(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 regardingset-offs or similar rights. This column includes 73,464 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 15,1892021. | | | | | | | | | | | | | | | | Acquirable within 60 days | | | Value of Common Stock shares at Fiscal Year End | | | Common | | | Stock-based | | | Stock Options And | | | Directors’ DCEAP | | | Name | | | Stock | (1) | | Holdings | (2) | | RSUs | (3) | | Shares | (4) | | ($) | (5) | | Michelle H. Browdy | | | | | 86,068 | | | | | | 119,804 | | | | | | 0 | | | | | | N/A | | | | | | 11,503,849 | | | | Thomas Buberl | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 4,470 | | | | | | 597,460 | | | | Gary Cohn | | | | | 14,350 | | | | | | 85,311 | | | | | | 5,112 | | | | | | N/A | | | | | | 1,918,021 | | | | Michael L. Eskew | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 48,260 | | | | | | 6,450,432 | | | | David N. Farr | | | | | 7,508 (6) | | | | | | 7,508 | | | | | | 0 | | | | | | 14,799 | | | | | | 2,981,554 | | | | Alex Gorsky | | | | | 4,445 | | | | | | 4,445 | | | | | | 0 | | | | | | 20,210 | | | | | | 3,295,387 | | | | Michelle J. Howard | | | | | 144 | | | | | | 144 | | | | | | 0 | | | | | | 7,037 | | | | | | 959,812 | | | | James J. Kavanaugh | | | | | 94,018(7) | | | | | | 151,573 | | | | | | 0 | | | | | | N/A | | | | | | 12,566,446 | | | | Arvind Krishna | | | | | 118,691(8) | | | | | | 278,100 | | | | | | 0 | | | | | | N/A | | | | | | 15,864,239 | | | | Andrew N. Liveris | | | | | 2,655 | | | | | | 2,655 | | | | | | 0 | | | | | | 29,256 | | | | | | 4,265,224 | | | | F. William McNabb III | | | | | 9,250 | | | | | | 9,250 | | | | | | 0 | | | | | | 6,018 | | | | | | 2,040,721 | | | | Martha E. Pollack | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 8,049 | | | | | | 1,075,829 | | | | Thomas W. Rosamilia | | | | | 17,831 | | | | | | 82,549 | | | | | | 0 | | | | | | N/A | | | | | | 2,383,291 | | | | Joseph R. Swedish | | | | | 5,261(9) | | | | | | 5,261 | | | | | | 0 | | | | | | 7,965 | | | | | | 1,767,787 | | | | Peter R. Voser | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 18,960 | | | | | | 2,534,194 | | | | Frederick H. Waddell | | | | | 3,763 | | | | | | 3,763 | | | | | | 0 | | | | | | 11,923 | | | | | | 2,096,591 | | | | Alfred W. Zollar | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 446 | | | | | | 59,612 | | | | Directors and executive officers as a group | | | | | 385,663(10) | | | | | | 826,554 | | | | | | 5,112(10) | | | | | | 177,393(10) | | | | | | | | |
(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 110,372 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 14,884 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, 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 2021 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, 2021, and (ii) RSU awards that vest within 60 days after December 31, 2021. For Mr. Cohn, shares in this column are from an IBM restricted stock award which will vest within 60 days after December 31, 2021. (4)
Promised Fee Shares earned and accrued under the IBM Deferred Compensation and Equity Award Plan (DCEAP) as of December 31, 2021, 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 2021 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 2021 fiscal year ($133.66). (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 89,486 shares in which voting and investment power are shared. (9)
Voting and investment power are shared. (10)
The total of these three columns represents less than 1% of IBM’s outstanding shares, and no individual’s beneficial holdings totaled more than 1/100 of 1% of IBM’s outstanding shares. 262022 Notice of Annual Meeting & Proxy Statement | Ownership of Securities
Environmental and Social Responsibility | | Corporate social responsibility has been a hallmark of IBM’s culture for over 100 years. With oversight from the Board, we lead with purpose and integrity to empower IBMers to be a force of positive change and to use technology to accelerate discovery. The trust of our stakeholders is IBM’s license to operate. | |
In 2022, based on stockholder feedback on how to make our ESG information even more accessible, we will synthesize our environmental, corporate responsibility and diversity reporting into one unified ESG Report. In the meantime, we encourage stockholders to read our latest Corporate Responsibility Report which provides insight into all of our ESG initiatives, including a mapping of key ESG metrics to SASB, and is available at https://www.ibm.org/responsibility/reports. Based on feedback from investor outreach, below we also provide some examples reflecting how we are: •
Putting trust and transparency into practice as a leader advancing responsible AI •
Protecting the environment •
Embracing and enabling a diverse and inclusive workforce •
