by direct action or through delegation, participation in and all awards, grants, and related actions under IBM’s various equity plans;
·reviewing changes in IBM’s pension plans primarily affecting corporate officers;
·managing the operation and administration of the IBM Supplemental Executive Retention Plan;
·reviewing the compensation structure for IBM’s officers and providing oversight of management’s decisions regarding performance and compensation of other employees; and
·monitoring compliance with stock ownership guidelines.
The Committee reports to stockholders as required by the SEC (see 2017 Report of the Executive Compensation and Management Resources Committee of the Board of Directors below).
| 2021 Notice of Annual Meeting & Proxy Statement |Committees of the Board | 17 |
Members of the Committee are not eligible to participate in any of the plans or programs that the Committee administers.
Executive Compensation and Management Resources Committee | |
Members: Alex Gorsky (Chair) Andrew Liveris Martha Pollack Joseph Swedish Number of meetings in 2020: 5 | Key Responsibilities: The Executive Compensation and Management Resources Committee has responsibility for defining and articulating IBM’s overall executive compensation philosophy, and administering and approving all elements of compensation for elected corporate officers. Concurrent with that responsibility, set out more fully in the Charter, the Executive Compensation and Management Resources Committee performs many other functions, including: | |||||
• reviewing and approving the corporate goals • reviewing IBM’s human capital management, diversity and inclusion and other management resources programs, including overseeing, along with the full Board, the succession-planning process of the CEO and other senior management positions; | • approving, by direct action or through delegation, participation in and all awards, grants, and related actions under IBM’s various equity plans; • managing the operation and administration of the IBM Supplemental Executive Retention Plan; • reviewing the compensation structure for IBM’s officers and providing oversight of management’s decisions regarding performance and compensation of other employees; and • monitoring compliance with stock ownership guidelines. | |||||
The Committee reports to stockholders as required by the SEC (see 2020 Report of the Executive Compensation and Management Resources Committee of the Board of Directors in this Proxy Statement). Members of the Committee are not eligible to participate in any of the plans or programs that the Committee administers. Charter: https://www.ibm.com/investor/att/pdf/Executive_Compensation_and_Management_Resources_ Committee_Charter.pdf | ||||||
Compensation Committee Interlocks and Insider Participation: None
Messrs. Gorsky, Liveris, McNerney and TaurelSwedish and Dr. Pollack each served as members of the Executive Compensation and Management Resources Committee in 2017.2020. All members of the Committee were independent directors, and no member was an employee or former employee of IBM. During 2017,2020, none of our executive officers served on the compensation committee or board of directors of another entity whose executive officer served on our Executive Compensation and Management Resources Committee or Board. Therefore, there is no relationship that requires disclosure as a Compensation Committee interlock.
Executive Committee
MEMBERS: Virginia M. Rometty (Chair), Michael L. Eskew, Shirley Ann Jackson, Sidney TaurelNUMBER OF MEETINGS IN 2017: 0
The Executive Committee is empowered to act for the full Board in intervals between Board meetings, with the exception of certain matters that by law may not be delegated. The Committee meets as necessary, and all actions by the Committee are reported at the next Board of Directors meeting. The Committee did not meet in 2017.
IBM’s Corporate Governance Principles
IBM’s Board of Directors has long adhered to governance principles designed to assure the continued vitality of the Board and excellence in the execution of its duties. Since 1994, the Board has had in place a set of governance guidelines reflecting these principles, including the Board’s policy of requiring a majority of the Board to be comprised of independent directors, the importance of equity compensation to align the interests of directors and stockholders, and regularly scheduled executive sessions, including sessions of non-management directors without members of management. The IBM Board Corporate Governance Guidelines reflect IBM’s principles on corporate governance matters. These guidelines are available at https://www.ibm.com/investor/governance/corporate-governance-guidelines.html.
IBM also has a code of ethics for directors, executive officers, and employees. The Business Conduct Guidelines are available on our website at https://www.ibm.com/investor/att/pdf/BCG_English_Accessible_2018.pdf. Any amendment to, or waiver of, the Business Conduct Guidelines that applies to one of our directors or executive officers may be made only by the Board or a Board committee, and would be disclosed on IBM’s website.
The process by which stockholders and other interested parties may communicate with the Board or non-management directors of IBM is available at http://www.ibm.com/investor/governance/contact-the-board.html.
Independent Board
Under the IBM Board Corporate Governance Guidelines, the Directors and Corporate Governance Committee and the full Board annually review the financial and other relationships between the non-management directors and IBM as part of the annual assessment of director independence. The Directors and Corporate Governance Committee makes recommendations to the Board about the independence of non-management directors, and the Board determines whether those directors are independent. Although there is an annual assessment of director independence, independence is monitored by the Directors and Corporate Governance Committee and the full Board on an ongoing basis.
The independence criteria established by the Board in accordance with New York Stock Exchange (NYSE) requirements and used by the Directors and Corporate Governance Committee and the Board in their assessment of the independence of directors is available at http://www.ibm.com/investor/governance/director-independence-standards.html.
Applying those standards for the non-management directors in 2017, including those not standing for election, the Committee and the Board have determined that each of the following directors has met the independence standards: K.I. Chenault, M.L. Eskew, D.N. Farr, M. Fields, A. Gorsky, S.A. Jackson, A.N. Liveris, W.J. McNerney, Jr., H.S. Olayan, J.W. Owens, J.E. Spero, J.R. Swedish, S. Taurel, P.R. Voser and F.H. Waddell. Mr. Eskew’s son is employed by IBM and is not an executive officer. He was hired over a year before Mr. Eskew joined IBM’s Board, and his compensation and other terms of employment are determined on a basis consistent with IBM’s human resources policies. Based on the foregoing, the Board has determined that this relationship does not preclude a finding of independence for Mr. Eskew.
Independent Leadership Structure
The Directors and Corporate Governance Committee is responsible for the continuing review of the governance structure of the Board, and for recommending to the Board those structures and practices best suited to IBM and its stockholders. The Committee and the Board recognize that different structures may be appropriate under different circumstances. Mrs. Rometty serves as IBM’s Chairman and CEO and Mr. Eskew serves as Presiding Director, IBM’s lead independent director, a structure that the Directors and Corporate Governance Committee and the full Board believe is currently in the best interests of IBM and its stockholders. A strong, independent Presiding Director with clearly defined duties and responsibilities further enhances the contributions of IBM’s independent directors, which have been and continue to be substantial. Mr. Eskew, the Presiding Director, has significant global business, technology, leadership and oversight experience as the former chairman and chief executive officer of United Parcel Service, Inc.
The Presiding Director has the following responsibilities:
·preside at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors;
·serve as liaison between the Chairman and the independent directors;
·approve information sent to the Board;
·approve meeting agendas for the Board;
·approve meeting schedules to assure that there is sufficient time for discussion of all agenda items;
·have authority to call meetings of the independent directors; and
·if requested by major stockholders, ensure that he is available, as necessary after discussions with the Chairman and Chief Executive Officer, for consultation and direct communication.
In addition to these core responsibilities, the Presiding Director engages in other regular activities, including:
·one-on-one debriefs with the Chairman after each meeting;
·spending time with senior management outside of Board meetings to ensure a deep understanding of the business and strategy of the Company; and
·attending certain other committee meetings in addition to the committee he chairs.
In 2018, following each of their self-assessments and annual reviews, the Directors and Corporate Governance Committee and the Board as a whole continue to believe that this leadership structure provides IBM with the benefits of combining the leadership role of Chairman and CEO, while also recognizing the unique strengths and capabilities of IBM’s Board members, and that Mr. Eskew should continue to serve as the Presiding Director.
Director Attendance
In 2017, the Board held nine meetings and the committees collectively met 16 times. The Board and the Directors and Corporate Governance Committee recognize the importance of director attendance at Board and committee meetings. In 2017:
·Overall attendance at Board and committee meetings was over 96%; and
·Attendance was at least 75% for each director.
Information about Board attendance at IBM’s 2017 Annual Meeting of Stockholders and IBM’s policy with regard to Board members’ attendance at annual meetings of stockholders is available at http://www.ibm.com/investor/governance/director-attendance-at-annual-meeting.html.
Executive Session
Regularly scheduled executive sessions, including sessions of non-management directors without members of management, chaired by the Presiding Director, are held at each Board meeting. Additionally, executive sessions of the non-management directors are led by the Chairs of the Directors and Corporate Governance and Executive Compensation & Resources Committees, respectively, at least once per year.
Board Evaluation Process
IBM’s Board utilizes a comprehensive, multi-part process for its ongoing self-evaluation to ensure that the Board is operating effectively and that its processes reflect best practices.
1The Board conducts an annual self-evaluation to review the effectiveness of the Board and its committees. In this comprehensive review, the self-evaluation focuses on:
·The composition and performance of the Board, including the size, mix of skills and director refreshment practices;
·The quality and scope of the materials distributed in advance of meetings;
·The Board’s access to Company executives and operations;
·The promotion of rigorous decision making by the Board and the committees; and
·The overall functioning of the Board and its committees.
2Each committee also performs a self-evaluation in executive session on an annual basis.
·The Audit Committee’s evaluation, for example, includes individual, one-on-one interviews with IBM’s internal General Auditor and each member of the Committee.
3Each year, the Chairman and CEO holds individual, one-on-one interviews with each IBM director to obtain his or her candid assessment of director performance, Board dynamics and the effectiveness of the Board and its committees.
4The Chairman shares insights from these meetings with the Presiding Director and the full Board.
5Self-evaluation items requiring follow-up and execution are monitored on an ongoing basis by the Board, each of the committees, and by IBM management. While this formal self-evaluation is conducted on an annual basis, directors share perspectives, feedback, and suggestions continuously throughout the year.
Succession Planning
IBM has long been recognized for its leadership development. As part of this, one of the Board’s most important responsibilities is to ensure that IBM has the appropriate management to execute the Company’s long-term strategy. To fulfill this responsibility, the full Board meets at least annually to actively review and plan the succession of the CEO and other senior management positions.
During these reviews, at least annually, the Board discusses:
·Succession process and timeline;
·Profile and candidate assessments, both internal and external, as appropriate, for CEO and other senior leadership positions;
·Leadership pipeline and development plans for the next generation of senior leadership; and
·Diversity, inclusion and Company culture.
The Executive Compensation and Management Resources Committee also regularly reviews succession planning and the Company’s management resources programs.
Stockholder Rights and Accountability
At IBM, we routinely evaluate our governance practices to maintain strong Board and management accountability, and to promote stockholder rights through transparent policies that enhance investor and public trust. We believe that sound corporate governance is critical to achieving business success and serves the best interests of our stockholders.
Highlights of our commitment to stockholder rights include:
·Annual election of all Directors
·Majority voting for Directors
·Stockholder ability to call Special Meetings
·Proxy access rights to stockholders owning at least 3% of outstanding shares for 3 years NEW
·Robust stockholder engagement program
·No stockholder rights plan or poison pill provisions
·No supermajority voting provisions
·Confidential voting
Strategy Oversight
The Board actively oversees IBM’s long-term business strategy, and is continuously engaged with management on this topic. For example, each year, the Board holds a two-day strategy session, which includes presentations from many senior executives across the Company’s business units. Additionally, at Board meetings, the Board routinely receives presentations from senior management on critical business matters that tie to the Company’s overall strategy. In addition, the Board periodically travels to key IBM facilities, both domestically and internationally, to obtain a first-hand look at the Company’s operations in strategically important business units and geographic areas. Furthermore, the Board regularly meets with IBMers who represent the next generation of leadership at the Company to ensure that the Company’s leadership pipeline remains diverse and inclusive, and is linked to its long-term strategy.
Risk Oversight
In recent years, much attention has been given to the subject of risk and how companies assess and manage risks acrossthe enterprise. At IBM, we believe that innovation and leadership are impossible without taking risks. We also recognize that imprudent acceptance of risk or the failure to appropriately identify and mitigate risks could be destructive to stockholder value.
In addition, an overall review of risk is inherent in the Board’s consideration of IBM’s long-term strategies and in the transactions and other matters presented to the Board, including capital expenditures, acquisitions and divestitures, and financial matters. The Board’s role in risk oversight of IBM is consistent with IBM’s leadership structure, with the CEO and other members of senior management having responsibility for assessing and managing IBM’s risk exposure, and the Board and its committees providing oversight in connection with those efforts.
The Board is responsible for overseeing management in the execution of its responsibilities and for assessing IBM’s approach to risk management. The Board exercises these responsibilities periodically as part of its meetings and also through the Board’s three committees, each of which examines various components of enterprise risk as part of their responsibilities.
The Audit Committee periodically reviews IBM’s enterprise management framework, including IBM’s enterprise risk management processes.
The Executive Compensation and Management Resources Committee is responsible for assessing risks relating to IBM’s compensation programs, as well as IBM’s evolving demands for skilled workers.
The Directors and Corporate Governance Committee oversees risks associated with government and industry regulations, as well as environmental and other societal and governance matters.
Senior management is responsible for assessing and managing IBM’s various exposures to risk on a day-to-day basis, including the creation of appropriate risk management programs and policies. IBM has developed a consistent, systemic and integrated approach to risk management, including the enterprise risk management framework, to help determine how best to identify, manage and mitigate significant risks throughout IBM. Management regularly reports to the Board and the committees on a variety of risks.
Cybersecurity
Cybersecurity is a critical part of risk management at IBM. The Board’s cybersecurity oversight includes reporting from senior management and cybersecurity experts in areas such as rapidly evolving cybersecurity threats, cybersecurity technologies and solutions deployed internally and with IBM clients, major cyber risk areas and policies and procedures to address those risks, cybersecurity incidents, and updates from the IBM Security business. The Board and Audit Committee each receive regular updates.
Political Contributions and Lobbying
IBM is committed to meaningful management, oversight, and accurate reporting with respect to our engagement with government officials, and we consistently seek to provide our stockholders with relevant data regarding our public policy engagement.
Further, IBM:
|
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|
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The IBM Board of Directors, as part of its oversight function, periodically receives reports from senior management relating to IBM’s policies and practices regarding governmental relations, public policy and any associated expenditures.
IBM’s Senior Management, specifically the IBM Office of Government and Regulatory Affairs, closely monitors all public policy advocacy efforts, as well as any lobbying activities.
IBM’s policies and practices with regard to public policy matters, including lobbying activities and expenditures, are available on its website: http://www.ibm.com/investor/governance/public-policy-matters.html.
Insurance and Indemnification
IBM has renewed its directors and officers indemnification insurance coverage. This insurance covers directors and officers individually where exposures exist other than those for which IBM is able to provide indemnification. This coverage runs from June 30, 2017 through June 30, 2018, at a total cost of approximately $4.9 million. The primary carrier is XL Specialty Insurance Company.
Certain Transactions and Relationships
Under IBM’s written related person transactions policy, information about transactions involving related persons is assessed by the independent directors on IBM’s Board. Related persons include IBM directors and executive officers, as well as immediate family members of directors and officers, and beneficial owners of more than five percent of IBM’s common stock. If the determination is made that a related person has a material interest in any IBM transaction, then IBM’s independent directors would review, approve or ratify it, and the transaction would be required to be disclosed in accordance with the SEC rules. If the related person at issue is a director of IBM, or a family member of a director, then that director would not participate in those discussions. In general, IBM is of the view that the following transactions with related persons are not significant to investors because they take place under IBM’s standard policies and procedures: the sale or purchase of products or services in the ordinary course of business and on an arm’s-length basis; the employment by IBM where the compensation and other terms of employment are determined on a basis consistent with IBM’s human resources policies; and any grants or contributions made by IBM under one of its grant programs and in accordance with IBM’s corporate contributions guidelines.
From time to time, IBM may have employees who are related to our executive officers or directors. As noted in the discussion above on “Corporate Governance — Independent Board,” Mr. Eskew’s son is employed bya former employee of IBM. He iswas an executive of IBM (not an executive officer). until January 2021. In addition, a brother-in-law of Mrs. V.M. Rometty (Chairman and CEO) and the wifedaughter of Mr. R.F.R. F. Del Bene (Vice President and Controller) are employed as executives of IBM. A daughter of Mr. Del Bene and a brother of Dr. J.E. Kelly III (Senior(former Executive Vice President, who retired from IBM Cognitive Solutions and IBM Research)on December 31, 2020), are also employed by IBM in non-executive positions. None of the above-referenced family member employees were or are executive officers of IBM. Each employee mentioned above received compensation in 20172020 between $120,000 and $900,000.$650,000. Additionally, in 2017,2020, each of the above-referencedabove-mentioned family members of Mrs. Rometty and Mr. Eskew, as well as the wife of Mr. Del Bene, each received an equity grants.grant. The compensation, equity grantsgrant and other terms of employment of each of the family member employees noted above are determined on a basis consistent with IBM’s human resources policies.
| 18 | 2021 Notice of Annual Meeting & Proxy Statement | Certain Transactions and Relationships |
2017 IBM’s Corporate Governance Principles
IBM’s Board of Directors has long adhered to governance principles designed to ensure the continued vitality of the Board and excellence in the execution of its duties. For more than 25 years, the Board has had in place a set of governance guidelines reflecting these principles, including the Board’s policy of requiring a majority of the Board to be comprised of independent directors, the importance of equity compensation to align the interests of directors and stockholders, and the practice of regularly scheduled executive sessions, including sessions of non-management directors without members of management. The IBM Board Corporate Governance Guidelines reflect IBM’s principles on corporate governance matters. These guidelines are available at https://www.ibm.com/investor/att/pdf/IBM-Board-Corporate-Governance-Guidelines.pdf.
IBM also has a code of ethics for directors, executive officers, and employees. The Business Conduct Guidelines are available on our website at https://www.ibm.com/investor/att/pdf/2021_Business_Conduct_Guidelines.pdf. Any amendment to, or waiver of, the Business Conduct Guidelines that applies to one of our directors or executive officers may be made only by the Board or a Board committee, and would be disclosed on IBM’s website.
The process by which stockholders and other interested parties may communicate with the Board or non-management directors of IBM is available at https://www.ibm.com/investor/governance/contact-the-board.
Independent Board
| Under the IBM Board Corporate Governance Guidelines, the Directors and Corporate Governance Committee and the full Board annually review the financial and other relationships between the independent directors and IBM as part of the assessment of director independence. The Directors and Corporate Governance Committee makes recommendations to the Board about the independence of non-management directors, and the Board determines whether those directors are independent. In addition to this annual assessment, director independence is monitored by the Directors and Corporate Governance Committee and the full Board on an ongoing basis. |  |
The independence criteria established by the Board in accordance with NYSE requirements and used by the Directors and Corporate Governance Committee and the Board in their assessment of the independence of directors is available at https://www.ibm.com/investor/att/pdf/Independence_Standards.pdf.
Applying those standards to IBM’s non-management director nominees, including those directors not standing for election, as well as a former director who served during 2020, the Committee and the Board have determined that each of the following has met the independence standards: T. Buberl, M.L. Eskew, D.N. Farr, A. Gorsky, M.J. Howard, S.A. Jackson, A.N. Liveris, F.W. McNabb III, M.E. Pollack, J.R. Swedish, S. Taurel, P.R. Voser and F.H. Waddell.
Mr. Eskew’s son is a former employee of IBM in a non-executive officer role. He was hired over a year before Mr. Eskew joined IBM’s Board and his compensation and other terms of employment were determined on a basis consistent with IBM’s human resources policies. Based on the foregoing, the Board has determined that this relationship does not preclude a finding of independence for Mr. Eskew.
Director Attendance
In 2020, the Board held nine meetings and the committees collectively met 19 times. The Board and the Directors and Corporate Governance Committee recognize the importance of director attendance at Board and committee meetings. In 2020:
In addition, each director attended IBM’s 2020 Annual Meeting of Stockholders. IBM’s policy with regard to Board members’ attendance at annual meetings of stockholders is available at https://www.ibm.com/investor/governance/director-attendance-at-
annual-meeting-of-stockholders.
| 2021 Notice of Annual Meeting & Proxy Statement | Corporate Governance | 19 |
Independent Leadership Structure
The Directors and Corporate Governance Committee is responsible for the continuing review of the governance structure of the Board, and for recommending to the Board those structures and practices best suited to IBM and its stockholders. The Committee and the Board recognize that different structures may be appropriate under different circumstances.
In connection with the retirement of Executive Chairman Ginni Rometty, the Board determined that the optimal structure for the Company and its stockholders at this time was having CEO Arvind Krishna serve as Chairman, alongside a robust and independent Lead Director. Among other factors, the Board considered and evaluated: the importance of consistent, unified leadership to execute and oversee the Company’s strategy; the strength of Mr. Krishna’s vision for the Company and the quality of his leadership; the strong and highly independent composition of the Board; the views and feedback heard from our investors through our ongoing engagement program throughout the years expressing support for IBM’s leadership structure; and the meaningful and robust responsibilities of the independent Lead Director. A strong, independent Lead Director with clearly defined duties and responsibilities further enhances the contributions of IBM’s independent directors, which have been and continue to be substantial. Mr. Eskew, the Lead Director, has significant global business, technology, leadership, and oversight experience as the former chairman and chief executive officer of United Parcel Service, Inc.
The Board strongly believes that its leadership structure strikes the right balance of allowing our Chairman and CEO to promote a clear, unified vision for the Company’s strategy, providing the leadership critical for effectively and efficiently implementing the actions needed to ensure strong performance over the long term, while ensuring robust, independent oversight by the Board and Lead Director. | ||
Role of the Lead Director | ||||||||||||
Mr. Eskew, the Lead Director, has the following core responsibilities:
| In addition to these core responsibilities, the Lead Director engages in other regular activities, including:
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The full Board reviews our leadership structure at least annually to ensure the allocation of responsibilities remains appropriate. |
Executive Sessions
Regularly scheduled executive sessions, including sessions of independent directors without members of management, chaired by the Lead Director, are held at each Board meeting. Additionally, executive sessions of the independent directors are led by the Chairs of the Directors and Corporate Governance, Executive Compensation Narrativeand Management Resources, and Audit Committees, respectively, at least once per year.
| 20 | 2021 Notice of Annual Meeting & Proxy Statement | Corporate Governance |
IBM’s Board utilizes a comprehensive, multi-part process for its ongoing self-evaluation to ensure that the Board is operating effectively and that its processes reflect best practices. From time to time, this process includes a third-party review of the Board’s process and evaluation criteria. Each year, IBM’s Directors and Corporate Governance Committee oversees the evaluation process to ensure that the full Board and each committee conduct an assessment of their performance and solicit feedback for enhancement and improvement.
1 | The Board conducts an annual self-evaluation to review the effectiveness of the Board and its committees, led by the Chair of the Directors and Corporate Governance Committee. In this comprehensive review, the self-evaluation focuses on: | |||||
• The composition and performance of the Board, | • The promotion of rigorous decision making by • The effectiveness of the Board and committee • The overall functioning of the Board and its | |||||
• The quality and scope of the materials distributed in | ||||||
• The Board’s access to Company executives and | ||||||
2 | Each committee also performs a self-evaluation in executive session on an annual basis. | |||||
The Audit Committee’s evaluation, for example, includes individual, one-on-one interviews between IBM’s internal Chief Auditor and each member of the Committee. | ||||||
3 | The Chairman holds individual, one-on-one interviews with each IBM director to obtain his or her candid assessment of director performance, Board dynamics and the effectiveness of the Board and its committees. | |||||
4 | The Chairman shares insights from each of these meetings with the Lead Director, the Chair of the Directors and Corporate Governance Committee, and the full Board. | |||||
5 | The Board meets in executive session to discuss the results of the evaluation and any other issues that the directors may want to raise. | |||||
6 | Self-evaluation items requiring follow-up and execution are monitored on an ongoing basis by the Board, each of the committees, and by IBM management. While this formal self-evaluation is conducted on an annual basis, the evaluation process is an ongoing process throughout the year. At each meeting, the Chairman actively solicits feedback from each individual director and directors continuously share their perspectives, feedback, and suggestions throughout the year. | |||||
Succession Planning
IBM has long been recognized for its leadership and talent development. One of the Board’s most important responsibilities is to ensure that IBM has the appropriate management to execute the Company’s long-term strategy. To fulfill this responsibility, the full Board meets regularly to actively review and plan the succession of the CEO and other senior management positions.
In succession planning, the Board discusses: | ||
• Succession process and timeline • Profile and candidate assessments, both internal and external, for the CEO and other senior leadership positions | • Leadership pipeline and development plans for the next generation of senior leadership • Diversity, inclusion, and Company culture | |
The Executive Compensation and Management Resources Committee also regularly reviews succession planning and the Company’s management resources programs, overseeing a broad range of human capital management topics, including diversity and inclusion. | ||
| 2021 Notice of Annual Meeting & Proxy Statement |Corporate Governance | 21 |
Strategy Oversight
The Board actively oversees IBM’s long-term business strategy and is actively engaged in ensuring that IBM’s culture reflects its longstanding commitment to integrity, compliance, and inclusion. The Board is continuously engaged with management on these topics. For example, each year, the Board:
 |  |  |  | |||
Holds a two-day strategy session, including presentations from, and engagement with, many senior executives across the Company | Routinely engages with senior management on critical business matters that tie to IBM’s overall strategy | Periodically travels to key IBM facilities to obtain a first-hand look at the Company’s operations | Regularly meets with the next generation of leadership to ensure the pipeline remains diverse and inclusive | |||
Risk Oversight
At IBM, we believe that innovation and leadership are impossible without taking risks. We also recognize that imprudent acceptance of risk or the failure to appropriately identify and mitigate risk could be destructive to stockholder value.
In addition, an overall review of risk is inherent in the Board’s consideration of IBM’s long-term strategies and in the transactions and other matters presented to the Board, including capital expenditures, acquisitions, divestitures and other portfolio actions, and operational and financial matters. The Board’s role in risk oversight of IBM is consistent with IBM’s leadership structure, with the CEO and other members of senior management having responsibility for assessing and managing IBM’s risk exposure, and the Board and its committees providing oversight in connection with those efforts.
| 22 | 2021 Notice of Annual Meeting & Proxy Statement | Corporate Governance |
Annual Retainer:In 2017,2020, non-management directors received an annual retainer of $300,000.$325,000. Chairs of the Directors and Corporate Governance Committee and the Executive Compensation and Management Resources Committee each received an additional annual retainer of $20,000 and the chair of the Audit Committee received an additional annual retainer of $25,000.$30,000. The additional retainer for the PresidingLead Director position is a total of $50,000, inclusive of any committee chair retainer received. For 2017, Mr. Eskew, the Presiding Director and the chair of the Audit Committee, received $25,000 for the Presiding Director role and $25,000 for the Audit Committee chair role.
$40,000.
Under the IBM Deferred Compensation and Equity Award Plan (DCEAP), 60% of the total annual retainer is required to be deferred and paid in Promised Fee Shares (PFS). Each PFS is equal in value to one share of IBM’s common stock. When a cash dividend is paid on IBM’s common stock, each director’s PFS account is credited with additional PFS reflecting a dividend equivalent payment. With respect to the payment of the remaining 40% of the annual retainer, directors may elect one or any combination of the following: (a) deferral into PFS, (b) deferral into an interest-bearing cash account, and/or (c) receipt of cash payments on a quarterly basis during service as a Board member. IBM does not pay above-market or preferential earnings on compensation deferred by directors.
Stock Ownership Guidelines:For 2017, under Under the IBM Board Corporate Governance Guidelines, within five years of initial election to the Board, non-management directors are expected to have stock-based holdings in IBM equal in value to five times the annual retainer initially payable to such director. Stock-based holdings mean (i) IBM shares owned personally or by members of the immediate family sharing the same household, and (ii) DCEAP PFS. Stock-based holdings do not include unexercised options.
Beginning in 2018, within five years of initial election to the Board, non-management directors are expected to have stock-based holdings in IBM equal in value to eight times the equity portion of the annual retainer initially payable to such director. The overall threshold remains consistentStock-based holdings mean (i) IBM shares owned personally or by members of immediate family sharing the same household, and with this change, our(ii) DCEAP PFS. Stock-based holdings do not include unexercised options.
Our stock ownership guidelines will remain the strongest in our peer group.
Payout under the DCEAP:Upon a director’s retirement or other completion of service as a director (a) all amounts deferred as PFS are payable, at the director’s choice, in cash and/or shares of IBM’s common stock, and (b) amounts deferred into the interest-bearing cash account are payable in cash. Payouts may be made in eitherany of (a) a lump sum payment as soon as practicable after the date on which the director ceases to be a member of the Board, (b) a lump sum payment paid in February of the calendar year immediately following the calendar year in which the director ceases to be a member of the Board, or (c) between two and ten annual installments, paid beginning in February following the calendar year in which the director ceases to be a member of the Board. If a director elects to receive PFS in cash, the payout of PFS is valued using the closing price of IBM common stock on the NYSE as follows: for payouts made in an immediate lump sum, IBM stock will be valued on the date on which the director ceases to be a member of the Board; for lump sum payments made in February of the calendar year immediately following the calendar year of separation or for installment payouts, IBM common stock will be valued on the last business day of the January preceding such February payment.
IBM’s Matching Grants Program: Non-managementIn 2020, non-management directors arewere eligible to participate in IBM’s Matching Grants Program on the same basis as IBM’s employees based in the United States.U.S. Under this program, IBM will matchmatched a director’s eligible contributions in cash on a 1-to-1 basis to approved educational institutions, medical facilities and cultural or environmental institutions. Each director iswas also eligible for a Company match on total gifts up to $10,000 per calendar year. Amounts shown in the Director Compensation Table for matching grants may be in excess of $10,000 because such amounts include Company contributions on gifts that were made by directors in previous years.
Director Compensation Consultant:The Committee retainedretains Semler Brossy Consulting Group, LLC (Semler Brossy) in July 2017 to assess trends and developments in director compensation practices and to compare IBM’s practices against them. The Committee uses the analysis prepared by the consultant as part of its periodic review of IBM’s director compensation practices. Other than services provided to IBM’s Directors and Corporate Governance Committee and IBM’s Executive Compensation and Management Resources Committee, Semler Brossy does not perform any other work for IBM. The Committee determined that Semler Brossy is free of conflicts of interest. The Committee previously retained Frederic W. Cook & Co., Inc.
| 2021 Notice of Annual Meeting & Proxy Statement | Director Compensation | 23 |
20172020 Director Compensation Table
|
| Fees Earned or |
| All Other |
|
|
| |||
Name |
| Paid in Cash ($) |
| Compensation ($) |
| Total ($) |
| |||
(a) |
| (b) |
| (c)(1) |
| (d) |
| |||
Kenneth I. Chenault |
| $ | 300,000 |
| $ | 173,358 |
| $ | 473,358 |
|
Michael L. Eskew |
| 350,000 |
| 150,355 |
| 500,355 |
| |||
David N. Farr |
| 300,000 |
| 42,668 |
| 342,668 |
| |||
Mark Fields |
| 300,000 |
| 13,895 |
| 313,895 |
| |||
Alex Gorsky |
| 300,000 |
| 31,621 |
| 331,621 |
| |||
Shirley Ann Jackson |
| 320,000 |
| 139,943 |
| 459,943 |
| |||
Andrew N. Liveris |
| 300,000 |
| 80,254 |
| 380,254 |
| |||
W. James McNerney, Jr. |
| 300,000 |
| 84,755 |
| 384,755 |
| |||
Hutham S. Olayan |
| 300,000 |
| 15,922 |
| 315,922 |
| |||
James W. Owens |
| 300,000 |
| 109,863 |
| 409,863 |
| |||
Joan E. Spero(2) |
| 95,833 |
| 69,861 |
| 165,694 |
| |||
Joseph R. Swedish(3) |
| 51,667 |
| 20 |
| 51,687 |
| |||
Sidney Taurel |
| 320,000 |
| 180,902 |
| 500,902 |
| |||
Peter R. Voser |
| 300,000 |
| 28,418 |
| 328,418 |
| |||
Frederick H. Waddell(3) |
| 51,667 |
| 20 |
| 51,687 |
| |||
Name (a) | | Fees Earned or Paid in Cash ($) (b) |
| | All Other Compensation ($) (c) |
(1) | | Total ($) (d) |
| |||
Thomas Buberl(2) |
| 219,375 |
|
| 2,691 |
|
| 222,066 |
| |||
Michael L. Eskew |
| 395,000 |
|
| 246,667 |
|
| 641,667 |
| |||
David N. Farr |
| 325,000 |
|
| 70,051 |
|
| 395,051 |
| |||
Alex Gorsky |
| 345,000 |
|
| 89,629 |
|
| 434,629 |
| |||
Michelle J. Howard |
| 325,000 |
|
| 18,097 |
|
| 343,097 |
| |||
Shirley Ann Jackson(3) |
| 113,083 |
|
| 57,223 |
|
| 170,306 |
| |||
Andrew N. Liveris |
| 325,000 |
|
| 143,032 |
|
| 468,032 |
| |||
F. William McNabb III |
| 325,000 |
|
| 9,772 |
|
| 334,772 |
| |||
Martha E. Pollack |
| 325,000 |
|
| 21,418 |
|
| 356,418 |
| |||
Joseph R. Swedish |
| 325,000 |
|
| 32,663 |
|
| 357,663 |
| |||
Sidney Taurel |
| 325,000 |
|
| 272,839 |
|
| 597,839 |
| |||
Peter R. Voser |
| 325,000 |
|
| 83,990 |
|
| 408,990 |
| |||
Frederick H. Waddell |
| 341,667 |
|
| 47,137 |
|
| 388,804 |
| |||
Amounts in this column include the following: for Mr. Eskew: $246,591 of dividend equivalent payments on PFS; for Mr. Farr: $69,975 of dividend equivalent payments on PFS; for Mr. Gorsky: $89,554 of dividend equivalent payments on PFS; for Admiral Howard $18,021 of dividend equivalent payments on PFS; for Dr. Jackson: $52,197 of dividend equivalent payments on PFS; for Mr. Liveris: $142,956 of dividend equivalent payments on PFS; for Dr. Pollack: $21,343 of dividend equivalent payments on PFS and $10,000 contributed by the Company under Matching Grants Program; for Mr. Swedish: $25,088 of dividend equivalent payments on PFS; for Mr. Taurel: $265,263 of dividend equivalent payments on PFS; for Mr. Voser: $83,914 of dividend equivalent payments on PFS; and for Mr. Waddell: $42,061 of dividend equivalent payments on PFS. Mr. Buberl joined the Board in April 2020. Dr. Jackson’s term on the Board ended April 2020. Fees Earned or Paid in Cash (column (b)):Amounts shown in this column reflect the annual retainer paid to each director as described above. A director receives a All Other Compensation (column (c)):Amounts shown in this column represent: (1)Amounts in this column include the following: for Mr. Chenault: $173,236 of dividend equivalent payments on PFS; for Mr. Eskew: $150,234 of dividend equivalent payments on PFS; for Mr. Farr: $32,547 of dividend equivalent payments on PFS and $10,000 contributed by the Company under the Matching Grants Program; for Mr. Fields: $13,773 of dividend equivalent payments on PFS; for Mr. Gorsky: $31,499 of dividend equivalent payments on PFS; for Dr. Jackson: $134,821 of dividend equivalent payments on PFS; for Mr. Liveris: $75,132 of dividend equivalent payments on PFS; for Mr. McNerney: $79,633 of dividend equivalent payments on PFS; for Ms. Olayan: $15,800 of dividend equivalent payments on PFS; for Mr. Owens: $104,741 of dividend equivalent payments on PFS; for Ms. Spero: $59,780 of dividend equivalent payments on PFS and $10,000 contributed by the Company under the Matching Grants Program; for Mr. Taurel: $171,030 of dividend equivalent payments on PFS; and for Mr. Voser: $28,296(1) (2)After Ms. Spero’s term on the Board ended in April 2017, Ms. Spero was paid $2,914,625 of earned compensation and dividend reinvestments which had been previously deferred under the DCEAP since her election to the Board in 2004. Ms. Spero elected to defer payment of 6,089 shares.(2) (3)Mr. Swedish and Mr. Waddell joined the Board in October 2017.(3) pro-ratedprorated amount of the annual retainer for service on the Board and, if applicable, as PresidingLead Director or a committee chair, based on the portion of the year for which the director served.···
Delinquent Section 16(a) Beneficial Ownership Reporting ComplianceReports
IBM believes that all reports for IBM’s executive officers and directors that were required to be filed under Section 16 of the Securities Exchange Act of 1934 in 2020 were timely filed.filed, except that one Form 4 to report a transaction under the IBM Excess 401(k) Plus Plan for each of Messrs. James J. Kavanaugh and Kenneth M. Keverian were filed late due to an unintentional administrative error.
IBM has renewed its directors and officers indemnification insurance coverage. This insurance covers directors and officers individually where exposures exist other than those for which IBM is able to provide indemnification. This coverage runs from June 30, 2020 through June 30, 2021, at a total cost of approximately $7.9 million. The primary carrier is XL Specialty Insurance Company.
| 24 | 2021 Notice of Annual Meeting & Proxy Statement | Director Compensation |
Security Ownership of Certain Beneficial Owners
The following sets forth information as to any person known to IBM to be the beneficial owner of more than five percent of IBM’s common stock as of December 31, 2017.2020.
|
| Number of Shares |
|
|
| ||||||||
Name and address |
| Beneficially Owned |
| Percent of Class |
| Number of Shares Beneficially Owned | Percent of Class | ||||||
The Vanguard Group(1) |
| 63,708,222 |
| 6.88 | % | ||||||||
The Vanguard Group(1) |
| 73,806,391 |
|
| 8.28% |
| |||||||
100 Vanguard Boulevard |
|
|
|
|
| ||||||||
Malvern, PA 19355 |
|
|
|
|
| ||||||||
|
|
|
|
|
| ||||||||
BlackRock, Inc.(2) |
| 57,755,152 |
| 6.2 | % | ||||||||
BlackRock Inc.(2) |
| 62,271,273 |
|
| 7.0% |
| |||||||
55 East 52nd Street |
|
|
|
|
| ||||||||
New York, NY 10022 |
|
|
|
|
| ||||||||
New York, NY 10055 | |||||||||||||
|
|
|
|
|
| ||||||||
State Street Corporation(3) |
| 51,885,463 |
| 5.60 | % | ||||||||
State Street Corporation(3) |
| 51,957,682 |
|
| 5.83% |
| |||||||
State Street Financial Center |
|
|
|
|
| ||||||||
One Lincoln Street |
|
|
|
|
| ||||||||
Boston, MA 02111 |
|
|
|
|
| ||||||||
Based on the Schedule 13G filed with the Securities and Exchange Commission on February 10, 2021 by The Vanguard Group and certain subsidiaries (Vanguard). Vanguard reported that it does not have sole voting power over any shares, and has shared voting power over 1,453,904 shares, sole dispositive power over 69,861,037 shares, and shared dispositive power over 3,945,354 shares. The Schedule 13G does not identify any shares with respect to which there is a right to acquire beneficial ownership. The Schedule 13G states that the shares were acquired and are held in the ordinary course of business and were not acquired and are not held for the purpose of or with the effect of changing or influencing the control of IBM. Based on the Schedule 13G filed with the Securities and Exchange Commission on January 29, 2021 by BlackRock, Inc. and certain subsidiaries (BlackRock). BlackRock reported that it had sole voting power over 53,281,831 shares and sole dispositive power over all shares beneficially owned. The Schedule 13G does not identify any shares with respect to which there is a right to acquire beneficial ownership. The Schedule 13G states that the shares were acquired and are held in the ordinary course of business and were not acquired and are not held for the purpose of or with the effect of changing or influencing the control of IBM. Based on the Schedule 13G filed with the Securities and Exchange Commission on February 12, 2021 by State Street Corporation and certain subsidiaries (State Street). State Street reported that it does not have shared voting power over any shares, shared dispositive power over 42,096,957 shares, does not have sole dispositive power over any shares, and shared dispositive power over 51,941,856 shares. The Schedule 13G does not identify any shares with respect to which there is a right to acquire beneficial ownership. The Schedule 13G states that the shares were acquired and are held in the ordinary course of business and were not acquired and are not held for the purpose of or with the effect of changing or influencing the control of IBM. (1)Based on the Schedule 13G filed with the Securities and Exchange Commission on February 9, 2018 by The Vanguard Group and certain subsidiaries (Vanguard). Vanguard reported that it had sole voting power over 1,228,539 shares, shared voting power over 203,527 shares, sole dispositive power over 62,307,270 shares, and shared dispositive power over 1,400,952(1) (2)Based on the Schedule 13G filed with the Securities and Exchange Commission on February 8, 2018 by BlackRock, Inc. and certain subsidiaries (BlackRock). BlackRock reported that it had sole voting power over 49,564,818(2) (3)Based on the Schedule 13G filed with the Securities and Exchange Commission on February 14, 2018 by State Street Corporation and certain subsidiaries (State Street). State Street reported that it had shared voting and dispositive power over all shares beneficially owned.(3)
| 2021 Notice of Annual Meeting & Proxy Statement | Ownership of Securities | 25 |
Common Stock and Stock-BasedStock-based Holdings of Directors and Executive Officers
The following table sets forth the beneficial ownership of shares of IBM’s common stock as of December 31, 20172020, by IBM’s current directors and nominees, the executive officers named in the 20172020 Summary Compensation Table, and such directors and all of IBM’s executive officers as of December 31, 20172020, as a group. Also shown are shares over which the named person could have acquired voting power or investment power within 60 days after December 31, 2017.2020. Voting power includes the power to direct the voting of shares held, and investment power includes the power to direct the disposition of shares held.
IBM’s current non-management directors and nominees had beneficial ownership of a total of 229,851241,715 shares andof common stock of IBM and DCEAP shares as of December 31, 2017.2020, an increase of 15% year to year. In the aggregate, these shares were valued at more than $35$30 million as of December 31, 2017,2020, or an average of more than $2.5 million for each of IBM’s non-management directors.
|
|
|
|
|
| Acquirable within 60 days |
| Value of and/or Directors’ |
| |||
Name |
| Common Stock(1) |
| Stock-based |
| Options |
| Directors’ |
| DCEAP Shares at |
| |
Kenneth I. Chenault |
| 8,268 | (6) | 8,268 |
| 0 |
| 31,292 |
| $ | 6,069,295 |
|
Erich Clementi |
| 31,425 |
| 83,064 |
| 0 |
| N/A |
| 4,821,224 |
| |
Michael L. Eskew |
| 0 |
| 0 |
| 0 |
| 27,503 |
| 4,219,510 |
| |
David N. Farr |
| 4,908 |
| 4,908 |
| 0 |
| 6,383 |
| 1,732,265 |
| |
Mark Fields |
| 400 |
| 400 |
| 0 |
| 3,613 |
| 615,674 |
| |
Alex Gorsky |
| 0 |
| 0 |
| 0 |
| 6,690 |
| 1,026,380 |
| |
Shirley Ann Jackson |
| 0 |
| 0 |
| 0 |
| 24,706 |
| 3,790,395 |
| |
James J. Kavanaugh |
| 34,260 | (7) | 68,191 |
| 5,320 |
| N/A |
| 5,256,169 |
| |
John E. Kelly III |
| 83,467 | (8) | 146,222 |
| 0 |
| N/A |
| 12,805,507 |
| |
Andrew N. Liveris |
| 0 |
| 0 |
| 0 |
| 14,263 |
| 2,188,229 |
| |
W. James McNerney, Jr. |
| 0 |
| 0 |
| 0 |
| 15,045 |
| 2,308,204 |
| |
Hutham S. Olayan |
| 0 |
| 0 |
| 0 |
| 3,965 |
| 608,310 |
| |
James W. Owens |
| 5,000 | (9) | 5,000 |
| 0 |
| 19,403 |
| 3,743,908 |
| |
Virginia M. Rometty |
| 205,858 |
| 301,417 |
| 0 |
| N/A |
| 31,582,734 |
| |
Martin J. Schroeter |
| 41,954 |
| 98,724 |
| 0 |
| N/A |
| 6,436,583 |
| |
Joseph R. Swedish(10) |
| 1,261 | (9) | 1,261 |
| 0 |
| 202 |
| 224,453 |
| |
Sidney Taurel |
| 19,487 |
| 19,487 |
| 0 |
| 30,991 |
| 7,744,335 |
| |
Peter R. Voser |
| 0 |
| 0 |
| 0 |
| 6,134 |
| 941,078 |
| |
Frederick H. Waddell(10) |
| 0 |
| 0 |
| 0 |
| 337 |
| 51,703 |
| |
Directors and executive officers as a group |
| 506,027 | (11) | 906,384 |
| 5,320 | (11) | 190,526 | (11) |
|
| |
(1)This column is comprised of shares of IBM common stock beneficially owned by the named person. Unless otherwise noted, voting power and investment power in the shares are exercisable solely by the named person, and none of the shares are pledged as security by the named person. Standard brokerage accounts may include nonnegotiable provisions regarding set-offs or similar rights. This column includes 55,629 shares in which voting and investment power are shared. The directors and officers included in the table disclaim beneficial ownership of shares beneficially owned by family members who reside in their households. The shares are reported in such cases on the presumption that the individual may share voting and/or investment power because of the family relationship. The shares reported in this column do not include 93,227 shares held by the IBM Personal Pension Plan Trust Fund, over which the members of the IBM Retirement Plans Committee, a management committee presently consisting of certain executive officers of IBM, have voting power, as well as the right to acquire investment power by withdrawing authority now delegated to various investment managers.
(2)For executive officers, this column is comprised of the shares shown in the “Common Stock” column and, as applicable, all restricted stock units, including retention restricted stock units, officer contributions into the IBM Stock Fund under the IBM Excess 401(k) Plus Plan, and Company contributions into the IBM Stock Fund under the Excess 401(k) Plus Plan. Some of these restricted stock units may have been deferred under the Excess 401(k) Plus Plan in accordance with elections made prior to January 1, 2008, and they will be distributed to the executive officers after termination of employment as described in the 2017 Nonqualified Deferred Compensation Narrative.
(3)For executive officers, this column is comprised of RSU awards that vest within 60 days after December 31, 2017.
(4)Promised Fee Shares earned and accrued under the IBM Deferred Compensation and Equity Award Plan (DCEAP) as of December 31, 2017, including dividend equivalents credited with respect to such shares. Upon a director’s retirement, these shares are payable in cash or stock at the director’s choice (see 20172020.
Name | Common Stock(1) | | Stock-based Holdings | (2) |
| Acquirable within 60 days |
| | Value of Common Stock shares at Fiscal Year End ($) |
(5) | ||||||||||
| | Options And RSUs | (3) | | Directors’ DCEAP Shares | (4) | |||||||||||||||
Michelle H. Browdy |
| 70,310 |
|
| 100,953 |
|
| 0 |
|
| N/A |
|
| 8,850,623 |
| |||||
Thomas Buberl |
| 0 |
|
| 0 |
|
| 0 |
|
| 1,805 |
|
| 227,213 |
| |||||
Michael L. Eskew |
| 0 |
|
| 0 |
|
| 0 |
|
| 41,161 |
|
| 5,181,347 |
| |||||
David N. Farr |
| 7,508 | (6) |
| 7,508 |
|
| 0 |
|
| 12,108 |
|
| 2,469,262 |
| |||||
Alex Gorsky |
| 4,232 |
|
| 4,232 |
|
| 0 |
|
| 15,987 |
|
| 2,545,168 |
| |||||
Michelle J. Howard |
| 0 |
|
| 0 |
|
| 0 |
|
| 4,367 |
|
| 549,718 |
| |||||
James J. Kavanaugh |
| 77,591 | (7) |
| 126,430 |
|
| 0 |
|
| N/A |
|
| 9,767,155 |
| |||||
John E. Kelly III |
| 73,792 | (8) |
| 131,682 |
|
| 0 |
|
| N/A |
|
| 9,288,937 |
| |||||
Arvind Krishna |
| 86,186 | (9) |
| 249,303 |
|
| 0 |
|
| N/A |
|
| 10,849,094 |
| |||||
Andrew N. Liveris |
| 2,655 |
|
| 2,655 |
|
| 0 |
|
| 24,357 |
|
| 3,400,271 |
| |||||
F. William McNabb III |
| 9,250 |
|
| 9,250 |
|
| 0 |
|
| 3,214 |
|
| 1,568,968 |
| |||||
Martha E. Pollack |
| 0 |
|
| 0 |
|
| 0 |
|
| 5,062 |
|
| 637,205 |
| |||||
Virginia M. Rometty |
| 334,817 |
|
| 448,714 |
|
| 1,500,000 |
|
| N/A |
|
| 42,146,764 |
| |||||
Joseph R. Swedish |
| 5,261 | (10) |
| 5,261 |
|
| 0 |
|
| 4,986 |
|
| 1,289,892 |
| |||||
Sidney Taurel |
| 28,798 |
|
| 28,798 |
|
| 0 |
|
| 43,763 |
|
| 9,133,979 |
| |||||
Peter R. Voser |
| 0 |
|
| 0 |
|
| 0 |
|
| 14,990 |
|
| 1,886,941 |
| |||||
Frederick H. Waddell |
| 3,763 |
|
| 3,763 |
|
| 0 |
|
| 8,448 |
|
| 1,537,121 |
| |||||
Jim Whitehurst |
| 148,606 |
|
| 436,852 |
|
| 4,990 |
|
| N/A |
|
| 18,706,523 |
| |||||
Directors and executive officers as a group |
| 891,108 | (11) |
| 1,672,661 |
|
| 1,504,990 | (11) |
| 180,248 | (11) | ||||||||
| (1) | This column is comprised of shares of IBM common stock beneficially owned by the named person. Unless otherwise noted, voting power and investment power in the shares are exercisable solely by the named person, and none of the shares are pledged as security by the named person. Standard brokerage accounts may include nonnegotiable provisions regarding set-offs or similar rights. This column includes 135,267 shares in which voting and investment power are shared. The directors and officers included in the table disclaim beneficial ownership of shares beneficially owned by family members who reside in their households. The shares are reported in such cases on the presumption that the individual may share voting and/or investment power because of the family relationship. The shares reported in this column do not include 44,160 shares held by the IBM Personal Pension Plan Trust Fund, over which the members of the IBM Retirement Plans Committee, a management committee presently consisting of certain executive officers of the Company, have voting power, as well as the right to acquire investment power by withdrawing authority now delegated to various investment managers. |
| (2) | For executive officers, this column is comprised of the shares shown in the “Common Stock” column and, as applicable, all restricted stock units including retention restricted stock units, a retention performance share unit award, officer contributions into the IBM Stock Fund under the IBM Excess 401(k) Plus Plan, and Company contributions into the IBM Stock Fund under the Excess 401(k) Plus Plan. Some of these restricted stock units may have been deferred under the Excess 401(k) Plus Plan in accordance with elections made prior to January 1, 2008, and they will be distributed to the executive officers after termination of employment as described in the 2020 Nonqualified Deferred Compensation Narrative. |
| (3) | For executive officers, this column is comprised of (i) shares that can be purchased under an IBM stock option plan within 60 days after December 31, 2020, and (ii) RSU awards that vest within 60 days after December 31, 2020. For Mrs. Rometty, shares in this column are from a premium-priced option grant that can be purchased pursuant to an IBM stock option plan within 60 days after December 31, 2020. For Mr. Whitehurst, shares in this column are from a Red Hat restricted stock award that was converted pursuant to the Red Hat merger agreement into an IBM restricted stock award which will vest within 60 days after December 31, 2020. |
| (4) | Promised Fee Shares earned and accrued under the IBM Deferred Compensation and Equity Award Plan (DCEAP) as of December 31, 2020, including dividend equivalents credited with respect to such shares. Upon a director’s retirement, these shares are payable in cash or stock at the director’s choice (see 2020 Director Compensation Narrative for additional information). |
| (5) | Values in this column are calculated by multiplying the number of shares shown in the “Common Stock” column plus the “Directors’ DCEAP Shares” column by the closing price of IBM stock on the last business day of the 2020 fiscal year ($125.88). |
| (6) | Includes 450 shares in which voting and investment power are shared. |
| (7) | Includes 15,174 shares in which voting and investment power are shared. |
| (8) | Includes 49,128 shares in which voting and investment power are shared. |
| (9) | Includes 65,253 shares in which voting and investment power are shared. |
| (10) | Voting and investment power are shared. |
| (11) | The total of these three columns represents less than 1% of IBM’s outstanding shares, and no individual’s beneficial holdings totaled more than 1/4 of 1% of IBM’s outstanding shares. |
| 26 | 2021 Notice of Annual Meeting & Proxy Statement | Ownership of Securities |
Environmental and Social Responsibility
(5)Values
Corporate social responsibility has been a hallmark of IBM’s culture for over 100 years. With oversight from the Board, we have long embraced a corporate philosophy that is inclusive of all our stakeholders – from our customers, employees, suppliers and stockholders, to our communities and the world around us. Each of those stakeholders is increasingly focused on environmental, social and governance, or “ESG,” practices and how they impact the Company and society. Our world-class governance practices are set out above in this column are calculatedProxy Statement. In addition, IBM’s leadership in environmental and social responsibility is an integral part of our long-term performance strategy, and we continue to take bold actions that build upon our legacy of responsible stewardship.
We encourage stockholders to read our annual Corporate Responsibility Report which provides deep insight into all of our ESG initiatives and more, including a mapping of key ESG metrics to SASB, and is available at: https://www.ibm.org/responsibility/reports. Based on feedback from our investor outreach, below we also provide some examples reflecting how we are:
Protecting the number of shares shownEnvironment
In 2021, following record progress toward our renewable electricity and greenhouse gas emissions goals, IBM set next generation goals to continue our leadership in sustainability. Notably, IBM now aims to reach net zero greenhouse gas emissions by 2030.
For the past 30 consecutive years, IBM has voluntarily published its IBM and the Environment Report providing detailed information on our environmental programs and performance. IBM’s uninterrupted annual publication of this report since 1990 is unsurpassed across our industry. The most recent IBM and the Environment Report is available at https://www.ibm.com/ibm/environment/annual/reporting.shtml. You can also review IBM’s comprehensive contributions to the U.N. Sustainable Development Goals at https://files.ibm.org/responsibility/thought-leadership/pdfs/IBM_and_the_UN_Sustainable_Development_Goals.pdf. |
| 2021 Notice of Annual Meeting & Proxy Statement | Environmental and Social Responsibility | 27 |
The COVID-19 pandemic has brought challenges unlike any seen in the “Common Stock” column plusmodern world. Our response has been guided by four principles: (1) employee, client and community health is top priority; (2) our plan and response must be data-driven and evidence-based; (3) we will comply with all government requirements; and (4) focus on business continuity and maintaining critical operations. At the “Directors’ DCEAP Shares” columnoutset, IBM immediately mobilized to move nearly all of our ~350,000 employees to work remotely within two weeks and established resources for maintaining employee engagement, productivity and emotional support. We also assembled our resources and brought together the right communities of experts, including clients, governments, scientists, developers, partners, academic institutions, health agencies and IBMers, to work together and manage through the COVID-19 outbreak by doing what IBM does best: applying data, knowledge, computing power and insights to solve difficult problems.
Supporting our Communities During the Pandemic |
✓ Spearheaded the COVID-19 High Performance Computing Consortium with the White House Office of Science and Technology Policy and the U.S. Department of Energy to provide access to the world’s most powerful high-performance computing resources in support of COVID-19 research ✓ Committed $200M in technology, services, and money to COVID-19 response efforts including to aid healthcare scientists, researchers, and educators ✓ Created precise incident mapping ✓ Raised funds for first responders and hospital workers ✓ Provided 300,000 New York students with equipment they need for online lessons |
Supporting the closing priceIBMer
At IBM, our global workforce is highly skilled, reflective of the work we do for our clients’ digital transformations and in support of their mission-critical operations. We are passionately dedicated to our employees’ professional growth and personal well-being, investing in resources to help IBMers develop their skills and leadership potential, and building on IBM’s legacy of leading the market in welcoming and supporting a diverse, inclusive workforce.
Talent and Culture | Diversity and Inclusion | Health and Safety | ||
• IBM offers a compelling value proposition to employees: IBMers develop innovative technologies including Cloud, AI, quantum computing and cybersecurity, for clients whose businesses the world relies on • 9 out of 10 IBMers have acquired strategic skills with IBMers completing more than 80 hours of learning per person in 2020 • Hundreds of thousands of IBMers globally participate in our annual engagement survey, with workforce engagement up more than 2 points year to year • Every IBM manager and leader has access to their team and organization engagement levels along with actionable data-driven insights • Attrition levels in 2020 were below the prior 5-year average | • We seek to ensure IBMers from diverse backgrounds are engaged, feel supported to be their authentic selves, build skills, and achieve their greatest potential • IBM’s Board of Directors recently adopted a policy to commit IBM to annually publish a report assessing the Company’s diversity, equity and inclusion efforts and programs • 9 out of 10 IBMers say they can be their authentic selves at work • More than 33% IBMers identify as women • Engagement was up year to year for women, Black and Hispanic IBMers • IBM has had an equal pay policy since 1935; we have conducted statistical pay equity analysis for decades, and in 2020 this included all countries where we have employees | • We have a long-standing commitment to the health, safety and well-being of our employees • Early in the course of the COVID-19 outbreak, we restricted travel, cancelled meetings and events, and prepared nearly 95% of our workforce to work from home • Our robust case management system manages COVID-19 exposures • Our comprehensive playbook on workplace health and safety measures will allow locations to reopen when pandemic conditions improve • Employees are supported with 24/7 access to IBM’s world-class Health and Safety team for questions and concerns, education and bidirectional, timely and targeted communications |
| 28 | 2021 Notice of Annual Meeting & Proxy Statement | Environmental and Social Responsibility |
IBM continues to invest in skills and | • P-TECH, our high school to career model focuses on students of color and educationally underserved students; P-TECH now spans 243 schools and 600 industry partners across 28 countries • IBM’s “returnship” and apprenticeship programs create opportunities for hundreds of new IBMers • Open P-TECH, our platform providing free online learning for students ages 14-20 on emerging technologies and professional competencies, has more than 224,000 users • SkillsBuild, our platform providing free online learning for adults in need of skilling and reskilling, now serves more than 122,000 users globally |
The IBM Board’s Commitment to Diversity and Inclusion
The IBM Board of Directors strongly believes that much of the future success of IBM stockdepends on the lastcaliber of its talent and the full engagement and inclusion of IBMers in the workplace. A diverse and inclusive workplace leads to greater innovation, agility, performance and engagement, enabling both business daygrowth and societal impact. In furtherance of this mission, and in response to engagement with our stockholders, the IBM Board formally adopted a policy committing the Company to report annually on the effectiveness of our diversity and inclusion programs. IBM will publish a diversity and inclusion report in the second quarter of 2021. Furthermore, we have committed to publish EEO-1 data in 2022 after the completion of the 2017 fiscalCompany’s spin-off of its managed infrastructure services business.
 | IBM’s Be Equal employee pledge campaign champions diversity and inclusion for everyone, driving systemic, sustainable improvement for people in every community. Since its launch in 2019, tens of thousands of individuals worldwide have pledged their commitment to equal representation. | • Be Vocal • Be Plural • Be Active • Be Supportive • Be Progressive |
Operating with Trust and Transparency
For more than 100 years, IBM has continuously strived for responsible innovation capable of bringing benefits to everyone and not just a few. This philosophy is also applied to artificial intelligence: we aim to create and offer reliable technology that can augment, not replace, human decision-making. Properly calibrated, AI can assist humans in making fairer choices, countering human biases, and promoting inclusivity. IBM recognized early that clearly articulating principles around the ethical deployment of AI technologies was critical — backed by a strong commitment to putting words into practice. Our commitment is represented by our long-standing values, our Trust and Transparency Principles, and several recent developments: IBM signed the Vatican’s Rome Call for AI Ethics, created the Notre Dame-IBM Technology Ethics Lab, published our Points of View on Facial Recognition and the Precision Regulation of AI, donated our AI Explainability 360 Toolkit as an open source resource, and contributed to the EU High-Level Expert Group’s Guidelines for Trustworthy AI.
While continuing to collaborate with governments, companies and other organizations, we also embraced the need for an internal governance framework and process to evaluate opportunities based on well-defined guidance around privacy and security. We established an internal AI Ethics Board to work with experts through our business to centralize the assessment of more complicated questions. The board is comprised of a cross-disciplinary team of senior IBMers, co-chaired by IBM’s Chief Privacy Officer and AI Ethics Global Leader, and reports to the highest levels of the Company.
The Purpose of AI | Data Insights and Ownership | Transparency and Explainability | ||
|
|
| ||
The purpose of AI is to augment human intelligence. At IBM, we believe AI should make all of us better at our jobs, and that the benefits of the AI era should touch the many. | Data and insights belong to their creator. IBM clients’ data is their data, and their insights are their insights. | New technology, including AI systems, must be transparent and explainable. Technology companies must be clear about who trains their AI systems, what data was used in that training and, most importantly, what went into their algorithms’ recommendations. | ||
| 2021 Notice of Annual Meeting & Proxy Statement | Environmental and Social Responsibility | 29 |
Responsibly Advocating Public Policy
IBM’s Government and Regulatory Affairs team engages in worldwide policy advocacy to drive growth and innovation in the digital economy.
IBM has never had a political action committee (PAC), makes no political donations, and has always been committed to meaningful management, oversight, and accurate reporting of our engagement with government officials. To be clear, these policies do not put IBM at a disadvantage — instead, they empower us to promote meaningful policies that are good for business, employees, and all our stakeholders. Over the past year, ($153.42)while America’s democratic institutions were tested and many of IBM’s corporate peers contemplated suspending financial contributions to certain elected officials, we faced no such quandary. Consistent with our long-held principles, IBM was able to stay focused on substantive policy issues.
| Political Contributions: In 1968, former IBM CEO Thomas Watson Jr. said a company “should not try to function as a political organization in any way.” IBM continues to live by this philosophy to this day. We have a long-standing policy not to make contributions of any kind (money, employee time, goods or services), directly or indirectly, to political parties or candidates, including through intermediary organizations, such as PACs, campaign funds, or trade or industry associations. This policy applies equally in all countries and across all levels of government, even where such contributions are permitted by law. In short, IBM engages in policy, not politics. | |
IBM does not have a PAC and does not engage in independent expenditures or electioneering communications as defined by law. | ||
| Lobbying: IBM’s Government and Regulatory Affairs team is committed to advancing common sense public policies that benefit our business and communities. We seek to build trust in technology through precision regulation, a modernized digital infrastructure, promoting justice and equality for all citizens, and leveraging science and technology for good, including in the global fight against COVID-19. All IBM lobbying activities, including by third parties on behalf of IBM, require the prior approval of the IBM Office of Government and Regulatory Affairs and must comply with applicable law and IBM’s Business Conduct Guidelines. | |
IBM files periodic reports with the Secretary of the U.S. Senate and the Clerk of the U.S. House of Representatives detailing its U.S. federal lobbying activities and expenditures, with U.S. state and municipal governments, where required, and with the European Union Transparency Register. | ||
| Trade Associations: IBM joins trade and industry associations that add value to IBM, its stockholders and employees. These groups have many members from a wide variety of industries, and cover broad sets of public policy and industry issues. Although IBM works to make our voice heard, there may be occasions where our views on an issue differ from those of a particular association. | |
We perform comprehensive due diligence on all of our trade associations to confirm they are reputable and have no history of malfeasance. Company policy prohibits them from using any IBM funds to engage in political expenditures, and we implement robust procedures to ensure they comply. The IBM Board of Directors, as part of its oversight function, periodically receives reports from senior management relating to IBM’s policies and practices regarding governmental relations, public policy, and any associated expenditures. IBM’s senior management, under the leadership of IBM Government and Regulatory Affairs, closely monitors and coordinates all public policy advocacy efforts, as well as any lobbying activities. | ||
IBM is proud to report that the Center for Political Accountability’s 2020 Report on Corporate Political Disclosure and Accountability gave IBM a score of 98.6 out of 100, naming IBM a trendsetter in Political Disclosure and Accountability and recognizing IBM as one of only 26 companies that prohibit trade associations and non-profits from using Company contributions for election-related purposes. | ||
Advocating on Social Justice | ||||||||
Police Reform Advocating for new federal rules that hold police more accountable for misconduct | Responsible Use of Technology Condemning the contributions of technology to discrimination or racial injustice | Broadening Opportunities Providing training and education for in-demand skills, to expand economic opportunity for communities of color | LGBT+ Rights Fighting for LGBT+ workplace equality since 1984, when IBM first included sexual orientation in its equal opportunity policy | Immigration Reform Standing with Dreamers and protecting the vital role that immigrants have always played in this country | ||||
IBM’s policies and practices with regard to public policy matters, including lobbying activities and expenditures, are available on its website: https://www.ibm.com/policy/government-regulatory-affairs/philosophy-governance/.
| 30 | 2021 Notice of Annual Meeting & Proxy Statement | Environmental and Social Responsibility |
(6)Includes 1,619 shares in which voting and investment power are shared.
(7)Includes 15,174 shares in which voting and investment power are shared.
(8)Includes 25,639 shares in which voting and investment power are shared.
(9)Voting and investment power are shared.
(10)Mr. Swedish and Mr. Waddell joined the Board in October 2017.
(11)The total of these three columns represents less than 1% of IBM’s outstanding shares, and no individual’s beneficial holdings totaled more than 1/10 of 1% of IBM’s outstanding shares.
Message to Stockholders
Report of the Executive Compensation and
Management Resources Committee of the Board of Directors
Set out below is the Compensation Discussion and Analysis, which is a discussion of IBM’s executive compensation programs and policies written from the perspective of how we and management view and use such programs and policies. Given the Committee’s role in providing oversight to the design of those programs and policies, and in making specific compensation decisions for senior executives using those policiesprograms and programs,policies, the Committee participated in the preparation of the Compensation Discussion and Analysis, reviewing successive drafts of the document and discussing those with management. The Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement. We join with management in welcoming readers to examine our pay practices and in affirming the commitment of these pay practices to the long-term interests of stockholders.
Alex Gorsky(chair)
Andrew N. Liveris
W. James McNerney, Jr.Joseph R. Swedish
Sidney Taurel (chair)Martha E. Pollack
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Executive Compensation | 31 |
20172020 Compensation Discussion and Analysis
Executive Summary
Compensation information is disclosed in this Proxy statement for both Mr. Krishna and Mrs. Rometty. Mr. Krishna succeeded Mrs. Rometty as Chief Executive Officer on April 6, 2020. He assumed the Chairman’s role beginning January 1, 2021. Mrs. Rometty was Executive Chairman until December 31, 2020, when she retired from the Company.
IBM’s financial model is designedStrategic Pivot to deliver profitable growth through the creation of compelling value for our clients. Growth
Over the last several years, IBM has built the foundation to capitalize on the $1 trillion hybrid cloud market opportunity, accelerated with the 2019 acquisition of Red Hat that established IBM as the market-leading hybrid cloud platform. In 2020, IBM took further decisive action to redefine the future of the company and create value through focus. In October 2020, the Company has embarked on a multi-year transformation to ensure this financial model delivers for our investors. By prioritizing investmentsannounced the spin-off of the managed infrastructure services business, which will immediately be the market leader at twice the size of its nearest competitor.
As discussed with strong returns, we continueinvestors, the pending spin-off will enable IBM to focus on generating high value for our shareholders, employeesdelivering sustainable growth as a hybrid cloud and clients while aggressively investingAI company. This also represents a shift in the Company’s business model where the majority of revenue will now come from software and solutions, enabling accelerated revenue growth post separation. To realize this strategy, IBM is undertaking a number of actions associated with the spin-off and the growth of the hybrid cloud business. These include structural and transaction-related actions enabling the separation and ongoing competitiveness of the managed infrastructure services business, as well as increased reinvestment in the hybrid cloud platform. The Company plans to increase investment in innovation, skills expertise and ecosystems including targeted acquisitions to accelerate IBM’s hybrid cloud platform growth strategy.
To reinforce the strategic shift, we revamped our transformation.executive compensation programs to ensure alignment with IBM’s growth strategy and investor expectations. The following comprehensive changes have been made to support this growth prioritization:
The impacts of these significant strategic decisions on the Company’s executive compensation programs are discussed in the following Compensation Discussion and Analysis.
| 32 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis |
In 2020, IBM delivered $73.6B in revenue, with a 48.3% gross profit margin, and generated $18.2B cash from operations. |
Hybrid Cloud Platform Performance
IBM Cloud Revenue
Over $25B total Cloud revenue, more than doubling since 2015, and now making up over 34% of IBM revenue.
Red Hat Growth
In 2017, IBM delivered $79.1B inRed Hat continued its momentum, with strong double-digit revenue growth(1).
Year-to-Year Gross Margin
Expanded gross margin, with a 46% gross profit margin,continued shift to higher value and generatedimproved services productivity.
Establishing two Market-Leading Companies
Announced separation of the managed infrastructure services business into a new $19B* market-leading public company.
Strong Cash Generation And Strategic Capital Allocation $16.7B cash from operations.
| Generated $10.8B Free Cash Flow(1), with 196% realization(2)
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Invested Capital (ROIC) 14.5%(1, 3) | Returned $5.8B to |
Revenue from our Strategic Imperatives of cloud, analytics, mobile, social and security has reached a critical mass in 2017, growing to $36.5B, led by growth in cloud and security.
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Over the past three years, we have worked to aggressively transform, while returning nearly 75% of free cash flow to shareholders.
FREE CASH FLOW USE
| (2) | 143% excluding $2B charge for 4Q 2020 structural action. See Appendix A for information on how we calculate this performance metric. |
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Our compensation strategy supports IBM’s high value business model
For 2017, at target, 69%of Mrs. Rometty’s pay was at risk and subject to attainment of specific performance goals:
For 2017 performance, the Board approved an annual incentive payment of $5.1 million for Mrs. Rometty, 102% of target. The payout level reflects a successful multi-year transformation with a return to revenue growth in 4Q 2017, a remix of the business portfolio, and recognition of the Company as the enterprise leader in artificial intelligence solutions, cloud services, security, blockchain, and quantum computing. The Executive Compensation and Management Resources Committee (the Compensation Committee) also noted significant personal leadership of the CEO in infusing new executive talent into the Company and developing next generation leaders. In addition, she set the standards for workplace inclusion, for responsible stewardship of data and artificial intelligence, and for “new collar” work and training programs on a global basis. Taking into consideration the actual salary, annual incentive payout, vested restricted stock units and long-term incentive award for the period 2015—2017, Mrs. Rometty earned 81% of her annual total target compensation in 2017.
The tables below illustrate how Mrs. Rometty’s pay at risk has affected her realized pay, compared to her target pay, in each of the past 3 years. These payouts reflect the multi-year business transformation, rigorous target setting and the strong link between pay and performance.
CEO TOTAL ACTUAL VS. TARGET COMPENSATION
Values in Millions ($)
For 2018, the independent members of the Board made no change to Mrs. Rometty’s base salary, target annual incentive or annual long-term incentive award value, relative to 2017.
Note: In an effort to provide additional and useful information regarding IBM’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), this Compensation Discussion and Analysis and Proxy Statement containcontains certain non-GAAP financial measures on a continuing operations basis, including operating earnings per share, free cash flow, operating pre-taxcash flow, operating net income from continuing operations, revenue for Red Hat normalized for historical comparability, revenue growth rates adjusted for currency, revenue adjusted for divested businesses and operating income from continuing operations.currency, and ROIC. For reconciliation and rationale for management’s use of this non-GAAP information, refer to Appendix A — “Non-GAAP Financial Information and Reconciliations”.Reconciliations.”
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis | 33 |
Stockholder Engagement
IBM continually reviews and enhances its corporate governance and executiveOur compensation programs. As part of this review, it is IBM’s longstanding practice to meetstrategy, with a significant number of our largest investors during each proxy season, to solicit their feedback on a variety of topics. In 2017, IBM once again engaged with over 100 institutional investors. Further, our process includes outreach to hundreds of thousands of individual retail and registered stockholders, which represent a majority of our retail base.
In addition to our normal, extensive outreach,pay at risk, supports the Company enhanced its engagement practices in 2017. We engaged in a robust program to gather feedback from investors following the 2017 annual advisory vote on executive compensation (Say on Pay). IBM’s Presiding Director, the Chair of the Executive Compensation and Management Resources Committee, and membersdrivers of IBM’s senior management participated in a significant portionhigh value business model.
For 2020, at target, 65% of this engagement program. Overall, the Company met with investors representing more than 55%Mr. Krishna’s pay effective April 6, 2020 (when he became CEO) was at risk and subject to attainment of the shares that voted on Say on Pay at the 2017 Annual Meeting.rigorous performance goals.
For 2020 performance, the Board approved an annual incentive payment of $2,181,000 for Mr. Krishna, 85% of target. The payout reflects a 100% Individual Contribution Factor (ICF) and the Annual Incentive Program (AIP) pool funding at 85%.
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This enhanced, in-depth engagement process provided valuable feedback to
In making this award in line with the Compensation Committee. Overall, our stockholders continue to be supportiveCompany’s incentive score, the Committee also considered Mr. Krishna’s overall performance against his objectives, which included positioning the Company for sustainable growth as a hybrid cloud and AI company by announcing the spin-off of the Company’s compensation program and practices. Specifically, our stockholders are strongly supportive of the overall design of the program, which focuses on long-term financial performance that drives stockholder value. Still,managed infrastructure business. In addition, the Committee considered his personal leadership in continuing IBM’s leadership in quantum computing, increasing diversity representation across all areas, and record employee engagement in a challenging environment.
Payouts in both the Board reviewedannual and considered all of the feedback heard from investors in making decisions relating to the executive compensation programs. The following table summarizes the items raised by our investors and the changes we made to our executive compensation program in response.long-term programs reflect rigorous performance goals.
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| 34 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis |
Section 1: Executive Compensation Program Design and Results
Trust and personal responsibility in allrelationships — relationships with clients, partners, communities, fellow IBMers, and investors — is a core value at IBM. As a part of maintaining this trust, we well understand the need for our investors — not only professional fund managers and institutional investor groups, but also millions of individual investors — to know how and why compensation decisions are made.
To that end, IBM’s executive compensation practices are designed specifically to meet five key objectives:
To that end, IBM’s executive compensation practices are designed specifically to meet five key objectives: | ||
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| •Balance rewards for both short-term results and the long-term strategic decisions needed to ensure sustained business performance over time; | |
| •Attract and retain the highly qualified senior leaders needed to drive a global enterprise to succeed in today’s highly competitive marketplace; | |
| •Motivate our leaders to deliver a high degree of business performance without encouraging excessive risk taking; and | |
| •Differentiate rewards to reflect individual and team performance. | |
The specific elements of IBM’s U.S. executive compensation programs are:
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Type | Component | Key Characteristics | ||||
Current Year Performance | Salary | Salary is a market-competitive, fixed level of | ||||
Annual Incentive Program (AIP) | At target, annual incentive provides a market-competitive total cash opportunity. Actual annual incentive payments are | |||||
Long-Term Incentive | ||||||
| Performance Share Units (PSUs)
| Equity awards are typically For PSUs, the number of units granted In addition, a relative performance metric applies to | ||||
| Restricted Stock Units (RSUs) | RSUs vest over time; typically ratably over | |||||
Retention | ||||||
| Stock-Based Grants & Cash Awards | Periodically, the Compensation Committee and/or the Chairman and CEO reviews outstanding stock-based awards for key executives. Depending on individual performance and the competitive environment for senior executive leadership talent, awards may be made in the form of | ||||
Other Compensation | ||||||
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| Perquisites and Other Benefits | Perquisites are intended to ensure safety and productivity of executives. Perquisites include such things as annual executive physicals, transportation, financial planning, and personal security. | ||||
Compensation Governance
Overall, IBM’s compensation policies and decisions, explained in detail in this Compensation Discussion and Analysis, continue to be focused on long-term financial performance to drive stockholder value.
The table below highlights practices that IBM embraces in support of our pay-for-performance philosophy:
Post Employment
Savings Plan
U.S. employees may participate in the IBM 401(k) Plus Plan by saving a portion of their pay in the plan, and eligible employees may also participate in a non-qualified deferred compensation savings plan, which enables participants to save a portion of their eligible pay in excess of IRS limits for 401(k) plans. The Company provides matching and automatic contributions for both of these plans.
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Senior Leadership Team — Personal Stake in IBM’s Future through Stock Ownership Requirements
Investors want the leaders of their companies to act like owners. That alignment, we believe, works best when senior leaders have meaningful portions of their personal holdings invested in the stock of their company. This is why IBM sets significant stock ownership requirements for IBM’s Chairman and CEO and Senior Vice Presidents. The following table illustrates which equity holdings count towards stock ownership requirements:
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| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis | 35 |
The Chairman
Our Incentive Compensation Design Supports our Business Strategy
Our senior executive pay is heavily weighted to IBM’s performance through the annual and CEO and Senior Vice Presidents are all required to own IBM shares or equivalents in excess of standard market practice within 5 years of hire or promotion. While we have historically expressed our stock ownership requirements as a multiple of target total cash compensation, we are now describing them as a multiple of salary to align with market practice. This does not changelong-term incentive programs. Each year, the amount of shares required to be held, but we believe it will clarify the stock ownership requirements we have for our NEOs.
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| Current Approach: Multiple of Total Target |
| New Approach: Multiple of Salary | ||
NEO Name |
| IBM Minimum Requirement |
| IBM Minimum Requirement |
| Median Peer Group Minimum |
V.M. Rometty |
| 3 |
| 10 |
| 6 |
M.J. Schroeter |
| 3 |
| 7 |
| 3–4 |
J.E. Kelly III |
| 3 |
| 7 |
| 3–4 |
E. Clementi |
| 3 |
| 7 |
| 3–4 |
J.J. Kavanaugh |
| 3 |
| 7 |
| 3–4 |
Mrs. Rometty owns common stock and stock-based holdings equal in value to 24 times her base salary, more than 2 times the required holdings, based on both the current and new approach to disclosure as of December 31, 2017. More information on Mrs. Rometty’s holdings can be found in Common Stock and Stock-Based Holdings of Directors and Executive Officers. As a group, the Chairman and CEO and Senior Vice Presidents owned shares or equivalents valued at over $120 million as of December 31, 2017; in fact, as ofCommittee ensures that date, this group held, on average, more than 10 times their base salary.
Stock Ownership Continues Beyond Retirement
Finally, ourthese programs are designedclosely aligned to ensure alignment with IBM’s long-term interests past the retirement date for our Chairman and CEO and Senior Vice Presidents. Share price performance and long-term goal achievement continue to impact the Long-Term Incentive Plan for these retired executives for at least two and a half years post retirement. Shares for Mrs. Rometty that remain restricted and subject to post-retirement performance of IBM represent 1.6 times her share ownership requirement as of December 31, 2017, and assuming future performance at target.
Setting Performance Targets for Incentive Compensation
Compensation of our senior leaders is linked with IBM’s performance against core business metrics. These metrics and their weightings are aligned with IBM’sCompany’s financial and strategic objectives and are designed to appropriately balance short- and long-term goals.balanced. Targets are set for both the annual and long-term incentive programs at aggressivechallenging levels each year. These targets, individually and together, are designed to be challenging to attain and are consistent with ourIBM’s financial model shared with investors eachfor that year. As part of IBM’s ongoing management system, targets are evaluated to ensure they do not encourage an inappropriate amount of risk taking.
For 2017,performance-based programs ending in 2020, IBM continued to measure fivemeasured performance across six key financial metrics:
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AIP |
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Operating Cash Flow* (40%)
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ROIC Modifier (beginning in 2018)
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| Reaffirms high value business model through a negative adjustment for ROIC below S&P 500 median, and a positive adjustment for ROIC above both the S&P 500 and S&P IT medians |
*Net Cash from Operating Activities, excluding Global Financing receivables.
IBM shares its financial model each year with investors in the context of its long-term strategy. Based on feedback from recent meetings withTo provide transparency into the rigor of our investors, and to increase our transparency further, beginning this year,goal setting process, IBM is disclosingdiscloses the performance attainment against targets for the most recent performance period, for both the Annual Incentive Program and the Performance Share Unit Program.
AIP and PSU Design Updates Beginning in 2021
To reinforce the strategic shift of the Company’s business model announced in October 2020, when IBM announced the spin-off of the Company’s managed infrastructure services business, and to support the focus on delivering sustainable revenue growth and free cash flow as a hybrid cloud and AI company, the Committee revamped the performance metrics in our executive compensation programs as follows:
2021 Metrics and Weightings
IBM Revenue (50%) |
| Increased focus on total IBM revenue performance across the IBM portfolio of business (weighting increased from 20%) | ||||
AIP | Operating Cash Flow* (50%) |
| Increased focus on our ability to reinvest and return value to stockholders (weighting increased from 40%) | |||
Diversity Modifier New in 2021 |
| Reinforces senior management’s focus on improving a diverse representation of our workforce | ||||
IBM Revenue (40%) New in 2021 |
| Reinforces focus on cumulative IBM revenue performance over multiple years | ||||
PSU Program | Operating EPS (30%) |
| Measures operating profitability on a per share basis (weighting reduced from 70%) | |||
Free Cash Flow (30%) |
| Continues to be an important measure of our ability to reinvest and return value to stockholders over multiple years (weighting maintained) | ||||
ROIC Modifier |
| Reaffirms high value business model through a negative adjustment for ROIC below S&P 500 median, and a positive adjustment for ROIC above both the S&P 500 and S&P IT medians |
| *Net | Cash from Operating Activities, excluding Global Financing receivables. |
| 36 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis |
2020 Annual Incentive Program
How It Works
IBM sets business objectives at the beginning of each year, which are approved by the Board of Directors. The Compensation Committee and the Board of Directors review IBM’s annual business objectives and set the metrics and weightings for the annual program to reflect current business priorities. These objectives translate to targets for IBM and for each business unit for purposes of determining the target funding of the Annual Incentive Program. AIP.
Performance against business objectives determines the actual total funding pool for the year, which can vary from 0% to 200% of total target incentives for all executives. At the end of the year, performance for IBM is assessed against these predetermined financial targets, which are updated to remove any impact of currency movement or the change in effective tax raterates, compared to plan. The metrics and weightings for 2017 and 2018, along with IBM’s results compared to financial targets for 2017, are listed below.
The financial targets may be adjusted up or down for extraordinary events if recommended by the Chairman and CEO and approved by the Compensation Committee. This adjustment can be either up or down. For example, adjustments are usually made for large divestituresacquisitions and acquisitions.divestitures. For 2020, the target was adjusted to exclude the impact of the $2.0 billion pre-tax charges for structural actions in the fourth quarter to simplify and optimize our operating model in support of the announcement we made in our strategic update in October. While the COVID-19 global pandemic had a significant impact on 2020 results, no adjustment was made to scoring due to COVID-19. The Committee determined that this approach best reflected the stockholder experience in 2020. In addition, the Chairman and CEO can recommend an adjustment, up or down, based on factors beyond IBM’s financial performance,performance; for example, client experience, market share growth and workforce development. Taking such matters into account for 2017, no such adjustment was made. diversity and inclusion of IBM’s workforce. Although IBM made improvements in several non-financial areas in 2020, including record diversity across all representation groups, the Chairman and CEO did not recommend any qualitative increase on the score given overall results in a challenging 2020 business environment.
The Compensation Committee reviews the financial scoring and qualitative adjustments and approves the Annual Incentive ProgramAIP funding level.
Financial Metrics |
| 2017 |
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| Weight |
| Resulting Incentive | +/- | Qualitative | = | Final Score |
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Strategic Imperatives Revenue |
| $ | 36.5B |
| 99% |
| 20% |
| 100 |
| 0 |
| 100 |
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Operating Net Income** |
| $ | 12.9B |
| 91% |
| 40% |
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Operating Cash Flow** |
| $ | 16.3B |
| 101% |
| 40% |
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* Based on AIP payout table.
** Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance metrics.
Once the total pool funding level has been approved, payouts for each executive are calculated using an Individual Contribution Factor (ICF). The ICF is determined by evaluating individual performance against predetermined business objectives. As a result, a lower-performing executive will receive as little as zero payout and the most exceptional performers (excluding the Chairman and CEO) are capped at three times their individual target incentive (payouts at this level are rare and only possible when IBM’s performance has also been exceptional). The Annual Incentive Program,AIP, which covers approximately 5,000 IBM executives, includes this individual cap at three times the individual target to ensure differentiated pay for performance. The Compensation Committee reviewed this plan featureFor the Chairman and determined common market practice forCEO, the CEOcap is a cap of two times target. Therefore, beginningAn executive generally must be employed by IBM at the end of the performance period in 2018,order to be eligible to receive an AIP payout. At the discretion of appropriate senior management, the Compensation Committee, has setor the Chairman and CEO’s maximum incentive payment to two timesBoard, an executive may receive a prorated payout of AIP upon retirement. AIP payouts earned during the target amount. Since becoming CEO, Mrs. Rometty’s incentive payments have ranged from 0% to 108%performance period are generally paid on or before March 15 of target.the year following the end of such period.
This incentive design ensures payouts are aligned to IBM’s overall business performance while also ensuring individual executive accountability for specific business objectives.
2020 AIP Payout Results
Based on full year financial performance against total IBM revenue, operating net income, and operating cash flow, the weighted incentive score was 85.
| (1) | Based on AIP payout table. |
| (2) | Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance metrics. |
Performance Share Unit Program
The Performance Share Unit (PSU) metrics for the 2015–20172018–2020 performance period were Operating EPS and Free Cash Flow, unchanged from previous years.
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis | 37 |
Targets are established at the beginning of each three-year performance period. Both Operating EPS and Free Cash Flow cumulative three-year targets for the 2018-2020 performance period exceeded those cumulative three-year targets for the previous performance period (2017-2019). These targets are based on IBM’s financial model, as shared with investors, and the Board-approved annual budget. The Committee’s longstanding practice is that the Company’s share repurchase activities have no effect on executive compensation. To formalize this practice, for Performance Share awards starting in 2016 and thereafter, actualActual operating EPS results are adjusted to remove the impact of any difference between the actual share count and the budgeted share count, while simultaneously ensuring that executive compensation targets are normalized for any planned buybacks that are incorporated into the Operating EPS target. Additionally, the scoring for the Performance Share UnitPSU Program takes into account extraordinary events. For the 2015–20172018-2020 performance period, results are adjusted to exclude the impact of the Red Hat acquisition. This approach is consistent with the adjustment made to the previous performance period (2017-2019). For 2018-2020, results were also adjusted to exclude the impact of the $2.0 billion pre-tax charges for structural actions in the fourth quarter to simplify and optimize our operating model in support of the announcement we made in our strategic update in October. While the COVID-19 global pandemic had a significant impact on the 2018-2020 results, there werewas no such events.adjustment made to scoring due to COVID-19. The Committee determined that this approach best reflected the stockholder experience in 2020.
At the end of each three-year performance period, the Compensation Committee approves the determination of actual performance relative to pre-established targets, and the number of Performance Share Units isPSUs are adjusted up or down from 0% to 150%, of targets, based on the approved actual performance. There is no discretionary adjustment to the PSU program score.
The PSU score is calculated as a weighted average of results against targets for Operating EPS (70%) and Free Cash Flow (30%). The calculation is demonstrated in the table below, using the 2015–2017 performance period.
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| Free Cash |
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2015–2017 Performance Period |
| EPS** |
| Flow** |
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3 Year Cumulative Performance |
| $ | 42.31 |
| $ | 37.7B |
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% Attainment |
| 84% |
| 93% |
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Incentive Score |
| 60 |
| 83 |
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Weighting |
| 70% |
| 30% |
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Final Score |
| 67 |
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** Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance metrics. 2015–2016 free cash flow results as originally reported, prior to restatement for adoption of FASB guidance on stock-based compensation in 2017.
The graph below, which provides PSU payout history since 2014, demonstrates the rigor of our long-term performance goals.
PERFORMANCE SHARE UNIT PAYOUTS
StartingIn addition, beginning with the 2018–20202018-2020 PSU Program, a Relative Return on Invested Capital (ROIC) modifier has beenwas addedto the program design.PSU program. The modifier is based on IBM’s ROIC performance over the three-year performance period, relative to the S&P 500 Index (excluding financial services companies due to lack of comparability) and the S&P Information Technology Index. This modifier reduces the score up to 20 points when performance falls below the S&P 500 Index median, and increases the score up to 20 points when IBM exceeds the median performance of both the S&P 500 Index and the S&P Information Technology Index. The modifier has no impact when IBM’s ROIC performance falls between the S&P 500 Index median and the S&P Information Technology Index median. The following graph illustrates how the modifier can affectThere is no qualitative adjustment to the PSU program score. In the event the
RELATIVE ROIC MODIFIER
The PSU score is calculated as a weighted final scoreaverage of results against targets for Operating EPS (70%) and Free Cash Flow (30%). The calculation for the 2018-2020 performance period is 0,shown in the table below. For the 2018-2020 performance period, the ROIC modifier wouldwas zero. While IBM ROIC was at the 68th percentile of the S&P 500 Index (excluding financial services), it did not apply.exceed the median of S&P Information Technology Index.