Advocating for responsible public policy positions Putting our Principles of Trust and Transparency into Practice For more than 100 years, IBM has continuously strived for responsible innovation that puts people first and ensures the benefits are felt broadly across society. This philosophy applies to our approach to artificial intelligence (AI): we aim to create and offer trusted 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 on that clearly articulating principles around the responsible 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 and our Trust and Transparency Principles, as well as our continued leadership with the Vatican’s Rome Call for AI Ethics, the Notre Dame-IBM Tech Ethics Lab, and published points of view on facial recognition and mitigating bias in AI. We share technology solutions with the open-source community, including several toolkits, created by IBM Research, designed to promote trustworthy AI. While continuing to collaborate with governments, companies, and other organizations, we have expanded the work of our internal governance frameworks and processes to further embed privacy, tech ethics, and security into our operations. Our AI Ethics Board, which is comprised of a cross-disciplinary team of senior IBM leaders, co-chaired by IBM’s Chief Privacy Officer and IBM’s AI Ethics Global Leader, and reports to the highest level of the company, works with experts throughout our business to address our most complicated questions. We regularly share our AI Ethics Board governance process with clients and others outside of IBM so that we can collectively work to advance the responsible use of technology. | IBM Trust and Transparency Principles | |
| 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. | |
2022 Notice of Annual Meeting & Proxy Statement | Environmental and Social Responsibility 27
Protecting the Environment | Environmental Highlights | |
| | | | Net Zero Greenhouse Gas Emissions by 2030 | | | | | | 16,900 Metric Tons of Product Waste Reused, Resold or Sent for Recycling | | | | | | Reduced CO2 Emissions 56.6% Against Base Year 2005, Adjusted for Divestitures and Acquisitions | | | | | | Procured 59.3% of Electricity from Renewable Sources | |
Setting and achieving ambitious goals has long been an essential part of IBM’s global environmental management system: from the 1970s and 1980s, when we first established formal goals around energy conservation and waste management, to our first CO2 reduction goals set in 2000. And, in 2021, we conducted an extensive review of all our goals and announced 21 goals for environmental sustainability, including a new goal to achieve net zero greenhouse gas emissions by 2030, as well as new and updated goals covering energy and climate change, conservation and biodiversity, pollution prevention and waste management, supply chain and value chain, and our global environmental management system. Please see our latest environmental report for additional information on our environmental goals and IBM’s environmental performance, which is available at https://www.ibm.org/responsibility/reports-and-policies. | Enabling Our Clients and Communities | |
At IBM, we believe that science, technology and innovation are essential to tackling environmental issues and helping clients and communities address environmental challenges. IBM continues to develop solutions that enable clients to assess and minimize their environmental footprint. | Enabling our Clients | | | | Enabling our Communities | | | Last year, we launched the IBM Environmental Intelligence Suite to help clients leverage data and AI for climate risk assessment and adaptation. Using IBM’s Environmental Intelligence Suite, clients can plan for and respond to critical weather events to ensure business continuity. We are continuing to develop our portfolio of AI-enabled solutions to help our clients analyze, manage and report on environmental goals. | | | | We are also uniting our experts and technology with the purpose of supporting communities. We believe that together, we have the potential to make a lasting, scalable impact on communities that need the most help. That is why we launched the Call for Code Global Challenge, which invited the world’s software developers to combat climate change with open source-powered technology. The top prize this year went to Saaf Water, an accessible water quality sensor and analytics platform for people living in rural localities. Leveraging IBM’s Service Corps, we will work with Saaf Water to incubate, test and deploy their solution in communities relying on groundwater for domestic use. | |
282022 Notice of Annual Meeting & Proxy Statement | Environmental and Social Responsibility