RELATIVE ROIC MODIFIER
| (1) | Based on PSU payout table. |
| (2) | Non-GAAP financial metrics. See Appendix A for GAAP to Non-GAAP reconciliation. |
Targets and scoring exclude the impact of the Red Hat acquisition and the $2B charge for Q4 2020 structural actions. |
Impact of Significant One-Time Events on the Open PSU Performance Periods
As previously disclosed, in connection with the July 9, 2019 closing of the Red Hat acquisition, the 2019-2021 PSU program targets incorporate Red Hat performance. The target updates resulted in an increase to the Free Cash Flow target and a reduction to the Operating EPS target, almost entirely driven by a non-cash purchase accounting adjustment to deferred revenue required by US GAAP. The updated targets were higher than external guidance shared with stockholders at IBM’s Investor Briefing on August 2, 2019.
Cumulative three-year EPS and Cash Flow targets for the 2019-2021 and 2020-2022 Performance Share Unit (PSU) programs were set prior to the announcement of the planned 2021 spin-off of the managed infrastructure services business and related actions. IBM’s PSU programs consist of operational financial metrics that were substantially impacted by this significant unplanned event.
| 38 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis |
For the 2019-2021 and 2020-2022 PSU programs, the Committee determined that the targets for these two outstanding PSU programs were no longer reflective of the company’s strategic direction and growth objectives as communicated to stockholders over the past year. The Committee approved an adjustment reducing the targets for the 2019-2021 and 2020-2022 PSU programs, incorporating the planned 2021 spin-off of the managed infrastructure services business including one-time transaction-related cash charges associated with the spin, and actions taken to enable the separation of NewCo and IBM’s growth strategy under current market conditions. The resulting targets remain rigorous and will continue to appropriately incent management in an important period. Consistent with the Company’s long-standing practice of setting rigorous performance plans, cumulative targets for both plans remain higher than comparable metrics shared with investors on January 21, 2021.
In Mr. Whitehurst’s prior role as Chief Executive Officer of Red Hat, a portion of his 2020 compensation includes payments provided as a result of his participation in the following Red Hat compensation and benefit programs, as well as acquisition related agreements between IBM and Mr. Whitehurst, all of which existed prior to the close of the Red Hat acquisition on July 9, 2019.
Restricted Stock Awards
Mr. Whitehurst’s unvested Red Hat equity awards were converted into Restricted Stock Awards (RSAs) to receive IBM stock upon close of the Red Hat acquisition, at the same rate of conversion that was used to convert all of Red Hat’s outstanding stock into IBM stock.
Cash-Based Retention
As disclosed in the Merger Proxy Statement filed by Red Hat, Inc. with the SEC on December 12, 2018, in connection with the merger agreement between Red Hat and IBM, Mr. Whitehurst entered into a retention arrangement with IBM providing that Mr. Whitehurst shall be entitled to a $6M retention cash payment, with $2M paid on each of the 1st, 2nd, and 3rd anniversaries of the closing of the merger, respectively, subject to continued employment by IBM and accomplishment of key milestones for each of the three years.
The Committee approved the first $2M payment for Mr. Whitehurst in July 2020, in connection with the first anniversary of the closing of the merger. This payment was based on Mr. Whitehurst’s accomplishment of financial goals in delivering Red Hat revenue, pre-tax income and free cash flow, as well as increasing the number of clients utilizing IBM or Red Hat cloud container offerings, expanding Red Hat’s strategic partnerships, and successfully retaining key Red Hat talent in the first year following the closing of the merger.
Red Hat Annual Cash Bonus
Upon the close of the Red Hat acquisition, IBM adopted Red Hat’s Annual Cash Bonus Plan (ACB Plan) for Red Hat’s fiscal year 2020 (i.e., March 1, 2019 to February 29, 2020). As CEO of Red Hat, Mr. Whitehurst participated in this ACB Plan. Red Hat’s ACB Plan allowed for payouts from 0% - 200% of target incentive, based on accomplishment of Red Hat’s fiscal year financial performance (75% of payout) and performance against individual goals (25% of payout). For fiscal 2020, financial performance metrics included Red Hat’s Total Revenue, Cash from Operations, and Non-GAAP operating margin*, which were each weighted equally during this period.
Based on 166% achievement of the Plan’s financial performance metrics and 105% of Mr. Whitehurst’s individual goals, the Committee approved a payment of $2,487,375, or 150.75% of Mr. Whitehurst’s target bonus for this time period. A pro-rata portion of his total payment is included in the 2020 Summary Compensation Table, to reflect the amount earned for January and February of 2020. Effective March 1, 2020, Mr. Whitehurst became a participant of IBM’s Annual Incentive Program and was no longer a participant of Red Hat’s ACB Plan.
*Non-GAAP financial metric. See Appendix A for information on how we calculate this performance metric.
New for 2020: Mr. Whitehurst’s retention Performance Share Unit (RPSU) Award
In 2020, the Committee approved an RPSU grant of $15M in planned value for Mr. Whitehurst, which was awarded on March 2, 2020, prior to undertaking his role as IBM President. The RPSU was awarded as consideration for signing an IBM Non-Competition agreement (NCA). This NCA is broader than the non-competition provisions Mr. Whitehurst agreed to in connection with the acquisition of Red Hat, which limited competition within the then-existing scope of Red Hat’s business. The IBM NCA covers the scope of IBM’s business footprint, and aligns his NCA terms and conditions with other IBM leaders.
One-third of the RPSU will vest and pay out on July 31, 2021, with no additional performance criteria. Two-thirds of the RPSU will vest and pay out on July 31, 2023; the number of units that pay out for this portion of the award is subject to the following performance criteria:
The relative ROIC modifier (previously described) that applies to PSUs for the 2020-2022 performance period may also modify the number of units paid for this portion of the award up or down by up to 20 points, based on IBM’s ROIC performance relative to broader market indices.
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis | 39 |
Section 2: HowCompensation Program Governance
Stockholder Engagement
IBM continually reviews and Whyenhances its corporate governance and executive compensation programs. As part of this review, it is IBM’s longstanding practice to meet with a significant number of our largest investors during both the proxy season and the off-season, to solicit their feedback on a variety of topics.
In 2020, IBM once again engaged with over 100 institutional investors. Further, our process includes outreach to hundreds of thousands of individual registered and beneficial owners, who represent a majority of our retail base. The Company continued its enhanced engagement practices in 2020. IBM’s CEO, Executive Chairman, Lead Director, and members of IBM’s senior management participated in this engagement program. Overall, the Company offered to engage with investors representing more than 50% of the shares that voted on Say on Pay at the 2020 Annual Meeting. This in-depth engagement process provides valuable feedback to the Compensation Decisions Are MadeCommittee on an ongoing basis.
Overall, our stockholders continue to support the Company’s compensation programs and practices. We heard from stockholders that they are strongly supportive of the overall design of the program, which focuses on long-term financial performance that drives stockholder value. Still, the Committee and the Board review and consider all of the investor feedback in making decisions relating to the design of our executive compensation programs. For example, the following changes occurred in 2020 and 2021:
At any level,
Compensation Practices
Overall, IBM’s compensation policies and decisions, explained in detail in this Compensation Discussion and Analysis, continue to be sure we appropriately assess the valuefocused on long-term financial performance to drive stockholder value.
The table below highlights practices that IBM embraces in support of senior executives, IBM follows an evaluation process, described here in some detail:strong governance practices.
1. Making Commitments
All IBM employees, including
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| 40 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis |
Personal Stake in IBM’s Future through Stock Ownership Requirements
Investors want the leaders of their companies to act like owners. That alignment, we believe, works best when senior leaders have meaningful portions of their personal holdings invested in the stock of their company. This is why IBM sets significant stock ownership requirements for IBM’s Chairman and CEO, President, Executive Vice President (EVP) and Senior Vice Presidents develop goals, both qualitative and quantitative,(SVPs). Within 5 years of hire or promotion, each is required to own a minimum number of IBM shares or equivalents that they seekis equal to achievea multiple of salary at the time of hire or promotion. The minimum multiple of salary required is in a particular year in supportexcess of the business. Beginning in 2016, IBM adopted a more nimble and real-time approach to managing employee performance. Employee’s performance goals are discussed with each individual’s manager regularly and updated as necessary throughout the year. The Chairman and CEO’s performance goals are reviewed directly by the Board of Directors. As part of this process, many factors are considered, including an understanding of the business risks associated with the performance goals.standard market practice
Stock Ownership Requirements
Ownership Requirements as a Multiple of Salary
| ||||||||||
NEO Name |
IBM Minimum Requirement
|
Median Peer Group Minimum Requirement
| ||||||||
A. Krishna | 10 | 6-7 | ||||||||
V.M. Rometty | 10 | 6-7 | ||||||||
J.J. Kavanaugh | 7 | 4 | ||||||||
J.M. Whitehurst | 7 | 4 | ||||||||
J.E. Kelly III | 7 | 4 | ||||||||
M.H. Browdy | 7 | 4 | ||||||||
In less than a year as CEO, Mr. Krishna owns common stock and stock-based holdings near his ownership requirement (about 9 times his base salary) as of December 31, 2020. Mrs. Rometty still owned common stock and stock-based holdings with a value of more than 2. Determining Compensation for30 times her base salary upon her retirement on December 31, 2020. More information on Mr. Krishna’s and Mrs. Rometty’s holdings can be found in the Common Stock and Stock-Based Holdings of Directors and Executive Officers Table. As a group, the CEO, Executive Chairman, President, EVP and CEO — Research, Recommendations and Review
SVPs owned shares or equivalents valued at over $160 million as of December 31, 2020; in fact, as of that date, this group held, on average, more than 9 times their base salary.
The Chair of the Compensation Committee works directly with the Committee’s compensation consultant to provide a decision-making framework for use by the Committee in determining incentive plan payouts and setting target compensation opportunities for the Chairman and CEO. This framework considers the Chairman and CEO’s self-assessment of performance against commitments in the year, both qualitative and quantitative, and also considers progress against strategic objectives, an analysis of IBM’s total performance over a multi-year period, a competitive benchmark analysis, and other relevant information. The Committee considers all of this information in developing its recommendations,following table illustrates which are then presented to the independent members of the IBM Board of Directors for further review, discussion and final approval.
3. Determining Compensation for Senior Vice Presidents
Evaluation of Results by the Chairman and CEO
Employees at all levels, including executives, work with their managers throughout the year to evaluate their own results against their stated goals.
The self-assessments of the Senior Vice Presidents are reviewed by the Senior Vice President of Human Resources (SVP HR) and the Chairman and CEO, who evaluate the information, along with the following:
· Comparisons to market compensation levels for cash compensation and total direct compensation;
· Potential for future roles within IBM; and
· Total compensation levels relative to internal peers before and after any recommendations.
Following this in-depth review and in consultation with the SVP HR, the Chairman and CEO makes compensation recommendations to the Compensation Committee based on an evaluation of each Senior Vice President’s performance and expectations for the coming year.
Evaluation of Results by the Compensation Committee
The Compensation Committee decides whether to approve or adjust the Chairman and CEO’s recommendations for the Senior Vice Presidents.
The Committee evaluates all of the factors considered by the Chairman and CEO and reviews compensation summaries that tally the dollar value of all compensation and related programs, including salary, annual incentive, long-term compensation, deferred compensation, retention payments and pension benefits. These summaries provide the Committee with an understanding of how their decisions affect other compensation elements and the impact that separation of employment or retirement will have.
4. Ensuring Competitive Pay — Approach to Benchmarking
IBM participates in several executive compensation surveys that provide general trend information and details on levels of salary, target annual incentives and long-term incentives, the relative mix of short- and long-term incentives, and mix of cash and stock-based pay. Given the battle for talent that exists in our industry, the benchmark companies that are used by the Compensation Committee to guide its decision making have included a broad range of key information technology companies, to help us identify trends in the industry. We also include companies outside our industry, with stature, size and complexity that approximate our own, in recognition of the fact that competition for senior management talent is not limited to our industry. The surveys and benchmark data are supplemented by input from the Compensation Committee’s outside consultant on factors such as recent market trends. The Committee reviews and approves this list annually.
The Compensation Committee re-examined the benchmark group for 2017 and determined that companies which meet the following criteria should be included in the 2017 benchmark group:
· Companies in the technology industry with revenue that exceeds $15 billion, plus
· Additional companies (up to two per industry if available) in industries other than technology, with revenue that exceeds $40 billion and that have a global complexity similar to IBM.
For 2017 compensation decisions, the Committee approved the following benchmark group using the criteria above and reflecting changes in the corporate structure of certain competitors.
2017 BENCHMARK GROUP:equity holdings count towards stock ownership requirements:
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Stock Ownership Continues Beyond Retirement
For 2018 compensation decisions,Finally, our programs are designed to ensure alignment with IBM’s long-term interests past the Committee approved the same benchmark group with one change. Xerox was removed from the 2018 benchmark group given recent changes in its corporate structure.
The data from compensation surveysretirement date for our CEO, Executive Chairman, President, EVP and related sources form the primary external view of the market. In consideration of size and complexity, IBM’s philosophy is to generally target the 50th percentile of the market for cash and total compensation. Owing to the size and scope of our business overall, some roles are compared to a size-adjusted market rate.
For individual compensation decisions, the benchmark information is used together with an internal view of individual performance relative to other executives and recognizing that the skills and experience of our senior executives are highly sought after by other companies and, in particular, by IBM’s competitors. Because factors such asSVPs. Share price performance and retention,long-term goal achievement continue to impact the Long-Term Incentive Plan for these retired executives for at least two and a half years post retirement. For example, shares for Mrs. Rometty that remained restricted and subject to performance of IBM represent more than 2 times her share ownership requirement as well as size and complexity of the job role, are considered when compensation decisions are made, the cash and total compensation for an individual named executive officer may be higher or lower than the target reference point of the relevant benchmark group.her December 31, 2020 retirement date; assuming future performance at target.
5. Compensation Committee Consultant
The Committee enters into a consulting agreement with its outside compensation consultant on an annual basis. In July 2017,2020, the Committee retained Semler Brossy Consulting Group, LLC (Semler Brossy) as its compensation consultant to advise the Committee on market practices and specific IBM policies and programs. Semler Brossy reports directly to the Compensation Committee Chairman and takes direction from the Committee. The consultant’s work for the Committee includes data analyses, market assessments and preparation of related reports. From time to time, the Committee seeks the views of the consultant on items such as incentive program design and market practices. The work done by Semler Brossy for the Committee is documented in a formal agreement which is executed by the consultant and the Committee. Semler Brossy does not perform any other work for IBM, other than services provided to IBM’s Directors and Corporate Governance Committee. The Committee previously retained Frederic W. Cook & Co., Inc. (FW Cook). The Committee determined that there is no conflict of interest with regard to either Semler Brossy or FW Cook.Brossy.
The Compensation Committee made recommendations for Mrs. Rometty’s 2017 and 2018 compensation following the process and using the pay components described above.
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis | 41 |
2017How Compensation Decisions are Made
At any level, compensation reflects an employee’s value to the business — market value of skills, individual contribution and business results. To be sure we appropriately assess the value of senior executives, IBM follows an evaluation process, described here in some detail:
1. Making Annual Performance Commitments
All IBM employees, including the CEO, Executive Chairman, President, EVP and SVPs, develop goals, both qualitative and quantitative, that they seek to achieve in a particular year in support of the business. The Board of Directors reviews and approves the CEO’s and the Executive Chairman’s performance goals and formally reviews progress and outcomes. As part of this process, many factors are considered, including an understanding of the business risks associated with the performance goals.
2. Determining Annual Incentive Decision for thePayouts
Evaluation of CEO and Executive Chairman and CEO
For 2017 performance, the Board approved an annual incentive payment of $5.1 million for Mrs. Rometty, which represented 102% of her target opportunity.
In addition to overall IBM 2017 revenue performance of $79.1B and pre-tax income of $11.4B,Results by the Compensation Committee noted the following achievements for Mrs. Rometty, all of which are clear sign posts
The Chair of the successful business portfolio shift:
· Achieved critical massCompensation Committee works directly with IBM’s Strategic Imperatives— cloud, analytics, mobile, socialthe Committee’s compensation consultant to provide a decision-making framework for use by the Committee in determining annual incentive payouts for both the CEO and security. Grew revenue to $36.5 billion the Executive Chairman. This framework considers the CEO’s and represented 46%the Chairman’s self-assessment of performance against commitments in the year, both qualitative and quantitative, and also considers progress against strategic objectives, an analysis of IBM’s total revenue.
· Strengthened Watson as the premier AI platform for business.Continued to extend the reach of Watson on the IBM Cloud to clients, developers, partners and users, touching one billion people in 2017.
· Solidified the IBM Cloud as a global leader for enterprise,with $17 billion in revenue and exited the fourth quarter with an as-a-service annual run rate of more than $10 billion.
· Continued to modernize our enduring Systems platforms.IBM Z delivered the highest shipped MIPS (millions of instructions per second) in history, demonstrating strong demand for the world’s first system capable of pervasive encryption with no performance degradation. Storage revenue grew every quarter in 2017 for the first time since 2010 and Power systems returned to growth in 4Q with the introduction of Power 9.
· Established IBM as the clear leader in quantum computing.Created the world’s first 50 qubit system and launched Q Network on the IBM Cloud which made quantum capabilities available to more than 70,000 users for experimentation and testing.
· Achieved global leadership in blockchain.Established blockchain projects with hundreds of clients, including collaborating on 35 active blockchain networks with clients such as Walmart, Maersk and The Depository Trust & Clearing Corporation (DTCC).
· Repositioned IBM Services to capitalize on market trends.Returned consulting business to growth in the second half of 2017, but fell short of growth objectives for the year. Grew total services backlog forover the year with an improved trajectory entering into 2018.
· Led the world for the 25th consecutive year in U.S. patents earned,set a new record with more than 9,000 patents. Nearly half of those patents were in new areas such as AI, cloud, security, blockchain, and quantum computing that will power the business for years to come.
· Drove significant business productivitythrough continued global support transformation, automation and the deploymentoverall Company incentive score. The Committee considers all of cognitive solutions across IBM. Positioned IBM for future growth by realigning workforce skills with the new portfolio and strengthening all levels of management.
· Continuedthis information in developing its recommendations, which are then presented to enhance the all inclusive culture of IBM.Improved executive representation in both female and under represented minorities.
Finally, the payout took into consideration Mrs. Rometty’s outstanding personal leadership in infusing new executive talent across the Company, developing the next generation of leaders, and assuming industry leadership on several key issues, including setting new global standards for data responsibility and stewardship and preparing the future workforce for “new collar” work.
2018 Compensation Decisions for the Chairman and CEO
For 2018, the independent members of the IBM Board made no changeof Directors for further review, discussion, and final approval.
Evaluation of President, EVP and SVP Results by the CEO and the Compensation Committee
Executives work with their managers throughout the year to Mrs. Rometty’s baseupdate their own results against their stated goals. The self-assessments of the President, EVP and SVPs are reviewed by the Senior Vice President of Human Resources (SVP HR) and the CEO, who evaluate the information.
Following this in-depth review and taking into account the Company incentive score, the CEO makes compensation recommendations to the Compensation Committee based on an evaluation of the President, EVP and each SVP’s performance for the year, and the Committee decides whether to approve or adjust the CEO’s recommendations for the President, EVP and SVPs. The Committee then presents the compensation decisions for the Chief Financial Officer to the independent members of the IBM Board of Directors for ratification.
3. Setting Competitive Target Pay
Approach to Benchmarking
IBM participates in several executive compensation surveys that provide general trend information and details on levels of salary, or target annual incentive,incentives and reducedlong-term incentives, the maximum potential payoutrelative mix of short- and long-term incentives, and mix of cash and stock-based pay. Given the battle for her annual incentivetalent that exists in our industry, the benchmark companies that are used by the Compensation Committee to guide its decision making have included a broad range of key information technology companies, to help us identify trends in the industry. We also include companies outside our industry, with stature, size, and complexity that approximate our own, in recognition of the flow of executive talent in and out of IBM from 3X targetother industries. The surveys and benchmark data are supplemented by input from the Compensation Committee’s outside consultant on factors such as recent market trends. The Committee reviews and approves this list annually.
The Compensation Committee re-examined the benchmark group for 2020 and determined that companies which meet the following criteria should be included in the 2020 benchmark group:
For 2020 compensation decisions, the prior two years. This grant is comprised 65% of 2018–Committee approved the following benchmark group using the criteria above.
| 42 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis |
2020 Performance Share Units and 35% of Restricted Stock Units. For 2018, 69% of Mrs. Rometty’s annual total target compensation is tied to performance-based incentives.BENCHMARK GROUP:
Accenture | Caterpillar | General Electric | Oracle | |||
Alphabet | Chevron | Hewlett Packard Enterprise | PepsiCo | |||
Amazon.com | Cisco Systems | HP Inc. | Pfizer | |||
Apple | Dow | Intel | United Technologies | |||
AT&T | ExxonMobil | Johnson & Johnson | UPS | |||
Boeing | Ford | Microsoft | Verizon | |||
For 2021 compensation decisions, the Committee approved the following benchmark group, which they believe is a better balance between prominent technology competitors and large-scale companies, and more accurately represents IBM’s competition for senior leadership talent. The data from compensation surveys and related sources form the primary external view of the market. In consideration of size and complexity, IBM’s philosophy is to generally target the 50th percentile of the market for cash and total compensation.
2021 BENCHMARK GROUP:
2017
Accenture | Boeing | Johnson & Johnson | Salesforce | |||
Alphabet | Cisco Systems | Microsoft | United Technologies | |||
Amazon.com | Dow | Oracle | UPS | |||
Apple | General Electric | PepsiCo | Verizon | |||
AT&T | Hewlett Packard Enterprise | Pfizer | ||||
Bank of America | Intel | Qualcomm | ||||
Approach to Determining Individual Compensation
For individual compensation decisions, the benchmark information is used together with an internal view of individual performance relative to other executives and recognizing that the skills and experience of our senior executives are highly sought after by other companies and, in particular, by IBM’s competitors. Because factors such as performance and retention, as well as size and complexity of the job role, are considered when compensation decisions are made, the cash and total compensation for an individual named executive officer may be higher or lower than the target reference point of the broader benchmark group.
Evaluation of CEO and Executive Chairman Target Pay by the Compensation Committee
The Chair of the Compensation Committee works directly with the Committee’s compensation consultant to provide a decision-making framework for use by the Committee in setting target compensation opportunities for both the CEO and Executive Chairman. The independent members of the IBM Board of Directors review and provide final approval.
Evaluation of President/EVP/SVP Target Pay by the CEO and the Compensation Committee
The CEO makes compensation recommendations on the President’s, EVP’s and SVPs’ target compensation to the Compensation Committee. The Committee evaluates all of the factors considered by the CEO and reviews compensation summaries that tally the dollar value of all compensation and related programs, including salary, annual incentive, long-term compensation, deferred compensation, retention payments and pension benefits. These summaries provide the Committee with an understanding of how their decisions affect other compensation elements, and the impact of separation of employment or retirement. The Committee decides whether to approve or adjust the CEO’s recommendations for the President, EVP and SVPs. The Committee then presents the compensation decisions for the Chief Financial Officer to the independent members of the IBM Board of Directors for ratification.
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis | 43 |
Section 3: Compensation Decisions for the CEO, Executive Chairman, and Named Executive Officers
2020 Annual Incentive Decision for the CEO | ||
| For 2020 performance, the Board approved an annual incentive payment of $2,181,000, which represented 85% of Mr. Krishna’s target opportunity and was in line with the Company incentive score. | ||
| In addition to overall IBM 2020 revenue performance of $73.6 billion and pre-tax income of $4.6 billion, the Compensation Committee noted the following achievements for Mr. Krishna, which have positioned IBM for sustained growth going forward: | ||
Business Results • IBM Hybrid Cloud revenue grew to over $25B, now 34% of IBM and growing 20% at constant currency, excluding divestitures*. • Red Hat revenue growth of 18% at constant currency normalized for historical comparability*. • IBM Z grew at 1% at constant currency*. Portfolio and Investment • Announced acceleration of IBM’s Hybrid Cloud growth strategy to drive sustainable mid-single digit revenue growth, including the separation of the managed infrastructure services business into a new $19B** market-leading public company. • Expanded our Hybrid Cloud platform to over 2,800 clients and 260 GBS engagements. • Closed 7 strategic acquisitions across Cloud and Cognitive Software and GBS, focused on expanding Hybrid Cloud and AI capabilities. | Leadership in the Enterprise • Continued advanced leadership in quantum computing; deployed 65 qubit system. Total of 14 new systems deployed, of which 13 are quantum volume 32 or higher. Societal Impact • AI Ethics Board delivered real-time guidance in response to COVID-19 and social justice use cases in emerging areas. • Increased the P-Tech 6-year high school concept reach with 243 schools across 28 countries, this innovative education model enables low income students entry to high-paying tech jobs without a college degree. Launched the Open P-Tech learning platform, which now has 130,000 users. Talent Development and Leadership • Increased strategic skill depth by 42% year-to-year. • Continued strengthening of the inclusive IBM culture, with representation up year-to-year across all areas. • Record employee engagement continued in a challenging environment, up over 2 points year-to-year. | |
2021 Compensation Decisions for the CEO |
For 2021, the independent members of the Board made no changes to Mr. Krishna’s base salary or target annual incentive. He was granted an annual long-term incentive award valued at $13.75M. This grant comprised 65% of 2021-2023 Performance Share Units and 35% of Restricted Stock Units. For 2021, 65% of Mr. Krishna’s annual total target compensation is tied to performance-based incentives. |
| * | Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance metrics. |
| ** | Trailing twelve months revenue through June 30, 2020, adjusted to reflect estimated historical sales between IBM and NewCo. |
Compensation for the Executive Chairman
Mrs. Rometty’s bonus for 2020 was $4.25M, which represents 85% of her target bonus for the year and is in line with the Company incentive score. The Committee considered Mrs. Rometty’s efforts in ensuring a successful transition to Mr. Krishna throughout 2020 in recommending this bonus. Key accomplishments included:
As disclosed by the Company in December 2020, the Board approved certain arrangements in connection with Mrs. Rometty’s retirement from the Company effective December 31, 2020. The arrangements approved by the Board included a post-retirement consulting arrangement for a three-year period following her retirement for services that the Company may ask her to provide from time to time, as an independent contractor. The fee for such services would be $20,000 per day for each day she provides 4 or more hours of services, and $10,000 for each day that she provides less than four hours. To help facilitate these services, the Board also agreed to provide continued use of IBM office space and an IBM assistant during this three-year consulting arrangement.
| 44 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis |
2020 Annual Incentive Decisions for Mr. Schroeter,Kavanaugh, Mr. Whitehurst, Dr. Kelly, Mr. Clementi and Mr. Kavanaugh
Ms. Browdy
The Compensation Committee also made decisions for the following named executive officers noting(NEOs), based on overall corporate performance as described in the Business Highlights and Executive Summary and the following key points:an assessment of their individual contributions, many of which are summarized below:
James J. Kavanaugh |
Senior Vice President and Chief Financial Officer |
Martin J. Schroeter
Senior Vice PresidentAchieved over $14B year-end cash balance by generating $10.8B in free cash flow*, with 196% realization of GAAP Net Income, taking prudent funding actions while reducing overall debt, and Chief Financial Officer*leading efforts to optimize IBM’s financing portfolio.
Announced the acceleration of IBM’s Hybrid Cloud growth strategy to drive sustainable mid-single digit revenue growth, including the separation of the managed infrastructure services business into a new $19B** market leading public company.
In response to the global pandemic, transitioned IBM’s global workforce of ~350k employees to remote work, ensuring continuity of IBM business.
James M. Whitehurst |
President |
·
Drove continued transformationportfolio optimization and strong return to shareholders, expanded Operating PTI margins**, grew free cash flow (excluding Global Financing receivables)**expansion, with 67% of investment focused in growth offerings.
Led cross-IBM growth through ecosystem and maintained strong ROIC.increased ecosystem commitment with GSIs Cloud Paks.
· Returned $9.8 billion — about 75%Continued acceleration of free cash flow — to shareholders,Red Hat acquisition and synergy, delivering year-to-year revenue growth and over 2,800 Hybrid Cloud platform clients.
John E. Kelly III |
Executive Vice President |
Achieved #1 patent position for 28th consecutive year, with over 9,100 patents in 2020.
Co-led IBM COVID-19 Task Force; ensured continuity of business while protecting all employees worldwide.
Built world class Privacy and Ethics team, and established a robust AI governance framework, including an increase to the dividend for the 22nd consecutive year.
· Grew IBM Global Financing assets by double digits year to year, while increasing return on equity to 33%.AI Ethics Board.
Michelle H. Browdy Senior Vice President and General Counsel Continued to enhance IBM’s cybersecurity and * John E. Kelly IIISenior Vice President, IBM Cognitive Solutions & IBM Research· Strengthened Watson as the premier AI platformResponsible for business, touching one billion people in 2017.· Grew IBM Security to over $3B of revenue, up 55% YTY.· Achieved #1 in patentslegal and regulatory support worldwide for the 25th consecutive year, setting a new record of more than 9,000 patents. Nearly half of those patents were in new areas such as AI, cloud, security, blockchain and quantum computing that will power the business for years to come.· Missed full year profit objective for Cognitive Solutions.Erich ClementiSenior Vice President, IBM Global Markets*· Maintained IBM’s global leadership in enterprise cloud with all aspects of the top ten global banks, ninespin-off of the top ten retailersCompany’s managed infrastructure services business.eight of the top ten airlines as IBM Cloud as-a-Service clients.privacy posture globally, providing legal, security and policy support and driving compliance with new global privacy regulations.· Enabled IBMPublished 30th Annual Environmental Report and continued to deliver $36.5 billion of Strategic Imperatives revenue, up 11%, with strong contributions from IBM’s two biggest geographic markets.· Returned North America, IBM’s biggest geographic market, to revenue growth in 4Q, but missed full year growth objective.James J. KavanaughSenior Vice President, Finance and Operations*· Drove significant productivity savings through work redesign and the deployment of cognitive solutions across IBM’s internal operations.· Strengthened IBM as a top-tier IT provider through initiatives to transform and enhance the client experience.· Drove cognitive throughout IBM’s internal operations, making IBM the showcase of a cognitive enterprise.* In January 2018, Mr. Schroeter became Senior Vice President, IBM Global Markets, Mr. Clementi became Senior Vice President, IBM Global Integrated Accounts, and Mr. Kavanaugh became Senior Vice President and Chief Financial Officer.drive ESG leadership.* Non-GAAP financial metrics.metric. See Appendix A for information on how we calculate thesethis performance metrics.metric.
| **Trailing | twelve months revenue through June 30, 2020, adjusted to reflect estimated historical sales between IBM and NewCo. |
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis | 45 |
Following the process outlined above and based on business and individual performance, the Compensation Committee approved the 20172020 annual incentive payouts below for these named executive officers:NEOs:
Name |
| 2017 Annual Incentive Payouts |
| |
M.J. Schroeter |
| $ | 1,181,000 |
|
J.E. Kelly III |
| 861,000 |
| |
E. Clementi |
| 869,840 |
| |
J.J. Kavanaugh |
| 919,000 |
| |
Name | 2020 Annual Incentive Payouts(1) | |
J.J. Kavanaugh | $1,176,300 | |
J.M. Whitehurst(2) | 1,455,813 | |
J.E. Kelly III(3) | 820,400 | |
M.H. Browdy | 1,109,520 | |
Taking into consideration the actual salary, annual incentive payout, vested restricted stock units and long-term incentive award for the period 2015–2017, these named executive officers earned from 76%–81% of their annual total target compensation in 2017.
| (1) | The named executive officers other than Mr. Whitehurst each had an incentive target equal to 135% of their salary for 2020. Mr. Whitehurst had an incentive target of 150% of his prorated salary from March 1, 2020 – December 31, 2020. |
| (2) | Mr. Whitehurst’s payment also includes the prorated portion of Red Hat’s Annual Cash Bonus earned for January 1, 2020 – February 29, 2020, in addition to his prorated AIP earned for March 1, 2020 – December 31, 2020. |
2018
| (3) | Dr. Kelly retired from the Company on December 31, 2020. |
2021 Compensation Decisions for Mr. Schroeter, Dr. Kelly,Kavanaugh, Mr. ClementiWhitehurst, and Mr. Kavanaugh
Ms. Browdy
The Committee also approved the following compensation elements for 2018:2021: base salary, annual incentive target, Performance Share Unit (PSU) and Restricted Stock Unit (RSU) grants under the Long-Term Performance Plan. For Long-Term Incentive Plan grants, beginning in 2016, the mix of vehicles is now set at 65% PSUs and 35% RSUs, to align betterwhich aligns with market practice. This mix provides competitive pay, while at the same time ensuring a strong link between pay and performance, and creates a betterthe right balance relative to peers with which we compete for talent. For 2018,2021, based on the compensation decisions detailed below at target, 63% of the NEOs’ (excluding the Chairman and CEO) pay is at risk.
| ||
 | ||
63% of the NEOs’ | ||
|
| 2018 Cash(1) |
| 2018 Long-Term Incentive Awards(2) |
| ||||||||
Name |
| Salary Rate |
| Annual Incentive Target |
| Performance Share Units |
| Restricted Stock Units |
| ||||
M.J. Schroeter |
| $ | 936,000 |
| $ | 1,264,000 |
| $ | 3,900,000 |
| $ | 2,100,000 |
|
J.E. Kelly III |
| 868,000 |
| 1,172,000 |
| 3,705,000 |
| 1,995,000 |
| ||||
E. Clementi |
| 777,000 |
| 1,048,000 |
| 3,575,000 |
| 1,925,000 |
| ||||
J.J. Kavanaugh |
| 745,000 |
| 1,005,000 |
| 3,412,500 |
| 1,837,500 |
| ||||
2021 Cash(1) | 2021 Long-Term Incentive Awards(2) | |||||||||||||||||
Name | Salary Rate | Annual Incentive Target | Performance Share Units | Restricted Stock Units | ||||||||||||||
J.J. Kavanaugh |
| $968,000 |
|
| $1,307,000 |
|
| $5,362,500 |
| $2,887,500 | ||||||||
J.M. Whitehurst |
| 1,200,000 |
|
| 1,800,000 |
|
| 7,150,000 |
| 3,850,000 | ||||||||
M.H. Browdy |
| 894,000 |
|
| 1,206,000 |
|
| 3,087,500 |
| 1,662,500 | ||||||||
| (1) | Mr. Kavanaugh, Mr. Whitehurst, and Ms. Browdy did not receive an increase to their Salary or Annual Incentive Target in 2021. |
| (2) | PSUs and RSUs will be granted, if applicable, on June 8, 2021 to the named executive officers, including the Chairman and the CEO. The actual number of units granted on this date will be determined by dividing the value shown above by the average of IBM’s closing stock price for the 30 active trading days prior to the date of grant. The performance period for the PSUs ends December 31, 2023, and the award will pay out in February 2024. The restricted stock units will vest 25% per year on each anniversary of the date of grant. |
Note: Annual PSU and RSU grant excludes a special one-time retention PSU grant for Jim Whitehurst on March 2, 2020, prior to him becoming President of IBM. |
| 46 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis |
(1) For Mr. Schroeter, Dr. Kelly, Mr. Clementi and Mr. Kavanaugh the 2018 salary rates will be effective July 1, 2018 and the 2018 annual incentive targets were effective January 1, 2018.
(2) PSUs and RSUs will be granted on June 8, 2018 to the named executive officers, including the Chairman and CEO. The actual number of units granted on this date will be determined by dividing the value shown above by a predetermined, formulaic planning price for the second quarter 2018. The performance period for the PSUs ends December 31, 2020, and the award will pay out in February 2021. The restricted stock units will vest 25% per year on each anniversary of the date of grant.
Section 3:4: Additional Information
Compensation Program as it Relates to Risk
IBM management, the Compensation Committee and the Committee’s outside consultant review IBM’s compensation policies and practices, with a focus on incentive programs, to ensure that they do not encourage excessive risk taking. This review includes the cash incentive programs and the long-term incentive plans that cover all executives and employees. Based on this comprehensive review, we concluded that our compensation program does not encourage excessive risk taking for the following reasons:
·
·
·
·
·
·
·
We are confident that our compensation program is aligned with the interests of our stockholders, rewards for performance and represents strong executive compensation governance practices.
Equity Award Practices
Under IBM’s long-standing practices and policies, all equity awards are approved before or on the date of grant. The exercise price of at-the-money stock options is the average of the high and low market price on the date of grant or, in the case of premium-priced stock options, for example, 10% above that average, or as specified by the Compensation Committee.
The approval process specifies the individual receiving the grant, the number of units or the value of the award, the exercise price or formula for determining the exercise price, and the date of grant. In the case of planned grant value, the number of shares granted are determined by dividing the planned value by the predetermined, formulaic planningaverage of IBM’s closing stock price in effect for the quarter. IBM’s planning price is computed each quarter using a consistent statistical forecasting procedure based on historical IBM stock price data. IBM uses30 active trading days prior to the quarterly planning price to aid in establishing the overall sizedate of the equity plan and to give more consistency across equity grants made at different points in the quarter.
grant.
As with all compensation decisions, the independent members of the Board approve all equity awards for the Chairman and CEO, and ratify all equity awards for the Chief Financial Officer. In addition, all equity awards for Senior Vice Presidentsthe President, the EVP, and each SVP are approved by the Compensation Committee. All equity awards for employees other than the Chairman, CEO, President, EVP and CEO and Senior Vice PresidentsSVPs are approved by the ChairmanCEO, the EVP and CEO and Senior Vice PresidentsSVPs pursuant to a series of delegations that were approved by the Compensation Committee, and the grants made pursuant to these delegations are reviewed periodically with the Committee.
Equity awards granted as part of annual total compensation for senior leaders and other employees are made on specific cycle dates scheduled in advance. IBM’s policy for new hires and promotions requires approval of any awards before or on the grant date which is typically the date of the promotion or hire.
award.
IBM does not have any plans, programs or agreements that would provide any payments to any of the named executive officers upon a change in control of IBM, a change in the named executive officer’s responsibilities or a constructive termination of the named executive officer.
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis | 47 |
Ethical Conduct
Every executive is held accountable to comply with IBM’s high ethical standards: IBM’s Values, including “Trust and Personal Responsibility in all Relationships,” and IBM’s Business Conduct Guidelines. This responsibility is reflected in each executive’s performance goals, and is reinforced through each executive’s annual certification to the IBM Business Conduct Guidelines.
An executive’s compensation, including annual cash incentive payments, is tied to compliance with these standards; compliance is also a condition of IBM employment for each executive.
IBM’s equity plans and agreements have a clawback provision — awards may be cancelled and certain gains repaid if an employeeexecutive engages in activity that is detrimental to IBM, such as violating IBM’s Business Conduct Guidelines, disclosing confidential information or performing services for a competitor. To further reinforce our commitment to ethical conduct, the Excess 401(k) Plus Plan allows the clawback of certain IBM contributions if a participant engages in activity that is detrimental to IBM.
In addition, approximately 2,0002,100 of our key executives (including each of the named executive officers) have agreed to a noncompetition, nonsolicitation agreement that prevents them from working for certain competitors within 12 months of leaving IBM or soliciting employees within two years ofafter leaving IBM.
The Committee has also implemented the following policy for the clawback of cash incentive payments in the event an executive officer’s conduct leads to a restatement of IBM’s financial results:
To the extent permitted by governing law, IBM will seek to recoup any bonus or incentive paid to any executive officer if: (i) the amount of such payment was based on the achievement of certain financial results that were subsequently the subject of a restatement; (ii) the Board determines that such officer engaged in misconduct that resulted in the obligation to restate,restate; and (iii) a lower payment would have been made to the officer based upon the restated financial results.
Hedging and Pledging Practices
IBM has two senior leadership teams: the Performance Team and the Acceleration Team, formerly the Growth and Transformation Team. The Performance Team consists of approximately 7065 of our senior leaders who run IBM business units and geographies and includes the Chairman and CEO, President, EVP, and each Senior Vice President.SVP. The team is accountable for business performance and the development of cross-unit strategies. The Acceleration Team, which includes all members of the Performance Team, consists of a select group of approximately 350 executives. This team is charged with accelerating IBM’s growth through leadership initiatives to engage their teams and promote innovation, speed, and simplicity in service of our clients.
IBM does not allow any member of the IBM Board of Directors or any member of the Acceleration Team, including any named executive officer, to hedge the economic risk of their ownership of any IBM securities, which includes entering into any derivative transaction on IBM stock (e.g., any short-sale, prepaid variable forward option, collar). Further, IBM does not allow any member of the Acceleration Teamcontract, equity swap, collars, exchange funds) or to pledge any IBM securities at any time, which includes having IBM stock in a margin account or using IBM stock as collateral for a loan. Further, IBM does not allow any employee granted equity awards through the IBM Long-Term Incentive Plan to hedge or pledge those securities.
Tax Considerations
Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended, limits deductibility of compensation in excess of $1 million paid to IBM’s covered employees. Until the Tax Cut and Jobs Act was signed into law on December 22, 2017, performance-based compensation was deductible, even if it caused the covered employee to have compensation in excess of $1 million. The Tax Cut and Jobs Act eliminated this performance-based compensation deduction going forward, but provided limited transition relief for compensation paid pursuant to a contract in effect as of November 2, 2017 that is not materially modified after such date. This means that certain outstanding performance-based compensation may continue to be deductible under Section 162(m), but that all compensation after November 2, 2017, will be subject to the $1 million cap on deductibility. IBM will seek deductions for compensation under the transition relief consistent with applicable law. The Tax Cut and Jobs Act also expanded who a covered employee is under Section 162(m). Effective for 2017 and thereafter, a covered employee under Section 162(m) is the CEO, the CFO (who previously was not included) and each of the other three highest-paid executive officers.
Based on applicable tax regulations in effect prior to the Tax Cut and Jobs Act, for the performance-based compensation exception, taxable compensation derived from certain stock appreciation rights and from the exercise of stock options by Senior Vice Presidents under IBM’s Long-Term Performance Plans should qualify as performance-based. The IBM Excess 401(k) Plus Plan permits an executive officer who is subject to Section 162(m) and whose salary and incentive compensation is above $1 million to defer payment of a sufficient amount of the salary and incentive compensation to bring it below the Section 162(m) limit. In 1999, IBM’s stockholders approved the terms under which IBM’s annual and long-term performance incentive awards should qualify as performance-based. In 2014, as required by the Internal Revenue Code, the stockholders approved the material terms of the performance criteria under which long-term performance incentive awards should qualify as performance-based. These terms did not preclude the Committee from making any payments or granting any awards, whether or not such payments or awards qualify for tax deductibility under Section 162(m), which may have been appropriate to retain and motivate key executives.
Although this tax deduction for performance-based compensation has been eliminated for awards after November 2, 2017, IBM believescontinues to believe that a strong link between pay and performance is critical to align executive and shareholderstockholder interests. Going forward, IBM and the Committee will continue to ensure that a significant portion of pay for our Senior Vice Presidents,EVP and SVPs, including the Chairman and CEO, is at risk and subject to the attainment of performance goals.
| 48 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis |
20172020 Summary Compensation Table and Related Narrative
Salary (Column (c))
Amounts shown in the salary column reflect the salary amount paid to each named executive officer during 2017.2020.
· IBM reviews salaries
Bonus (Column (d))
As described in Section 1 of the 2020 Compensation Discussion and Analysis, during 2020, Mr. Whitehurst received the first of three potential annual retention payments under a retention arrangement entered into between Mr. Whitehurst and IBM prior to the close of the Red Hat acquisition. No bonuses were awarded to the other named executive officers in the years shown in the 20172020 Summary Compensation Table. Payments under the IBM Annual Incentive Program are included under column (g) (Non-Equity Incentive Plan Compensation).
Stock Awards (Column (e))
The amounts shown are the aggregate grant date fair values of Performance Share Units (PSUs), retention Performance Share Units (RPSUs), and Restricted Stock Units (RSUs) and Retention Restricted Stock Units (RRSUs) granted in each fiscal year shown, computed in accordance with accounting guidance (excluding any risk of forfeiture as per SEC regulations). One unit is equivalent to one share of IBM common stock. The values shown for the PSUs and RPSUs are calculated at the Target number, as described below. The values shown for the PSUs, RSUs and RRSUsValues reflect an adjustment for the exclusion of dividend equivalents.
Performance Share Units (PSUs)
The following describes the material terms and conditions of PSUs as reported in the column titled Stock Awards (column (e)) in the 20172020 Summary Compensation Table and in the 20172020 Grants of Plan-Based Awards Table under the heading Estimated Future Payouts Under Equity Incentive Plan Awards (columns (f), (g) and (h)).
General Terms
· One PSU is equivalent in value to one share of IBM common stock.
· Executive officers are awarded a number of PSUs during the first year of the three-year performance period. PSUs are generally paid out in IBM common stock after the three-year performance period.
·
·
·
· There are no dividends or dividend equivalents paid on PSUs.
Vesting and Payout Calculations
·
·
·
·
Threshold Number (listed in column (f) of the 20172020 Grants of Plan Based Awards Table):
– The Threshold number
| – | The Threshold Number of PSUs is 25% of the Target number. |
– The Threshold number of PSUs will be earned for achievement of 70% of both business objectives (operating earnings per share and free cash flow).
| – | The Threshold Number of PSUs will be earned for achievement of the Threshold Level performance for both business objectives (operating earnings per share and free cash flow), which is 70% of the target for each objective. |
– If only the cumulative operating earnings per share target is met at the Threshold level (and the free cash flow target is not met), the number of PSUs earned would be 70% of the Threshold number.
– If only the cumulative free cash flow target is met at the Threshold level (and the operating earnings per share target is not met), the number of PSUs earned would be 30% of the Threshold number.
| – | If either business objective is below 70% of the target, the Threshold Number of PSUs would be reduced by the relative weighting of that objective (e.g., 70% for operating earnings per share , or 30% for free cash flow). |
Target Number (listed in column (g) of the 20172020 Grants of Plan-Based Awards Table):
| – |
|
Maximum Number (listed in column (h) of the 20172020 Grants of Plan-Based Awards Table):
| – | The Maximum number of PSUs earned based on business objectives is 150% of the Target number. |
–
| – | The Maximum number of PSUs will be earned for achieving 120% of the target for both business objectives. |
The relative ROIC modifier may modify the payout up or down by up to 20 points, based on IBM’s ROIC performance relative to broader market indices. As a result, the total Maximum number of PSUs is 150%earned could be up to 170% of the Target number.
Retention Performance Share Unit Grant (RPSUs)
As described in Section 1 of the Compensation Discussion and Analysis, Mr. Whitehurst was awarded an RPSU grant on March 2, 2020, prior to undertaking his role as IBM President. The key RPSU terms of this award is consistent with PSU awards described above, with the exception of the following unique terms.
Vesting and Payout – RPSUs that vest on July 31, 2021
One-third of Mr. Whitehurst’s RPSU award will vest and pay out on July 31, 2021, with no additional performance criteria required (listed in column (i) of the 2020 Grants of Plan based awards table).
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Summary Compensation Table and Related Narrative | 49 |
Vesting and Payout – RPSUs that vest on July 31, 2023
Restricted Stock Units (RSUs)
RSUs may include RRSUs. In 2017, RSUs, but not2020, no RRSUs were granted to all named executive officers. RRSUs granted in
previous years to any named executive officer and outstanding at the end of 2017 are included in the 2017 Outstanding Equity Awards at Fiscal Year-End Table.
General Terms
·One RSU or RRSU is equivalent in value to one share of IBM common stock. RSUs and RRSUs are generally paid out in IBM common stock at vesting.
·Dividend equivalents are not paid on RSUs or RRSUs granted on or after January 1, 2008.
Vesting and Payout
Non-Equity Incentive Plan Compensation (Column (g)) Amounts in this column · typically fully vest in four years, with 25% vesting each year.·RRSUs typically fully vest in a two to five year period. These awards are typically given to select senior executives for the purpose of providing additional value to retain the executive through the vesting date.· and RRSUs at each vesting date is typically contingent on the recipient remaining employed by IBM through that vesting date. See the 20172020 Potential Payments Upon Termination Narrative for information on payout of unvested RSUs upon certain terminations.·20172020 Nonqualified Deferred Compensation Table may include certain previously-granted RRSUs. Executives haveSince 2008, executives may not been allowedelect to defer payment of RSUs.Option Awards (Column (f))There were no option awards granted to the named executive officers in the years shown in the 2017 Summary Compensation Table, except for Mrs. Rometty. On January 26, 2016, Mrs. Rometty was granted a one-time award of 1.5 million nonqualified stock options that vest three years from the date of grant, is exercisable in four equal tranches at premium prices of 105%, 110%, 115% and 125% of the average of the high and low prices of IBM common stock on the date of grant, and expires 10 years from the date of grant.representinclude payments under IBM’s Annual Incentive Program (AIP).General Terms··See Section 12017 Compensation Discussionfirst three months of 2020. His annual target increased to 200% of his salary rate effective April 2020 (upon becoming CEO), which was prorated for the remaining nine months of 2020. The payout reflects amounts earned toward his prorated targets as SVP and Analysis for information on performance targets for AIP.Payout Range·as CEO, respectively. Mrs. Rometty had a target of $5 million for 2017. 2020.2017.2020. See column (d) of the 20172020 Grants of Plan-Based Awards Table for the target payout.·
See Section 1 of the Mr. Whitehurst’s payment for ·officerofficers is three times the target (see column (e)target.2017 Grants2020 Compensation Discussion and Analysis for more information on performance targets, vesting and payout of Plan-Based Awards Table). Beginning in 2018, maximum payout opportunitythe AIP.only the ChairmanJanuary and CEO is reduced to two times the target.
Change in Retention Plan Value (Column (h)) Change in Pension Value (Column (h)) Nonqualified Deferred Compensation Earnings (Column (h)) VestingPayout·In addition to performance against corporate-wide and business unit goals, which determine the funding pool for the year, individual performance against commitments set at the beginningFebruary 2020. See Section 1 of the year determine payout amounts.·An executive generally must be employed by IBM at the end of the performance period in order to be eligible to receive an AIP payout. At the discretion of appropriate senior management, the Compensation Committee, or the Board, an executive may receive a prorated payout of AIP upon retirement.·AIP payouts earned during the performance period are paid on or before March 15 of the year following the end of such period.·For Mrs. Rometty, Dr. Kelly and Mr. Kavanaugh, amounts20162019 to December 31, 2017.2020. Messrs. SchroeterKrishna and ClementiWhitehurst, and Ms. Browdy do not have a benefit under the Retention Plan.·20172020 Retention Plan Narrative for a description of the Retention Plan.·20162019 to December 31, 20172020 for each eligible named executive officer. Neither Mr. Whitehurst nor Ms. Browdy have a benefit under any IBM defined benefit pension plan.·20172020 Pension Benefits Narrative for a description of the applicable defined benefit pension plan. Mr. Clementi does not have a benefit under any IBM defined benefit pension plan.··See the 2017 Nonqualified Deferred Compensation Narrative for a description of the nonqualified deferred compensation plans in which the named executive officers participate.
All Other Compensation (Column (i))
Amounts in this column represent the following as applicable:
Tax Reimbursements
·· tax equalization payments related to international assignments, cost of family travel to and attendance at business-related events, business-related local lodging and incidental expenses, certain relocation costs in accordance with IBM’s US relocation policy, and business-related ground transportation expenses (see Ground Transportation below).
| 50 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Summary Compensation Table and Related Narrative |
IBM Contributions to Defined Contribution Plans
Life and Travel Accident Insurance Premiums ·officer.officer under IBM’s 401(k) Plus and Excess 401(k) Plus Plans. Mr. Whitehurst’s amount also includes a $785 matching contribution in accordance with the terms of Red Hat, Inc.’s 401(k) Plan. This plan was generally available to all of Red Hat, Inc.’s employees.·hired or rehired by IBM U.S. before January 1, 2005, including Mrs. Rometty, Dr. Kelly and Mr. Kavanaugh, are eligible tocan receive matching contributions, ranging from 2 to 6%, up to 6%a percentage of eligible compensation. Participants hired or rehired by IBM U.S.compensation (subject to Internal Revenue Code compensation limits), depending on or after January 1, 2005, including Messrs. Schroetera person’s date of hire and Clementi, who complete the plan’s service requirement, are generally eligible for up to 5% matching contributions. A participant’s hire/rehire date is measured by a participant’s most recent U.S. hire date. Mr. Schroeter rejoined IBM U.S. in 2011 after working for IBM Australia from April 1, 2005 to June 30, 2011. Mr. Clementi joined IBM U.S. in 2009 after working for IBM Italy since 1984.job role. In addition, for all eligible participants, IBM makes automatic contributions, ranging from 1% to 4%, equal to a certain percentage of eligible compensation (subject to Internal Revenue Code compensation limits), which generally depends on the participant’s pension plan eligibility on December 31, 2007. In 2017, the automatic contribution percentage was 4% for Mrs. Rometty; 2% for Dr. Kelly and2020, Mr. Kavanaugh; and 1% for Messrs. Schroeter and Clementi.·Under IBM’s Excess 401(k) Plus Plan, IBM makes matching contributions equal to a percentage of the sum of (i) the amount the participant elects to defer under the Excess 401(k) Plus Plan, and (ii) the participant’s eligible compensation after reaching the Internal Revenue Code compensation limits. Participants hired or rehired by IBM U.S. before January 1, 2005, includingKrishna, Mrs. Rometty, Mr. Kavanaugh and Dr. Kelly and Mr. Kavanaugh, are eligible to receive matching contributions up to 6% of eligible compensation. Participants hired or rehired by IBM U.S. on or after January 1, 2005, including Messrs. Schroeterpay. Mr. Whitehurst and Clementi, who complete the plan’s service requirement,Ms. Browdy are eligible for up to 5% matching contributions. In addition,The automatic contribution percentage was 4% for all eligible participants,Mrs. Rometty; 2% for Mr. Krishna, Mr. Kavanaugh, and Dr. Kelly; and 1% for Mr. Whitehurst and Ms. Browdy.contribution percentage generally depends on the participant’s pension plan eligibility on December 31, 2007, and in 2017, the automatic contribution percentage was 4%contributions for Mrs. Rometty; 2% for Dr. Kelly and Mr. Kavanaugh; and 1% for Messrs. Schroeter and Clementi.·For purposes of calculating the matching contribution and the automatic contribution under the 401(k) Plus Plan, the participant’s eligible compensation excludes the amount the participant elects to defer under the Excess 401(k) Plus Plan.·20172020 Nonqualified Deferred Compensation Narrative for additional details on the nonqualified deferred compensation plans.plan.··· or rehired by IBM U.S. before January 1, 2004, including Mr. Krishna, Mrs. Rometty, Mr. Kavanaugh and Dr. Kelly, and Mr. Kavanaugh, is two times salary plus annual incentive program target, with a maximum coverage amount of $2,000,000. Life insurance for executives hired or rehired by IBM U.S. on or after January 1, 2004, including Messrs. Schroeter and Clementi,Ms. Browdy, is one times salary plus annual incentive program target, with a maximum coverage of $1,000,000. Mr. Whitehurst elected to waive his life insurance coverage in excess of $50,000.·
Perquisites
The following describes perquisites (and their aggregate incremental cost calculations) provided to the named executive officers in 2017.2020.
Personal Financial Planning
In 2017,2020, IBM offered financial planning services with coverage generally up to $15,000 annually for senior U.S. executives, including each named executive officer.
Personal Travel on Company Aircraft
General Information
accompanying the officer on both business and non-business occasions is also included. Aggregate Incremental Cost Calculation ··ChairmanCEO and CEO,the Executive Chairman, including personal travel, be on Company aircraft. IBM’s security practices for air travel are consistent with best practices as assessed by independent third party security experts.20172020 Summary Compensation Table. These amounts also include the aggregate incremental cost, if any, of travel by hertheir family members or other guests on both business and non-business occasions. For 2020, Mr. Krishna did not incur any incremental cost for personal air travel.·20172020 on Company aircraft by named executive officers other than Mr. Krishna or Mrs. Rometty, and the aggregate incremental cost, if any, of travel by the officer’s family or other guests when······
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Summary Compensation Table and Related Narrative | 51 |
Ground Transportation
General Information
Ground Transportation
General Information
Aggregate Incremental Cost Calculation Personal Security General Information ·ChairmanCEO and CEOthe Executive Chairman be driven to and from work by IBM personnel in a car leased by IBM or by an authorized car service.·ChairmanCEO and CEOthe Executive Chairman may use a Company-leased car with an IBM driver or an authorized car service for non-business occasions. Further, the family of the ChairmanCEO and CEOthe Executive Chairman may use a Company-leased car with an IBM driver or an authorized car service on non-business occasions or when accompanying the Chairman and CEOthem on business occasions.· other than the Chairman and CEO in a Company-leased car with an IBM driver or an authorized car service on these occasions.··The incremental cost foror an authorized car service for commutation and non-business eventsincremental cost is calculated by multiplying the variable rate by the applicable driving time. The variable rate includes a driver’s salary and overtime payments, plus a cost per mile calculation based on fuel and maintenance expense.·The incremental cost forPersonal SecurityGeneral Information·ChairmanCEO and CEOthe Executive Chairman on certain non-business occasions, and for the family of the Chairman and CEOtheir families on certain non-business occasions, or when accompanying herthem on business occasions.·· and CEO and any other named executive officers, if applicable.
Aggregate Incremental Cost Calculation
Annual Executive Physical Family Travel and Attendance at Business-Related Events Relocation Expenses Other Personal Expenses ········· home office equipment, items relating to business events, retirement related items, and administrative charges incurred by executives.
| 52 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Summary Compensation Table and Related Narrative |
Name and Principal Position (a) Year (b) | | Salary ($) (c) |
| | Bonus ($) (d) |
| | Stock Awards ($) (e) | (1)
| | Option Awards ($) (f) | (2)
| | Non-Equity Incentive Plan Compensation ($) (g) |
| | Change in Retention Plan Value ($) (h) |
(3)
| | Change in Pension Value ($) (h) |
(4)
| | Nonqualified Deferred Compensation Earnings ($) (h) |
(5)
| | All Other Compensation ($) (i) | (6)(7)
| | Total ($) (j) | (8)
| ||||||||||
| ||||||||||||||||||||||||||||||||||||||||
A. Krishna, CEO(9) |
| |||||||||||||||||||||||||||||||||||||||
2020 | $ | 1,352,591 | $0 | $ | 13,159,118 | $0 | $2,181,000 | N/A | $ | 42,806 | $0 | $274,167 | $ | 17,009,682 | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
V.M. Rometty, Executive Chairman(10) |
| |||||||||||||||||||||||||||||||||||||||
2020 | $ | 1,600,000 | $0 | $ | 12,728,348 | $0 | $4,250,000 | $100,604 | $1,500,327 | $0 | $883,314 | $ | 21,062,593 | |||||||||||||||||||||||||||
2019 | 1,600,000 | 0 | 11,610,046 | 0 | 5,000,000 | 109,106 | 967,778 | 0 | 873,935 | 20,160,865 | ||||||||||||||||||||||||||||||
2018 | 1,600,000 | 0 | 10,801,392 | 0 | 4,050,000 | 0 | 0 | 0 | 1,100,826 | 17,552,218 | ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
J.J. Kavanaugh, Senior VP and CFO |
| |||||||||||||||||||||||||||||||||||||||
2020 | $ | 899,000 | $0 | $ | 7,416,931 | $0 | $1,176,300 | $94,229 | $0 | $0 | $159,836 | $ | 9,746,296 | |||||||||||||||||||||||||||
2019 | 787,500 | 0 | 5,063,127 | 0 | 1,064,000 | 83,877 | 11,804 | 0 | 129,884 | 7,140,192 | ||||||||||||||||||||||||||||||
2018 | 713,000 | 0 | 4,263,851 | 0 | 814,050 | 0 | 23,343 | 0 | 82,901 | 5,897,145 | ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
J.M. Whitehurst, President(9)(11) |
| |||||||||||||||||||||||||||||||||||||||
2020 | $ | 1,173,864 | $2,000,000 | $ | 22,418,228 | $0 | $1,455,813 | N/A | N/A | $0 | $130,562 | $ | 27,178,467 | |||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
J.E. Kelly III, Executive Vice President(12) |
| |||||||||||||||||||||||||||||||||||||||
2020 | $ | 868,000 | $0 | $ | 6,029,248 | $0 | $820,400 | $376,478 | $233,063 | $0 | $129,314 | $ | 8,456,503 | |||||||||||||||||||||||||||
2019 | 868,000 | 0 | 5,237,677 | 0 | 703,200 | 677,321 | 53,005 | 0 | 184,864 | 7,724,067 | ||||||||||||||||||||||||||||||
2018 | 860,000 | 0 | 4,629,243 | 0 | 644,600 | 0 | 55,273 | 0 | 226,336 | 6,415,452 | ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
M.H. Browdy, Senior VP and General Counsel(9) |
| |||||||||||||||||||||||||||||||||||||||
2020 | $ | 830,000 | $0 | $ | 4,211,031 | $0 | $1,109,520 | N/A | N/A | $0 | $124,112 | $ | 6,274,663 | |||||||||||||||||||||||||||
2019 | 744,500 | 0 | 3,753,766 | 0 | 982,300 | N/A | N/A | 0 | 107,504 | 5,588,070 | ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
2017 SUMMARY COMPENSATION TABLE
Name and |
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|
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|
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|
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|
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|
| Nonqualified |
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
| Non-Equity |
| Change in |
| Change in |
|
|
|
|
|
| ||||||||||||
|
|
|
|
| Stock |
| Option |
|
|
|
|
| All Other |
|
|
| |||||||||||||||
| Salary |
| Bonus |
|
|
|
|
|
|
|
| Total(8) |
| ||||||||||||||||||
|
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|
|
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| |||||||||||||||||||||
|
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| |||||||||||||||||||||
V.M. Rometty, Chairman, President and CEO |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
2017 |
| $ | 1,600,000 |
| $ | 0 |
| $ | 10,428,720 |
| $ | 0 |
| $ | 5,100,000 |
| $ | 79,951 |
| $ | 494,882 |
| $ | 0 |
| $ | 891,797 |
| $ | 18,595,350 |
|
2016 |
| 1,600,000 |
| 0 |
| 12,822,238 |
| 12,094,414 |
| 4,950,000 |
| 87,660 |
| 300,605 |
| 0 |
| 840,782 |
| 32,695,699 |
| ||||||||||
2015 |
| 1,550,000 |
| 0 |
| 12,905,329 |
| 0 |
| 4,500,000 |
| 0 |
| 0 |
| 0 |
| 866,621 |
| 19,821,950 |
| ||||||||||
M.J. Schroeter, Senior VP and CFO(9) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
2017 |
| $ | 828,500 |
| $ | 0 |
| $ | 4,312,687 |
| $ | 0 |
| $ | 1,181,000 |
| N/A |
| $ | 11,436 |
| $ | 0 |
| $ | 138,538 |
| $ | 6,472,162 |
| |
2016 |
| 754,000 |
| 0 |
| 4,820,379 |
| 0 |
| 1,046,430 |
| N/A |
| 6,227 |
| 0 |
| 173,159 |
| 6,800,195 |
| ||||||||||
2015 |
| 692,500 |
| 0 |
| 11,425,266 |
| 0 |
| 881,100 |
| N/A |
| 1,295 |
| 0 |
| 112,191 |
| 13,112,352 |
| ||||||||||
J.E. Kelly III, Senior VP, IBM Cognitive Solutions & IBM Research |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
2017 |
| $ | 830,500 |
| $ | 0 |
| $ | 4,312,687 |
| $ | 0 |
| $ | 861,000 |
| $ | 127,911 |
| $ | 70,056 |
| $ | 0 |
| $ | 240,339 |
| $ | 6,442,493 |
|
2016 |
| 754,500 |
| 0 |
| 5,302,514 |
| 0 |
| 927,350 |
| 0 |
| 66,423 |
| 0 |
| 240,583 |
| 7,291,370 |
| ||||||||||
2015 |
| 675,500 |
| 0 |
| 11,887,195 |
| 0 |
| 850,500 |
| 0 |
| 42,393 |
| 0 |
| 184,207 |
| 13,639,795 |
| ||||||||||
E. Clementi, Senior VP, IBM Global Markets(9)(10) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
2017 |
| $ | 754,500 |
| $ | 0 |
| $ | 4,312,687 |
| $ | 0 |
| $ | 869,840 |
| N/A |
| N/A |
| $ | 0 |
| $ | 227,742 |
| $ | 6,164,769 |
| ||
2016 |
| 703,500 |
| 0 |
| 5,302,514 |
| 0 |
| 889,200 |
| N/A |
| N/A |
| 0 |
| 144,440 |
| 7,039,654 |
| ||||||||||
J.J. Kavanaugh, Senior VP, Finance and Operations(9)(10) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
2017 |
| $ | 649,000 |
| $ | 0 |
| $ | 3,136,575 |
| $ | 0 |
| $ | 919,000 |
| $ | 11,766 |
| $ | 33,651 |
| $ | 0 |
| $ | 119,808 |
| $ | 4,869,800 |
|
Note:For assumptions used in determining the fair value of stock and option awards, see Note R (Stock-BasedA (Significant Accounting Policies - Stock-Based Compensation) to IBM’s 20172020 Consolidated Financial Statements.
| (1) | Amounts in this column reflect the total Performance Share Units (PSUs), retention Performance Share Units (RPSUs), and Restricted Stock Units (RSUs). |
Amounts include the aggregate grant date fair values of PSUs and RPSUs (subject to performance criteria) at the Target number (described in the 2020 Summary Compensation Table Narrative), calculated in accordance with accounting guidance; these amounts reflect an adjustment for the exclusion of dividend equivalents. At the Maximum number, these values for Mr. Krishna would be: 2020: 14,540,788; for Mrs. Rometty: 2020: $21,638,238; 2019: $12,829,069; 2018: $11,935,509; for Mr. Kavanaugh: 2020: $8,195,713; 2019: $5,594,668; 2018: $4,711,494; for Mr. Whitehurst: 2020: $21,145,386; for Dr. Kelly: 2020: $6,662,318; 2019 $5,787,591; 2018: $5,115,348; for Ms. Browdy: 2020: $4,653,236; 2019: $4,147,858. |
Amounts also include the aggregate grant date fair values of RSUs grants, if applicable, calculated in accordance with accounting guidance; these amounts reflect an adjustment for the exclusion of dividend equivalents. |
| (2) | There were no option awards granted to any of the named executive officers in the years shown in the 2020 Summary Compensation Table. |
| (3) | Assumptions can be found immediately after the 2020 Retention Plan Table. Although accruals under the Retention Plan stopped on December 31, 2007, changes in Retention Plan Value can occur based on changes to participants’ ages and actuarial assumptions. For 2018, 2019 and 2020, Change in Retention Plan Value for the eligible named executive officers was due to their age, changes in the discount rate, interest crediting rate, and mortality table. The change in Retention Plan Value for the eligible named executive officers resulted in negative amounts in 2018 for Mrs. Rometty $(199,118), Mr. Kavanaugh $(53,853) and Dr. Kelly $(909,446). |
| (4) | Assumptions can be found immediately after the 2020 Pension Benefits Table. Although accruals under the IBM Personal Pension Plan stopped on December 31, 2007, changes in Pension Value can occur based on changes to participants’ ages and actuarial assumptions. For 2018, 2019 and 2020, Change in Pension Value for the named executive officers was due to their age, changes in the discount rate, interest crediting rate, and mortality table. The change in Pension Value for the named executive officers resulted in the following negative amounts: 2020 for Mr. Kavanaugh $(9,281), 2018 for Mrs. Rometty $(349,181). |
| (5) | IBM does not provide above-market or preferential earnings on deferred compensation. See the 2020 Nonqualified Deferred Compensation Narrative for information about deferred compensation. |
| (6) | Amounts in this column include the following for 2020: for Mr. Krishna: tax reimbursements of $15,496 and IBM contributions to defined contribution plans of $224,495; Mrs. Rometty: tax reimbursements of $24,737 and IBM contributions to defined contribution plans of $660,000; for Mr. Kavanaugh: IBM contributions to defined contribution plans of $156,540; for Mr. Whitehurst: tax reimbursements of $11,153 and IBM contributions to defined contribution plans of $71,217; for Dr. Kelly: IBM contributions to defined contribution plans of $125,696; and for Ms. Browdy: IBM contributions to defined contribution plans of $108,738. |
| (7) | Amounts in this column also include the following perquisites for 2020: for Mr. Krishna: personal financial planning, ground transportation, family attendance at business-related events, and other personal expenses; for Mrs. Rometty: personal financial planning, ground transportation, personal security, annual executive physical, family attendance at business-related events, personal travel on Company aircraft of $149,036, and other personal expenses; for Mr. Whitehurst: ground transportation, relocation expenses, personal travel on Company aircraft of $34,886, and other personal expenses; for Ms. Browdy: personal financial planning and other personal expenses. See the 2020 Summary Compensation Table Narrative for a description and information about the aggregate incremental cost calculations for perquisites. |
| (8) | Amounts in this column reflect the total of the following columns: Salary, Bonus, Stock Awards, Option Awards, Non-Equity Incentive Plan Compensation, Change in Retention Plan Value, Change in Pension Value, Nonqualified Deferred Compensation Earnings and All Other Compensation. |
| (9) | Mr. Krishna and Mr. Whitehurst were not named executive officers in IBM’s 2019 or 2020 Proxy Statement; therefore, 2018 and 2019 data is excluded for them. Mr. Krishna became Chief Executive Officer on April 6, 2020 and Chairman on January 1, 2021. Mr. Whitehurst became President on April 6, 2020. Ms. Browdy was not a named executive officer in IBM’s 2019 Proxy Statement; therefore, this table does not provide 2018 data for her. |
| (10) | Mrs. Rometty was Chairman, President and Chief Executive Officer until April 6, 2020, when she became Executive Chairman. Mrs. Rometty retired on December 31, 2020. |
| (11) | Mr. Whitehurst’s Non-Equity Incentive Plan compensation (column (g)) represents the pro-rata portion of his total Red Hat Annual Cash Bonus payment that was earned from January 1, 2020 through February 29, 2020, plus his prorated AIP payment earned from March 1, 2020 through December 31, 2020. |
| (12) | Dr. Kelly retired from the Company on December 31, 2020. |
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Summary Compensation Table and Related Narrative | 53 |
2020 GRANTS OF PLAN-BASED AWARDS TABLE
(1)Amounts in this column reflect the total Performance Share Units (PSUs), Restricted Stock Units (RSUs), and Retention Restricted Stock Units (RRSUs). RRSUs were not awarded in 2016 or 2017.
Name (a) Type of Award(1) | | Grant Date (b) |
| | Compensation Committee Approval Date |
|
|
Estimated Future Payouts Under Non-Equity Incentive Plan |
|
|
Estimated Future Payouts Under Equity Incentive Plan |
| | All Other Stock Awards: Number of Shares of Stock or Units (#) (i) |
(4)
| | All Other Option Awards: Number of Securities Underlying Options (#) (j) |
| | Exercise or Base Price of Option Awards ($/Sh) (k) |
| | Closing Price on the NYSE on the Date of Grant ($/Sh) |
| | Grant Date Fair Value of Stock and Option Awards ($) (l) |
(5)
| |||||||||||||||||||||||||
| | Threshold ($) (c) |
| | Target ($) (d) |
| | Maximum ($) (e) |
| | Threshold (#) (f) |
| | Target (#) (g) |
| | Maximum (#) (h) |
| |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
A. Krishna |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
AIP | N/A | 04/28/2020 | 0 | 2,566,000 | 5,488,000 | |||||||||||||||||||||||||||||||||||||||||||||||
PSU | 06/08/2020 | 04/28/2020 | 18,139 | 72,554 | 123,342 | 8,553,391 | ||||||||||||||||||||||||||||||||||||||||||||||
RSU | 06/08/2020 | 04/28/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 39,068 |
|
|
|
|
|
|
|
|
| 4,605,727 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
V.M. Rometty |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
AIP | N/A | 01/28/2020 | 0 | 5,000,000 | 10,000,000 | |||||||||||||||||||||||||||||||||||||||||||||||
PSU | 06/08/2020 | 01/28/2020 |
|
|
|
|
|
|
|
|
| 26,992 | 107,968 | 183,546 |
|
|
|
|
|
|
|
|
|
|
|
| 12,728,348 | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
J.J. Kavanaugh |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
AIP | N/A | 01/28/2020 | 0 | 1,307,000 | 3,921,000 | |||||||||||||||||||||||||||||||||||||||||||||||
PSU | 06/08/2020 | 01/28/2020 | 10,224 | 40,894 | 69,520 | 4,820,994 | ||||||||||||||||||||||||||||||||||||||||||||||
RSU | 06/08/2020 | 01/28/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 22,020 |
|
|
|
|
|
|
|
|
| 2,595,938 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
J.M. Whitehurst |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
ACB | N/A | 05/15/2019 | 68,750 | 275,000 | 550,000 | |||||||||||||||||||||||||||||||||||||||||||||||
AIP | N/A | 02/25/2020 | 0 | 1,487,500 | 4,462,500 | |||||||||||||||||||||||||||||||||||||||||||||||
RPSU | 03/02/2020 | 02/25/2020 | 55,003 | 68,754 | 82,505 | 7,927,336 | ||||||||||||||||||||||||||||||||||||||||||||||
RPSU | 03/02/2020 | 02/25/2020 | 34,377 | 3,963,668 | ||||||||||||||||||||||||||||||||||||||||||||||||
PSU | 06/08/2020 | 01/28/2020 | 14,511 | 58,043 | 98,673 | 6,842,689 | ||||||||||||||||||||||||||||||||||||||||||||||
RSU | 06/08/2020 | 01/28/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 31,254 |
|
|
|
|
|
|
|
|
| 3,684,534 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
J.E. Kelly III |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
AIP | N/A | 01/28/2020 | 0 | 1,172,000 | 3,516,000 | |||||||||||||||||||||||||||||||||||||||||||||||
PSU | 06/08/2020 | 01/28/2020 | 8,311 | 33,243 | 56,513 | 3,919,017 | ||||||||||||||||||||||||||||||||||||||||||||||
RSU | 06/08/2020 | 01/28/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 17,900 |
|
|
|
|
|
|
|
|
| 2,110,231 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
M.H. Browdy |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
AIP | N/A | 01/28/2020 | 0 | 1,206,000 | 3,618,000 | |||||||||||||||||||||||||||||||||||||||||||||||
PSU | 06/08/2020 | 01/28/2020 | 5,805 | 23,218 | 39,471 | 2,737,170 | ||||||||||||||||||||||||||||||||||||||||||||||
RSU | 06/08/2020 | 01/28/2020 | 12,502 | 1,473,861 | ||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
AIP = Annual Incentive Program
ACB = Red Hat Inc.’s Annual Cash Bonus Plan (for which Mr. Whitehurst participated in Red Hat Inc.’s Fiscal Year End February 29, 2020
PSU = Performance Share Unit
RPSU = Retention Performance Share Unit
RSU = Restricted Stock Unit
Each of these awards was granted under IBM’s 1999 Long-Term Performance Plan. See the 20172020 Summary Compensation Table Narrative for additional information on these types of awards.
| (2) | Mr. Krishna’s maximum AIP payout is capped at 3X the target for the first three months of the year as SVP, and at 2X the target for the remaining nine months as Chief Executive Officer. For Mr. Whitehurst, his target while on Red Hat’s Annual Cash Bonus (ACB) plan was prorated for two months worked in 2020. His maximum ACB payout was capped at 2X the target. His AIP target is prorated for the remaining 10 months of 2020, and his maximum AIP payout is capped at 3X the target (consistent with IBM SVPs). |
(2)
| (3) | PSU awards will be adjusted based on performance and paid in February 2023. Two-thirds of Mr. Whitehurst’s RPSU grant will vest on July 31, 2023. The units will be adjusted based on IBM’s ROIC performance during the 2020-2022 performance period as described in Section 1 of the 2020 Compensation Discussion and Analysis. |
| (4) | RSU awards vest 25% on June 8, 2021, June 8, 2022, June 8, 2023, and June 8, 2024, provided that in each case, the named executive officer is an employee of IBM as of those dates unless they meet certain requirements to be eligible for continued vesting. One-third of Mr. Whitehurst’s RPSU grant will vest on July 31, 2021, provided he is an IBM employee as of that date, unless he meets certain requirements to be eligible for continued vesting. No additional performance criteria is required for the award to vest. See 2020 Potential Payments Upon Termination Narrative for a description of these eligibility requirements. |
| (5) | The amounts in this column reflect the aggregate grant date fair values of PSU, RPSU and RSU awards calculated in accordance with accounting guidance. The values shown for the PSU and RPSU awards are based on the Target number, as described in the 2020 Summary Compensation Table Narrative. The values shown for the PSUs, RPSUs, and RSUs reflect an adjustment for the exclusion of dividend equivalents. |
| 54 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Grants of Plan-Based Awards Table |
Pay Ratio
The ratio of the CEO’s annual total compensation to that of the median employee’s annual total compensation is 347:1 This ratio is based on performanceannual total compensation of $17,009,682 for the CEO (as reported in the Summary Compensation Table) and paid in February 2020.
(3)RSU awards vest 25% on June 8, 2018, June 8, 2019, June 8, 2020, and June 8, 2021, provided that in each case,$49,001 for the named executive officer is anmedian employee. The median employee of IBMused for the pay ratio disclosure was determined as of those dates unless they meet certain requirementsOctober 1, 2020 using annual base pay for IBM employees on that date; all foreign currencies were converted to be eligible for continued vesting (see 2017 Potential Payments Upon Termination Narrative forU.S. dollars. The calculation to determine the median employee was updated this year as required by SEC rules, and resulted in a descriptionnew median employee from a different country given the global dynamics of these eligibility requirements).
(4)The amounts in this column reflectIBM’s workforce. While the aggregate grant date fair values of PSU and RSU awards calculated in accordance with accounting guidance. The values shownbase salary for the PSU awards are based onmedian employee has increased (the basis for which we identify our median employee), the Target number,total compensation of the median employee was not as described inhigh year over year. The Company believes that this calculation is a reasonable estimate of the 2017 Summary Compensation Table Narrative. The values shown for the PSUs and RSUs reflect an adjustment for the exclusion of dividend equivalents.
pay ratio.
20172020 Outstanding Equity Awards at Fiscal Year-End Table and Related Narrative
Option Awards (Columns(Columns (b)–(f))
General Terms
Stock Awards Number of Shares or Units of Stock That Have Not Vested The amounts in this column are the number of RSAs, RSUs, Market Value of Shares or Units of Stock That Have Not Vested The amounts in this column are the value of the RSA, RSU, Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested The amounts in this column are the number of PSUs that were outstanding as of December 31, Performance Share Units and retention Performance Share Units ····Premium-priced options– Historically, the exercise price has been equal to 110% of the average of the high and low prices of IBM common stock on the NYSE on the date of grant and these options vested in four equal increments on the first four anniversaries of the grant date.– The one-time premium-priced award granted to Mrs. Rometty on January 26, 2016 is exercisable in four equal tranches at premium prices of 105%, 110%, 115% and 125% of the average of the high and low prices of IBM common stock on the NYSE on the date of grant and will vest three years from the date of grant and expires 10 years from the date of grant.(Columns(Columns (g)–(j))(Column(Column (g))andor RRSUs that were outstanding as of December 31, 2017.2020. The amounts also include the portion of Mr. Whitehurst’s RPSU grant that is not subject to additional performance criteria.(Column(Column (h))and RRSU or RPSU awards disclosed in column (g), calculated by multiplying the number of units by the closing price of IBM stock on the last business day of the 20172020 fiscal year ($153.42)125.88).(Column(Column (i))2017.2020.·· For Mr. Whitehurst’s RPSU award, amounts include only the portion of the grant that is subject to performance criteria.
2020 OUTSTANDING PSU and RPSU AWARD PAYOUT LEVELS Name Grant Date Threshold Target Maximum A. Krishna 06/07/2019 7,226 28,905 49,139 12/17/2019 207,898 259,872 311,846 06/08/2020 18,139 72,554 123,342 V.M. Rometty 06/08/2016 14,905 59,621 89,432 06/07/2019 16,018 64,073 108,924 06/08/2017 12,350 49,400 74,100 06/08/2020 26,992 107,968 183,546 M.J. Schroeter 06/08/2016 5,604 22,414 33,621 J.J. Kavanaugh 06/07/2019 6,986 27,942 47,501 06/08/2020 10,224 40,894 69,520 J.M. Whitehurst 03/02/2020 55,003 68,754 82,505 06/08/2020 14,511 58,043 98,673 06/08/2017 5,107 20,429 30,644 J.E. Kelly III 06/08/2016 6,164 24,656 36,984 06/07/2019 7,226 28,905 49,139 06/08/2017 5,107 20,429 30,644 06/08/2020 8,311 33,243 56,513 E. Clementi 06/08/2016 6,164 24,656 36,984 06/08/2017 5,107 20,429 30,644 J.J. Kavanaugh 06/08/2016 3,923 15,690 23,535 M.H. Browdy 06/07/2019 5,179 20,716 35,217 06/08/2017 3,715 14,858 22,287 06/08/2020 5,805 23,218 39,471 Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested The amounts in this column are the values of PSU awards disclosed in column (i), calculated by multiplying the number of units by the closing price of IBM stock on the last business day of the ·20172020 Compensation Discussion and Analysis, as well as the 20172020 Summary Compensation Table Narrative, for a detailed description of the PSU program and RPSUs, including payout calculations.·2017 OUTSTANDING PSU AWARD PAYOUT LEVELS Grant Date Threshold Target Maximum (Column(Column (j))20172020 fiscal year ($153.42)125.88).