Embracing and Enabling a Diverse and Inclusive Workforce At IBM we are passionate about creating a culture where employees of all backgrounds can thrive. IBM’s purpose is underpinned by a corporate culture that harnesses data transparency and AI to achieve growth and increase inclusion and diversity for our clients, our company and ourselves. In addition to embracing and enabling our workforce, we have committed to providing 30 million people with new skills by 2030. We are expanding access to digital skills and employment opportunities so that more people — regardless of their background — can participate in the digital economy. The IBM Board of Directors strongly believes that much of the future success of IBM depends on the caliber of its talent and the full engagement and inclusion of IBMers in the workplace. Our commitment to equity and inclusion, talent and culture, education and diversity has been recognized by JUST Capital. IBM ranked first in our industry in JUST Capital’s 2022 America’s Most JUST companies. For more information on IBM’s Diversity and Inclusion efforts, please see our diversity and inclusion report at https://www.ibm.org/responsibility/reports-and-policies. | | | | Diversity and Inclusion | |
| | •
9 out of 10 IBMers feel empowered to be their authentic selves at work and feel that IBM is an inclusive workplace •
IBM’s industry-leading diversity hiring practices have resulted in a 20% increase in underrepresented minority hiring over the past 3 years and a 31% increase in executive minority hiring •
We currently have 8 D&I Communities with over 300 Business Resource Groups globally, spanning 47 countries with over 32,000 IBMers actively participating in programs, events, and other D&I initiatives •
Same-sex partner benefits have been extended in 50 countries and 6,000 IBMers are certified LGBT+ Allies •
IBM has had an equal pay policy since 1935; we have conducted statistical pay equity analysis for decades, and in 2021 this included all countries where we have employees | |
| | | | Community Impact Through Skilling | |
| | •
IBM has pledged to skill 30 million people by 2030, preparing them for in-demand jobs •
Learners participating in our skilling programs earn digital badges and certifications widely recognized by the labor market •
We are collaborating with over 23 historically black colleges and universities (HBCUs) on IBM quantum centers to advance STEM-based opportunities for traditionally underrepresented communities •
900,000 college students at 10,000 universities are enrolled in specialized academic courses through our global university programs •
IBM experts are matched with learners in programs like STEM for Girls and IBM SkillsBuild providing practical career advice and strategies for professional development and advancement; IBM employees volunteered over 870,000 hours in 2021 | |
| | •
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 •
In 2021, IBMers logged an average of over 70 learning hours per person, reflecting IBM’s commitment to provide access to every IBMer to the resources to build strategic skills, grow their careers, and face the future with confidence •
Training and support is provided to help every IBMer be an upstander through inclusive behaviors •
Hundreds of thousands of IBMers globally participate in our annual engagement survey, and our industry-leading talent practices enable more than 8 out of 10 IBMers to be highly engaged •
Every IBM manager and leader has access to their team and organization engagement levels along with actionable data-driven insights | |
2022 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, 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. | |
| | 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. All IBM lobbying activities, including by third parties on behalf of IBM, require the prior approval of the IBM Retirement Plans Committee,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. | |
| | 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 committee presently consisting of certain executive officersrelating to IBM’s policies and practices regarding governmental relations, public policy, and any associated expenditures. | | | | IBM’s senior management, under the leadership of IBM have voting power,Government and Regulatory Affairs, closely monitors and coordinates all public policy advocacy efforts, as well as the right to acquire investment power by withdrawing authority now delegated to various investment managers.any lobbying activities. | |
(2) | For executive officers, this column
| IBM is comprisedproud to report that the Center for Political Accountability’s 2021 Report on Corporate Political Disclosure and Accountability gave IBM a score of the shares shown98.6 out of 100, naming IBM a trendsetter in the “Common Stock” columnPolitical Disclosure and Accountability and recognizing IBM 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,one of only 32 companies that prohibit trade associations and non-profits from using 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 2019 Nonqualified Deferred Compensation Narrative. |
(3)for election-related purposes | 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, 2019, and (ii) RSU awards that will vest within 60 days after December 31, 2019. 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, 2019.