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Outstanding Equity Awards at Fiscal Year-End Table and Related Narrative | 55 |
20172020 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
|
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| Option Awards |
| Stock Awards |
| |||||||||||||||||||||||||
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| Equity |
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| Equity |
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| Incentive |
| Equity Incentive |
| |||
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| Incentive |
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| Plan Awards: |
| Plan Awards: |
| |||
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| Plan Awards: |
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| Number of |
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| Number of |
| Market or |
| |||
|
| Number of |
| Number of |
| Number of |
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|
| Shares |
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|
| Unearned |
| Payout Value |
| |||
|
| Securities |
| Securities |
| Securities |
|
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|
| or Units |
| Market Value |
|
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| Shares, Units |
| of Unearned |
| |||
|
| Underlying |
| Underlying |
| Underlying |
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|
| of Stock |
| of Shares or |
|
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|
| or Other |
| Shares, Units |
| |||
|
| Unexercised |
| Unexercised |
| Unexercised |
| Option |
|
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|
|
| That |
| Units of Stock |
|
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|
|
| Rights That |
| or Other Rights |
| |||
Name |
| Options |
| Options |
| Unearned |
| Exercise |
| Option |
| Type |
|
|
| Have Not |
| That Have |
| Type |
|
|
| Have Not |
| That Have Not |
| |||
(a) |
| Exercisable |
| Unexercisable |
| (#) |
| ($) |
| Date |
| of |
| Grant |
| (#) |
| ($) |
| of |
| Grant |
| (#) |
| ($) |
| |||
Grant Date |
| (b) |
| (c) |
| (d) |
| (e) |
| (f) |
| Award |
| Date |
| (g) |
| (h) |
| Award |
| Date |
| (i) |
| (j) |
| |||
V.M. Rometty |
|
|
|
|
|
|
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|
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|
|
|
|
| |||
01/26/16 |
| 0 |
| 375,000 |
| N/A |
| $ | 129.08 |
| 01/25/26 |
| RSU |
| 06/08/16 |
| 24,078 |
| $ | 3,694,047 |
| PSU |
| 06/08/16 |
| 59,621 |
| $ | 9,147,054 |
|
01/26/16 |
| 0 |
| 375,000 |
| N/A |
| 135.22 |
| 01/25/26 |
| RSU |
| 06/08/17 |
| 26,600 |
| 4,080,972 |
| PSU |
| 06/08/17 |
| 49,400 |
| 7,578,948 |
| |||
01/26/16 |
| 0 |
| 375,000 |
| N/A |
| 141.37 |
| 01/25/26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
01/26/16 |
| 0 |
| 375,000 |
| N/A |
| 153.66 |
| 01/25/26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total |
| 0 |
| 1,500,000 |
|
|
|
|
|
|
|
|
|
|
| 50,678 |
| 7,775,019 |
|
|
|
|
| 109,021 |
| 16,726,002 |
| |||
M.J. Schroeter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| RRSU |
| 02/02/15 |
| 25,158 |
| 3,859,740 |
| PSU |
| 06/08/16 |
| 22,414 |
| 3,438,756 |
| |||
|
|
|
|
|
|
|
|
|
|
|
| RSU |
| 06/08/16 |
| 9,052 |
| 1,388,758 |
| PSU |
| 06/08/17 |
| 20,429 |
| 3,134,217 |
| |||
|
|
|
|
|
|
|
|
|
|
|
| RSU |
| 06/08/17 |
| 11,000 |
| 1,687,620 |
|
|
|
|
|
|
|
|
| |||
Total |
| 0 |
| 0 |
|
|
|
|
|
|
|
|
|
|
| 45,210 |
| 6,936,118 |
|
|
|
|
| 42,843 |
| 6,572,973 |
| |||
J.E. Kelly III |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| RRSU |
| 12/30/15 |
| 27,961 |
| 4,289,777 |
| PSU |
| 06/08/16 |
| 24,656 |
| 3,782,724 |
| |||
|
|
|
|
|
|
|
|
|
|
|
| RSU |
| 06/08/16 |
| 9,957 |
| 1,527,603 |
| PSU |
| 06/08/17 |
| 20,429 |
| 3,134,217 |
| |||
|
|
|
|
|
|
|
|
|
|
|
| RSU |
| 06/08/17 |
| 11,000 |
| 1,687,620 |
|
|
|
|
|
|
|
|
| |||
Total |
| 0 |
| 0 |
|
|
|
|
|
|
|
|
|
|
| 48,918 |
| 7,505,000 |
|
|
|
|
| 45,085 |
| 6,916,941 |
| |||
E. Clementi |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| RRSU |
| 02/02/15 |
| 12,579 |
| 1,929,870 |
| PSU |
| 06/08/16 |
| 24,656 |
| 3,782,724 |
| |||
|
|
|
|
|
|
|
|
|
|
|
| RSU |
| 06/08/16 |
| 9,957 |
| 1,527,603 |
| PSU |
| 06/08/17 |
| 20,429 |
| 3,134,217 |
| |||
|
|
|
|
|
|
|
|
|
|
|
| RSU |
| 06/08/17 |
| 11,000 |
| 1,687,620 |
|
|
|
|
|
|
|
|
| |||
Total |
| 0 |
| 0 |
|
|
|
|
|
|
|
|
|
|
| 33,536 |
| 5,145,093 |
|
|
|
|
| 45,085 |
| 6,916,941 |
| |||
J.J. Kavanaugh |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| RRSU |
| 02/01/13 |
| 5,320 |
| 816,194 |
| PSU |
| 06/08/16 |
| 15,690 |
| 2,407,160 |
| |||
|
|
|
|
|
|
|
|
|
|
|
| RRSU |
| 01/02/14 |
| 8,772 |
| 1,345,800 |
| PSU |
| 06/08/17 |
| 14,858 |
| 2,279,514 |
| |||
|
|
|
|
|
|
|
|
|
|
|
| RSU |
| 06/08/16 |
| 6,337 |
| 972,223 |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| RSU |
| 06/08/17 |
| 8,000 |
| 1,227,360 |
|
|
|
|
|
|
|
|
| |||
Total |
| 0 |
| 0 |
|
|
|
|
|
|
|
|
|
|
| 28,429 |
| 4,361,577 |
|
|
|
|
| 30,548 |
| 4,686,674 |
| |||
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||
Name (a) Grant Date | | Number of Securities Underlying Unexercised Options (#) Exercisable (b) |
| | Number of Securities Underlying Unexercised Options (#) Unexercisable (c) |
| | Equity Incentive Plan Number of Securities Underlying Unexercised Unearned Options (#) (d) |
| | Option Exercise Price ($) (e) |
| | Option Expiration Date (f) |
| | Type of Award |
| | Grant Date |
| | Number of Shares or Units of Stock That Have (#) (g) |
| | Market Value of Shares or Units of Stock That Have Not Vested ($) (h) |
(2)
| | Type of Award |
| | Grant Date |
| | Equity Incentive Plan Awards: Number of Unearned Shares, or Other Rights (#) (i) |
| | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (j) |
(2)
| |||||||||||||
A. Krishna |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU |
|
| 06/08/17 |
|
| 2,250 |
| $ | 283,230 |
|
| PSU |
|
| 06/07/19 |
|
| 28,905 |
| $ | 3,638,561 |
| |||||||||||||||||||||||||||||
| RSU |
|
| 06/08/18 |
|
| 6,016 |
|
| 757,294 |
|
| RPSU |
|
| 12/17/19 |
|
| 259,872 |
|
| 32,712,687 |
| |||||||||||||||||||||||||||||
| RRSU |
|
| 12/11/18 |
|
| 88,710 |
|
| 11,166,815 |
|
| PSU |
|
| 06/08/20 |
|
| 72,554 |
|
| 9,133,098 |
| |||||||||||||||||||||||||||||
| RSU |
|
| 06/07/19 |
|
| 11,674 |
|
| 1,469,523 |
| |||||||||||||||||||||||||||||||||||||||||
| RSU |
|
| 06/08/20 |
|
| 39,068 |
|
| 4,917,880 |
| |||||||||||||||||||||||||||||||||||||||||
| 147,718 |
|
| 18,594,742 |
|
| 361,331 |
|
| 45,484,346 |
| |||||||||||||||||||||||||||||||||||||||||
V.M. Rometty |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
01/26/16 |
| 375,000 |
|
| 0 |
|
| N/A |
| $ | 129.08 |
|
| 01/25/26 |
|
| RSU |
|
| 06/08/17 |
|
| 6,650 |
|
| 837,102 |
|
| PSU |
|
| 06/07/19 |
|
| 64,073 |
|
| 8,065,509 |
| |||||||||||||
01/26/16 |
| 375,000 |
|
| 0 |
|
| N/A |
|
| 135.22 |
|
| 01/25/26 |
|
| RSU |
|
| 06/08/18 |
|
| 14,548 |
|
| 1,831,302 |
|
| PSU |
|
| 06/08/20 |
|
| 107,968 |
|
| 13,591,012 |
| |||||||||||||
01/26/16 |
| 375,000 |
|
| 0 |
|
| N/A |
|
| 141.37 |
|
| 01/25/26 |
|
| RSU |
|
| 06/07/19 |
|
| 25,876 |
|
| 3,257,271 |
| |||||||||||||||||||||||||
01/26/16 |
| 375,000 |
|
| 0 |
|
| N/A |
|
| 153.66 |
|
| 01/25/26 |
| |||||||||||||||||||||||||||||||||||||
Total |
| 1,500,000 |
|
| 0 |
|
| 47,074 |
|
| 5,925,675 |
|
| 172,041 |
|
| 21,656,521 |
| ||||||||||||||||||||||||||||||||||
J.J. Kavanaugh |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU |
|
| 06/08/17 |
|
| 2,000 |
|
| 251,760 |
|
| PSU |
|
| 06/07/19 |
|
| 27,942 |
|
| 3,517,339 |
| |||||||||||||||||||||||||||||
| RSU |
|
| 06/08/18 |
|
| 5,743 |
|
| 722,929 |
|
| PSU |
|
| 06/08/20 |
|
| 40,894 |
|
| 5,147,737 |
| |||||||||||||||||||||||||||||
| RSU |
|
| 06/07/19 |
|
| 11,285 |
|
| 1,420,556 |
| |||||||||||||||||||||||||||||||||||||||||
| RSU |
|
| 06/08/20 |
|
| 22,020 |
|
| 2,771,878 |
| |||||||||||||||||||||||||||||||||||||||||
Total |
| 0 |
|
| 0 |
|
| 41,048 |
|
| 5,167,123 |
|
| 68,836 |
|
| 8,665,076 |
| ||||||||||||||||||||||||||||||||||
J.M. Whitehurst |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
| RSA |
|
| 07/09/19 |
|
| 111,944 |
|
| 14,091,511 |
|
| RPSU |
|
| 03/02/20 |
|
| 68,754 |
|
| 8,654,754 |
| |||||||||||||||||||||||||||||
| RRSU |
|
| 07/09/19 |
|
| 110,671 |
|
| 13,931,265 |
|
| PSU |
|
| 06/08/20 |
|
| 58,043 |
|
| 7,306,453 |
| |||||||||||||||||||||||||||||
| RPSU |
|
| 03/02/20 |
|
| 34,377 |
|
| 4,327,377 |
| |||||||||||||||||||||||||||||||||||||||||
| RSU |
|
| 06/08/20 |
|
| 31,254 |
|
| 3,934,254 |
| |||||||||||||||||||||||||||||||||||||||||
Total |
| 0 |
|
| 0 |
|
| 288,246 |
|
| 36,284,406 |
|
| 126,797 |
|
| 15,961,206 |
| ||||||||||||||||||||||||||||||||||
J.E. Kelly III |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU |
|
| 06/08/17 |
|
| 2,750 |
|
| 346,170 |
|
| PSU |
|
| 06/07/19 |
|
| 28,905 |
|
| 3,638,561 |
| |||||||||||||||||||||||||||||
| RSU |
|
| 06/08/18 |
|
| 6,235 |
|
| 784,862 |
|
| PSU |
|
| 06/08/20 |
|
| 33,243 |
|
| 4,184,629 |
| |||||||||||||||||||||||||||||
| RSU |
|
| 06/07/19 |
|
| 11,674 |
|
| 1,469,523 |
| |||||||||||||||||||||||||||||||||||||||||
| RSU |
|
| 06/08/20 |
|
| 17,900 |
|
| 2,253,252 |
| |||||||||||||||||||||||||||||||||||||||||
Total |
| 0 |
|
| 0 |
|
| 38,559 |
|
| 4,853,807 |
|
| 62,148 |
|
| 7,823,190 |
| ||||||||||||||||||||||||||||||||||
M.H. Browdy |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU |
|
| 06/08/17 |
|
| 1,750 |
|
| 220,290 |
|
| PSU |
|
| 06/07/19 |
|
| 20,716 |
|
| 2,607,730 |
| |||||||||||||||||||||||||||||
| RSU |
|
| 06/08/18 |
|
| 4,157 |
|
| 523,283 |
|
| PSU |
|
| 06/08/20 |
|
| 23,218 |
|
| 2,922,682 |
| |||||||||||||||||||||||||||||
| RSU |
|
| 06/07/19 |
|
| 8,367 |
|
| 1,053,238 |
| |||||||||||||||||||||||||||||||||||||||||
| RSU |
|
| 06/08/20 |
|
| 12,502 |
|
| 1,573,752 |
| |||||||||||||||||||||||||||||||||||||||||
Total |
| 0 |
|
| 0 |
|
| 26,776 |
|
| 3,370,563 |
|
| 43,934 |
|
| 5,530,412 |
| ||||||||||||||||||||||||||||||||||
Type of Award:
PSU = Performance Share Unit
RSA = Restricted Stock Award
RPSU = retention Performance Share Unit
RSU = Restricted Stock Unit
RRSU = Retention Restricted Stock Unit
(1)The exercise prices for Mrs. Rometty’s premium-priced options are equal to 105%, 110%, 115% and 125% of the average high and low prices of IBM common stock on the NYSE on the date of grant.
| (1) | The amounts shown in column (g) of the 2020 Outstanding Equity Awards at Fiscal Year-End Table are unvested RSA, RSU and RRSU awards, as well as the portion of Mr. Whitehurst’s RPSU that is not subject to additional performance criteria. See the 2020 Summary Compensation Table Narrative for additional information on these types of awards. Mr. Krishna’s RRSU vests on the anniversary of the grant date in 2021, 2022, and 2023 according to the vesting schedule in the table below, provided he is an employee of IBM on each vesting date. Mr. Whitehurst’s RPSUs that are not subject to additional performance criteria vests on July 31, 2021. Mr. Whitehurst’s previously outstanding equity awards as CEO of Red Hat were converted to RSAs upon the closing of IBM’s acquisition of Red Hat. The remaining RSAs for Mr. Whitehurst vests in January (4.5%), April (4.5%), May (56.0%), July (4.5%) and October (1.7%) 2021, and in January (1.7%), April (1.7%), May (23.9%), and July (1.7%) 2022. In addition, Mr. Whitehurst’s RRSU award vests on the anniversary of the grant date in 2022 and 2023, according to the vesting schedule in the table below, provided he is an IBM employee on each vesting date of his RSAs and RRSU awards. The Vesting Schedule for Unvested RSUs table below shows the vesting |
(2)The amounts shown in column (g) of the 2017 Outstanding Equity Awards at Fiscal Year-End Table are RSU and RRSU awards that have not yet vested. See the 2017 Summary Compensation Table Narrative for additional information on these types of awards. The Vesting Schedule for Unvested RSUs and RRSUs table below shows the vesting schedules for these outstanding awards. The remaining unvested portion of Mr. Schroeter’s and Mr. Clementi’s 2015 RRSU award will fully vest on February 2, 2019, provided that in each case, they are employees of IBM as of that date. The remaining unvested portion of Dr. Kelly’s 2015 RRSU award vests 50% on December 30, 2018 and 50% on December 30, 2019, provided that in each case, he is an employee of IBM as of those dates. The remaining unvested portion of Mr. Kavanaugh’s 2013 RRSU award fully vested on February 1, 2018 and the remaining unvested portion of Mr. Kavanaugh’s 2014 RRSU award will fully vest on January 2, 2019, provided that he is an employee of IBM as of that date. In 2016 and 2017, each named executive officer received RSU awards that vest 25% per year on the first through the fourth anniversaries of the grant date.
| 56 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Outstanding Equity Awards at Fiscal Year-End Table and Related Narrative |
(3)Values in these columns are calculated by multiplying the number of units by the closing price of IBM stock on the last business day of the 2017 fiscal year ($153.42).
| schedules for these outstanding awards. In 2017, 2018, 2019 and, other than for Mrs. Rometty, in 2020, each named executive officer received RSU awards that vest 25% per year on the first through the fourth anniversaries of the grant date. Please note, although Dr. Kelly’s June 8, 2020 RSU grant had 17,900 shares outstanding at year-end, the RSUs are not included on the below table because the RSUs were forfeited upon his retirement on December 31, 2020. |
(4)The amounts shown in column (i) of the 2017 Outstanding Equity Awards at Fiscal Year-End Table are PSU awards that have not yet vested. See the 2017 Summary Compensation Table Narrative for additional information on PSU awards. The Vesting Schedule for Unvested PSUs table below shows the vesting schedules for these outstanding PSU awards (reflecting Target payout), all of which are paid out in February following the end of the performance period.
| (2) | Values in these columns are calculated by multiplying the number of units by the closing price of IBM stock on the last business day of the 2020 fiscal year ($125.88). |
| (3) | The amounts shown in column (i) of the 2020 Outstanding Equity Awards at Fiscal Year-End Table are PSU and RPSU awards that have not yet vested. These awards include the portion of Mr. Whitehurst’s RPSU award that is subject to performance criteria. See the 2020 Summary Compensation Table Narrative for additional information on PSU and RPSU awards. The Vesting Schedule for Unvested PSUs and RPSUs table below shows the vesting schedules for these outstanding PSU and RPSU awards (reflecting Target payout). PSUs for all Named Executive Officers and the RPSUs for Mr. Krishna are paid out in February following the end of the respective performance period. The RPSUs for Mr. Whitehurst that are subject to performance criteria are paid out when they vest, on July 31, 2023, provided Mr. Whitehurst is an employee of IBM on that date. |
VESTING SCHEDULE FOR UNVESTED RSUs, ANDRSAs, RRSUs, and RPSUs (with no additional performance criteria)
|
|
|
|
|
| Vesting Schedule |
| ||||||||
Name |
| Type of Award |
| Grant Date |
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| 2022 |
|
V.M. Rometty |
| RSU |
| 06/08/2016 |
| 8,026 |
| 8,026 |
| 8,026 |
|
|
|
|
|
|
| RSU |
| 06/08/2017 |
| 6,650 |
| 6,650 |
| 6,650 |
| 6,650 |
|
|
|
M.J. Schroeter |
| RRSU |
| 02/02/2015 |
|
|
| 25,158 |
|
|
|
|
|
|
|
|
| RSU |
| 06/08/2016 |
| 3,017 |
| 3,017 |
| 3,018 |
|
|
|
|
|
|
| RSU |
| 06/08/2017 |
| 2,750 |
| 2,750 |
| 2,750 |
| 2,750 |
|
|
|
J.E. Kelly III |
| RRSU |
| 12/30/2015 |
| 13,980 |
| 13,981 |
|
|
|
|
|
|
|
|
| RSU |
| 06/08/2016 |
| 3,319 |
| 3,319 |
| 3,319 |
|
|
|
|
|
|
| RSU |
| 06/08/2017 |
| 2,750 |
| 2,750 |
| 2,750 |
| 2,750 |
|
|
|
E. Clementi |
| RRSU |
| 02/02/2015 |
|
|
| 12,579 |
|
|
|
|
|
|
|
|
| RSU |
| 06/08/2016 |
| 3,319 |
| 3,319 |
| 3,319 |
|
|
|
|
|
|
| RSU |
| 06/08/2017 |
| 2,750 |
| 2,750 |
| 2,750 |
| 2,750 |
|
|
|
J.J. Kavanaugh |
| RRSU |
| 02/01/2013 |
| 5,320 |
|
|
|
|
|
|
|
|
|
|
| RRSU |
| 01/02/2014 |
|
|
| 8,772 |
|
|
|
|
|
|
|
|
| RSU |
| 06/08/2016 |
| 2,112 |
| 2,112 |
| 2,113 |
|
|
|
|
|
|
| RSU |
| 06/08/2017 |
| 2,000 |
| 2,000 |
| 2,000 |
| 2,000 |
|
|
|
|
|
|
| Vesting Schedule | |||||||||||||||||||||
Name |
Type of Award |
Grant Date |
2021 |
2022 |
2023 |
2024 | ||||||||||||||||||
| ||||||||||||||||||||||||
A. Krishna | RSU | 06/08/2017 | 2,250 | |||||||||||||||||||||
RSU | 06/08/2018 | 3,008 | 3,008 | |||||||||||||||||||||
RRSU | 12/11/2018 | 24,194 | 32,258 | 32,258 | ||||||||||||||||||||
RSU | 06/07/2019 | 3,891 | 3,891 | 3,892 | ||||||||||||||||||||
RSU | 06/08/2020 | 9,767 | 9,767 | 9,767 | 9,767 | |||||||||||||||||||
| ||||||||||||||||||||||||
V.M. Rometty | RSU | 06/08/2017 | 6,650 | |||||||||||||||||||||
RSU | 06/08/2018 | 7,273 | 7,275 | |||||||||||||||||||||
RSU | 06/07/2019 | 8,625 | 8,625 | 8,626 | ||||||||||||||||||||
| ||||||||||||||||||||||||
J.J. Kavanaugh | RSU | 06/08/2017 | 2,000 | |||||||||||||||||||||
RSU | 06/08/2018 | 2,871 | 2,872 | |||||||||||||||||||||
RSU | 06/07/2019 | 3,761 | 3,761 | 3,763 | ||||||||||||||||||||
RSU | 06/08/2020 | 5,505 | 5,505 | 5,505 | 5,505 | |||||||||||||||||||
| ||||||||||||||||||||||||
J.M. Whitehurst | RSA | 07/09/2019 | 79,553 | 32,391 | ||||||||||||||||||||
RRSU | 07/09/2019 | 36,890 | 73,781 | |||||||||||||||||||||
RPSU | 03/02/2020 | 34,377 | ||||||||||||||||||||||
RSU | 06/08/2020 | 7,813 | 7,813 | 7,813 | 7,815 | |||||||||||||||||||
| ||||||||||||||||||||||||
J.E. Kelly III | RSU | 06/08/2017 | 2,750 | |||||||||||||||||||||
RSU | 06/08/2018 | 3,117 | 3,118 | |||||||||||||||||||||
RSU | 06/07/2019 | 3,891 | 3,891 | 3,892 | ||||||||||||||||||||
| ||||||||||||||||||||||||
M.H. Browdy | RSU | 06/08/2017 | 1,750 | |||||||||||||||||||||
RSU | 06/08/2018 | 2,078 | 2,079 | |||||||||||||||||||||
RSU | 06/07/2019 | 2,788 | 2,788 | 2,791 | ||||||||||||||||||||
RSU | 06/08/2020 | 3,125 | 3,125 | 3,125 | 3,127 | |||||||||||||||||||
| ||||||||||||||||||||||||
VESTING SCHEDULE FOR UNVESTED PSUsPSUS and RPSUs (with performance criteria)
| Vesting Schedule | ||||||||||||||||||||||||||
Name |
|
|
| |||||||||||||||||||||||
|
Grant Date |
|
Dec-2021 |
|
Dec-2022 |
July-2023 |
Dec-2023 | |||||||||||||||||||
| ||||||||||||||||||||||||||
A. Krishna | 06/07/2019 | 28,905 | ||||||||||||||||||||||||
| 12/17/2019 | 85,758 | |||||||||||||||||||||||||
| 12/17/2019 | 85,758 | |||||||||||||||||||||||||
| 12/17/2019 | 88,356 | |||||||||||||||||||||||||
| 06/08/ |
| 72,554 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||
| 06/07/2019 | 64,073 | ||||||||||||||||||||||||
| 06/08/ |
| 107,968 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||
J.J. Kavanaugh | 06/07/2019 | 27,942 | ||||||||||||||||||||||||
| 06/08/ |
| 40,894 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||
| 03/02/2020 | 68,754 | ||||||||||||||||||||||||
| 06/08/ |
| 19,155 | ||||||||||||||||||||||||
| 06/08/2020 | 38,888 | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||
J.E. Kelly III | 06/07/2019 | 28,905 | ||||||||||||||||||||||||
| 06/08/ |
| 33,243 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||
| 06/07/2019 | 20,716 | ||||||||||||||||||||||||
| 06/08/ |
| 23,218 | ||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||
20172020 OPTION EXERCISES AND STOCK VESTED TABLE
| Option Awards | Stock Awards(1) | |||||||||||||||
Name (a) |
Number of Shares Acquired on Exercise (#) (b) | Value Realized on Exercise ($) (c) |
Number of Shares Acquired on Vesting (#) (d) | Value Realized on Vesting ($) (e) | ||||||||||||
| ||||||||||||||||
A. Krishna | 0 | $0 | 43,255 | 5,511,619 | ||||||||||||
| ||||||||||||||||
V.M. Rometty | 0 | 0 | 68,937 | 8,918,942 | ||||||||||||
| ||||||||||||||||
J.J. Kavanaugh | 0 | 0 | 25,889 | 3,342,863 | ||||||||||||
| ||||||||||||||||
J.M. Whitehurst | 0 | 0 | 147,091 | 17,819,509 | ||||||||||||
| ||||||||||||||||
J.E. Kelly III | 0 | 0 | 29,518 | 3,818,651 | ||||||||||||
| ||||||||||||||||
M.H. Browdy | 0 | 0 | 19,570 | 2,530,983 | ||||||||||||
| ||||||||||||||||
| (1) | Amounts shown in these columns reflect PSU, RSA, RSU, and RRSU awards that vested during 2020. The PSU award for the 2018-2020 performance period vested on December 31, 2020, and paid out to each named executive officer on February 1, 2021; the value of this PSU award was determined by multiplying the number of shares by the closing price of IBM stock on the vesting date. See the 2020 Summary Compensation Table Narrative for details on these types of awards. |
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Outstanding Equity Awards at Fiscal Year-End Table and Related Narrative | 57 |
|
| Option Awards |
| Stock Awards(1) |
| |||||
|
| Number of |
| Value |
| Number of |
| Value |
| |
|
| Shares |
| Realized |
| Shares |
| Realized |
| |
|
| Acquired on |
| on |
| Acquired on |
| on |
| |
|
| Exercise |
| Exercise |
| Vesting |
| Vesting |
| |
Name |
| (#) |
| ($) |
| (#) |
| ($) |
| |
(a) |
| (b) |
| (c) |
| (d) |
| (e) |
| |
V.M. Rometty |
| 0 |
| 0 |
| 64,425 |
| $ | 9,871,603 |
|
M.J. Schroeter |
| 678 |
| 48,684 |
| 52,208 |
| 8,530,617 |
| |
J.E. Kelly III |
| 0 |
| 0 |
| 52,483 |
| 8,064,117 |
| |
E. Clementi |
| 0 |
| 0 |
| 32,860 |
| 5,298,304 |
| |
J.J. Kavanaugh |
| 559 |
| 42,209 |
| 22,771 |
| 3,486,234 |
| |
(1) Amounts shown in these columns reflect PSU, RSU and RRSU awards that vested during 2017. The PSU award for the 2015–2017 performance period vested on December 31, 2017, and paid out to each named executive officer on February 1, 2018; the value of this PSU award was determined by multiplying the number of shares by the closing price of IBM stock on the vesting date. See the 2017 Summary Compensation Table Narrative for details on these types of rewards.
Pay Ratio
The ratio of the CEO’s annual total compensation to that of the median employee’s annual total compensation is 341:1. This ratio is based on annual total compensation of $18,595,350 for the CEO (as reported in the Summary Compensation Table) and $54,491 for the median employee. The median employee was determined using annual base pay for IBM employees as of October 1, 2017; all foreign currencies were converted to U.S. dollars. For purposes of determining our median employee, approximately 17,000 employees* (which represents less than 5% of IBM’s total employees) were excluded either because they became IBM employees in connection with certain acquisitions who maintain separate terms of employment (some of which closed prior to 2017), or were employed by a limited number of subsidiaries that maintain separate terms of employment. The Company believes that this calculation is a reasonable estimate of the pay ratio.
* Certain employees from Aperto, Blue Express Computer Engineering Technology Company, BNP Paribas Partners for Innovation, Bluewolf, Cloudigo, exc.io, EXA Corporation, GesNext, Ingenieria De Software Avanzado, Innovative Solutions for Finance, Information Technology Nostrum, Iru Ederra XXI, ISM Canada, IT Now, KTS, Promontory, Proxxi, SI Solutions, SoftINSA, SoftLayer, Truven, Value Transformation Services, and Wedoit Sociedad Tecnologias De la Information.
General Description and Purpose
During the mid-1990s, an additional form of retention compensation was created for certain IBM U.S. leaders. The plan, formally called the “IBM Supplemental Executive Retention Plan” (Retention Plan), began in 1995 during a particularly trying time in IBM’s history when it faced challenges that many thought put its very existence at risk. Some key leaders were recruited away from IBM during this time. In this environment, IBM created this new plan to help retain for full careers the caliber of senior leaders needed to turn IBM around, preserve its long-term viability and position it for growth in the future.
Because its original purpose had been met, the Retention Plan was closed to new participants effective May 1, 2004, and will not be replaced by any other plan. Future accruals under the Retention Plan stopped on December 31, 2007, therefore, a participant’s Retention Plan benefit does not consider pay earned or service performed after such date.
Payments accrue based on age and service and are typically payable only after age 60, as a way to encourage senior leaders to continue working for IBM past the age when many others at IBM choose to retire.
Even though the Retention Plan provides for the payment of specified benefits after retirement, given the nature of this program as a retention vehicle, the Retention Plan is discussed in its own section instead of in the Pension Benefits section. As a consequence, the amounts reflected below are separately presented in the 20172020 Retention Plan Table and are not included in the 20172020 Pension Benefits Table.
The 20172020 Retention Plan Table shows each eligible named executive officer’s number of years of credited service, present value of accumulated benefit and payments during the last fiscal year under the Retention Plan. The Retention Plan is a U.S. Plan and eligibility is based on U.S. employment. Mrs. Rometty, Mr. Kavanaugh and Dr. Kelly and Mr. Kavanaugh are eligible for a benefit under the Retention Plan. Mr. SchroeterKrishna is not eligible for a Retention Plan benefit because he did not meet all of the eligibility criteria. Specifically, he did not continuously remain on the U.S. payroll, as he worked for IBM Australia from April 1, 2005 through June 30, 2011. Mr. Clementi began U.S. employmentWhitehurst and Ms. Browdy were hired after the Retention Plan was closed.closed to new participants.
Description of Retention Plan
···
Material Terms and Conditions: 1995 Retention Plan
· and Mr. Kavanaugh are determined under the Retention Plan formula in effect prior to the July 1, 1999 amendment (1995 Retention Plan).···
··
Material Terms and Conditions:
1999 Retention Plan
·
·
| 58 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Retention Plan Narrative |
Terminates employment for any reason other than cause or dies, in each case after attaining age 60 and completing at least five years of service; or Terminates employment for any reason other than cause or dies, in each case after attaining age 55 and completing at least 15 years of service and either becomes disabled (as determined under IBM’s long-term disability plan), or if approved by the Board in the case of the two highest paid officers (and if approved by the Compensation Committee and the chairman and chief executive officer in the case of any other officer of IBM). Compensation Elements Included in Calculations Funding – Terminates employment for any reason other than– – Terminates employment for any reason other than cause or dies, in each case after attaining age 55 and completing at least 15 years of service and either becomes disabled (as determined under IBM’s long-term disability plan), or if approved by the Board in the case of the two highest paid officers (and if approved by the Compensation Committee and the chairman and chief executive officer in the case of any other officer of IBM).– ·
···Funding··
Policy Regarding Extra Years of Credited Service
Available Forms of Payment Annual Retention Plan Benefit Name Annual Retention Plan Benefit at V.M. Rometty $ 101,008 J.E. Kelly III 594,917 J.J. Kavanaugh 16,007 Name Annual Retention Plan Benefit at Earliest Unreduced Retirement Age V.M. Rometty $94,681 J.J. Kavanaugh 18,956 J.E. Kelly III 583,528 Present Value of Accumulated Benefit ····
Earliest Unreduced Retirement Age·20172020 Retention Plan Table below is the value as of December 31, 20172020 of the annual Retention Plan benefit that was earned as of December 31, 2007.·2017,2020, Mrs. Rometty and Dr. Kelly had reached the earliest unreduced retirement age. Because Mr. Kavanaugh did not attain age 60 by December 31, 2017,2020, the earliest unreduced retirement age is his age on the first day of the month that coincides with or next follows the attainment of age 60.
·Certain assumptions were used to determine the present value of the annual accumulated Retention Plan benefit that is payable beginning at the earliest unreduced retirement age. Those assumptions are described immediately following the 20172020 Retention Plan Table.
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Retention Plan Narrative | 59 |
2020 RETENTION PLAN TABLE
2017 RETENTION PLAN TABLE
|
|
|
| Number of |
| Present |
| Payments |
| ||||||||||||||||
Name (a) | Plan Name (b) | | Number of Years Credited Service (#) (c) |
(1)
| | Present Value of Accumulated Benefit ($) (d) |
(2)
| | Payments During Last Fiscal Year ($) (e) |
| |||||||||||||||
|
|
|
| Years |
| Value of |
| During |
| ||||||||||||||||
V.M. Rometty | Retention Plan | 26 | $1,750,517 | $0 | |||||||||||||||||||||
|
|
|
| Credited |
| Accumulated |
| Last |
| ||||||||||||||||
|
|
|
| Service(1) |
| Benefit(2) |
| Fiscal Year |
| ||||||||||||||||
Name |
| Plan Name |
| (#) |
| ($) |
| ($) |
| ||||||||||||||||
(a) |
| (b) |
| (c) |
| (d) |
| (e) |
| ||||||||||||||||
V.M. Rometty |
| Retention Plan |
| 26 |
| $ | 1,739,925 |
| $ | 0 |
| ||||||||||||||
J.E. Kelly III |
| Retention Plan |
| 27 |
| 9,060,974 |
| 0 |
| ||||||||||||||||
J.J. Kavanaugh |
| Retention Plan |
| 12 |
| 202,937 |
| 0 |
| Retention Plan | 12 | 327,190 | 0 | ||||||||||||
J.E. Kelly III | Retention Plan | 27 | 9,205,327 | 0 | |||||||||||||||||||||
(1)Reflects years of credited service as of December 31, 2007, which was the date accruals under the Retention Plan stopped. Each of the eligible named executive officers in this table has 10
| (1) | Reflects years of credited service as of December 31, 2007, which was the date accruals under the Retention Plan stopped. Each of the eligible named executive officers in this table has 13 additional years of service with IBM after that date.
|
| (2) | While the accruals under the Retention Plan stopped on December 31, 2007, the value of the Retention Plan benefit for the eligible named executive officers will continue to change based on their ages, the assumptions used to calculate the present value of the accumulated benefit, and the benefit that would be provided under the IBM Personal Pension Plan. |
Assumptions to determine present value for each eligible named executive officer, as of December 31, 2017:2020:
Interest crediting rate: 1.1% for 2021 and after Interest rate to convert Personal Pension Account balance to single life annuity: 0.5233% for years 1–5, 2.3033% for years 6–20, and 3.1533% for year 21 and after Mortality table to convert Personal Pension Account balance to single life annuity is 2021 Personal Pension Account Optional Combined Unisex Table Base Table: Modified RP-2014 White Collar sex-distinct annuitant tables with adjustment to 2006 by backing out MP-2014 improvement and further adjusting the mortality rates by a factor of 1.016 Improvement Scale: A modified Scale MP-2020 projection table with projected improvements starting in 2006 for healthy mortality. The modified table is based on the RPEC 2014 v2020 model, with the same 20 year diagonal convergence period and 10 year horizontal convergence period and underlying weighting percentages for the age/period and year-of-birth cohort periods. The long-term improvement rates are 0.75% up to age 85, linearly decreasing to 0.0% at age 115·20172020·3.4%2.2%·–Interest crediting rate: 2.3% for 2018– –Interest rate to convert Personal Pension Account balance to single life annuity: 1.98% for years 1–5, 3.5867% for years 6–20, and 4.3267% for year 21 and after–Mortality table to convert Personal Pension Account balance to single life annuity is 2018 Personal Pension Account Optional Combined Unisex Table– ·– ·– –Base Table: Modified RP-2014 White Collar sex-distinct annuitant tables with adjustment to 2011 by backing out MP-2014 improvement and further adjusting the mortality rates at each age (averaging approximately 1.06)–Improvement Scale: A modified Scale MP-2017 projection table with projected improvements starting in 2011 for healthy mortality. The modified table is based on the RPEC 2014 v2017 model, with the same 20 year diagonal convergence period and 10 year horizontal convergence period and underlying weighting percentages for the age/period and year-of-birth cohort periods. The long-term improvement rates are 0.75% up to age 85, linearly decreasing to 0.0% at age 115·–
Assumptions to determine present value as of December 31, Interest crediting rate: 2.7% for 2020 and after Interest rate to convert Personal Pension Account balance to annual single life annuity: 2.0767% for years 1–5, 3.0433% for years 6–20, and 3.6367% for year 21 and after·······2016:2019:·20172020 Summary Compensation Table quantifies the change in the present value of the Retention Plan benefit from December 31, 20162019 to December 31, 20172020·2016,2019, the same assumptions that are described above to determine present value as of December 31, 20172020 were used, except (1) a 3.8%3.1% interest rate, Modified RP-2014 White Collar sex-distinct annuitant tables with adjustment to 2006 by backing out MP-2014 improvement and further adjusting the mortality rates at each age (averaging approximately 1.016); and the Modified MP-2016MP-2019 improvement scale, and (2) to determine the Personal Pension Account benefit, the following were used:–Interest crediting rate: 1.6% for 2017– –Interest rate to convert Personal Pension Account balance to annual single life annuity: 1.4767% for years 1–5, 3.3533% for years 6–20, and 4.29% for year 21 and after– ·20172020 Personal Pension Account Optional Combined Unisex Table
| 60 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Retention Plan Narrative |
20172020 Pension Benefits Narrative
The 20172020 Pension Benefits Tables show the number of years of credited service, present value of accumulated benefit and payments during the last fiscal year for each eligible named executive officer under the IBM U.S. defined benefit pension plan. Mr. Krishna, Mrs. Rometty, Mr. Schroeter,Kavanaugh and Dr. Kelly and Mr. Kavanaugh have pension benefits under the U.S. defined benefit pension plan, andplan. Neither Mr. Clementi does notWhitehurst nor Ms. Browdy have a benefit under any IBM defined benefit pension plan.
U.S. Qualified Plan and Nonqualified Plan Descriptions — General
The IBM Personal Pension Plan consists of a tax-qualified plan and a non-tax qualified plan. Effective January 1, 2008, the non-tax qualified plan was renamed the IBM Excess Personal Pension Plan and is referred to herein as the Nonqualified Plan, and the tax-qualified plan is referred to as the Qualified Plan. The combined plan is referred to herein as the IBM Personal Pension Plan. Effective January 1, 2005, the IBM Personal Pension Plan was closed to new participants.
Plan Description
·
·
·
·
IBM U.S. Personal Pension Plan (Qualified Plan)
Purpose of the Qualified Plan
·
·
Material Terms and Conditions: Pension Credit Formula under the Qualified Plan
·
·
·
·
·
·
·
·
·
| – |
|
| – | Age 55 with 15 years of service; or |
·
| – | Age 62 with five years of service. |
·
·
Material Terms and Conditions: Personal Pension Account Formula under the Qualified Plan
· Mr. Schroeter’s,
·According to the terms of the Qualified Plan, under the Personal Pension Account formula prior to 2008, the eligible named executive officers above receive pay credits and interest credits to their respective Personal Pension Accounts. The pay credits for a year were equal to 5% of the eligible named executive officers’ eligible compensation
for that year. The interest credits are based on the annual interest rate on one-year Treasury Constant Maturities plus 1%. Further, the eligible named executive officers may receive their benefit under the Personal Pension Account formula at any time following termination of employment, but may not defer the commencement of the benefit later than normal retirement age. If the eligible named executive officers’ benefit begins to be paid before normal retirement age, it will be reduced when compared to the benefit that would commence at normal retirement age. The eligible named executive officers may receive their benefit in the following forms: a lump sum equal to the Personal Pension Account balance, an annuity that is actuarially equivalent to the Personal Pension Account balance, or both a partial lump sum and a reduced annuity.
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Pension Benefits Narrative | 61 |
receive their benefit under the Personal Pension Account formula at any time following termination of employment, but may not defer the commencement of the benefit later than normal retirement age. If the eligible named executive officers’ benefit begins to be paid before normal retirement age, it will be reduced when compared to the benefit that would commence at normal retirement age. The eligible named executive officers may receive their benefit in the following forms: a lump sum equal to the Personal Pension Account balance, an annuity that is actuarially equivalent to the Personal Pension Account balance, or both a partial lump sum and a reduced annuity. |
Compensation Elements Included in Calculations
·
| – |
|
| – | Recurring payments under any form of variable compensation plan (excluding stock options and other equity awards); and |
·
| – | Amounts deducted from salary and variable compensation under IBM’s Internal Revenue Code Section 125 plan (cafeteria plan), and amounts deferred under IBM’s 401(k) Plus Plan and Excess 401(k) Plus Plan. |
·
Qualified Plan Funding
·
·
Policy Regarding Extra Years of Credited Service
·
·
IBM U.S. Excess Personal Pension Plan (Nonqualified Plan)
Purpose of the Nonqualified Plan
·
·
Material Terms and Conditions of the Nonqualified Plan
·
Nonqualified Plan Funding
·
·
Policy Regarding Extra Years of Credited Service
·
Available Forms of Payment
Pension Credit Formula
·
·
Personal Pension Account
·
· Under the terms of the Nonqualified Plan, Mr. Schroeter’s entire Nonqualified Plan benefit must be paid as a mandatory lump sum.
| 62 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Pension Benefits Narrative |
·
the Qualified Plan and Nonqualified Plan, as of January 1, 20182021 if they had a separation from service from IBM on December 31, 20172020 was equal to:
|
| Maximum Lump Sum |
| Maximum Lump Sum | |||||||||||||||
Name |
| Qualified |
| Nonqualified |
| Total Available |
| Qualified Plan | Nonqualified Plan | Total Available Lump Sum | |||||||||
A. Krishna | $ | 258,008 | $ | 81,934 | $ 339,942 | ||||||||||||||
V.M. Rometty |
| $ | 493,391 |
| N/A |
| $ | 493,391 |
| 652,731 | N/A | 652,731 | |||||||
M.J. Schroeter |
| 63,185 |
| 21,530 |
| 84,715 |
| ||||||||||||
J.E. Kelly III |
| 454,963 |
| 989,328 |
| 1,444,291 |
| ||||||||||||
J.J. Kavanaugh |
| 161,218 |
| 69,759 |
| 230,977 |
| 175,478 | 75,930 | 251,408 | |||||||||
J.E. Kelly III | 678,225 | 1,076,841 | 1,755,066 | ||||||||||||||||
·
Annual Pension Benefits
·
payment for their Nonqualified Plan benefits, no amount is represented for them in the Nonqualified Plan column below: |
|
| Annual Pension Benefit at Normal Retirement Age |
| Annual Pension Benefit at Normal Retirement Age | ||||||||||||||||
Name |
| Qualified |
| Nonqualified |
| Total Benefit |
| Qualified Plan | Nonqualified Plan | Total Benefit | ||||||||||
A. Krishna | $ | 20,769 | N/A | $ 20,769 | ||||||||||||||||
V.M. Rometty |
| $ | 82,083 |
| $ | 342,761 |
| $ | 424,844 |
| 81,365 | $ | 340,058 | 421,423 | ||||||
M.J. Schroeter |
| 5,923 |
| N/A |
| 5,923 |
| |||||||||||||
J.E. Kelly III |
| 33,326 |
| N/A |
| 33,326 |
| |||||||||||||
J.J. Kavanaugh |
| 15,475 |
| N/A |
| 15,475 |
| 12,351 | N/A | 12,351 | ||||||||||
J.E. Kelly III | 45,165 | N/A | 45,165 | |||||||||||||||||
Present Value of Accumulated Benefit
·
·
·
·
20172020 PENSION BENEFITS TABLE
As noted in the General Description and Purpose to the 20172020 Retention Plan Narrative, the 20172020 Pension Benefits Table does not include amounts reflected in the 20172020 Retention Plan Table.
Name |
| Plan Name |
| Number of Years |
| Present Value of |
| Payments During |
| Plan Name (b) | Number of Years Credited Service(1) (#) (c) | Present Value of Accumulated Benefit(2) ($) (d) | Payments During Last Fiscal Year ($) (e) | ||||||||||
A. Krishna | Qualified Plan | 17 | $289,653 | $0 | |||||||||||||||||||
| Nonqualified Plan | 76,025 | 0 | |||||||||||||||||||||
| Total Benefit | $365,678 | $0 | |||||||||||||||||||||
V.M. Rometty |
| Qualified Plan |
| 26 |
| $ | 1,095,989 |
| $ | 0 |
| Qualified Plan | 26 | 1,504,329 | $0 | ||||||||
|
| Nonqualified Plan |
|
|
| 4,576,589 |
| 0 |
| Nonqualified Plan | 6,287,173 | 0 | |||||||||||
|
| Total Benefit |
|
|
| $ | 5,672,578 |
| $ | 0 |
| Total Benefit | 7,791,502 | $0 | |||||||||
M.J. Schroeter |
| Qualified Plan |
| 4 |
| $ | 57,325 |
| $ | 0 |
| ||||||||||||
J.J. Kavanaugh | Qualified Plan | 12 | 158,880 | $0 | |||||||||||||||||||
| Nonqualified Plan | 67,651 | 0 | |||||||||||||||||||||
|
| Nonqualified Plan |
|
|
| 18,988 |
| 0 |
| Total Benefit | 226,531 | $0 | |||||||||||
|
| Total Benefit |
|
|
| $ | 76,313 |
| $ | 0 |
| ||||||||||||
J.E. Kelly III |
| Qualified Plan |
| 27 |
| $ | 459,385 |
| $ | 0 |
| Qualified Plan | 27 | 700,948 | $0 | ||||||||
|
| Nonqualified Plan |
|
|
| 977,063 |
| 0 |
| Nonqualified Plan | 1,076,841 | 0 | |||||||||||
|
| Total Benefit |
|
|
| $ | 1,436,448 |
| $ | 0 |
| Total Benefit | 1,777,789 | $0 | |||||||||
J.J. Kavanaugh |
| Qualified Plan |
| 12 |
| $ | 140,390 |
| $ | 0 |
| ||||||||||||
|
| Nonqualified Plan |
|
|
| 60,275 |
| 0 |
| ||||||||||||||
|
| Total Benefit |
|
|
| $ | 200,665 |
| $ | 0 |
| ||||||||||||
| (1) | Reflects years of credited service as of December 31, 2007, which was the date accruals under the Qualified Plan and the Nonqualified Plan stopped. Each of the named executive officers in this table has 13 additional years of service with IBM after that date. |
| (2) | While the accruals under the Qualified Plan and the Nonqualified Plan stopped on December 31, 2007, the value of the Qualified Plan and Nonqualified Plan benefits for the eligible named executive officers will continue to change based on their ages and the assumptions used to calculate the present value of the accumulated benefit. |
(1) Reflects years of credited service as of December 31, 2007, which was the date accruals under the Qualified Plan and the Nonqualified Plan stopped. Each of the named executive officers in this table has ten additional years of service with IBM after that date.
(2) While the accruals under the Qualified Plan and the Nonqualified Plan stopped on December 31, 2007, the value of the Qualified Plan and Nonqualified Plan benefits for the eligible named executive officers will continue to change based on their ages and the assumptions used to calculate the present value of the accumulated benefit.
Assumptions to determine present value as of December 31, 20172020 for each eligible named executive officer:
·
·
·
– Interest crediting rate: 2.3% for 2018
| – | Interest crediting rate: 1.1% for 2021 and after
|
| – | Interest rate to convert Personal Pension Account balance to single life annuity: 0.5233% for years 1–5, 2.3033% for years 6–20, and 3.1533% for year 21 and after |
| – | Mortality table to convert Personal Pension Account balance to single life annuity is 2021 Personal Pension Account Optional Combined Unisex Table |
·
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Pension Benefits Narrative | 63 |
·
– Base Table: Modified RP-2014 White Collar sex-distinct annuitant tables with adjustment to 2011 by backing out MP-2014 improvement and further adjusting the mortality rates at each age (averaging approximately 1.06)
– Improvement Scale: A modified Scale MP-2017 projection table starting in 2011 for healthy mortality. The modified table is based on the RPEC 2014 v 2017 model, with the same 20 year diagonal convergence period and 10 year horizontal convergence period and underlying weighting percentages for the age/period and year-of-birth cohort periods. The long-term improvement rates are 0.75% up to age 85, linearly decreasing to 0.0% at age 115
| – | Base Table: Modified RP-2014 White Collar sex-distinct annuitant tables with adjustment to 2006 by backing out MP-2014 improvement and further adjusting the mortality rates by a factor of 1.016 |
| – | Improvement Scale: A modified Scale MP-2020 projection table starting in 2006 for healthy mortality. The modified table is based on the RPEC 2014 v 2020 model, with the same 20 year diagonal convergence period and 10 year horizontal convergence period and underlying weighting percentages for the age/period and year-of-birth cohort periods. The long-term improvement rates are 0.75% up to age 85, linearly decreasing to 0.0% at age 115 |
·
·
·
·
·
·
for “specified employees” as required under Section 409A of the Internal Revenue Code was disregarded for this purpose |
·
·
Assumptions to determine present value as of December 31, 2016:2019:
·
·
– Interest crediting rate: 1.6% for 2017
| – | Interest crediting rate: 2.7% for 2020 and after
|
| – | Interest rate to convert Personal Pension Account balance to single life annuity: 2.0767% for years 1–5, 3.0433% for years 6– 20, and 3.6367% for year 21 and after |
| – | Mortality table for Personal Pension Account balance conversion: 2020 Personal Pension Account Optional Combined Unisex Table |
| 64 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Pension Benefits Narrative |
20172020 Nonqualified Deferred Compensation Narrative
IBM Excess 401(k) Plus Plan — U.S.
General Description and Purpose
·
·
·
·
·The Excess 401(k) Plus Plan balance is not paid to, and cannot be accessed by, the participants until after a separation from service from IBM.
·
Compensation Eligible for Deferral under Excess 401(k) Plus Plan
·
·
Deferred IBM Shares
·
awards granted on or before December 31, 2007 under IBM’s Long-Term Performance Plan (LTPP). Such deferral occurred when the awards vested. |
·
·
·
Excess 401(k) Plus Plan Funding
·
·
IBM Matching Contributions
·
·
IBM Automatic Contributions
·
·The automatic contributions equal a percentage of the sum of: (i) the amount the participant elects to defer under the Excess 401 (k)401(k) Plus Plan; and (ii) the participant’s eligible compensation after reaching the Internal Revenue Code compensation limits. The automatic contribution percentage for a participant is the participant’s automatic contribution percentage under the IBM 401(k) Plus Plan. Generally, the percentage is 2% or 4% if the participant was hired or rehired by IBM U.S. before January 1, 2005 (depending on the participant’s pension plan eligibility on December 31, 2007), or 1% if the participant was hired or rehired by IBM U.S. on or after January 1, 2005 and completes one year of service. For purposes of calculating the automatic contributions under the IBM 401(k) Plus Plan, the participant’s eligible pay excludes the amount the participant elects to defer under the Excess 401(k) Plus Plan. The automatic contribution percentage is 4% for Mrs. Rometty; 2% for Dr. Kelly and Mr. Kavanaugh; and 1% for each of Messrs. Schroeter and Clementi.
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Nonqualified Deferred Compensation Narrative | 65 |
·
percentage under the IBM 401(k) Plus Plan. Generally, the percentage is 2% or 4% if the participant was hired or rehired by IBM U.S. before January 1, 2005 (depending on the participant’s pension plan eligibility on December 31, 2007), or 1% if the participant was hired or rehired by IBM U.S. on or after January 1, 2005 and completes one year of service. For purposes of calculating the automatic contributions under the IBM 401(k) Plus Plan, the participant’s eligible pay excludes the amount the participant elects to defer under the Excess 401(k) Plus Plan. The automatic contribution percentage is 4% for Mrs. Rometty; 2% for Mr. Krishna, Mr. Kavanaugh and Dr. Kelly; and 1% for Mr. Whitehurst and Ms. Browdy. |
| – |
|
| – | At least 15 years of service and is at least age 55; |
| – | At least 5 years of service and is at least age 62; or |
| – | At least 1 year of service and is at least age 65; |
or, effective July 1, 2016, if a participant dies prior to December 15 in a given year, then the participant will be eligible to receive such IBM contributions as soon as practicable following separation from service.
IBM Transition Credits
·
participant’s Basic Account for those employees who were receiving transition credits in their Personal Pension Account under the Qualified Plan as of December 31, 2007. According toUnder the terms of the IBM 401(k) Plus Plan, Mr., Krishna, Mr. Kavanaugh and Dr. Kelly and Mr. Kavanaugh were eligible to receive transition credits.
Earnings Measures
Earnings Measures
·
·
·
– Target Retirement 2010 Fund (8.52%
| – | Target Retirement 2020 Fund (10.96%)
|
| – | Target Retirement 2025 Fund (11.62%) |
| – | Target Retirement 2030 Fund (12.03%) |
| – | Target Retirement 2035 Fund (12.58%) |
| – | Target Retirement 2040 Fund (12.76%) |
| – | Target Retirement 2045 Fund (12.73%) |
| – | Target Retirement 2050 Fund (12.79%) |
| – | Target Retirement 2055 Fund (12.78%) |
| – | Target Retirement 2060 Fund (12.89%) |
| – | Target Retirement 2065 Fund (20.77%; from 7/1/2020 to 12/31/2020) |
| – | Income Plus Fund (10.46%) |
| – | Conservative Fund (11.51%) |
| – | Moderate Fund (11.90%) |
| – | Aggressive Fund (12.46%) |
| – | Interest Income Fund (2.74%) |
| – | Inflation Protected Bond Fund (10.97%) |
| – | Total Bond Market Fund (7.44%) |
| – | High Yield & Emerging Markets Bond Fund (6.13%) |
| – | Total Stock Market Index Fund (20.86%) |
| – | Total International Stock Market Index Fund (11.42%) |
| – | Global Real Estate Stock Index Fund (-6.99%) |
| – | Long-Term Corporate Bond Fund (14.88%) |
| – | Large Company Index Fund (18.43%) |
| – | Large-Cap Value Index Fund (2.83%) |
| – | Large-Cap Growth Index Fund (38.48%) |
| – | Small/Mid-Cap Stock Index Fund (32.71%) |
| – | Small-Cap Value Index Fund (4.85%) |
| – | Small-Cap Growth Index Fund (34.91%) |
| – | European Stock Index Fund (5.77%) |
| – | Pacific Stock Index Fund (12.85%) |
| – | Emerging Markets Stock Index Fund (15.28%) |
| – | Real Estate Investment Trust Index Fund (-7.70%) |
| – | International Real Estate Index Fund (-6.15%) |
| – | IBM Stock Fund (-1.06%)* |
*Performance includes dividend equivalent reinvestment
·
·
·
·
| 66 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Nonqualified Deferred Compensation Narrative |
·
·
Payouts, Withdrawals, and Other Distributions
·
·
| – |
|
| – | At least age 62 with 5 years of service; |
·
| – | At least age 65 with 1 year of service; |
| – | Any age with at least 30 years of service, provided that, as of June 30, 1999, the executive had at least 25 years of service or was at least age 40 with 10 years of service; or |
| – | Commencing benefits under the IBM Long-Term Disability Plan. |
·
·If the participant has satisfied the age, service, and account balance criteria at termination and has made a valid advance election, the amount of the participant’s Basic Account that was deferred prior to January 1, 2005 is paid as elected by the participant from among the following choices:
1. Lump sum upon termination;
2. Lump sum in February of the year following termination; or
3. Annual installments (beginning February 1 of the year following termination) for a number of years (between two and ten) elected by the participant.
·
1. Lump sum upon separation;
2. Lump sum in February of the year following separation; or
3. Annual installments (beginning February 1 of the year following separation) for a number of years (between two and ten) elected by the participant.
However, if the participant has elected annual installments and the total balance of the participant’s Basic Account upon a separation from service from IBM is less than 50% of the applicable Internal Revenue Code compensation limit (in 2017,2020, 50% of this limit was $135,000)$142,500), the amounts deferred on or after January 1, 2005 are distributed in a lump sum on the date installments would have otherwise begun.
·
·
·
– Mrs. Rometty – 10 annual installments for all amounts
– Mr. Schroeter – lump
| – | Mr. Krishna — Lump sum paid in
|
| – | Mrs. Rometty — 10 annual installments for all amounts |
·
| – | Mr. Kavanaugh — 2 annual installments for pre-2005 amounts, and lump sum in February of the year following separation for post-2004 amounts. |
| – | Mr. Whitehurst — 10 annual installments for all amounts |
| – | Dr. Kelly — lump sum in February of the year following separation for pre-2005 amounts, and 10 annual installments for post-2004 amounts |
| – | Ms. Browdy — lump sum in February of the year following separation for all amounts |
·
IBM Italy Pension Fund
General Description
· Mr. Clementi was an employee of IBM Italy prior to his U.S. employment, which commenced January 1, 2009. While an employee of IBM Italy and an Italian citizen, Mr. Clementi is eligible for a pension under the social security system as required by law, and sponsored by the Italian government. IBM made legally required contributions to the social security system (INPS) on behalf of Mr. Clementi through December 31, 2008.
· In addition to contributions to INPS, IBM Italy offers a supplementary plan, “Fondo Pensione Dirigenti IBM” (the “Supplementary Plan”) to its executive population, which provides additional pension benefits that exceed those provided by the social security system. The Supplementary Plan is a separate qualified legal entity under Italian law and is a defined contribution plan.
· Generally, all executives employed by IBM Italy are eligible to participate in the Supplementary Plan. Participation is voluntary, and an executive must elect to participate in the Supplementary Plan.
Compensation Eligible for Deferral into the Supplementary Plan
· Eligible executives can choose to participate in the Supplementary Plan in two ways: (i) by irrevocably transferring severance pay legally required to be set aside; or (ii) making contributions that are based on the participant’s pay (ranges from 2.5% for pay up to €46,123 to 7.3% for pay over €87,633).
· Participants may also elect to make further voluntary monthly contributions to the Supplementary Plan.
Employer Contributions
· For all participants, IBM Italy makes contributions to the Supplementary Plan on a monthly basis equal to a set amount that varies based on salary (2.5% to 5.48% of salary); provided that the employer contribution does not exceed 5.5% of the entire gross pay and that it is not less than the amount established under the applicable collective agreement (€4,800).
Earnings Measures
· Participants choose to invest their account in one of three investment alternatives: the Insurance Fund, the Bond Securities Fund or the Share Fund. The default alternative is the Insurance Fund, which guarantees a minimum percentage return on capital depending on operating results (currently 2.0% annually calculated on the paid, consolidated capital as of January 1, 2013).
· Participants may change their investment election for new contributions at any time, and may change their allocations among the investment alternatives once each year.
· The Bond Securities Fund and the Share Fund do not provide any guaranteed return.
· The 2017 annual rates of return for the three investment options are as follows:
– Insurance Fund (2.74%)
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Nonqualified Deferred Compensation Narrative | 67 |
– Bond Securities Fund (1.26%)
– Share Fund (7.75%)
Payouts, Withdrawals and Other Distributions
· Participants are eligible (but are not required) to take a distribution after reaching pensionable age as set forth under law and have participated in the Supplementary Plan for at least five years.
· Participants may receive their benefit as an annuity or as a combination of an annuity and partial lump sum payment — which lump sum payment shall not exceed 50%. Due to his hire date, Mr. Clementi may choose to take his entire benefit in a lump sum payment. Distribution elections are made at the time of retirement.
· Any annuities paid from the Supplementary Plan are calculated in accordance with the Supplementary Plan regulations for converting plan accounts to annuities.
· If the participant dies before accessing the benefits, the individual’s heirs or designated beneficiaries shall receive his account.
· A participant can request an advance of his account under the following circumstances: (i) at any time, up to 75%, to cover health care costs in the event of a serious illness affecting the participant or his spouse or dependents; (ii) up to 75% for the purchase of his, or his children’s, primary residence or for maintenance to the residence, once a participant has participated for at least eight years; and (iii) up to a maximum of 30% for other purposes, once a participant has participated for at least eight years.
20172020 NONQUALIFIED DEFERRED COMPENSATION TABLE
|
|
|
| Executive |
|
|
| Registrant |
| Aggregate |
| Aggregate |
| Aggregate |
| |||||
Name |
|
|
| ($) |
|
|
| ($) |
| ($) |
| ($) |
| ($) |
| |||||
(a) |
| Plan |
| (b) |
|
|
| (c) |
| (d) |
| (e) |
| (f) |
| |||||
V.M. Rometty |
| Basic Account |
| $ | 376,800 |
| Match |
| $ | 376,800 |
| $ | 592,368 |
| $ | 0 |
| $ | 13,128,950 |
|
|
|
|
|
|
| Automatic |
| 251,200 |
|
|
|
|
|
|
| |||||
|
| Deferred IBM Shares |
| 0 |
|
|
| 0 |
| (350,753 | ) | 0 |
| 4,281,032 |
| |||||
|
| Total |
| $ | 376,800 |
|
|
| $ | 628,000 |
| $ | 241,615 |
| $ | 0 |
| $ | 17,409,982 |
|
M.J. Schroeter |
| Basic Account |
| $ | 98,996 |
| Match |
| $ | 80,247 |
| $ | (57,262 | ) | $ | 0 |
| $ | 2,155,717 |
|
|
|
|
|
|
| Automatic |
| 16,049 |
|
|
|
|
|
|
| |||||
|
| Deferred IBM Shares |
| 0 |
|
|
| 0 |
| 0 |
| 0 |
| 0 |
| |||||
|
| Total |
| $ | 98,996 |
|
|
| $ | 96,296 |
| $ | (57,262 | ) | $ | 0 |
| $ | 2,155,717 |
|
J.E. Kelly III |
| Basic Account |
| $ | 497,305 |
| Match |
| $ | 89,271 |
| $ | 1,144,969 |
| $ | 0 |
| $ | 12,472,472 |
|
|
|
|
|
|
| Automatic |
| 29,757 |
|
|
|
|
|
|
| |||||
|
| Deferred IBM Shares |
| 0 |
|
|
| 0 |
| (40,727 | ) | 0 |
| 497,081 |
| |||||
|
| Total |
| $ | 497,305 |
|
|
| $ | 119,028 |
| $ | 1,104,242 |
| $ | 0 |
| $ | 12,969,553 |
|
E. Clementi |
| Basic Account |
| $ | 735,585 |
| Match |
| $ | 68,685 |
| $ | (65,556 | ) | $ | 0 |
| $ | 4,571,516 |
|
|
|
|
|
|
| Automatic |
| 13,737 |
|
|
|
|
|
|
| |||||
|
| Deferred IBM Shares |
| 0 |
|
|
| 0 |
| 0 |
| 0 |
| 0 |
| |||||
|
| Supplementary Plan(5) |
| 0 |
|
|
| 0 |
| 50,609 |
| 0 |
| 1,898,466 |
| |||||
|
| Total |
| $ | 735,585 |
|
|
| $ | 82,422 |
| $ | (14,947 | ) | $ | 0 |
| $ | 6,469,982 |
|
J.J. Kavanaugh |
| Basic Account |
| $ | 129,800 |
| Match |
| $ | 72,720 |
| $ | 402,936 |
| $ | 0 |
| $ | 3,504,483 |
|
|
|
|
|
|
| Automatic |
| 24,240 |
|
|
|
|
|
|
| |||||
|
| Deferred IBM Shares |
| 0 |
|
|
| 0 |
| (1,873 | ) | 0 |
| 22,860 |
| |||||
|
| Total |
| $ | 129,800 |
|
|
| $ | 96,960 |
| $ | 401,063 |
| $ | 0 |
| $ | 3,527,343 |
|
(1)A portion of the amount reported in this column (b) for each named executive officer’s Basic Account, is included within the amount reported as salary for that officer in column (c) of the 2017 Summary Compensation Table. These amounts are: $79,800 for Mrs. Rometty; $36,210 for Mr. Schroeter; $33,630 for Dr. Kelly; $24,225 for Mr. Clementi; and $129,800 for Mr. Kavanaugh.
(2)For each of the named executive officers, the entire amount reported in this column (c) is included within the amount reported in column (i) of the 2017 Summary Compensation Table. The amounts reported as IBM contributions to defined contribution plans in footnote 6 to the 2017 Summary Compensation Table are larger because the amounts reported in that footnote also include IBM’s contributions to the IBM 401(k) Plus Plan.
(3)None of the amounts reported in this column (d) are reported in column (h) of the 2017 Summary Compensation Table because IBM does not pay above-market or preferential earnings on deferred compensation.
(4)Amounts reported in this column (f) for each named executive officer include amounts previously reported in IBM’s Summary Compensation Table in previous years when earned if that officer’s compensation was required to be disclosed in a previous year. Amounts previously reported in such years include previously earned, but deferred, salary and incentive and IBM matching and automatic contributions. This total reflects the cumulative value of each named executive officer’s deferrals, IBM contributions and investment experience, including an $8 quarterly administrative fee.
(5)Amounts disclosed as of December 31, 2017 were €42,157 and €1,581,396, respectively, and the exchange rate from euros to U.S. dollars was 1.2005.
Name (a) | Plan | | Executive Contributions in Last FY ($) (b) |
(1)
| | Registrant Contributions in Last FY ($) (c) |
(2)
| | Aggregate Earnings in Last FY ($) (d) |
(3)
| | Aggregate Withdrawal/ Distributions ($) (e) |
| | Aggregate Balance at Last FYE ($) (f) |
(4)
| ||||||||||
A. Krishna | Basic Account |
| $151,271 |
|
| Match |
|
| $151,271 |
| $ | (264,353 | ) |
| $0 |
| $ | 5,176,894 |
| |||||||
| Automatic |
|
| 50,424 |
| |||||||||||||||||||||
Deferred IBM Shares |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
| |||||||||||
Total |
| $151,271 |
|
| $201,695 |
| $ | (264,353 | ) |
| $0 |
| $ | 5,176,894 |
| |||||||||||
V.M. Rometty | Basic Account |
| $378,900 |
|
| Match |
|
| $378,900 |
| $ | 965,856 |
|
| $0 |
| $ | 18,509,083 |
| |||||||
| Automatic |
|
| 252,600 |
| |||||||||||||||||||||
Deferred IBM Shares |
| 0 |
|
| 0 |
|
| (227,697 | ) |
| 0 |
|
| 3,512,556 |
| |||||||||||
Total |
| $378,900 |
|
| $631,500 |
| $ | 738,159 |
|
| $0 |
| $ | 22,021,639 |
| |||||||||||
J.J. Kavanaugh | Basic Account |
| $179,800 |
|
| Match |
|
| $100,680 |
| $ | 808,744 |
|
| $0 |
| $ | 5,466,727 |
| |||||||
| Automatic |
|
| 33,560 |
| |||||||||||||||||||||
Deferred IBM Shares |
| 0 |
|
| 0 |
|
| (1,216 | ) |
| 0 |
|
| 18,756 |
| |||||||||||
Total |
| $179,800 |
|
| $134,240 |
| $ | 807,528 |
|
| $0 |
| $ | 5,485,483 |
| |||||||||||
J.M. Whitehurst | Basic Account |
| $469,546 |
|
| Match |
|
| $44,443 |
| $ | 98,862 |
|
| $0 |
| $ | 621,739 |
| |||||||
| Automatic |
|
| 8,889 |
| |||||||||||||||||||||
Deferred IBM Shares |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
| |||||||||||
Total |
| $469,546 |
|
| $53,332 |
| $ | 98,862 |
|
| $0 |
| $ | 621,739 |
| |||||||||||
J.E. Kelly III | Basic Account |
| $113,100 |
|
| Match |
|
| $77,172 |
| $ | 516,887 |
|
| $0 |
| $ | 15,372,692 |
| |||||||
| Automatic |
|
| 25,724 |
| |||||||||||||||||||||
Deferred IBM Shares |
| 0 |
|
| 0 |
|
| (26,438 | ) |
| 0 |
|
| 407,851 |
| |||||||||||
Total |
| $113,100 |
|
| $102,896 |
| $ | 490,449 |
|
| $0 |
| $ | 15,780,543 |
| |||||||||||
M.H. Browdy | Basic Account |
| $76,365 |
|
| Match |
|
| $76,365 |
| $ | 18,669 |
|
| $0 |
| $ | 1,501,713 |
| |||||||
| Automatic |
|
| 15,273 |
| |||||||||||||||||||||
Deferred IBM Shares |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
| |||||||||||
Total |
| $76,365 |
|
| $91,638 |
| $ | 18,669 |
|
| $0 |
| $ | 1,501,713 |
| |||||||||||
| (1) | A portion of the amount reported in this column (b) for each named executive officer’s Basic Account, is included within the amount reported as salary for that officer in column (c) of the 2020 Summary Compensation Table. These amounts are: $64,055 for Mr. Krishna; $78,900 for Mrs. Rometty; $179,800 for Mr. Kavanaugh; $469,546 for Mr. Whitehurst; $113,100 for Dr. Kelly; and $27,250 for Ms. Browdy. |
| (2) | For each of the named executive officers, the entire amount reported in this column (c) is included within the amount reported in column (i) of the 2020 Summary Compensation Table. The amounts reported as IBM contributions to defined contribution plans in footnote 6 to the 2020 Summary Compensation Table are larger because the amounts reported in that footnote also include IBM’s contributions to the IBM 401(k) Plus Plan. |
| (3) | None of the amounts reported in this column (d) are reported in column (h) of the 2020 Summary Compensation Table because IBM does not pay above-market or preferential earnings on deferred compensation. |
| (4) | Amounts reported in this column (f) for each named executive officer include amounts previously reported in IBM’s Summary Compensation Table in previous years when earned if that officer’s compensation was required to be disclosed in a previous year. Amounts previously reported in such years include previously earned, but deferred, salary, and incentive and IBM matching and automatic contributions. This total reflects the cumulative value of each named executive officer’s deferrals, IBM contributions and investment experience, including an $8 quarterly administrative fee. |
| 68 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Nonqualified Deferred Compensation Narrative |
20172020 Potential Payments Upon Termination Narrative
Introduction
IBM does not have any plans, programs or agreements under which payments to any of the named executive officers are triggered by a change of control of IBM, a change in the named executive officer’s responsibilities or a constructive termination of the named executive officer.
Upon signing an updated IBM offer of employment on December 13, 2019, Mr. Whitehurst waived his right to any severance payments or accelerated vesting of RSAs due to termination without cause, that was provided by his October 28, 2018 employment offer.
The only payments or benefits that would be provided by IBM to a named executive officer following a termination of employment would be provided under the terms of IBM’s existing compensation and benefit programs (as described below). However, Mr. Clementi will be eligible for a payment upon termination pursuant to his IBM U.S. offer letter. This payment represents a one-time replacement payment to compensate Mr. Clementi for the retirement benefits that he would have continued to earn as an employee of IBM Italy.
In order to become eligible for a payment under his offer letter, Mr. Clementi had to complete five years of service following January 1, 2009. After completing such service Mr. Clementi’s payment is equal to $500,000, plus, for each year that Mr. Clementi works beyond January 1, 2014, the amount payable is increased by 10% for a maximum period of five years (through January 1, 2019). The payment shall be made in a lump sum no later than the end of the year after Mr. Clementi separates from service with IBM.
The 20172020 Potential Payments Upon Termination Table that follows this narrative reports such payments and benefits for each named executive officer assuming termination on the last business day of the fiscal year end.
As explained below, certain of these payments and benefits are enhanced by or dependent upon the named executive officer’s attainment of certain age and service criteria at termination. Additionally, certain payments or benefits are not available following a termination for cause and/or may be subject to forfeiture and clawback if the named executive officer engages in certain activity that is detrimental to IBM (including but not limited to competitive business activity, disclosure of confidential IBM information andor solicitation of IBM clients or employees).
This 20172020 Potential Payments Upon Termination Narrative and the 20172020 Potential Payments Upon Termination Table do not reflect payments that would be provided to each named executive officer under the IBM 401(k) Plus Plan or the IBM Individual Separation Allowance Plan following termination of employment on the last business day of the fiscal year end because these plans are generally available to all U.S. regular employees similarly situated in age, years of service and date of hire and do not discriminate in favor of executive officers.
Qualified Plan amounts and Nonqualified Plan amounts are not reflected in the 20172020 Potential Payments Upon Termination Table. Previously, these amounts were available under one plan, the IBM Personal Pension Plan, which was generally available to all U.S. regular employees similarly situated in years of service and dates of hire and did not discriminate in favor of executive officers. For amounts payable under the Qualified and Nonqualified Plans, see the 20172020 Pension Benefits Table.
The 20172020 Potential Payments Upon Termination Table also does not quantify the value of retiree medical and life insurance benefits, if any, that would be provided to each named executive officer following such termination of employment because these benefits are generally available to all U.S. regular employees similarly situated in age, years of service and date of hire and do not discriminate in favor of executive officers; however, the named executive officers’ eligibility for such benefits is described below. The 20172020 Potential Payments Upon Termination Table does not contain a total column because the Retention Plan payment is
paid as an annuity, not a lump sum. Therefore, a total column would not provide any meaningful disclosure.
Annual Incentive Program (AIP)
·
·
·
·
IBM Long-Term Performance Plans (LTPP)
·
| – |
|
| – | Restricted Stock Units (RSUs); |
·
| – | Retention Restricted Stock Units (RRSUs); and/or |
| – | Performance Share Units (PSUs) or retention Performance Share Units (RPSUs). |
| – |
|
| – | Vested stock options may be exercised only for 90 days following termination. |
·
age 55 with at least 15 years of service, the following terms apply:
| – |
|
| – | IBM prorates a portion of unvested PSU awards to continue to vest under their original vesting schedules. |
·
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Potential Payments Upon Termination Narrative | 69 |
·
· Beginning with PSU and RSU awards granted in 2009, in
– To ensure that the interests of the members of the Performance Team are aligned with IBM’s long-term interests as these leaders approach retirement, these executives, including the named executive officers, may be eligible to receive payouts of their full unvested PSU and RSU awards upon termination if the following criteria are met:
| – | To ensure that the interests of the members of the Performance Team are aligned with IBM’s long-term interests as these leaders approach retirement, these executives, including the named executive officers, may be eligible to receive payouts of their full unvested PSU and RSU awards upon termination if the following criteria are met for our named executive officers: |
·
·
·
·
– The Chairman and CEO is also eligible for the payouts described upon termination, except she must have reached
| – | The Chairman and CEO is also eligible for the payouts described upon termination, but instead must reach age 60 with 15 years of service, and the payout must be approved by the Board, in its discretion.
|
| – | Payouts of PSU awards after termination as described above will be made in February after the end of the three-year performance period and only if the performance goals are met. Payouts of RSU awards after termination, as described above, will be made in accordance with the original vesting schedule. |
·
| – | Amounts shown include the payout of the 2018 PSU awards calculated using the actual performance achieved for the 2018–2020 performance period and the 2020 fiscal year-end closing price of $125.88 for IBM common stock; and |
– Amounts shown include the payout of the 2015
| – | Outstanding 2019 and 2020 PSU awards were not included because there is no guarantee of payment on these awards as they are subject to meeting threshold performance criteria. |
| – | Amounts shown include the value of 2017, 2018, and 2019 RSU awards, if the required retirement criteria is met, at the fiscal year-end closing price of $125.88 for IBM common stock because the one-year service requirement from grant has been completed; and |
| – | Outstanding 2020 RSU awards are not included because the required service of at least one year since the award date of grant has not been completed. |
– Outstanding 2016 and 2017 PSU awards were not included because there is no guarantee of payment on these awards as they are subject to meeting threshold performance criteria.
– Amounts shown include the value of 2016 RSU awards, if the required retirement criteria is met, at the fiscal year-end closing price of $153.42 for IBM common stock because the one-year service requirement from grant has been completed; and
– Outstanding 2017 RSU awards are not included because the required service of at least one year since the award date of grant has not been completed.
· LTPP awardsexecutive officers are subject to forfeiture and rescission if an executive is terminated for cause or engages in activity that is detrimental to IBM prior to or within 12 months following payment.
within 12 months following payment (or within 36 months for RRSU awards). LTPP awards for executive officers also contain a covenant that the recipient will not solicit IBM clients for a period of one year or employees for a period of two years following termination of employment. |
Cash Retention Award for Mr. Whitehurst
IBM Supplemental Executive Retention Plan (Retention Plan)
·
·
·
·
·
·
| – |
|
| – | Amounts not paid during the delay would be paid (with interest) in July 2021. |
·
IBM Excess 401(k) Plus Plan
·
· Under the terms of the LTPP, Deferred IBM Shares are subject to rescission if the named executive officer participates in activity that is detrimental to IBM within 12 months following the release date.
·With respect to IBM matching and automatic contributions made to a participant’s account after March 31, 2010, if a participant engages in activity that is detrimental to IBM, the Excess 401(k) Plus Plan allows the clawback of such IBM contributions made during the 12-month period prior to the detrimental activity through the date of termination.
| 70 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Potential Payments Upon Termination Narrative |
·
participant engages in activity that is detrimental to IBM, the Excess 401(k) Plus Plan allows the clawback of such IBM contributions made during the 12-month period prior to the detrimental activity through the date of termination. |
·
| – |
|
| – | Fluctuations in the market price of IBM stock for Deferred IBM Shares. |
·
| – |
|
| – | Any other restriction on such payments imposed by the requirements of Section 409A of the Internal Revenue Code. |
IBM Italy Pension Fund
· As described in the 2017 Nonqualified Deferred Compensation Narrative, payment to Mr. Clementi of his benefits under the Supplementary Plan is triggered by resignation, retirement or involuntary termination.
· Estimated payment reflects a lump sum of the aggregate account balance as of the last business day of the fiscal year end, without assumptions for any investment gains or losses between such date and distribution.
Retiree Medical and Life Insurance
General Description
Benefits under IBM’s retiree medical and life insurance programs are triggered by a named executive officer’s retirement, as described below. IBM maintains the Retiree Benefits Plan, the Future Health Account, Access to Group Health Care Coverage and the Retiree Group Life Insurance Plan. Eligibility for a particular program is dependent upon date of U.S. hire, age, and years of service at termination. Future coverage under such programs remains subject to IBM’s right to amend or terminate the plans at any time. The named executive officers would not have been eligible for the Retiree Benefits Plan following a separation from service on the last business day of the fiscal year end because they had not met the eligibility requirements.
IBM Future Health Account (FHA)
·
·
| – |
|
| – | Not within five years of earliest retirement eligibility under the prior IBM Retirement Plan on June 30, 1999; and |
·
| – | At termination they have attained 30 years of service (regardless of age) and were eligible for an opening balance on July 1, 1999, or have attained at least age 55 |
| with 15 years of service. An employee was eligible for an opening balance on July 1, 1999 if the employee was at least age 40 and completed at least one year of service on June 30, 1999. |
·
Access to Group Health Care Coverage
·
·
| – |
|
·
·
·
| – |
|
· Mr. Clementi
· Mr. Schroeter would not have been eligible for this benefit following a separation from service on the last business day of the fiscal year end because he had not met the eligibility requirement noted above.
IBM Retiree Group Life Insurance
·
Arrangements for Dr. Kelly - Consulting Agreement
| 2021 Notice of Annual Meeting & Proxy Statement | 2020 Potential Payments Upon Termination Narrative | 71 |
20172020 POTENTIAL PAYMENTS UPON TERMINATION TABLE
|
|
|
|
|
|
|
|
|
|
|
| Nonqualified Deferred Compensation |
|
|
| ||||||||||
|
|
|
|
|
| LTPP |
|
|
| Excess 401(k)(6) |
|
|
|
|
| ||||||||||
Name |
| Termination |
| Annual Incentive |
| Stock |
| Stock |
| Retention |
| Basic |
| Deferred IBM |
| Italy Pension |
| Replacement |
| ||||||
V.M. Rometty |
| Termination(1) |
| $ | 5,100,000 |
| $ | 0 |
| $ | 12,346,781 |
| $ | 101,008 |
| $ | 1,312,895 | (7) | $ | 428,103 | (7) | N/A |
| N/A |
|
|
| For Cause |
| 0 |
| 0 |
| 0 |
| 0 |
| 1,312,895 | (7) | 428,103 | (7) | N/A |
| N/A |
| ||||||
M.J. Schroeter |
| Termination(1) |
| 1,181,000 |
| 0 |
| 2,927,714 |
| N/A |
| 2,155,717 | (8) | 0 |
| N/A |
| N/A |
| ||||||
|
| For Cause |
| 0 |
| 0 |
| 0 |
| N/A |
| 2,155,717 | (8) | 0 |
| N/A |
| N/A |
| ||||||
J.E. Kelly III |
| Termination(1) |
| 861,000 |
| 0 |
| 4,780,567 |
| 594,917 |
| 5,062,849 | (9) | 497,081 | (9) | N/A |
| N/A |
| ||||||
|
| For Cause |
| 0 |
| 0 |
| 0 |
| 0 |
| 5,062,849 | (9) | 497,081 | (9) | N/A |
| N/A |
| ||||||
E. Clementi |
| Termination(1) |
| 869,840 |
| 0 |
| 4,129,913 |
| N/A |
| 457,152 | (10) | 0 |
| 1,898,466 | (11) | 732,050 | (12) | ||||||
|
| For Cause |
| 0 |
| 0 |
| 0 |
| N/A |
| 457,152 | (10) | 0 |
| 1,898,466 | (11) | 732,050 | (12) | ||||||
J.J. Kavanaugh |
| Termination(1) |
| 919,000 |
| 0 |
| 1,951,809 |
| 0 |
| 3,209,918 | (13) | 22,860 | (13) | N/A |
| N/A |
| ||||||
|
| For Cause |
| 0 |
| 0 |
| 0 |
| 0 |
| 3,209,918 | (13) | 22,860 | (13) | N/A |
| N/A |
| ||||||
(1)Termination includes the following separation scenarios: resignation, retirement and involuntary termination without cause (in all cases, assuming the executive is not entering into competitive or other activity detrimental to IBM).
(2)Assumes that the AIP payment made to each named executive officer following termination of employment on the last business day of the fiscal year end would have been the same as the actual payment made in March 2018.
(3)Assumes each named executive officer exercised all vested, in-the-money options at $153.42 (the fiscal year-end closing price of IBM common stock on the NYSE).
(4)Assumes IBM released each named executive officer’s PSU award, granted in 2015 according to its policy, for the three-year performance period ending December 31, 2017. PSU awards are adjusted for performance and released in shares of IBM common stock (with any fractional shares rounded to the nearest whole share) in February in the year following the end of the performance period. While outstanding 2016 RSU awards are included if required retirement criteria is met, 2017 RSU awards are not included because the required service of at least one year since the award date of grant has not been completed.
(5)Reflects the Retention Plan benefit payable for eligible named executive officers as an immediate annual single life annuity. See the IBM Supplemental Executive Retention Plan section above for more details.
(6)Estimated payments to each named executive officer were calculated using the aggregate account balance as of the last business day of the fiscal year end. See the IBM Excess 401(k) Plus Plan section above for more details.
(7)Approximate annual amount payable for 10 years starting in February 2018. Deferred IBM Shares are paid as shares of IBM common stock.
(8)Payable in a lump sum in February 2018.
(9)Sum of the amount of Basic Account deferred prior to January 1, 2005 payable in a lump sum in February 2018 ($4,239,557) and the approximate annual amount of the Basic Account deferred on or after January 1, 2005 payable for 10 years starting in February 2018 ($823,292). Deferred IBM Shares are paid as shares of IBM common stock.
(10)Approximate annual amount payable for 10 years starting in February 2018.
(11)Amount represents a lump sum payment of the aggregate balance as of December 31, 2017. Under the terms of the plan, Mr. Clementi does not have to make a distribution election until retirement. He can choose to receive his benefit as an annuity, a lump sum, or a combination of an annuity and lump sum. See the 2017 Nonqualified Deferred Compensation Narrative for more information.
(12)See the 2017 Potential Payments Upon Termination Narrative for more information.
(13)Sum of the annual amount of Basic Account deferred prior to January 1, 2005 payable for 2 years starting in February 2018 ($294,565) and the amount of the Basic Account deferred on or after January 1, 2005 payable a lump sum in February 2018 ($2,915,353). Deferred shares are paid as shares of IBM common stock.
LTPP
| Nonqualified Deferred Compensation Excess 401(k)(6)
| |||||||||||||||||||||||||||||
Name | Termination Scenario | | Annual Incentive Program ($) | (2)
| | Stock Options ($) | (3)
| | Stock Awards ($) | (4)
| | Retention Plan ($) | (5)
| | Basic Account ($) |
| | Deferred IBM Shares ($) |
| | Other Retention ($) |
| ||||||||
A. Krishna | Termination(1) |
| $2,181,000 |
|
| $0 |
| $ | 1,996,960 |
|
| N/A |
| $ | 5,176,894 | (7) |
| $ 0 | (7) | |||||||||||
For Cause |
| 0 |
|
| 0 |
|
| 0 |
|
| N/A |
|
| 4,975,199 | (7) |
| 0 | (7) | ||||||||||||
V.M. Rometty | Termination(1) |
| 4,250,000 |
|
| 0 |
|
| 10,754,810 |
|
| 94,681 |
|
| 1,850,908 | (8) |
| 351,256 | (8) | |||||||||||
For Cause |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 1,787,758 | (8) |
| 351,256 | (8) | ||||||||||||
J.J. Kavanaugh | Termination(1) |
| 1,176,300 |
|
| 0 |
|
| 1,906,327 |
|
| 0 |
|
| 5,070,060 | (9) |
| 18,756 | (9) | |||||||||||
For Cause |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 4,935,820 | (9) |
| 18,756 | (9) | ||||||||||||
J.M. Whitehurst | Termination(1) |
| 1,041,250 |
|
| 0 |
|
| 0 |
|
| N/A |
|
| 62,174 | (8) |
| 0 |
|
| 2,000,000 | (12) | ||||||||
For Cause |
| 0 |
|
| 0 |
|
| 0 |
|
| N/A |
|
| 56,841 | (8) |
| 0 |
|
| 0 | (12) | |||||||||
J.E. Kelly III | Termination(1) |
| 820,400 |
|
| 0 |
|
| 4,670,148 |
|
| 583,528 |
|
| 5,879,793 | (10) |
| 407,851 | (10) | |||||||||||
For Cause |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 5,869,503 | (10) |
| 407,851 | (10) | ||||||||||||
M.H. Browdy | Termination(1) |
| 1,109,520 |
|
| 0 |
|
| 1,379,771 |
|
| N/A |
|
| 1,501,713 | (11) |
| 0 |
| |||||||||||
For Cause |
| 0 |
|
| 0 |
|
| 0 |
|
| N/A |
|
| 1,410,075 | (11) |
| 0 |
| ||||||||||||
| (1) | Termination generally includes the following separation scenarios: resignation, retirement, and involuntary termination without cause (in all cases, assuming the executive is not entering into competitive or other activity detrimental to IBM). |
| (2) | Assumes that the AIP payment made to each named executive officer following termination of employment on the last business day of the fiscal year end would have been the same as the actual payment made in March 2021. For Mr. Whitehurst, the amount reported in column (g) of the 2020 Summary Compensation Table is larger than the amount in this column, because this column only includes Mr. Whitehurst’s AIP payment. |
| (3) | Assumes each named executive officer exercised all vested, in-the-money options at $125.88 (the fiscal year-end closing price of IBM common stock on the NYSE). |
| (4) | Assumes IBM released each named executive officer’s PSU award, granted in 2018 according to its policy, for the three-year performance period ending December 31, 2020. PSU awards are adjusted for performance and released in shares of IBM common stock (with any fractional shares rounded to the nearest whole share) in February in the year following the end of the performance period. While outstanding 2017, 2018 and 2019 RSU awards are included if required retirement criteria is met, 2020 RSU awards are not included because the required service of at least one year since the award date of grant has not been completed. |
| (5) | Reflects the Retention Plan benefit payable for eligible named executive officers as an immediate annual single life annuity. See the IBM Supplemental Executive Retention Plan section above for more details. |
| (6) | Estimated payments to each named executive officer were calculated using the aggregate account balance as of the last business day of the fiscal year end. See the IBM Excess 401(k) Plus Plan section above for more details. |
| (7) | The amount deferred prior to January 1, 2005 is payable in a lump sum in February 2021. The amount deferred on or after January 1, 2005 is payable in a lump sum immediately following separation. Deferred shares are paid as shares of IBM stock. For Cause, the termination payment from the Basic Account is reduced to reflect forfeiture of Match and Automatic Contribution made during the last 12 months under plan terms. See column (c) in 2020 Nonqualified Deferred Compensation Table. |
| (8) | Approximate annual amount payable for 10 years starting in February 2021. Deferred IBM Shares are paid as shares of IBM common stock. For Cause, the termination payment from the Basic Account is reduced to reflect forfeiture of Match and Automatic Contribution made during the last 12 months under plan terms. See column (c) in 2020 Nonqualified Deferred Compensation Table. |
| (9) | Sum of the approximate annual amount of Basic Account deferred prior to January 1, 2005 payable for 2 years starting in February 2021 ($396,668) and the amount of the Basic Account deferred on or after January 1, 2005 payable in a lump sum in February 2021 ($4,673,392). Deferred shares are paid as shares of IBM common stock. For Cause, the termination payment from the Basic Account is reduced to reflect forfeiture of Match and Automatic Contribution made during the last 12 months under plan terms; the forfeiture causes a decrease in the payout of amounts that were deferred on or after January 1, 2005. See column (c) in 2020 Nonqualified Deferred Compensation Table. |
| (10) | Sum of the amount of Basic Account deferred prior to January 1, 2005 payable in a lump sum in February 2021 ($4,825,026) and the approximate annual amount of the Basic Account deferred on or after January 1, 2005 payable for 10 years starting in February 2021 ($1,054,767). Deferred IBM Shares are paid as shares of IBM common stock. For Cause, the termination payment from the Basic Account is reduced to reflect forfeiture of Match and Automatic Contribution made during the last 12 months under plan terms; the forfeiture causes a decrease in the payout of amounts that were deferred on or after January 1, 2005. See column (c) in 2020 Nonqualified Deferred Compensation Table. |
| (11) | Payable in a lump sum in February 2021. For Cause, the termination payment from the Basic Account is reduced to reflect forfeiture of Match and Automatic Contribution made during the last 12 months under plan terms. See column (c) in 2020 Nonqualified Deferred Compensation Table. |
| (12) | If Mr. Whitehurst is terminated by IBM without cause, he is eligible to receive his next $2 million cash retention award that is scheduled to be paid after July 9, 2021 (2nd anniversary of the close of the Red Hat acquisition). |
| 72 | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Potential Payments Upon Termination Narrative |
Report of the Audit Committee of the Board of Directors
The Audit Committee hereby reports as follows:
| 1. |
|
2. The Audit Committee has discussed with IBM’s internal auditors and IBM’s independent registered public accounting firm the overall scope of, and plans for, their respective audits. The Audit Committee has met with the internal auditors and independent registered public accounting firm, separately and together, with and without management present, to discuss IBM’s financial reporting process and internal accounting controls, in addition to other matters required to be discussed by the statement on Auditing Standards No. 1301, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board (PCAOB), as may be modified or supplemented.
| 2. | The Audit Committee has discussed with IBM’s internal auditors and IBM’s independent registered public accounting firm the overall scope of, and plans for, their respective audits. The Audit Committee has met with the internal auditors and independent registered public accounting firm, separately and together, with and without management present, to discuss IBM’s financial reporting process and internal accounting controls in addition to other matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (PCAOB). |
| 3. |
|
The Audit Committee has an established charter outlining the practices it follows. The charter is available on IBM’s website at http://www.ibm.com/investor/att/pdf/auditcomcharter.pdf.4. The Audit Committee has an established charter outlining the practices it follows. The charter is available on IBM’s website at: http://www.ibm.com/investor/governance/audit-committee-charter.html.4.
| 5. |
|
6. Based on the review and discussions referred to in paragraphs (1) through (5) above, the Audit Committee recommended to the Board of Directors of IBM, and the Board has approved, that the audited financial statements be included in IBM’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017,
| 6. | Based on the review and discussions referred to in paragraphs (1) through (5) above, the Audit Committee recommended to the Board of Directors of IBM, and the Board has approved, that the audited financial statements be included in IBM’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, for filing with the Securities and Exchange Commission. |
M.L. Eskew (chair)
D.N. Farr
F.W. McNabb III
P.R. Voser
M.L. Eskew (chair) | D.N. Farr | J.W. Owens | P.R. Voser
Set forth below are the fees for services provided to IBM by its independent registered public accounting firm, PricewaterhouseCoopers LLP (PwC) for the fiscal periods indicated.
(Dollars in millions) |
| 2017 |
| 2016 |
| 2020 | 2019 | ||||||||
Audit Fees |
| $ | 48.1 |
| $ | 49.9 |
| $ | 52.6 |
| $ | 54.7 |
| ||
Audit-Related Fees |
| 28.5 |
| 28.2 |
| ||||||||||
Audit Related Fees |
| 43.1 |
|
| 30.8 |
| |||||||||
Tax Fees |
| 4.2 |
| 7.8 |
|
| 2.5 |
|
| 2.1 |
| ||||
All Other Fees |
| 0.5 |
| 0.5 |
|
| 0.6 |
|
| 0.4 |
| ||||
Total |
| $ | 81.3 |
| $ | 86.4 |
| $ | 98.8 |
| $ | 88.0 |
| ||
Description of Services
Audit Fees:comprise fees for professional services necessary to perform an audit or review in accordance with the standards of the Public Company Accounting Oversight Board, including services rendered for the audit of IBM’s annual financial statements (including services incurred with rendering an opinion under Section 404 of the Sarbanes-Oxley Act of 2002) and review of quarterly financial statements. Also includes fees for services that are normally incurred in connection with statutory and regulatory filings or engagements, such as comfort letters, statutory audits, attest services, consents, and review of documents filed with the SEC.
Audit-Related Fees:comprise fees for services that are reasonably related to the performance of the audit or review of IBM’s financial statements, including the support of business acquisition and divestiture activities, independent assessments for service organization control reports, and audit and review of IBM’s retirement and other benefit-related programs. For 2017,2020, these services included approximately $19$26 million for independent assessments for service organization control reports.reports and approximately $12 million associated with the spin-off of IBM’s managed infrastructure services business. For 2016,2019, these services included approximately $18$22 million for independent assessments for service organization control reports.