|
(4) | Promised Fee Shares earned and accrued under the IBM Deferred Compensation and Equity Award Plan (DCEAP) as of December 31, 2019, 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 2019 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 2019 fiscal year ($134.04).
|
(6) | Dr. Pollack joined the Board on February 1, 2019; Admiral Howard joined the Board on March 1, 2019; Mr. McNabb joined the Board on October 29, 2019; Mr. Buberl will join the Board on April 28, 2020; and Dr. Krishna was elected Chief Executive Officer and a member of the Board, effective April 6, 2020.
|
(7) | Includes 15,174 shares in which voting and investment power are shared.
|
(8) | Includes 26,547 shares in which voting and investment power are shared.
|
(9) | Includes 28,281 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. |
302022 Notice of Annual Meeting & Proxy Statement | Environmental and Social Responsibility | | | 30
| | 2020 Notice of Annual Meeting & Proxy Statement | Ownership of Securities
|
20192021 Executive CompensationReport 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 programs and 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. At the 2021 annual meeting, 51% of our shares voted did not support our Say on Pay proposal, which was substantially below the support received in prior years. Following the 2021 vote, we increased our investor outreach efforts to ensure we fully understood our investors’ feedback and concerns. We offered engagement to investors representing 55% of the shares that voted at the 2021 annual meeting, and ultimately met with investors representing more than 35% of voted shares — including 6 of our 10 largest investors. We greatly appreciate the feedback that our investors provided. Through these discussions, we learned that investors generally remained supportive of our pay programs, and appreciated the changes in our incentive plan metrics to reinforce IBM’s growth strategy following the plan to separate Kyndryl that was announced at the end of 2020. However, many investors did express concern over the one-time equity award provided to James Whitehurst in March 2020, in connection with Mr. Whitehurst signing an IBM non-compete agreement. These discussions confirmed for us that this unique grant was the basis for the failed vote. In these meetings, we openly discussed the one-time award for Mr. Whitehurst, and heard specific concerns about whether the award was necessary to secure a non-compete agreeement. We sought to clarify that we considered the circumstances to be extraordinary in this situation, as this is the first time a senior leader from a large acquisition has become an IBM Officer prior to signing an IBM non-compete agreement. Since Mr. Whitehurst’s prevailing non-compete agreement as the CEO of Red Hat when it was acquired in July 2019 was more limited to the scope of the Red Hat business, we considered the IBM non-compete agreement important to protect IBM’s intellectual property and stockholders’ interests. That said, we fully understand the concerns around the one-time award that were expressed and appreciated the feedback. We explained to our investors that we do not anticipate a need to provide one-time awards to our named executive officers going forward. For example, no named executive officers received a one-time retention award in 2021. We also reconfirmed that our ongoing compensation programs, including our annual incentive program and long-term incentives, are designed to be effective to motivate, retain, and align IBM’s named executive officers with stockholders. The full summary of what we heard from investors, and the actions the Compensation Committee took as a result, can be found in the Compensation Discussion and Analysis summary following this report. We continue to evaluate the effectiveness of our executive compensation programs and practices, and a critical component of that evaluation process is feedback from engaging with our stockholders. We appreciate all of the feedback and support, and 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.