Tax Fees:comprise fees for tax compliance, tax planning and tax advice. Corporate tax services encompass a variety of permissible services, including technical tax advice related to U.S. international tax matters; assistance with foreign income and withholding tax matters; assistance with sales tax, value-added tax and equivalent tax-related matters in local jurisdictions; preparation of reports to comply with local tax authority transfer pricing documentation requirements; and assistance with tax audits.
All Other Fees:comprise fees primarily in connection with certain benchmarking work and permissible advisory services.
| 2021 Notice of Annual Meeting & Proxy Statement | Report of the Audit Committee of the Board of Directors | 73 |
2. Ratification of Appointmentof Independent RegisteredPublic Accounting Firm
IBM’s Audit Committee is directly responsible for the appointment, compensation (including advance approval of audit and non-audit fees), retention and oversight of the independent registered public accounting firm that audits IBM’s consolidated financial statements and its internal controls over financial reporting. In accordance with its charter, the Audit Committee has selected the firm of PricewaterhouseCoopers LLP (PwC), an independent registered public accounting firm, to be IBM’s auditors for the year 2018.2021. With the endorsement of the Board of Directors, the Audit Committee believes that this selection is in the best interests of IBM and its stockholders and, therefore, recommends to stockholders that they ratify that appointment. PwC served in this capacity for the year 2017.2020.
Independent Auditor Engagement
The Audit Committee annually reviews PwC’s independence and performance in deciding whether to retain PwC or engage a different independent auditor. Prior to the selection of the independent auditor, the Committee considers many factors, including:
·
·
·
·
·
·
·
Auditor Independence Controls
The Audit Committee and IBM management have robust policies and procedures in place to monitor and verify PwC’s independence from IBM on a continual basis. These policies and procedures include:
·
·
·
·
·
·
·
·
Accountability to Stockholders
·
Benefits of Long-Tenured Auditor
PwC has been the independent auditor of IBM since 1958. From 1923 until 1958, the independent auditors of IBM were firms that were ultimately acquired by PwC. The Audit Committee believes that having a long-tenured auditor is in the best interests of IBM and its stockholders in consideration of the following:
·
·
·
| THE IBM BOARD OF DIRECTORS AND THE AUDIT COMMITTEE RECOMMEND A VOTE FOR THIS PROPOSAL. |
| 74 | 2021 Notice of Annual Meeting & Proxy Statement | 2. Ratification of Appointment of Independent Registered Public Accounting Firm |
3. Management Proposal on Advisory Vote on Executive Compensation (Say on Pay)
IBM is asking that you APPROVE the compensation of the named executive officers as disclosed in this Proxy Statement.
Over the last several years, IBM has prioritized investments in our high growth strategic imperatives, while ensuring we deliver value to our investors. In 2017,a challenging 2020 environment, IBM delivered $73.6B in revenue and $10.8B in Free Cash Flow*, with over 100% cash realization. Hybrid Cloud revenue grew to over $25 billion, representing 34% of $79.1Btotal IBM revenue with growth of 20% year-to-year at constant currency, excluding divestitures*. Our continued shift to higher-value revenue and pre-tax incomeimproved services productivity delivered a 1 point increase in gross profit margins, and allowed the Company to reduce debt by about $11.5B since the July 2019 peak.
In October 2020, IBM announced to investors the planned spin-off of $11.4B.IBM’s managed infrastructure services business, which will immediately be the market leader at twice the size of its nearest competitor. The pending spin-off will enable IBM returned to focus on delivering sustainable revenue growth as a hybrid cloud and AI Company.
These results reflect the significant actions we have taken to strategically position IBM for high-value, sustainable growth in the 4th quarter of 2017, with revenue from our strategic imperatives reaching a critical mass at 46% of overall IBM revenue, or $36.5B. IBM is now established as the leading enterprise provider of cloud platforms and cognitive solutions, with security at the core. We achieved this performance while continuing to return cash to shareholders — in 2017, we raised our dividend for the 22nd consecutive year, and nearly 75% of free cash flow has been returned to shareholders over the past three years. Our compensation strategy supports IBM’s high value business model.
As discussed in the Compensation Discussion and Analysis, IBM’s executive compensation programs are designed to:
· Ensure that the interests of IBM’s leaders are closely aligned with those of our investors by varying compensation based on both long-term and annual business results and delivering a large portion of the total pay opportunity in IBM stock;
· Balance rewards for both short-term results and the long-term strategic decisions needed to ensure sustained business performance over time;
· Attract and retain the highly qualified senior leaders needed to drive a global enterprise to succeed in today’s highly competitive marketplace;
· Motivate our leaders to deliver a high degree of business performance without encouraging excessive risk taking; and
· Differentiate rewards to reflect individual and team performance.
years ahead.
In addition to the Company’s normal, extensive outreach to Stockholders, IBM enhanced its engagement practices in 2017. We2020, we once again engaged in a robust program to gather feedback from investors following the 2017 annual advisory vote on executive compensation (Say on Pay). IBM directors, including itsinvestor feedback. IBM’s CEO, Executive Chairman, and independent PresidingLead Director, and the Chair of the Executive Compensation and Management Resources Committee, participated along with members of IBM’s senior management in a significant portion of this engagement. The Company metoffered to engage with investors representing more than 55%50% of the shares that voted on Say on Pay at the 20172020 Annual Meeting.
Overall, Through our stockholders continue to be supportive ofdiscussions with investors and our formal Say on Pay vote results, investors reaffirmed their support for the Company’s compensation programpolicies and practices,programs, which focus on long-term financial performance that drives stockholder value. Therefore,
In the Company has continued its standard compensation program and structures. Nonetheless, the Committee and the Board reviewed and considered allcontext of investor feedback, andpay decisions continued to be made the following key updates designed to further strengthen IBM’s pay forbased on our financial performance design and enhance our transparency:
· Increased transparency into the rigor of our goal setting process by disclosing performance attainment relative to our goals, while taking into consideration the significant reshaping of the Company’s portfolio to accelerate our leadership in cloud, Artificial Intelligence (AI) blockchain, security, and other emerging areas that are positioning IBM for bothsustained growth going forward.
In addition, the Company’s performance metrics for the 2021 Annual Incentive Program and the 2021-2023 Performance Share Unit Program
· Beginning in 2018, added a relative metricprogram have been revamped to reinforce the strategic focus on sustainable revenue growth as a modifier to the Performance Share Unit payout formula, in the form of Relative Return on Invested Capital vs. IT peershybrid cloud and the broader S&P 500
· Reduced the maximum incentive payment opportunity for the Chairman and CEO to two times target (from three times target) to align more closely with common market practice
· Added clarity around stock ownership requirements by describing them as a multiple of base salary, which does not reduce the shares required to be held, and remains at the high end of our peer group
AI Company.
IBM’s named executive officers are identified in the 20172020 Summary Compensation Table, and pages 27–6732-72 describe the compensation of these officers. 69%65% of target pay for the Chairman and CEO, and 63% of target pay for the other Named Executive Officers, is at risk and subject to rigorous performance targets. The rigor of these targets is evident in the payouts.
For 2017, Mrs. Rometty earned 81%2020 performance, the Board approved an annual incentive payment of her total$2.181 million for Mr. Krishna, which was 85% of target compensation. Overand in line with the longer term,Company annual incentive score. This award is based on Mr. Krishna’s personal leadership in transforming IBM’s portfolio for sustainable revenue growth as a hybrid cloud and AI Company in 2021 and beyond through the past 3 years, Mrs. Rometty has earned an average of 63% of her total target compensation.
CEO TOTAL ACTUAL VS. TARGET COMPENSATION
Values in Millions ($)
Pay decisions were made in the context of our financial performance relative to our goals, while taking into consideration the transformationannounced spin-off of the Company’s portfoliomanaged infrastructure services business; achieving record results in IBM’s diverse leadership representation; industry-leading innovation and the steps taken to strengthen IBM’s position for the future.
research in quantum computing and AI; and record employee engagement in a challenging environment.
For the reasons expressed above and discussed in the Compensation Discussion and Analysis, the Executive Compensation and Management Resources Committee and the IBM Board of Directors believe that theseour compensation policies and practicesprograms are aligned with the interests of our stockholders and designed to reward for performance.
We are therefore requesting your nonbinding vote on the following resolution:
“Resolved, that the compensation of the Company’s named executive officers as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the executive compensation tables and the narrative discussion, is approved.”
| * | Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance metrics. |
| THE IBM BOARD OF DIRECTORS RECOMMENDS |
Note:The Company is providing this advisory vote as required pursuant to Section 14A of the Securities Exchange Act (15 U.S.C. 78n-1). The stockholder vote will not be binding on the Company or the Board, and it will not be construed as overruling any decision by the Company or the Board or creating or implying any change to, or additional, fiduciary duties for the Company or the Board.
| 2021 Notice of Annual Meeting & Proxy Statement | 3. Management Proposal on Advisory Vote on Executive Compensation (Say on Pay) | 75 |
Stockholder Proposals
Some of the following stockholder proposals contain assertions about IBM that we believe are incorrect. We have not attempted to refute all of these inaccuracies.
Your Board of Directors opposes the following two proposals for the reasons stated after each proposal.
4. Stockholder Proposal on Lobbying Disclosureto Have an Independent Board Chairman
Management has been advised that Walden Asset Management, One Beacon Street, Boston, MA 02108,Kenneth Steiner, 14 Stoner Avenue, 2M, Great Neck, NY 11021, the beneficial owner of over $2,000 in market valueat least 500 shares of IBM shares, together with multiple co-filers, whose names, addresses and beneficial holdings are available on request,stock, intends to submit the following proposal at the meeting:
Proposal 4 – Independent Board Chairman
Whereas, we believe in full disclosureShareholders request that our Board of our company’s direct and indirect lobbying activities and expenditures to assess whether our lobbying is consistent with IBM’s expressed goals and in the best interests of shareholders.
IBM spent approximately $24.4 million from 2012–2016 on federal lobbying (Senate reports). This total does not include expenditures to influence legislation in states and provides limited information regarding lobbying conducted by third parties.
Resolved, the shareholders of IBM request the preparation ofDirectors adopt a report, updated annually, and disclosing:
1. Company policy, and proceduresamend our governing lobbying, both direct and indirect lobbying communications.
2. Payments by IBM used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each casedocuments as necessary to require that the Chairman of the Board of Directors to be an independent member of the Board whenever possible including the next Chairman of the Board transition.
If the Board determines that a Chairman who was independent when selected is no longer independent, the Board shall select a new Chairman who satisfies the requirements of the policy within a reasonable amount of time. This policy is not intended to violate any employment contract but recognizes that the paymentBoard has broad power to renegotiate an employment contract.
This proposal topic won impressive 40%-support at the 2019 IBM annual meeting even though it was not a fair election. IBM management put is hand on the scale and spent shareholder money on advertisements to oppose this proposal topic. For a fair election shareholders would have had to take money from their own pockets to match the recipient.money IBM took from shareholders to advertise for the management position.
3. Description ofSupport for proposals to appoint an independent Board chair received 17% higher support at U.S. companies in 2020. Since management performance setbacks often result in higher support for this proposal topic, the decision making process and oversight by management and Board for lobbying expenditures.
For purposesmere submission of this proposal a “grassroots lobbying communication” is a communication directedmay be an incentive for the Chairman of the Board to perform better leading up to the general public2021 annual meeting.
It is also important to have an independent board chairman to help make up for the 2020 devaluation of shareholder meetings with the widespread use of online shareholder meetings using the pandemic as a steppingstone. Online meetings are so easy for management that (a) refersmanagement will never want to specific legislationreturn to in-person shareholder meetings.
With tightly controlled online shareholder meetings everything is optional. For instance company status reporting is optional. Also answers to questions are optional even if management misleadingly asks for questions to be typed on a computer screen.
Goodyear management even hit the mute button right in the middle of a formal shareholder proposal presentation at its 2020 shareholder meeting to bar constructive criticism.
Plus AT&T management would not even allow the proponents of shareholder proposals to read their proposals by telephone at the 2020 AT&T online annual meeting during the pandemic.
Please see: AT&T investors denied a dial-in as annual meeting goes online
https://whbl.com/2020/04/17/att-investors-denied-a-dial-in-as-annual-meeting-goes-online/1007928/
Online shareholder meetings also give management a blank check to make false statements. For instance management at scores of 2020 online annual meetings falsely stated that there were no more shareholder questions. Shareholders were powerless to point out that their questions were not answered.
Please see: Scwartz-Ziv, Miriam, How Shifting from In-Person to Virtual Shareholder Meetings Affects Shareholders’ Voice (August 16, 2020)
Available at SSRN: https://ssrn.com/abstract=367998 or regulation, (b) reflects a viewhttp://dx.doi.org/10.2139/ssrn.3674998
Please vote yes:
Independent Board Chairman- Proposal 4
| 76 | 2021 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals |
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL. |
The Board’s flexibility to determine the appropriate Board leadership structure is essential. One of the most important tasks undertaken by a board is to select the leadership of the board and the company. In order to execute this critical function most effectively and in the best interests of the stockholders, a board must maintain the flexibility to determine the appropriate leadership in light of the circumstances at a given time. Because one size does not fit all situations, your Board has altered its structure at various times in response to the particular circumstances at that time. For example, last year, your Board split the Chairman and CEO roles to ensure a seamless and successful leadership transition from Ginni Rometty, your prior CEO, to Arvind Krishna, your current CEO. This transition was the result of a world-class, multi-year succession process during which the Board considered several candidates, and the splitting of the Chairman and CEO roles was a crucial factor in the plan for a smooth succession. The Directors and Corporate Governance Committee and the Board continuously evaluate the appropriate leadership structure for IBM. In connection with the retirement of Ginni Rometty, the Board determined that the optimal leadership structure was to once again combine the roles of CEO and Chairman. The Board’s review considered the strength of IBM’s independent Board and corporate governance practices and determined that the existing board leadership structure of having a management director serve as Chairman, alongside a robust and independent Lead Director, best serves the needs of the Company and the stockholders at this time. Among other factors, the Board considered and evaluated: • the importance of consistent, unified leadership to execute and oversee the Company’s strategy; • the strength of Mr. Krishna’s vision for the Company and the quality of his leadership; • the strong and highly independent composition of the Board; • the views and feedback heard from our investors through our ongoing engagement program throughout the years expressing support for IBM’s leadership structure; and • the meaningful and robust responsibilities of the independent Lead Director, as discussed above. The Board strongly believes that this current structure strikes the right balance of allowing our Chairman to promote a clear, unified vision for the Company’s strategy and to provide the leadership critical for effectively and efficiently implementing the actions needed to ensure strong performance over the long term, while ensuring robust, independent oversight by the Board and Lead Director. The Company’s Lead Director role is robust and ensures effective independent oversight at all times. After a rigorous review by the Directors and Corporate Governance Committee and the Board, the Lead Director is elected by the independent members of the Board on an annual basis. The Lead Director has the following robust and meaningful responsibilities serving to ensure a strong, independent, and active Board by enhancing the contributions of IBM’s independent directors. In particular, the Lead Director: • presides at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors, which are held at every meeting of the Board; • serves as liaison between the Chairman and the independent directors; • approves information sent to the Board; • in collaboration with the Chairman, creates and approves meeting agendas for the Board; • approves meeting schedules to assure that there is sufficient time for discussion of all agenda items; • has authority to call meetings of the independent directors; and • if requested by major stockholders, ensures that he or she is available, as necessary after discussions with the Chairman, for consultation and direct communication. In addition to these core responsibilities, the Lead Director engages in other regular activities including: • one-on-one debriefs with the Chairman after each meeting; • spending time with senior management outside of Board meetings to ensure a deep understanding of the business and strategy of the Company; and • attending certain other committee meetings in addition to the committee that he chairs. IBM’s strong, independent Board and commitment to good corporate governance adds further support to the Board leadership structure. Continued enhancement of the Lead Director position is just one example of IBM’s ongoing commitment to strong corporate governance. Independent directors comprise roughly 90% of the Board and 100% of the Audit, Directors and Corporate Governance, and Executive Compensation and Management Resources Committees. After each regularly scheduled Board meeting, both the full Board and the independent directors of the Board meet in executive session, with the independent directors’ session chaired by the Lead Director. In contrast to the exemplary performance and quality of the IBM Board over the years, the proponent provides no evidence demonstrating that the proposal would result in enhanced oversight, let alone increased value for IBM stockholders. Additionally, this proposal has been rejected by a majority of shareholder votes each time it has been voted on by IBM stockholders, most recently last year. In light of this total lack of empirical support, IBM’s strong and independent Board, the Lead Director’s robust responsibilities and, most importantly, the support of our structure by our stockholders, this stockholder proposal is both inappropriate and unnecessary. We believe that stockholders benefit when the Board can select the best candidates to run IBM at a given time. THEREFORE, THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL. |
| 2021 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals | 77 |
5. Stockholder Proposal on the legislation or regulation and (c) encourages the recipient of the communicationRight to take action with respect to the legislation or regulation. “Indirect lobbying” is lobbying engaged inAct by any trade association or other organization of which IBM is a member.
Both “direct and indirect lobbying” and “grassroots lobbying communications” include efforts at the local, state and federal levels.
The report shall be presented to the Audit Committee or other relevant oversight committees and posted on IBM’s website.
Supporting StatementWritten Consent
We commend IBM for its thoughtful policy regarding political spending and the electoral process prohibiting political contributions with company funds. We believe IBM should also establish high standards for evaluating and disclosing company participation and spending in the legislative process through lobbying as well.
IBM does not disclose its memberships in, or payments to, trade associations, or the portions of these payments used for lobbying. In contrast, competitors Microsoft, Xerox and Intel publicly disclose their indirect lobbying expenditures through their trade associations.
IBM sits on the board of the US Chamber of Commerce, which since 1998 spent approximately $1.4 billion dollars on lobbying. IBM does not disclose its Chamber payments nor the portion used for lobbying.
IBM’s statement on climate change policy states that “IBM recognizes climate change is a serious concern that warrants meaningful action on a global basis to stabilize the atmospheric concentration of greenhouse gases (GHGs).” In contrast, the Chamber has publicly attacked the EPA and sued to stop climate change solutions.
IBM is also a member of the Business Roundtable, an organization with approximately 200 CEOs as members. The BRT is leading an attack against shareholder rights to file resolutions. Yet IBM is justifiably proud of its record of engaging shareholders in constructive conversation.
IBM’s payments to the BRT & Chamber help fund such attacks.
This resolution received 26.54% vote in 2017. We urge IBM to expand its public disclosure of lobbying.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
This proposal requests additional disclosure by IBM of lobbying activities and expenditures. IBM already discloses lobbying activities and expenditures, including expenditures made through trade associations, as required by law. Furthermore, IBM has established clear oversight over such activities and expenditures through numerous written corporate policies, instructions and guidelines. This proposal does not appear to properly consider IBM’s well-known policies and practices in this area, and the Board recommends against this proposal.
IBM’s policy on Lobbying is set forth in the IBM Business Conduct Guidelines under the section entitled “Lobbying,” and is published by the Company on its website at:https://www.ibm.com/investor/att/pdf/BCG_English_Accessible_2018.pdf
Specifically, the IBM Business Conduct Guidelines provide that all lobbying activities, including lobbying activities by third parties on behalf of IBM and grassroots lobbying, require the prior approval of IBM’s Government and Regulatory Affairs office — a globally integrated function providing public policy and government relations expertise in support of IBM’s business operations worldwide. All IBM employees are required to comply with these guidelines. The IBM Government and Regulatory Affairs office works to advocate the public policy interests of IBM and its stockholders and employees with governments around the world.
The Company provides disclosure on its website about its key public policy positions as well as its policies and practices with regard to public policy matters, including trade and industry associations and lobbying activities and expenditures. Seehttp://www.ibm.com/investor/governance/public-policy-matters.html and https://www.ibm.com/blogs/policy
Further, IBM’s U.S. federal lobbying reports disclose in extensive detail all issues lobbied and total U.S. federal lobbying expenditures made by IBM. Contrary to the proposal’s supporting statement, IBM’s total reported U.S. federal lobbying expenditures do, in fact, include expenditures for “indirect lobbying” via trade associations, as required by law. These reports are available for public review athttp://disclosures.house.gov/ld/ldsearch.aspx
IBM also complies fully with U.S. state and local lobbying disclosure laws, which vary by jurisdiction, but which do, in most cases, require lobbyists to register and disclose their lobbying activities. Finally, IBM periodically reports to its Board of Directors about IBM’s policies and practices in connection with governmental relations, public policy and related expenditures.
Given all of the foregoing, the Board views the proposal as unnecessary. THEREFORE, THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
5. Stockholder Proposalon Shareholder Ability to Call a Special Shareholder Meeting
Management has been advised that John Chevedden, 2215 Nelson Ave., No. 205, Redondo Beach, CA 90278, the owner of at least 25 shares of IBM stock, intends to submit the following proposal at the meeting:
Proposal 5 – Shareholder Right to Act by Written Consent
Resolved, Shareowners askShareholders request that our board of directors undertake such steps as may be necessary to takepermit written consent by shareholders entitled to cast the stepsminimum number of votes that would be necessary (unilaterally if possible) to amend our bylawsauthorize the action at a meeting at which all shareholders entitled to vote thereon were present and eachvoting. This includes shareholder ability to initiate any appropriate governing document to give holders intopic for written consent.
IBM now requires 40% of shares that cast ballots at the aggregate of 10% of our outstanding common stock the powerannual meeting to call a special shareowner meeting. In other words this proposal asks for adoptionshareholder meeting – a higher level than the 10% of the most shareholder-friendly version of the shareholder right to call a special meeting asshares outstanding permitted by Delaware law. This proposal does not impact our board’s current power to call a special meeting.
This proposal topic won more than 70%-support at Edwards Lifesciences and SunEdison in 2013. Amany states of incorporation. Dozens of Fortune 500 companies provide for both shareholder right to call a special meeting andrights – to act by written consent and are 2 complimentary ways (written consent completely lacking at IBM) to bring an important matter to the attention of both management and shareholders outside the annual meeting cycle such as the election of directors. More than 100 Fortune 500 companies providecall a special meeting.
Our higher 40% threshold for shareholders to call special meetings and to act by written consent.
This proposal is of particular importance to IBM shareholders because IBM shareholders completely lack the ability to act by written consent and do not have the full right to call a special meeting is one more reason that is available under Delaware law. And this is at a time when IBM stock is slumping.
If shareholders had a more completewe should have the right to callact by written consent. Plus our higher 40% threshold has bureaucratic pitfalls that trigger minor shareholder errors that could mean that 60% of shares would need to ask for a special meeting as called forin order to be sure of obtaining the threshold of 40% of requests without errors.
This proposal topic won 42% support at our 2020 annual meeting in spite of misleading management opposition to it. This was not exactly a fair election because of the misleading IBM management statement next to the 2020 proposal. IBM management said written consent could enable shareholders to initiate written consent without giving notice to all shareholders. To the contrary written consent can be adopted with the safeguard that all shareholders are to be given notice.
In 2020 IBM management said it preferred a special shareholder meeting to written consent. With the widespread use of online shareholder meetings in 2020 shareholders no longer have the right to discuss concerns with other shareholders and with the directors at a special shareholder meeting which can now be a stilted formalities online meeting.
Shareholders are also severely restricted in making their views known at an online special shareholder meeting because all their questions and comments can be arbitrarily screened out. For instance Goodyear management became a leader in this proposalshareholder disenfranchisement by hitting the mute button right in the middle of a formal shareholder presentation at its 2020 online shareholder meeting.
Taking action by written consent in place of a meeting is a means shareholders would have a greater abilitycan use to engage our Board to improveraise important matters outside the qualifications of our directors since a specialnormal annual meeting can be called in regard tocycle like the election of directors.a new director.
Sadly IBM had a rooster of directors with no skin in the game. In 2017 it was reported that 8 of 13 IBM directors owned no IBM stock: Alex Gorsky, Andrew Liveris, Hutham Olayan, Joan Spero,This is important to consider after our Lead Director, Michael Eskew, Peter Voser,receive the highest negative votes of any director in 2019 and 2020 – 92 million negative votes. With long-tenure of 15-years Mr. Eskew can hardly be considered impendent. Shirley Jackson, and Walter McNerney. If our stock slumps further these 8 directors can just smile and collect their $400,000 for perhaps 400 hours of work.
Kenneth Chenault and Sidney Taurel had 19 or 16 years long-tenure. Long-tenure can impairwho received the independence of a director no matter how well qualified. Michael Eskew and Shirley Jackson were potentially distracted directors with work on 4 boards. And then Michael Eskew was given Lead Director duties. The 4 directors in this paragraph received oursecond highest negative votes in 2017.2019 is no longer on the Board. IBM stock has fallen from $210 since 2013.
Any claim that a shareholder right to call a special meeting can be costly – may be largely moot. When shareholders have a good reason to call a special meeting – our board should be able to take positive responding action to make a special meeting unnecessary.
Please vote yes:
Right to improve shareholder oversight of our company:
Shareholder Ability to Call a Special Shareholder MeetingAct by Written Consent – Proposal 5
| 78 | 2021 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals |
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL. |
Your Board of Directors believes that action by written consent without prior notice to all stockholders is not in the best interest of stockholders and recommends a vote AGAINST this proposal. This proposal has been repeatedly rejected by IBM shareholders. This year’s version of the proposal inaccurately describes the number of shares required to call a special meeting of the shareholders of IBM. IBM’s corporate governance provisions call for a threshold of 25% of shareholders to call a special meeting, not 40% of shares that cast ballots at the annual meeting. The Company’s by-laws plainly state that “Special meetings of the stockholders, unless otherwise provided by law, may be called at any time by the Chairman of the Board or by the Board, and shall be called by the Board upon written request delivered to the Secretary of the Corporation by the holder(s) with the power to vote and dispose of at least 25% of the outstanding shares of the Corporation” (emphasis added). The Board recommends a vote against this proposal. IBM has long demonstrated its commitment to sound principles of corporate governance, working to ensure that its practices protect and further the interests of its stockholders. In addition to stockholders’ right to call a special meeting, IBM has: • a proxy access by-law provision; • annual election of directors by majority vote; • the right to remove directors without cause; • no supermajority provisions in our charter documents; • annually-enhanced proxy disclosure that gives stockholders extensive insight into the Board’s oversight of management; and • best-in-class, year-round engagement with our stockholders. IBM’s current practices also guarantee that notice and an opportunity to be heard precede stockholder votes, enabling meaningful discourse to occur before important decisions are made affecting your Company. In contrast, this proposal would enable the owners of a bare majority of shares to act by voting in favor of their own proposed action, without a meeting and without ever providing notice to other stockholders or IBM. The Board of Directors believes that the adoption of this proposal would not be in the best interests of its stockholders. Currently, any matter that IBM or its stockholders wishes to present for a stockholder vote must be noticed in advance and presented at a meeting of stockholders. This transparency and fairness allows all stockholders to consider, discuss, and vote on pending stockholder actions. In contrast, the written consent proposal at issue would permit a small group of stockholders (including those who accumulate a short-term voting position through the borrowing of shares) with no fiduciary duties to other stockholders to initiate action with no prior notice either to other stockholders or to the Company, thus preventing all stockholders from having an opportunity to deliberate in an open and transparent manner, and to consider arguments for and against any action, including IBM’s position. Permitting stockholder action by written consent could also lead to substantial confusion and disruption for stockholders, with potentially multiple, even conflicting, written consents being solicited by multiple stockholder groups. The Board does not believe that such a written consent right is an appropriate corporate governance model for a widely-held public company like IBM. In sum, the Board concludes that adoption of this proposal is unnecessary for the following reasons: • IBM’s long demonstrated history of commitment to high standards of corporate governance and accountability; • The belief that holding meetings with proper notice whereby all stockholders may deliberate and discuss the proposed actions, receive and consider the Company’s position, and then vote their shares is the most transparent and fair way for stockholders to take action; • The safeguards around the ability to act by a special or annual meeting both promote and protect stockholders’ interests; and • As described in this Proxy Statement, the Company has an established process by which stockholders may communicate directly with IBM’s Board or non-management directors throughout the year on any topics of interest to stockholders. The Board views the proposal calling for action by written consent without prior notice to all stockholders as unnecessary and not in the best interests of its stockholders. THEREFORE, THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL. |
| 2021 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals | 79 |
6. Stockholder Proposal Requesting the Company Publish Annually a Report Assessing its Diversity, Equity and Inclusion Efforts
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
The Board believes that the adoption of this proposal is unnecessary because of its existing special meeting by-law provision. The current provision, which allows stockholders owning at least 25% of IBM’s shares to call a special meeting, can be found in Article II, Section 3 of IBM’s by-laws athttps://www.ibm.com/investor/governance/by-laws.html.
The current 25% threshold is consistent with market practice and already accurately reflects the preference of IBM’s stockholders. At IBM’s 2010 and 2017 Annual Meetings, the same proponent presented this same proposal seeking to lower the 25% threshold to 10%. On both occasions, a majority of the votes cast voted against lowering the threshold, clearly demonstrating the stockholders’ support for the 25% threshold.
Lowering the threshold to 10% would allow special interest groups with small minority ownership interests to potentially cause disruption and substantial costs to be incurred by the other 90% of stockholders. Further, a lower threshold is not necessary in light of IBM’s history of strong governance policies and practices, including its lead independent Presiding Director and existing procedures giving stockholders the ability to communicate with the Board.
Therefore, the Board believes that the proponent’s proposal is counterproductive to IBM’s already well-respected corporate governance practices. Additionally, this same proposal has already been reviewed and rejected by a majority of the votes cast at two prior annual meetings. As IBM has an existing by-law permitting stockholders to call special meetings, and this same proposal to lower the threshold failed to receive majority support each time it has been presented, the Board believes that this proposal is unnecessary. THEREFORE, THE IBM BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
6. Stockholder Proposal to Have an Independent Board Chairman
Management has been advised that Kenneth Steiner, 14 Stoner Avenue, 2M, Great Neck, NY 11021,Nia Impact Capital, 1212 Preservation Parkway, Suite 200, Oakland, CA 94612, the owner of at least 50011,508 shares of IBM stock, intends to submit the following proposal at the meeting:
Resolved:
Shareholders request our BoardInternational Business Machines Corporation (“IBM”) publish annually a report assessing IBM’s diversity, equity and inclusion efforts, at reasonable expense and excluding proprietary information. The report should include:
Whereas:
Investors seek quantitative, comparable data to understand the effectiveness of IBM’s diversity, equity and inclusion efforts.
Numerous studies have pointed to the corporate benefits of a diverse workforce. These include:
| • | Companies in the top quartile for gender diversity are 21% more likely to outperform on profitability and 27% more likely to have superior value creation.1 |
| • | The 20 most diverse S&P 500 companies had an average annual five-year stock return that was 5.8% higher than the 20 least-diverse companies.2 |
Yet, significant barriers exist for diverse employees advancing within their careers. Women enter the workforce in almost equal numbers as policy, and amend our governing documents as necessary, to require henceforth thatmen (48%). However, the Chaironly comprise 22% of the Boardexecutive suite. Similarly, people of Directors, whenever possible,color comprise 33% of entry level workers, yet only 13% of the c-suite.3
IBM’s 2019 Corporate Responsibility Report states, “IBM is an innovation company that solves the hardest problems in business and society. This work requires a highly skilled, truly diverse workforce and an inclusive culture that enables people from all backgrounds to thrive.” It also states, “We are committed to continuously and sustainably improving diversity within our global leadership team and at all levels in our organization.” In addition, IBM sells Emb(race) and “Be Equal” merchandise from its website, calling on customers to “proudly promote equality.”
However, IBM has not released meaningful information that allows investors to determine the effectiveness of its workplace diversity programs. Stakeholders may become concerned that IBM’s statements are corporate puffery, language described by the United States Federal Trade Commission as marketing exaggerations intended to “puff up” products and not able to be relied upon by consumers and investors.
Investor desire for information on this issue is significant. As of October 2020, $1.9 trillion in represented assets released an independent memberInvestor Statement on the importance of the Board. The Board would have the discretion to phase in this policy for the next CEO transition, implemented so it does not violate any existing agreement.
If the Board determines that a Chairman who was independent when selected is no longer independent, the Board shall select a new Chairman who satisfies the requirements of the policy within a reasonable amount of time. Compliance with this policy is waived if no independent director is available and willing to serve as Chairman. This proposal requests that all the necessary steps be taken to accomplish the above.
Caterpillar is an example of a company recently changing course and naming an independent board chairman. Caterpillar had strongly opposed a shareholder proposal for an independent board chairman as recently as its June 2016 annual meeting. Wells Fargo also changed course and named an independent board chairman in October 2016.
increased corporate transparency on workplace equity data. It stated:
It was reportedis essential that 53% ofinvestors have access to the Standard & Poors 1,500 firms separate these 2 positions (2015 report). This proposal topic won 50%-plus support at 5 major U.S. companies in 2013 including 73%-support at Netflixmost up-to-date and accurate information related to its diverse workplace policies, practices and outcomes.4
An independent board chairman would have more time to cure weaknesses in our board members after 2018. David Farr and Joan Spero were tainted by a bankruptcy at another company where they served. Kenneth Chenault had 19-years long tenure and received our highest negative votes – as much as 5-times as many negative votes as other IBM directors. Sidney Taurel had 16-years tenure. Long-tenure can impair the independence of a director no mater how qualified. Independence is all-important for a director.
In response to this proposal top management could name one step it took to advance shareholder oversight of our company in 2017.
The fact that our Lead Director cannot call a special shareholder meeting may be a red flag that our Board does not believe in a strong lead director to counter-balance the powerful dual role of our current CEO.
Please vote to enhance oversight of our CEO:
Independent Board Chairman — Proposal 6
| McKinsey & Company, “Delivering through Diversity”, January 2018 |
(https://www.mckinsey.com/~/media/mckinsey/business%20functions/organization/our%20insights/delivering%20through%20diversity/delivering-through-diversity_full-report.ashx) |
| 2 | Holger, Dieter, “The business case for more diversity” Wall Street Journal, October 26, 2019 |
(https://www.wsj.com/articles/the-business-case-for-more-diversity-11572091200) |
| 3 | McKinsey & Company, “Women in the Workplace 2018”, (https://womenintheworkplace.com) |
| 4 | https://www.asyousow.org/our-work/gender-workplace-equity-disclosure-statement |
| 80 | 2021 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals |
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE |
Your Board of Directors has already adopted a policy that implements this proposal. At IBM, we have long held that in order to solve the hardest problems in business and society, we require a highly skilled, truly diverse workforce and an inclusive culture that enables people from all backgrounds to thrive. In 1899, IBM’s predecessor hired its first women and black employees, and in 1935 we established “equal pay for equal work.” Less than 20 years later, IBM Chairman Thomas J. Watson wrote Policy Letter No. 4, history’s first corporate equal opportunity policy, more than a decade before the U.S. Civil Rights Act. We’ve expanded our nondiscrimination policy to include sexual orientation (1984), gender identity and expression (2002), and genetics (2005). IBM continues that legacy with programs and policies that set high standards and foster a culture of inclusion in which all IBMers can thrive at work because of who they are, not in spite of who they are. To that end, our Chairman and CEO, Arvind Krishna, wrote an open letter to Congress in 2020, highlighting IBM’s historic commitment to diversity and inclusion and committing to work with Congress in pursuit of justice and racial equity. The Proposal requests a report, published annually, assessing IBM’s diversity, equity and inclusion efforts, including “the Board’s process for assessing the effectiveness of its diversity, equity and inclusion programs, and the Board’s assessment of program effectiveness, as reflected in any goals, metrics, and trends related to its promotion, recruitment and retention of protected classes of employees.” IBM’s Board of Directors discussed this proposal and determined that it aligns with IBM’s goals of a diverse and inclusive workforce which are regularly reviewed by the Board. Accordingly, in December your Board adopted the following policy: International Business Machines Corporation (“IBM”) shall publish annually a report assessing IBM’s diversity, equity and inclusion efforts, at reasonable expense and excluding proprietary information. The report shall include: • The Board’s process for assessing the effectiveness of IBM’s diversity, equity and inclusion programs, and • The Board’s assessment of program effectiveness, as reflected in any goals, metrics, and trends related to its promotion, recruitment and retention of protected classes of employees. IBM has long been at the forefront in its commitment to diversity and inclusion, and we fully intend to remain in that role. THE BOARD RECOMMENDS A VOTE FOR THIS PROPOSAL. |
One of the most important tasks undertaken by a board is to select the leadership of the board and the company. In order to do that job most effectively and in the best interests of the stockholders, a board should have the flexibility to combine or split the Chairman and CEO roles. Because one size does not fit all situations, your Board has altered its structure at various times depending upon the particular circumstances. For example, your Board split the Chairman and CEO roles during previous CEO transitions. These seamless and successful leadership transitions have served as a model for public company succession planning. We already have independent board leadership in the form of our Presiding Director, IBM’s lead independent director. We do not believe that requiring these roles always be split, or that the Chairman always be a non-management director, is in the best interest of IBM, and we recommend a vote against the proposal.
There is little doubt that selection of IBM’s Chairman and CEO is one of the most important functions for the Board. The responsibility is taken seriously by your Board, a diverse group of leaders in their fields, including current and former Chairmen and CEOs of Fortune 500 companies and leaders of major academic and philanthropic institutions. The Board is uniquely positioned to see the opportunities and challenges IBM faces, and to test personally the candidates for the Chairman and CEO positions over time, in order to select the leadership needed for IBM for the long term. Limiting the candidate pool as suggested by the proponent will do nothing to enhance the ability of the Board to exercise its fiduciary obligation to identify the best leadership for IBM.
IBM already has an independent director holding the position of Presiding Director. The Presiding Director is elected by the independent members of the Board, with the following robust and meaningful responsibilities that serve to enhance the contributions of IBM’s independent directors. The Presiding Director:
| 2021 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals | 81 |
· presides at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors,
· serves as liaison between the Chairman and the independent directors,
· approves information sent to the Board,
· approves meeting agendas for the Board,
· approves meeting schedules to assure that there is sufficient time for discussion of all agenda items,
· has authority to call meetings of the independent directors, and
· if requested by major stockholders, ensures that he or she is available, as necessary after discussions with the Chairman and Chief Executive Officer, for consultation and direct communication.
In addition to these core responsibilities, the Presiding Director engages in other regular activities including:
· one-on-one debriefs with the Chairman after each meeting;
· spending time with senior management outside of Board meetings to ensure a deep understanding of the business and strategy of the Company; and
· attending certain other committee meetings in addition to the committee he chairs.
The Presiding Director position is just the latest example of IBM’s continued commitment to strong corporate governance. Independent directors comprise more than 93% of the Board and 100% of the Audit, Directors and Corporate Governance and Executive Compensation and Management Resources Committees. After each regularly scheduled Board meeting, both the full Board and the non-management directors of the Board meet in executive session, with the non-management directors’ session led by the independent Presiding Director.
In addition, the Board has a history of proactively responding to stockholder issues, such as implementing proxy access, a majority voting policy for director elections and granting stockholders owning at least 25% of the outstanding shares of the Company the power to call a special meeting of stockholders. In contrast to the exemplary performance and quality of the IBM Board over the years, the proponent provides no evidence demonstrating that separating the roles of Chairman and CEO at IBM would result in increased value for IBM stockholders. In light of this total lack of empirical support, IBM’s strong and independent Board, and IBM’s Presiding Director structure, this stockholder proposal is both inappropriate and unnecessary.
We believe that stockholders benefit when the Board can select the best candidates to run IBM at a given time. THEREFORE, THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.Frequently Asked Questions
1.What is a “stockholder of record”?
| 1. | What is a “stockholder of record”? |
A stockholder of record or registered stockholder (“record owner”) is a stockholder whose ownership of IBM stock is reflected directly on the books and records of our transfer agent, Computershare Trust Company, N.A. If you hold IBM stock through a bank, broker or other intermediary, you are not a stockholder of record. Instead, you hold your stock in “street name,” and the “record owner”record owner of your shares is usually your bank, broker or other intermediary. If you are not a registered stockholder,record owner, please understand that IBM does not know that you are a stockholder, or how many shares you own.
| 2. | I want to attend the 2021 Annual Meeting. What procedures must I follow? |
2.I want to attend the annual meeting. What procedures must I follow?
Admission to theThe Annual Meeting will be on a first-come, first-served basis, and an admission ticket and picture identificationconducted virtually. All stockholders will be requiredable to enterattend the meeting. Any individual arriving without an admission ticket will not be admitted toAnnual Meeting via webcast by entering the meeting unless it can be verified that the individual is an IBM stockholder as of the record date for the meeting.
For stockholders of record that received a Proxy Statement by mail: An admission ticket is attached to the proxy card sent with this Proxy Statement.
For stockholders of record that received a Notice of Internet Availability of Proxy Materials: Please follow the instructions provided16-digit control number included on the Notice of Internet Availability of Proxy Materials, on your proxy card, or on the instructions that accompanied your proxy materials at www.virtualshareholdermeeting.com/IBM2021 (“Annual Meeting Website”). If you do not have a control number, you will be able to request an admission ticket.
For holders in street name: Stockholders holding IBM stock in bank or brokerage accounts can obtain an admission ticket in advance by sending a written request, along with proof of stock ownership (suchregister as a brokerage statement) to our transfer agent, Computershare Trust Company, N.A., P.O. Box 505005, Louisville, KY 40233-5005. Ifguest; however, you hold your shares in street name and you wish to vote those shares at the meeting, you must also request a “legal proxy” directly from your bank, broker or other intermediary well in advance of the meeting and bring it to the meeting. Contact your bank, broker or other intermediary for specific information on how to obtain a legal proxy in order to attend and vote your shares at the meeting.
3.Are there specific restrictions on attending the annual meeting, and whatI can bring with me into the meeting?
This is a meeting for stockholders, and security at the meeting is very important. You will be asked to walk through an electronic screening device before entering the meeting hall. In addition, cameras, cell phones, recording equipment and electronic devices will not be permittedable to be brought intovote or submit questions before or during the meeting.
No recording of the Annual Meeting is allowed, including audio and video recording.
| 3. | What can I do if I need technical assistance during the Annual Meeting? |
4.What isIf you encounter any difficulties accessing the “record date”Annual Meeting webcast, please call the technical support number that will be posted on the Annual Meeting Website log-in page.
| 4. | Are there rules of conduct for the Annual Meeting? |
Yes, the rules of conduct for the annual meeting?Annual Meeting will be available on the Annual Meeting Website on the date of the Annual Meeting. The Rules of Conduct will provide information on regarding the rules and procedures for participating in the Annual Meeting.
| 5. | What is the “record date” for the Annual Meeting? |
February 23, 2018.26, 2021.
5.Which IBM shares will be entitled to vote at the annual meeting?
| 6. | Which IBM shares will be entitled to vote at the Annual Meeting? |
IBM’s common stock ($0.20 par value capital stock) is the only class of security entitled to vote at the Annual Meeting. Each stockholder of record owner and each stockholder who holds stock in street name at the close of business as of the record date is entitled to one vote for each share held at the meeting, or any adjournment or postponement.
6.Which IBM shares are included in the proxy card?
| 7. | Which IBM shares are included in the proxy card? |
For stockholders of record: record owners:The proxy card covers the number of shares to be voted in your account as of the record date, including any shares held for participants in the Computershare CIP (the Direct Stock Purchase and Dividend Reinvestment Plan) and the IBM Employees Stock Purchase Plans.
For stockholders who are participants in the IBM Stock Fund investment alternative under the IBM 401(k) Plus Plan:The card serves as a voting instruction to the Trustee of the plan for IBM shares held in the IBM Stock Fund as of the record date.
For holders in street name: You will receive a voting instruction form directly from your bank, broker or other intermediary containing instructions on how you can direct your record holder to vote your shares. Contact your bank, broker or other intermediary if you have any questions regarding your IBM stock holdings as of the record date.
| 8. | May I vote my shares in person at the Annual Meeting? |
7.May I vote my shares in person at the annual meeting?
For stockholders of record: Yes. However, we encourage you to vote by proxy card, the Internet or by telephone even if you plan to attend the meeting. If you wish to give a proxy to someone other thanTo vote during the individuals named as proxiesAnnual Meeting, log into the Annual Meeting Website with your 16-digit control number (found on theyour Notice of Internet Availability of Proxy Materials, your proxy card, you may replace the names appearing on theor your instructions that accompanied your proxy card with the name of some other person, sign the card and give the proxy card to that person for use at the meeting.materials).