Frederick H. Waddell (chair)Alex Gorsky(chair)Andrew N. Liveris Joseph R. SwedishMartha E. Pollack
| | | 2020 Notice of Annual Meeting & Proxy Statement | Executive Compensation
| | 31
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2022 Notice of Annual Meeting & Proxy Statement | 2021 Executive Compensation 31
2021 Compensation Discussion and Analysis Executive Summary
IBM’s financial model is designed to deliver profitable
| In 2021, IBM delivered $57.4B in revenue, and generated $12.8B cash from operations.(1) | |
Improved Revenue growth through the creation of compelling value for our clients. This year the Company continued to strengthen its competitive position by transforming the portfolio with the Red Hat acquisition and divestiture ofprofile non-strategicContinuing Operations revenue, year-to-year growth figures at constant currency businesses, investing in new high-value products and services, building talent and skills, and leading with impact by maintaining an unwavering commitment to trust and transparency. The business model and financial model have enabled the Company to deliver strong earnings, cash flow and shareholder return over the long term.(2) | Accelerating IBM Growth | | | Optimized Portfolio, Including Kyndryl Separation | | In 2019, IBM delivered
| Revenue growth accelerated in 2021, exiting the 4$77.1Bth in revenue, with a47.3% gross profit margin,quarter at 8.6% including approximately 3.5 points from incremental external sales to Kyndryl | | | Completed the separation of Kyndryl on November 3, 2021, and generated$14.8B cash from operations.focused on Hybrid Cloud & AI strategy | |
TRANSFORMED PORTFOLIO FOR THE CLOUD & COGNITIVE ERA
| | | | 2021 Revenue Mix | | | | | | | | | | Increased revenue mix to higher growth software and consulting Software revenue +4% Year-to-Year Annual Recurring Revenue* over $13B, +8% year-to-year exiting 4Q2021 Consulting revenue +8% Year-to-Year IBMBusiness Transformation +13% Year-to-Year Technology Consulting +10% Year-to-Year
| |
*Annual Recurring Revenue for Hybrid Platform & Solutions(2) | Hybrid Cloud Revenue | | | Continued Growth in High ValueRed Hat Success | | Over $21B Total
| Hybrid Cloud revenue, more than doubling since 2015,Revenue grew 19% in 2021, and now making makes up over 27%35% of IBM revenue.revenue | | Growth in GBS and Cloud & Cognitive (C&C) Software revenue is fueling IBM’s return to sustainable revenue growth.
| | Over 3,800 clients using hybrid cloud platform, up 1,000 Year-to-Year |
| | | Red Hat Revenue | | Year-to-Year Gross Margin | IBM + Red Hat creates the market’s leading Hybrid Cloud platform for Chapter 2.
| | Expanded gross margins, capturing shift to higher value, scale-up of cloud, and improved services productivity. |
| | |
STRONG CASH GENERATION AND STRATEGIC CAPITAL ALLOCATIONStrategic Capital Allocation | Completed 15 acquisitions in 2021 for $3B | | | | Return $6B to stockholders through dividends in 2021 | | | | Generated $11.9B
Free Cash Flow(1), with 126% cash realization | | | | Return on
Invested Capital (ROIC)
~17%(1, 2)
| | | | Returned $7B to
stockholders;
reducedReduced debt by $10B in 2021 and $21B since acquiring Red Hat
| |
(1) | Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance metrics.
|
(2) | ROIC equals net operating profits after tax (GAAP net income from continuing operations plusafter-tax interest expense) divided by the sum of the average debt and average total stockholders’ equity. It is computed excluding current period U.S. Tax reform charges and goodwill associated with the Red Hat acquisition.
|
(1)
| | | 32
| | 2020 Notice of Annual Meeting & Proxy Statement | 2019 Compensation Discussion and Analysis
|
Our compensation strategy, with significant pay at risk, supportsCash from operations is presented on a consolidated basis, which includes activity from discontinued operations related to the driversseparation of IBM’s high value business model.
For 2019, at target,Kyndryl.
69%(2) of Mrs. Rometty’s pay was at risk and subject to attainment of rigorous
Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance goals. | | | For 2019 performance, the Board approved an annual incentive payment of $5.0 million for Mrs. Rometty, 100% of target. The payout reflects a 110% Individual Contribution Factor (ICF) and the Annual Incentive Program (AIP) pool funding at 91%.
| |
| | In making this award at 100% target, the Committee considered the CEO’s performance against her objectives, which included delivering a second year of revenue growth at constant currency excluding
|
divestitures*, achieving top tier customer satisfaction (net promoter score) levels, and transforming IBM’s portfolio for sustainable performance in 2020 and beyond through the historic Red Hat acquisition and divesting non-strategic businesses. As well, the Committee took into account Mrs. Rometty’s exceptional personal leadership in several areas. These include her industry-leading role shaping a socially responsible approach to AI; record results in IBM’s diverse leadership representation; industry-leading innovation and research in quantum computing and AI; impact on preparing society for the future of work with new approaches to education and apprenticeships; and finally, her work with the Board to develop a world-class succession process, culminating in naming Arvind Krishna as IBM CEO and James Whitehurst as President, effective April 6, 2020.
Payouts in both the annual and long-term programs reflect rigorous performance goals.
Program payouts during the multi-year business transformation have affected CEO realized pay over time.
| Feedback from Our Investors Continues to Inform the Committee
| • IBM once again engaged with over 100 institutions and reached out to hundreds of thousands of individual registered and beneficial owners, representing more than 50% of the shares that voted on Say on Pay in 2019.
| • Our stockholder discussions and formal 2019 Say on Pay vote reaffirmed investor support of our pay practices.
|
* | Non-GAAP financial metric. See Appendix A for information on how we calculate this performance metric.
|
metrics. 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 contains certain non-GAAP financial measures, on a continuing operations basis, including operating earnings per share, free cash flow including discontinued operations activity related to the separation of Kyndryl, operating cash flow including discontinued operations activity related to the separation of Kyndryl, operating net income, from continuing operations, revenue for Red Hat normalized for historical comparability, revenue growth rates adjusted for currency, and revenue adjusted for divested businesses and currency, and ROIC.currency. Amounts are presented on a continuing operations basis unless otherwise noted. For reconciliation and rationale for management’s use of this non-GAAP information, refer to Appendix A — “Non-GAAP “Non-GAAP Financial Information and Reconciliations.”
322022 Notice of Annual Meeting & Proxy Statement | 2021 Compensation Discussion and Analysis
Our compensation strategy, with significant pay at risk, supports the drivers of IBM’s high value business model. For 2021, at target, 65% of Mr. Krishna’s pay remained at risk and subject to attainment of rigorous performance goals. | For 2021 performance, the Board approved an annual incentive payment of $2,940,000 for Mr. Krishna, which was 98% of target. The payout reflects a 100% Individual Contribution Factor (ICF) and the Annual Incentive Program (AIP) pool funding at 98%. | | | | |
In making this award in line with the Company’s incentive score, the Committee also considered Mr. Krishna’s overall performance against his objectives, which included optimizing the Company’s portfolio to focus on hybrid cloud and AI growth by successfully separating Kyndryl on November 3, 2021, two months prior to year end. In addition, the Committee considered his personal leadership in quantum computing, improving diversity representation including meaningful improvements in diverse executive representation, and continuing to improve employee engagement in a year where the company underwent significant change. Payouts in both the annual and long-term programs reflect rigorous performance goals. 2022 Notice of Annual Meeting & Proxy Statement | 2021 Compensation Discussion and Analysis 33
Stockholder Engagement Provided Important Feedback for the Committee IBM continually reviews and enhances 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 2021, 51% of shares voted did not support the annual advisory vote on Executive Compensation (Say on Pay). Following the vote and in order to understand fully our investors’ feedback and concerns about our pay programs and practices, IBM launched an expanded investor outreach program, offering engagement to 55% of the shares that voted at the 2021 annual meeting, and meeting with investors representing more than 35% of voted shares, including 6 of our 10 largest investors. IBM’s independent Lead Director, together with our Chairman and CEO and other senior management, met directly with investors representing over 26% of the shares voted. This in-depth engagement process provided valuable feedback to the Compensation Committee. Overall, our stockholders reconfirmed support for our pay programs and practices, including changes to AIP and PSU metrics introduced in 2021. However, many investors also expressed concern with the one-time equity award granted to James Whitehurst in March 2020, in connection with Mr. Whitehurst signing an IBM non-compete agreement (NCA) that fully covered the scope of IBM’s business footprint and was consistent with those signed by other IBM senior leaders. The following table summarizes the major items raised by our investors, and the Committee’s response to this feedback. | | What We Heard | | | | Compensation Committee’s Response | | | | | Support for our pay programs, including the updates to our plan metrics that reinforced our growth strategy | | | | •
Continued our Annual Incentive Program (AIP) and Performance Share Unit (PSU) metrics that were established in 2021. •
Updated Compensation Peer Group to increase the weighting of peers in the technology industry, reflect IBM’s increased orientation as a hybrid cloud and AI company, and align the Peer Group with the size and scope of IBM following the separation of Kyndryl. •
Introduced Stock Options in 2022 as part of the overall equity pay mix for executives; ensures a portion of equity does not generate value unless IBM’s stock price increases over the price when granted. | | | | | Positive reaction to the AIP diversity modifier, as well as management’s support for the 2021 stockholder proposal calling for annual reporting on Diversity & Inclusion | | | | •