For holders in street name: Yes, but in order to do so you will first have to ask your bank, broker or other intermediary to furnish you with a legal proxy. You will need to bring the legal proxy with you to the meeting, and hand it in with a signed ballot that you can request at the meeting. You will not be able to vote your shares at the meeting without a legal proxy and a signed ballot.
8.Can I vote my shares without attending the annual meeting?
| 9. | Can I vote my shares without attending the Annual Meeting? |
Yes. Whether or not you attend the meeting, we encourage you to vote your shares promptly.
For stockholders of record: record owners:Your shares cannot be voted unless a signed proxy card is returned, shares are voted using the Internet or the telephone, or other specific arrangements are made to have your shares represented at the meeting. You are encouraged to specify your choices by checking the appropriate boxes on the proxy card. Shares will be voted following your written instructions. However, it is not necessary to check any boxes if you wish to vote in accordance with the Board of Directors’ recommendations; in that case, merely sign, date, and return the proxy card in the enclosed envelope, or if you received notice of Internet availability of proxy materials, follow the instructions on how to access the proxy materials and vote online.
You can also vote your shares over the Internet, or by calling a designated telephone number. These Internet and telephone voting procedures are designed to authenticate your identity in order to allow you to provide your voting instructions, and to confirm that your instructions have been recorded properly. The procedures that have been put in place are consistent with the requirements of applicable law. Specific instructions for stockholders of record who wish to use the Internet or telephone voting procedures are set forth on the proxy card.
For participants in the IBM Stock Fund investment alternative under the IBM 401(k) Plus Plan: In order to have the Trustee vote your shares as you direct, you must timely furnish your voting instructions over the Internet or by telephone by 12:01 a.m.11:59 p.m. EDT on April 23, 2018,25, 2021, or otherwise ensure that your card is signed, returned, and received by such time and date. If instructions are not received over the Internet or by telephone by 12:01 a.m.11:59 p.m. EDT on April 23, 2018,25, 2021, or if the signed card is not returned and received by such time and date, the IBM shares in the IBM Stock Fund under the IBM 401(k) Plus Plan will be voted by the Trustee in proportion to the shares for which the Trustee timely receives voting instructions, provided the Trustee determines such vote is consistent with its fiduciary duties under the Employee Retirement Income Security Act of 1974, as amended.
For holders in street name: YouIf you are not voting your shares in person at the Annual Meeting, you must timely deliver your voting instructions to your respective bank, broker or other
| 82 | 2021 Notice of Annual Meeting & Proxy Statement | Frequently Asked Questions |
intermediary, following the specific instructions that have been provided to you by your bank, broker or other intermediary.
| 10. | May I change or revoke my proxy? |
9.May I change or revoke my proxy?
For stockholders of record: record owners: Yes. A proxy may be revoked at any time prior to the voting at the meeting by submitting a later-dated proxy (including a proxy via the Internet or by telephone) or by giving timely written notice of revocation to the Secretary of IBM.
For holders in street name: Yes. You must follow the specific voting directions provided to you by your bank, broker or other intermediary to change or revoke any instructions you have already provided to your bank, broker or other intermediary.
10.How can I contact IBM’s transfer agent?
| 11. | How can I contact IBM’s transfer agent? |
Contact our transfer agent either by writing Computershare Trust Company, N.A., P.O. Box 505005, Louisville, KY 40233-5005, or by telephoning 888-IBM-6700 (outside the United States, Canada, and Puerto Rico 781-575-2727).
11.Other than the items in the proxy statement, what other items of business will be addressed at the annual meeting?
| 12. | Other than the items in the proxy statement, what other items of business will be addressed at the Annual Meeting? |
Management knows of no other matters that may be properly presented at the meeting. If other proper matters are introduced at the meeting, the individuals named as proxies on the proxy card are also authorized to vote upon those matters utilizing their own discretion.
12.During the question period at the annual meeting, what topics will be discussed?
| 13. | During the question period at the Annual Meeting, what topics will be discussed? |
This part of the meeting is for stockholders to ask questions to the Chairman about Company matters. It is not the appropriate forum to raise personal grievances.
| 14. | How can I ask questions during the Annual Meeting? |
Stockholders of record may submit questions either before (by going to13. www.proxyvote.comI understand that) or during the meeting (by going to the Annual Meeting Website) and logging in using your 16-digit control number and following the instructions to submit a “quorum”question. Additionally, each year IBM provides a portal through which stockholders may submit questions in advance of stockholders is required in orderthe Annual Meeting. To submit a question via the IBM portal, please visit: https://www.ibm.com/investor/services/annual-meeting-of-stockholders.
If you do not have a control number, you will be able to register for IBMthe Annual Meeting as a guest; however, you will not be able to transact business atvote or submit questions on the annualAnnual Meeting Website before or during the meeting. What constitutes a quorum?
| 15. | Who tabulates the votes? |
Votes are counted by employees of Broadridge Corporate Issuer Solutions, Inc., IBM’s tabulator, and certified by the Inspectors of Election (who are employees of First Coast Results, Inc.).
| 16. | I understand that a “quorum” of stockholders is required in order for IBM to transact business at the Annual Meeting. What constitutes a quorum? |
A majority of all “outstanding” shares of common stock having voting power, in person or represented by proxy and entitled to vote, constitutes a quorum for the transaction of business at the meeting.
14.How many shares of IBM stock are “outstanding”?
| 17. | How many shares of IBM stock are “outstanding”? |
As of February 9, 2018,10, 2021, there were 921,167,894893,594,090 shares of common stock outstanding and entitled to be voted.
15.What is the voting requirement for electing IBM’s directors?
| 18. | What is the voting requirement for electing IBM’s directors? |
To be elected in an uncontested election, each director must receive a majority of the votes cast. In a contested election, a nominee receiving a plurality of the votes cast at such election shall be elected.
16.What is “broker discretionary voting”?
| 19. | What is “broker discretionary voting”? |
This refers to the NYSE rule allowing brokers to vote their customers’ shares on certain “routine” matters in the Proxy Statement at the brokers’ discretion when they have not received timely voting instructions from their customers. The NYSE rules on broker discretionary voting prohibit banks, brokers, and other intermediaries from voting uninstructed shares on certain matters, including the election of directors. Therefore, if you hold your stock in street name and you do not
instruct your bank, broker or other intermediary how to vote in the election of directors, no votes will be cast on your behalf. It is important that you cast your vote.
17.Are abstentions and broker non-votes counted as votes cast?
| 20. | Are abstentions and broker non-votes counted as votes cast? |
No. Under the laws of New York State, IBM’s state of incorporation, “votes cast” at a meeting of stockholders by the holders of shares entitled to vote are determinative of the outcome of the matter subject to vote. Abstentions and broker non-votes will not be considered “votes cast” based on current New York State law requirements and IBM’s certificate of incorporation and by-laws.
18.Assuming there is a proper quorum of shares represented at the meeting, how many shares are required to approve the proposals being voted upon in this proxy statement?
| 21. | Assuming there is a proper quorum of shares represented at the Annual Meeting, how many shares are required to approve the proposals being voted upon in this proxy statement? |
The table below reflects the vote required in accordance with the laws of New York State:
|
| |||||||||||
Proposal | Vote Required |
| Do votes cast? | Is broker discretionary voting allowed? | ||||||||
|
|
|
| |||||||||
Election of Directors | Majority of votes cast |
| No | No | ||||||||
Ratification of Appointment of | Majority of votes cast |
| No | Yes | ||||||||
Management Proposal | Majority of votes cast |
| No | No | ||||||||
Stockholder Proposals* | Majority of votes cast | No | No | |||||||||
| * |
|
|
|
*Advisory and non-binding
19.Who tabulates the votes?
Votes are counted by employees of Computershare Trust Company, N.A., IBM’s transfer agent and registrar, and certified by the Inspectors of Election (who are employees of IVS Associates, Inc.).
20.Where can I find the voting results of the annual meeting?
| 22. | Where can I find the voting results of the Annual Meeting? |
IBM intends to publish the final voting results on its website and will disclose the final voting results on a Form 8-K shortly after the Annual Meeting.
21.Will my votes be confidential?
| 23. | Will my votes be confidential? |
Yes. All stockholder meeting proxies, ballots, and tabulations that identify individual stockholders are kept confidential and
| 2021 Notice of Annual Meeting & Proxy Statement | Frequently Asked Questions | 83 |
are not available for examination. In addition, the identity or the vote of any stockholder is not disclosed except as required by law.
| 24. | I received my proxy materials in hard copy. How may I arrange to receive them electronically? |
22.How do I submit a proposalTo enroll for inclusion in IBM’s 2019 proxy material?electronic delivery, go to our Investor Relations website at https://www.ibm.com/investor/help/consent-for-materials-online, and select “Help,” click on “Consent for materials online” and follow the instructions to enroll.
| 25. | How do I submit a proposal for inclusion in IBM’s 2022 proxy material? |
Stockholder proposals may be submitted for IBM’s 20192022 proxy material after the 20182021 Annual Meeting and must be received at our corporate headquarters no later than November 12, 2018.8, 2021. Proposals should be sent via registered, certified or express mail to: Office of the Secretary, International Business Machines Corporation, 1 New Orchard Road, Mail Drop 301, Armonk, NY 10504.
Management carefully considers all proposals and suggestions from stockholders. When adoption is clearly in the best interest of IBM and stockholders, and can be accomplished without stockholder approval, the proposal is implemented without inclusion in the Proxy Statement. Examples of stockholder proposals and suggestions that have been adopted over the years include stockholder ratification of the appointment of an independent registered public accounting firm, improved procedures involving dividend checks and stockholder publications, and changes or additions to the proxy materials concerning matters like abstentions from voting, appointment of alternative proxy, inclusion of a table of contents, proponent disclosure and secrecy of stockholder voting.
23.How do I submit an item of business for the 2019 annual meeting?
| 26. | How do I submit an item of business for the 2022 Annual Meeting? |
Stockholders who intend to present an item of business at the 20192022 Annual Meeting of Stockholders (other than a proposal submitted for inclusion in IBM’s Proxy Statement), including nominations for election to the Board of Directors pursuant to the Company’s proxy access by-law provision, must provide notice of such business to IBM’s Secretary no earlier than October 13, 20189, 2021 and no later than November 12, 2018,8, 2021, as set forth more fully in, and in compliance with, IBM’s by-laws.
24.I did not receive a copy of the annual report. How can I get one?
| 27. | I did not receive a copy of the Annual Report. How can I get one? |
Stockholders of record who did not receive an IBM Annual Report or who previously elected not to receive one for a specific account may request that IBM mail its Annual Report to that account by writing to our transfer agent, Computershare Trust Company, N.A. (address and phone number in Question 1011 above). If you are not a stockholder of record and did not receive an Annual Report from your bank, broker or other intermediary, you must contact your bank, broker or other intermediary directly.
25.What is “householding” and does IBM do this?
| 28. | What is “householding” and does IBM do this? |
Householding is a procedure approved by the SEC under which stockholders who have the same address and last name and do not participate in electronic delivery of proxy materials will receive only one copy of a company’s proxy statement and annual report from a company, bank, broker or other
intermediary, unless one or more of these stockholders notifies the company, bank, broker or other intermediary that they wish to continue to receive individual copies. At the present time, IBM does not “household” for any of our stockholders of record. However, as explained below, your bank, broker or other intermediary may be householding your account if you hold your shares in street name.
26.If I am a holder in street name, how may I obtain a separate set of proxy materials?
| 29. | If I am a holder in street name, how may I obtain a separate set of proxy materials? |
If you hold shares in street name, your bank, broker or other intermediary may be delivering only one copy of our Proxy Statement and the IBM Annual Report to multiple stockholders of the same household who share the same address, and may continue to do so, unless your bank, broker or other intermediary has received contrary instructions from one or more of the affected stockholders in the household. If you are such a beneficial holder, contact your bank, broker or other intermediary directly in order to receive a separate set of our proxy materials.
27.Members of our household own IBM shares through a number of different brokerage firms. Will we continue to receive multiple sets of materials?
| 30. | Members of our household own IBM shares through a number of different brokerage firms. Will we continue to receive multiple sets of materials? |
Yes. If you and others sharing a single address hold IBM shares through multiple brokers, you will continue to receive at least one set of proxy materials from each broker.
28.I received a notice of internet availability of proxy materials. What does this mean?
| 31. | I received a notice of internet availability of proxy materials. What does this mean? |
Consistent with common practice and in accordance with SEC rules, IBM is distributing proxy materials to some stockholders over the Internet by sending a Notice of Internet Availability of Proxy Materials that explains how to access our proxy materials and vote online. If you received a notice and would like a printed copy of the proxy materials (including the Annual Report, Proxy Statement and a proxy card in the case of stockholders of record owners, or a voting instruction form in the case of stockholders holding shares in street name), please follow the instructions included in your notice.
| 32. | I previously consented to receive electronic delivery of my proxy materials. Can you send me a hard copy of these proxy materials? |
29.I received my proxy materials in hard copy. How may I arrange to receive them electronically?
To enroll for electronic delivery, go to our Investor Relations website athttp://www.ibm.com/investor/For record owners: and select “Stockholder services,” scroll down to “Consent for materials online,” click on either “if you own stock directly in your name” or “if you own stock beneficially through a brokerage account,” and follow the instructions to enroll.
30.I previously consented to receive electronic delivery of my proxy materials. Can you send me a hard copy of these proxy materials?
For stockholders of record: We will deliver promptly, upon written or oral request, a separate copy of these proxy materials. Contact our transfer agent, Computershare Trust Company, N.A. (address and phone number in Question 1011 above).
For holders in street name:You must contact your bank, broker or other intermediary to receive copies of these materials.
| 33. | Who is making this proxy solicitation and approximately how much will these solicitation activities cost? |
31.Who is making this proxy solicitation and approximately how much will these solicitation activities cost?
Solicitation of proxies is being made by IBM through the mail, in person and by telecommunications. The cost of this solicitation will be borne by IBM. In addition, management has retained Morrow Sodali LLC,Innisfree M&A Incorporated, to assist in soliciting proxies for a fee of approximately $45,000,$50,000, plus reasonable out-of-pocket expenses.
Christina M. MontgomeryFrank Sedlarcik
Vice President and Secretary
March 12, 20188, 2021
| 84 | 2021 Notice of Annual Meeting & Proxy Statement | Frequently Asked Questions |
Appendix A —– Non-GAAP Financial Information and Reconciliations
The rationale for management’s use of non-GAAP information in the Compensation Discussion and Analysis and Proxy Statement is as follows:
Operating (non-GAAP) Earnings Per Share and Related Income Statement Items
In an effort to provide better transparency into the operational results of the business, IBMsupplementally, the Company separates business results into operating and non-operating categories. Operating earnings from continuing operations (“operating net income”) is a non-GAAP measure that excludes the effects of certain acquisition-related charges, intangible asset amortization, expense resulting from basis differences on equity method investments, retirement-related costs, discontinued operations and certain managed infrastructure services spin-off charges and their related tax impacts. ForManagement characterizes direct and incremental charges incurred to accomplish the fourth-quartermanaged infrastructure services spin-off as non-operating given their unique and full-year 2017,non-recurring nature. These charges primarily relate to transaction and third party support costs, business separation and applicable employee retention fees, pension settlement charges and related tax charges. All other spending for the managed infrastructure services business operations is included in both earnings from continuing operations and in operating (non-GAAP) earnings also excludes a one-time charge associated withearnings. Due to the unique, non-recurring nature of the enactment of the U.S. Tax Cuts and Jobs Act (U.S. tax reform duereform), the Company characterizes the one-time provisional charge recorded in the fourth quarter of 2017 and adjustments to its unique non-recurring nature.that charge as non-operating. Adjustments include true-ups, accounting elections and any changes to regulations, laws, audit adjustments, etc. that affect the recorded one-time charge. For acquisitions, operating (non-GAAP) earnings exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable retention, restructuring and related expenses, and tax charges related to acquisition integration.integration and pre-closing charges, such as financing costs. These charges are excluded as they may be inconsistent in amount and timing from period to period and are dependent onsignificantly impacted by the size, type and frequency of IBM’sthe Company’s acquisitions. All other spending for acquired companies is included in both earnings from continuing operations and in operating (non-GAAP) earnings. For retirement-related costs, IBMthe Company characterizes certain items as operating and others as non-operating. IBMnon-operating, consistent with GAAP. The Company includes defined benefit plan and nonpension postretirement benefit plan service cost, amortization of prior service costcosts, multi-employer plan costs and the cost of defined contribution plans in operating earnings. Non-operating retirement-related cost includescosts include defined benefit plan and nonpension postretirement benefit plan amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements and multi-employer plan costs, pension insolvency costs and other costs. Non-operating retirement-related costs are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance, and IBMthe Company considers these costs to be outside of the operational performance of the business.
Overall, IBMthe Company believes that supplementally providing investors with a view of operating earnings as described above provides increased transparency and clarity into both the operational results of the business and the performance of IBM’sthe Company’s pension plans; improves visibility to management decisions and their impacts on operational performance; enables better comparison to peer companies; and allows IBMthe Company to provide a long-term strategic view of the business going forward. IBM’sThe Company’s reportable segment financial results reflect pre-tax operating earnings from continuing operations, consistent with IBM’sthe Company’s management and measurement system. In addition, these non-GAAP measures provide a perspective consistent with areas of interest the Company routinely receives from investors and analysts.
Free Cash Flow/Operating Cash Flow
IBMThe Company uses free cash flow as a measure to evaluate its operating results, plan share repurchase levels, strategic investments and assess its ability and need to incur and service debt. The entire free cash flow amount is not necessarily available for discretionary expenditures. IBMThe Company defines free cash flow as net cash from operating activities less the change in Global Financing receivables and net capital expenditures, including the investment in software. A key objective of the Global Financing business is to generate strong returns on equity, and increasingGlobal Financing receivables isare the basis for that growth. Accordingly, management considers Global Financing receivables as a profit-generating investment, not as working capital that should be minimized for efficiency. Therefore, management includes presentations of both free cash flow and net cash from operating activities that exclude the effect of Global Financing receivables.receivables (“operating cash flow”). Free cash flow guidance is derived using an estimate of profit, working capital and operational cash outflows.flows. Since IBMthe Company views Global Financing receivables as a profit-generating investment which it seeks to maximize, it is not considered when formulating guidance for free cash flow. As a result, IBMthe Company does not estimate a GAAP Net Cash from Operations expectation metric.
Constant Currency
80When the Company refers to growth rates at constant currency or adjusts such growth rates for currency, it is done so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of its business performance. Financial results adjusted for currency are calculated by translating current
| 2021 Notice of Annual Meeting & Proxy Statement | Appendix A – Non-GAAP Financial Information and Reconciliations | 85 |
period activity in local currency using the comparable prior year period’s currency conversion rate. This approach is used for countries where the functional currency is the local currency. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates.
Revenue adjusted for divested businesses and constant currency
To provide better transparency on the recurring performance of the ongoing business, the Company provides total revenue, growth rates excluding divested businesses and at constant currency. These divested businesses are included in the Company’s Other segment.
Revenue for Red Hat, normalized for historical comparability
On July 9, 2019, the Company completed the acquisition of Red Hat, Inc. (Red Hat) and began including Red Hat’s financial results in the Company’s consolidated results. As part of the accounting for this acquisition, the Company recorded certain adjustments, including a purchase accounting deferred revenue fair value adjustment and intercompany eliminations, each of which impact IBM’s post-acquisition revenue. To help investors better understand the underlying performance of Red Hat, management presents a non-GAAP growth rate of Red Hat’s revenue performance year to year, normalized for historical comparability. The normalized (non-GAAP) growth rate of Red Hat’s revenue includes adjustments to reverse the purchase accounting deferred revenue fair value adjustment and adjustments to add back revenue which was eliminated for post-acquisition sales between Red Hat and IBM, and adjustments to reverse the Red Hat standalone pre-acquisition revenue for January 1 – July 8, 2019. The deferred revenue adjustment represents revenue that would have been recognized by Red Hat under GAAP if the acquisition had not occurred, but was not recognized by IBM due to purchase accounting. The sales between Red Hat and IBM, which were eliminated post-acquisition, are added back in this presentation to provide a comparative view of Red Hat on a pre-acquisition basis. This information is included to provide additional transparency and for comparative purposes only.
Non-GAAP Operating Margin for Red Hat
Upon close of the Red Hat acquisition, IBM adopted Red Hat’s Annual Cash Bonus Plan for Red Hat’s fiscal year 2020 (i.e, March 1, 2019 to February 29, 2020). The plan uses non-GAAP operating margin as a financial performance metric, adjusting GAAP operating margin for the impact of expenses related to share-based payment arrangements and amortization of intangible assets. Management uses this metrics as a component of internal reporting to evaluate performance of the Red Hat business and therefore believes it demonstrates how efficiently management runs the business and controls costs. As mentioned above, amortization expense related to intangible assets result primarily from business combinations which cannot be changed or influenced by management after the acquisitions. Share-based compensation expense is a non-cash expense, which may vary significantly from period to period as a result of changes which management believes is not directly or immediately related to the particular period’s operational performance. Management also believes that non-GAAP measures of profitability that exclude these expense are used by a number of financial analysts in the software industry to compare current performance to prior periods and to forecast future performance.
Return on Invested Capital (ROIC)
The tableCompany presents a computation of ROIC excluding current period U.S. tax reform charges and goodwill associated with the Red Hat acquisition. Due to the unique, non-recurring nature of the enactment of the U.S. tax reform, the Company characterizes the one-time provisional charge recorded in the fourth quarter of 2017 and adjustments to that charge as non-operating. In addition, due to the significant nature of the Red Hat acquisition and to help investors better understand the underlying performance of the ongoing business, the Company presents a computation of ROIC excluding goodwill associated with the Red Hat acquisition. The goodwill that was generated is primarily attributable to the assembled workforce of Red Hat and the increased synergies expected to be achieved over time from the integration of Red Hat products into the Company’s various integrated solutions.
| 86 | 2021 Notice of Annual Meeting & Proxy Statement | Appendix A – Non-GAAP Financial Information and Reconciliations |
GAAP Reconciliation
The tables below provides a reconciliationprovide reconciliations of the Company’s income statement results as reported under GAAP to its operating earnings presentation, which is a non-GAAP measure.
($ in millions except per share amount) |
| GAAP |
| Acquisition- |
| Retirement- |
| Tax |
| Operating |
| |||||||||||||||||||||||||||||
($ in millions except per share amount) For the year ended December 31, 2020 | GAAP | | Acquisition- Related | | | Retirement- Related | | | Tax Reform Impacts |
| | Spin-off- Related | | | Operating (Non-GAAP) |
| ||||||||||||||||||||||||
Gross Profit |
| $ | 36,227 |
| $ | 449 |
| $ | 799 |
| — |
| $ | 37,475 |
|
| $35,575 |
|
| $732 |
|
| $— |
|
| $— |
|
| $1 |
|
| $36,308 |
| |||||||
Gross Profit Margin |
| 45.8 | % | 0.6 | Pts | 1.0 | Pts | — |
| 47.4 | % |
| 48.3 | % |
| 1.0 | Pts |
| — | Pts |
| — | Pts |
| 0.0 | Pts |
| 49.3 | % | |||||||||||
S,G&A |
| 20,107 |
| (509 | ) | (472 | ) | — |
| 19,126 |
|
| $23,082 |
|
| $(1,137) |
|
| — |
|
| — |
|
| (28) |
|
| $21,917 |
| |||||||||||
R,D&E |
| 5,787 |
| — |
| (197 | ) | — |
| 5,590 |
|
| 6,333 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 6,333 |
| |||||||||||
Other (Income) & Expense |
| (216 | ) | (39 | ) | — |
| — |
| (255 | ) |
| 861 |
|
| (2) |
|
| (1,123) |
|
| — |
|
| — |
|
| (265) |
| |||||||||||
Interest Expense |
| 1,288 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,288 |
| ||||||||||||||||||||||
Total Expense & Other (Income) |
| 24,827 |
| (548 | ) | (669 | ) | — |
| 23,609 |
|
| 30,937 |
|
| (1,139) |
|
| (1,123) |
|
| — |
|
| (28) |
|
| 28,648 |
| |||||||||||
Pre-tax Income from Continuing Operations |
| 11,400 |
| 997 |
| 1,468 |
| — |
| 13,866 |
|
| 4,637 |
|
| 1,871 |
|
| 1,123 |
|
| — |
|
| 28 |
|
| 7,660 |
| |||||||||||
Pre-tax Income Margin from Continuing Operations |
| 14.4 | % | 1.3 | Pts | 1.9 | Pts | — |
| 17.5 | % |
| 6.3 | % |
| 2.5 | Pts |
| 1.5 | Pts |
| — | Pts |
| 0.0 | Pts |
| 10.4 | % | |||||||||||
Provision for Income Taxes* |
| 5,642 |
| 279 |
| 485 |
| (5,475 | ) | 931 |
|
| $(864) |
|
| $418 |
|
| $215 |
|
| $110 |
|
| 7 |
|
| $(114) |
| |||||||||||
Effective Tax Rate |
| 49.5 | % | -1.5 | Pts | -1.7 | Pts | -39.5 | Pts | 6.7 | % |
| (18.6) | % |
| 10.0 | Pts |
| 5.5 | Pts |
| 1.4 | Pts |
| 0.2 | Pts |
| (1.5) | % | |||||||||||
Income from Continuing Operations |
| 5,758 |
| 718 |
| 983 |
| 5,475 |
| 12,935 |
|
| $5,501 |
|
| $1,454 |
|
| $908 |
|
| $(110) |
|
| 21 |
|
| $7,774 |
| |||||||||||
Income Margin from Continuing Operations |
| 7.3 | % | 0.9 | Pts | 1.2 | Pts | 6.9 | Pts | 16.3 | % |
| 7.5 | % |
| 2.0 | Pts |
| 1.2 | Pts |
| (0.1) | Pts |
| 0.0 | Pts |
| 10.6 | % | |||||||||||
Diluted Earnings Per Share: Continuing Operations |
| $ | 6.14 |
| $ | 0.77 |
| $ | 1.05 |
| $ | 5.84 |
| $ | 13.80 |
|
| $6.13 |
|
| $1.63 |
|
| $1.01 |
|
| $(0.12) |
|
| 0.02 |
|
| $8.67 |
| ||||||
(1) Operating (non-GAAP) earnings excludes a one-time charge of $5.5 billion associated with the enactment of U.S. tax reform due to its unique non-recurring nature.
| * | The tax impact on operating (non-GAAP) pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income which employs an annual effective tax rate method to the results. |
($ in millions except per share amount) |
| GAAP |
| Acquisition- |
| Retirement- |
| Operating |
| ||||
Gross Profit |
| $ | 38,294 |
| $ | 494 |
| $ | 316 |
| $ | 39,104 |
|
Gross Profit Margin |
| 47.9 | % | 0.6 | Pts | 0.4 | Pts | 48.9 | % | ||||
S,G&A |
| 21,069 |
| (501 | ) | (253 | ) | 20,315 |
| ||||
R,D&E |
| 5,751 |
| — |
| (29 | ) | 5,722 |
| ||||
Other (Income) & Expense |
| 145 |
| (7 | ) | — |
| 138 |
| ||||
Total Expense & Other (Income) |
| 25,964 |
| (508 | ) | (282 | ) | 25,174 |
| ||||
Pre-tax Income from Continuing Operations |
| 12,330 |
| 1,003 |
| 598 |
| 13,931 |
| ||||
Pre-tax Income Margin from Continuing Operations |
| 15.4 | % | 1.3 | Pts | 0.7 | Pts | 17.4 | % | ||||
Provision for Income Taxes* |
| 449 |
| 268 |
| 183 |
| 900 |
| ||||
Effective Tax Rate |
| 3.6 | % | 1.7 | Pts | 1.2 | Pts | 6.5 | % | ||||
Income from Continuing Operations |
| 11,881 |
| 735 |
| 415 |
| 13,031 |
| ||||
Income Margin from Continuing Operations |
| 14.9 | % | 0.9 | Pts | 0.5 | Pts | 16.3 | % | ||||
Diluted Earnings Per Share: Continuing Operations |
| $ | 12.39 |
| $ | 0.77 |
| $ | 0.43 |
| $ | 13.59 |
|
| ** | Managed infrastructure services spin-off charges primarily relate to transaction and third-party support costs, business separation and applicable employee retention fees, pension settlements and related tax charges. |
($ in millions except per share amount) For the year ended December 31, 2019 | GAAP | | Acquisition- Related | | | Retirement- Related | | | Tax Reform Impacts |
| | Spin-off- Related | | | Operating (Non-GAAP) |
| ||||||||
Gross Profit |
| $36,488 |
|
| $547 |
|
| $— |
|
| $— |
|
| $— |
|
| $37,035 |
| ||||||
Gross Profit Margin |
| 47.3 | % |
| 0.7 | Pts |
| — | Pts |
| — | Pts |
| — | Pts |
| 48.0 | % | ||||||
S,G&A |
| $20,604 |
|
| $(1,044) |
|
| $— |
|
| $— |
|
| $— |
|
| $19,560 |
| ||||||
R,D&E |
| 5,989 |
|
| (53) |
|
| — |
|
| — |
|
| — |
|
| 5,936 |
| ||||||
Other (Income) & Expense |
| (968) |
|
| 152 |
|
| (615) |
|
| — |
|
| — |
|
| (1,431) |
| ||||||
Interest Expense |
| 1,344 |
|
| (228) |
|
| — |
|
| — |
|
| — |
|
| 1,116 |
| ||||||
Total Expense & Other (Income) |
| 26,322 |
|
| (1,173) |
|
| (615) |
|
| — |
|
| — |
|
| 24,533 |
| ||||||
Pre-tax Income from Continuing Operations |
| 10,166 |
|
| 1,721 |
|
| 615 |
|
| — |
|
| — |
|
| 12,503 |
| ||||||
Pre-tax Income Margin from Continuing Operations |
| 13.2 | % |
| 2.2 | Pts |
| 0.8 | Pts |
| — | Pts |
| — | Pts |
| 16.2 | % | ||||||
Provision for Income Taxes* |
| 731 |
|
| 378 |
|
| 103 |
|
| (146) |
|
| — |
|
| 1,067 |
| ||||||
Effective Tax Rate |
| 7.2 | % |
| 2.0 | Pts |
| 0.5 | Pts |
| (1.2) | Pts |
| — | Pts |
| 8.5 | % | ||||||
Income from Continuing Operations |
| 9,435 |
|
| 1,343 |
|
| 512 |
|
| 146 |
|
| — |
|
| 11,436 |
| ||||||
Income Margin from Continuing Operations |
| 12.2 | % |
| 1.7 | Pts |
| 0.7 | Pts |
| 0.2 | Pts |
| — | Pts |
| 14.8 | % | ||||||
Diluted Earnings Per Share: Continuing Operations |
| $10.57 |
|
| $1.50 |
|
| $0.58 |
|
| $0.16 |
|
| $— |
|
| $12.81 |
|
($ in millions except per share amount) |
| GAAP |
| Acquisition- |
| Retirement- |
| Operating |
| ||||
Gross Profit |
| $ | 40,684 |
| $ | 373 |
| $ | 469 |
| $ | 41,526 |
|
Gross Profit Margin |
| 49.8 | % | 0.5 | Pts | 0.6 | Pts | 50.8 | % | ||||
S,G&A |
| 20,430 |
| (324 | ) | (533 | ) | 19,573 |
| ||||
R,D&E |
| 5,247 |
| — |
| (48 | ) | 5,200 |
| ||||
Other (Income) & Expense |
| (724 | ) | (5 | ) | — |
| (729 | ) | ||||
Total Expense & Other (Income) |
| 24,740 |
| (330 | ) | (581 | ) | 23,830 |
| ||||
Pre-tax Income from Continuing Operations |
| 15,945 |
| 703 |
| 1,050 |
| 17,697 |
| ||||
Pre-tax Income Margin from Continuing Operations |
| 19.5 | % | 0.9 | Pts | 1.3 | Pts | 21.6 | % | ||||
Provision for Income Taxes* |
| 2,581 |
| 141 |
| 316 |
| 3,037 |
| ||||
Effective Tax Rate |
| 16.2 | % | 0.2 | Pts | 0.9 | Pts | 17.2 | % | ||||
Income from Continuing Operations |
| 13,364 |
| 562 |
| 734 |
| 14,659 |
| ||||
Income Margin from Continuing Operations |
| 16.3 | % | 0.7 | Pts | 0.9 | Pts | 17.9 | % | ||||
Diluted Earnings Per Share: Continuing Operations |
| $ | 13.60 |
| $ | 0.57 |
| $ | 0.75 |
| $ | 14.92 |
|
| * | The tax impact on operating (non-GAAP) pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income which employs an annual effective tax rate method to the results. |
* The tax impact on operating (non-GAAP) pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income.
| ** | Managed infrastructure services spin-off charges primarily relate to transaction and third-party support costs, business separation and applicable employee retention fees, pension settlements and related tax charges. |
| 2021 Notice of Annual Meeting & Proxy Statement | Appendix A – Non-GAAP Financial Information and Reconciliations | 87 |
($ in millions except per share amount) For the year ended December 31, 2018 | GAAP | | Acquisition- Related | | | Retirement- Related | | | Tax Reform Impacts |
| | Spin-off- Related | | | Operating (Non-GAAP) |
| ||||||||
Gross Profit |
| $36,936 |
|
| $372 |
|
| $— |
|
| $— |
|
| $— |
|
| $37,307 |
| ||||||
Gross Profit Margin |
| 46.4 | % |
| 0.5 | Pts |
| — | Pts |
| — | Pts |
| — | Pts |
| 46.9 | % | ||||||
S,G&A |
| $19,366 |
|
| $(451) |
|
| $— |
|
| $— |
|
| $— |
|
| $18,915 |
| ||||||
R,D&E |
| 5,379 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 5,379 |
| ||||||
Other (Income) & Expense |
| 1,152 |
|
| (2) |
|
| (1,572) |
|
| — |
|
| — |
|
| (422) |
| ||||||
Interest Expense |
| 723 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 723 |
| ||||||
Total Expense & Other (Income) |
| 25,594 |
|
| (453) |
|
| (1,572) |
|
| — |
|
| — |
|
| 23,569 |
| ||||||
Pre-tax Income from Continuing Operations |
| 11,342 |
|
| 824 |
|
| 1,572 |
|
| — |
|
| — |
|
| 13,739 |
| ||||||
Pre-tax Income Margin from Continuing Operations |
| 14.3 | % |
| 1.0 | Pts |
| 2.0 | Pts |
| — | Pts |
| — | Pts |
| 17.3 | % | ||||||
Provision for Income Taxes* |
| $2,619 |
|
| $176 |
|
| $324 |
|
| $(2,037) |
|
| — |
|
| $1,082 |
| ||||||
Effective Tax Rate |
| 23.1 | % |
| (0.1) | Pts |
| (0.3) | Pts |
| (14.8) | Pts |
| — | Pts |
| 7.9 | % | ||||||
Income from Continuing Operations |
| $8,723 |
|
| $649 |
|
| $1,248 |
|
| $2,037 |
|
| — |
|
| $12,657 |
| ||||||
Income Margin from Continuing Operations |
| 11.0 | % |
| 0.8 | Pts |
| 1.6 | Pts |
| 2.6 | Pts |
| — | Pts |
| 15.9 | % | ||||||
Diluted Earnings Per Share: Continuing Operations |
| $9.51 |
|
| $0.71 |
|
| $1.36 |
|
| $2.23 |
|
| $— |
|
| $13.81 |
|
| * | The tax impact on operating (non-GAAP) pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income which employs an annual effective tax rate method to the results. |
| ** | Managed infrastructure services spin-off charges primarily relate to transaction and third-party support costs, business separation and applicable employee retention fees, pension settlements and related tax charges. |
The table below provides a reconciliation of IBM’s net cash from operating activities as reported under GAAP to its free cash flow, which is a non-GAAP measure.
($ in billions) |
| 2017 |
| 2016 |
| 2015 |
| |||
Net Cash from Operating Activities per GAAP |
| $ | 16.7 |
| $ | 17.1 | * | $ | 17.3 | * |
Less: the Change in Global Financing Receivables |
| 0.4 |
| 1.7 |
| 0.2 |
| |||
Net Cash from Operating Activities, Excluding Global Financing Receivables |
| 16.3 |
| 15.4 | * | 17.1 | * | |||
Capital Expenditures, Net |
| (3.3 | ) | (3.7 | ) | (3.8 | ) | |||
Free Cash Flow |
| 13.0 |
| 11.7 | * | 13.3 | * | |||
Acquisitions |
| (0.5 | ) | (5.7 | ) | (3.3 | ) | |||
Divestitures |
| (0.2 | ) | (0.5 | ) | (0.4 | ) | |||
Share Repurchase |
| (4.3 | ) | (3.5 | ) | (4.6 | ) | |||
Common Stock Repurchases for Tax Withholdings |
| (0.2 | ) | (0.1 | )* | (0.2 | )* | |||
Dividends |
| (5.5 | ) | (5.3 | ) | (4.9 | ) | |||
Non-Global Financing Debt |
| 1.1 |
| 1.3 |
| (0.1 | ) | |||
Other (includes Global Financing Receivables and Global Financing Debt) |
| 0.7 |
| 2.3 |
| 0.0 |
| |||
Change in Cash, Cash Equivalents and Short-Term Marketable Securities |
| $ | 4.1 |
| $ | 0.3 |
| $ | (0.3 | ) |
FCF as Percent of Income from Continuing Operations |
| 226 | %** | 98 | %* | 100 | %* | |||
($ in billions) For the year ended December 31: | 2020 | 2019 | 2018 | |||||||||
Net cash from operating activities per GAAP | $ | 18.2 |
| $ | 14.8 |
| $ | 15.2 |
| |||
Less: the change in Global Financing receivables |
| 4.3 |
|
| 0.5 |
|
| (0.3 | ) | |||
Net cash from operating activities, excluding Global Financing receivables |
| 13.8 |
|
| 14.3 |
|
| 15.6 |
| |||
Capital expenditures, net |
| (3.0 | ) |
| (2.4 | ) |
| (3.7 | ) | |||
Free Cash Flow |
| 10.8 |
|
| 11.9 |
|
| 11.9 |
| |||
Acquisitions |
| (0.3 | ) |
| (32.6 | ) |
| (0.1 | ) | |||
Divestitures |
| 0.5 |
|
| 1.1 |
|
| — |
| |||
Share Repurchase |
| — |
|
| (1.4 | ) |
| (4.4 | ) | |||
Common stock repurchases for tax withholdings |
| (0.3 | ) |
| (0.3 | ) |
| (0.2 | ) | |||
Dividends |
| (5.8 | ) |
| (5.7 | ) |
| (5.7 | ) | |||
Non-Global Financing Debt |
| 0.2 |
|
| 22.8 |
|
| (0.5 | ) | |||
Other (includes Global Financing receivables and Global Financing debt) |
| 0.2 |
|
| 1.0 |
|
| (1.6 | ) | |||
Change in cash, cash equivalents and short-term marketable securities | $ | 5.3 |
| $ | (3.2 | ) | $ | (0.6 | ) | |||
FCF as percent of Income from Continuing Operations |
| 196 | %* |
| 126 | % |
| 136 | %** | |||
| * | 143% in 2020 excluding $2.0 billion pre-tax charge in the fourth quarter for structural actions. |
| ** | 111% in 2018 excluding charges of $2.0 billion associated with the enactment of U.S. tax reform. |
The table below provides reconciliation of revenue growth rates as reported under GAAP to revenue adjusting for constant currency (@CC), which is a non-GAAP measure.
| 2020 | ||||||||||
| GAAP | @CC | |||||||||
Reconciliation of Revenue Growth Rates: | ||||||||||
IBM Z |
| 2% |
|
| 1% |
| ||||
| 88 | 2021 Notice of Annual Meeting & Proxy Statement | Appendix A – Non-GAAP Financial Information and Reconciliations |
* Reclassified to reflect adoptionThe tables below provide reconciliations of the FASB guidance on stock-based compensation of $0.1 billion and $0.2 billionRed Hat revenue as reported under GAAP to normalized revenue for the years ended December 31, 2016 and 2015, respectively.
** 116% excluding the one-time charge of $5.5 billion associated with the enactment of U.S. tax reform in 2017.
Corporate Responsibility & Sustainability at IBM
·Under the guidance and supervision of the Board, IBM pursues the highest standards of corporate responsibility and sustainability, from how we support, protect and empower our employees, to how we work with our clients, to how we govern the Company and connect to our communities.
·Our corporate responsibility efforts reflect our expansive footprint and span environmental leadership, social responsibility, innovation andhistorical comparability, which is a culture of ethics and integrity that promotes transparency.
·For the past 27 consecutive years, IBM has voluntarily published a Corporate Environmental Report providing detailed information on our environmental programs and performance. IBM’s uninterrupted annual publication of this report since 1990 is unsurpassed across our industry.non-GAAP measure.
|
| |||
| Twelve Months Ended December 31, 2020 | ||||
Red Hat Revenue, Normalized for Historical Comparability | Change Year To Year | |||
Red Hat revenue GAAP growth rate(1) | 288% | |||
| (239)Pts | |||
Impact from purchase accounting deferred revenue and intercompany adjustments(3) | (31)Pts | |||
|
|
|
| |
|
| 0 Pts | ||
| 18% | |||
| (1) | Represents GAAP revenue as reported by IBM, which is included in the
|
|
| (2) | Red Hat revenue was included in IBM’s consolidated results beginning on July 9, 2019. Revenue for January 1, 2019- July 8, 2019 represents pre-acquisition Red Hat standalone revenue and is included for comparative and computing year over year change purposes. |
IBM’s corporate responsibility report,
| (3) | Represents the change in the fourth-quarter and full-year 2020 impact of the deferred revenue purchase accounting adjustment and adjustments to add back revenue which was eliminated for sales between Red Hat and IBM. This line represents revenue that would have been recognized by Red Hat under GAAP if the acquisition had not occurred, but was not recognized by IBM due to purchase accounting and intercompany adjustments. |
The table below provides reconciliation of the year-to-year change in the Company’s revenue as reported under GAAP to revenue adjusted for divested businesses and currency, which is available at https://www.ibm.com/ibm/responsibility/, gives a comprehensive look at all of these initiatives, as well as information on other Company-wide sustainability programs and practices. Our Corporate Environmental Report, published in June 2017, is available at https://www.ibm.com/ibm/environment/annual/reporting.shtml.non-GAAP measure.
Year Ended Change Year to Year | ||||||||
Revenue Adjusted for Divested Businesses and Currency | Total IBM | Cloud | ||||||
Revenue as reported |
| (4.6)% |
|
| 18.6% |
| ||
Excluding other divested businesses |
| 1.1Pts |
|
| 1.4Pts |
| ||
Currency impact |
| (0.1)Pts |
|
| (0.4)Pts |
| ||
Revenue adjusting for divested businesses and currency (non-GAAP) |
| (3.5)% |
|
| 19.6% |
| ||
83The table below provides reconciliation of Return on Invested Capital (ROIC) GAAP to a non-GAAP measure.
Reconciliation of ROIC - 2020 | GAAP* | Non-GAAP* | ||||||
Return on Invested Capital (ROIC) |
| 11.7% |
|
| 14.5% |
| ||
Let’s put
| * | ROIC based on GAAP equals net income from continuing operations plus after-tax interest expense (numerator) divided by the average sum of total debt and total stockholders’ equity (denominator). ROIC based on non-GAAP is computed excluding current period U.S. Tax reform charges and goodwill associated with the Red Hat acquisition. |
| 2021 Notice of Annual Meeting & Proxy Statement | Appendix A – Non-GAAP Financial Information and Reconciliations | 89 |
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to work.
MMMMMMMMMMMM . Admission Ticket MMMMMMMMMMMMMMM C123456789 000004 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext ENDORSEMENT_LINE______________ SACKPACK_____________ Electronic Voting Instructions InsteadINTERNATIONAL BUSINESS MACHINES CORPORATION 1 NEW ORCHARD ROAD, MD 325 ARMONK, NY 10504 VOTE BY INTERNET Before The Meeting- Go to www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of mailinginformation. Vote by 11:59 p.m. Eastern Time on April 26, 2021, for shares held directly and by 11:59 p.m. Eastern Time on April 25, 2021, for shares held in the 401(k) Plus Plan. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic Voting Instruction Form. During The Meeting - Go to www.virtualshareholdermeeting.com/IBM2021 You may choose one ofattend the twomeeting via the Internet. 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