IBM is committed to a diverse and inclusive workplace, and reports annually on the effectiveness of our diversity and inclusion programs. •
IBM Board of Directors will continue to engage openly on all stockholder proposals and may support proposals in the future that align with IBM’s strategy and values. •
Disclosure of the 2021 diversity modifier results are included in the “2021 Annual Incentive Program” section, with additional details of our diverse executive representation to be disclosed in IBM’s annual ESG Report. | | | | | Concern over the one-time grant for James Whitehurst awarded in March 2020 Noticein connection with Mr. Whitehurst signing an IBM NCA | | | | •
The circumstances of Annual Meeting & Proxy Statement | 2019Mr. Whitehurst’s one-time award were unique and resulted in him entering into an IBM NCA to protect the company’s intellectual property and its stockholders’ interests. The Compensation DiscussionCommittee’s philosophy is that ongoing compensation programs, including AIP and Analysislong-term incentives, are designed to be effective to motivate, retain, and align named executive officers with stockholders. As such, one-time awards for named executive officers are not a common practice. The Committee regards the input of stockholders as important and agrees grants of this nature would only occur in extraordinary circumstances. No one-time awards were provided to any named executive officers in 2021. In connection with Mr. Whitehurst stepping down as President in 2021, the planned 2021 annual long term incentive award was not granted. •
Mr. Whitehurst has agreed to stay with IBM as a Senior Advisor until May 2022. Unvested equity awards were not accelerated, and any outstanding equity awards (including the final tranche of this one-time award) will forfeit following his separation; under the IBM NCA Mr. Whitehurst cannot provide services to a competitor, or solicit clients, for one year following his separation. | | 33 |
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Section 1: Executive Compensation Program Design and Results Trust and personal responsibility inall relationships — 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: | | | | | •
Align the interests of IBM’s leaders 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. | | |
The specific elements of IBM’s U.S. executive compensation programs are: | | | | | Type | | | Component | | | Key Characteristics | |
| Current Year Performance | | Salary | | Salary | | | Salary is a market-competitive, fixed level of compensation. | | | | Annual Incentive Program (AIP) | | | At target, annual incentive provides a market-competitive total cash opportunity. Actual annual incentive payments are funded by business performance against financial metrics and distributed based on annual performance scores, with top performers typically earning the greatest payouts and the lowest performers earning no incentive payouts. | | | Long-Term Incentive | Long-Term Incentive | | | | Performance Share Units (PSUs) | | | Equity awards are typically granted annually and may consist of PSUs and RSUs.RSUs, and beginning in 2022, Stock Options. Equity grants are based on competitive positioning and vary based on individual talent factors. Lower performers do not receive equity grants. For PSUs, the number of units granted can be increased or decreased at the end of the three-year performance period based on IBM’s performance against predetermined targets for operating earnings per share and free cash flow.targets. In addition, a relative performance metric applies to all PSU awards beginning with the 2018 to 2020 performance period.awards. The final number of PSUs earned can be increased or decreased based on IBM’s Return on Invested Capital (ROIC) performance relative to S&P indices. | | | | Restricted Stock Units (RSUs) | | | RSUs vest over time; typically ratably over four years. | | | Retention | Stock Options (Options) | | | Will become part of the annual equity mix in 2022. Stock Options will vest over time; typically ratably over four years. The exercise price will be at least the value of the IBM stock price on the date of grant, and will be exercisable for up to 10 years from the date of grant. | | | | 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 Retention Restricted Stock Units (RRSUs), retention PSUs premium-priced stock options(RPSUs), or cash for certain executives. RRSUsRRSU and RPSU vesting periods typically may range from two to five years. In addition to time-based vesting, RPSUs include a relative ROIC performance metric (consistent with standard PSUs) for some or all of a given award. Cash awards have a clawback if an executive leaves IBM before it is earned. | | | | Other Compensation | | | | 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. | | | Post Employment | 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 anon-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. | | | | Non-qualified Savings Plan | | | Pension Plans (closed) | | | Named Executive Officers (NEOs) may have legacy participation in closed retention and retirement plans, for which future accruals ceased as of December 31, 2007. | | | | Supplemental Executive Retention Plan (closed) | | | A full description of the Retention, Pension, andNon-Qualified Deferred Compensation plans is provided in this Proxy Statement, beginning with the 20192021 Retention Plan Narrative. | | Non-qualified Savings Plan
| | Pension Plans (closed)
| | Supplemental Executive Retention Plan (closed)
| | | | | |
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Our Incentive Compensation Design Supports our Business Strategy Our senior executive pay is heavily weighted to IBM’s performance through the annual and long-term incentive programs. Each year, the Committee ensures that these programs are closely aligned to the Company’s financial and strategic objectives and are appropriately balanced. Targets are set at challenging levels and are consistent with IBM’s financial model shared with investors for 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. 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 measures five keyannounced the planned separation 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 *
Non-GAAP financial metrics,metric. Net Cash from Operating Activities, excluding Global Financing receivables. **
Non-GAAP Financial Metric. ROIC equals consolidated net operating profits after tax (consolidated GAAP net income plus after-tax interest expense) divided by the sum of the average debt and in 2018, added a relative Return on Invested Capital (ROIC) modifieraverage total stockholders’ equity over the period. Due to the significant nature of the Red Hat acquisition, the Company utilizes a computation of ROIC excluding goodwill associated with the 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. The calculation also excludes current period U.S. tax reform charges due to its unique, non-recurring nature. Note: For PSU program, based on performance relativeperiods that began prior to peers:2021, the metrics included Operating EPS at 70%, Free Cash Flow at 30%, and the ROIC Modifier. | | | | | | | | | Total IBM Revenue
| |
| | Measures total IBM revenue performance across the IBM portfolio of businessNEW
| AIP
| | Operating Net Income
| |
| | Measures our profit and operational success
| | | Operating Cash Flow*
| |
| | Important measure of our ability to reinvest and return value to stockholders
| | | Operating EPS
| |
| | Measures operating profitability on a per share basis
| PSU
Program
| | Free Cash Flow
| |
| | Important measure of our ability to reinvest and return value to stockholders over multiple years
| | | 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
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*Net | Cash from Operating Activities, excluding Global Financing receivables.
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IBM shares its financial model each year with investors in the context of its long-term strategy. To provide transparency into the rigor of our goal setting process, IBM discloses the performance attainment against targets for the most recent performance period, for both the Annual Incentive Program and the Performance Share Unit Program. 2019 AIP Design Update36In 2015, IBM began focusing on Strategic Imperatives revenue to ensure strong growth in cloud, analytics, mobile, social,2022 Notice of Annual Meeting & Proxy Statement | 2021 Compensation Discussion and security, which formed the critical elements of our transformational business strategy. Now that Strategic Imperatives revenue has reached about $40 billion and 50% of Total IBM revenue, the Committee, with input from management, investors, and its consultant, reassessed the performance measures for the AIP. As a result, the Committee approved a change in the 2019 AIP design to replace Strategic Imperatives revenue with total IBM revenue, at the same 20% weighting. Analysis | | | 2020 Notice of Annual Meeting & Proxy Statement | 2019 Compensation Discussion and Analysis
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2021 Annual Incentive Program 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 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 tax rates, compared to plan. 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. For example, adjustments are usually made for large acquisitions and divestitures. In connectionFor 2021, following the separation of Kyndryl on November 3, 2021 into its own publicly traded company with approximately $19 billion in revenue, the closing of the Red Hat acquisition on July 9, 2019, financial targets were updatedadjusted to incorporate the Red Hat acquisition. The resulting targets are higher than external guidance shared with stockholders at IBM’s Investor Briefingimpact on August 2, 2019.planned Revenue and Operating Cash Flow plan due to separating Kyndryl two months ahead of schedule. Beginning in 2021, a new diversity modifier was added to AIP to affirm management’s commitment to improving diverse representation of our workforce. This modifier can result in a 5 point reduction, no impact, or 5 point increase to the AIP scoring. In addition,2021, the modifier was based on the improvement in representation for executive women globally, and Black and Hispanic executives in the United States. Finally, the Chairman and CEO can recommend an adjustment, up or down, based on factors beyond IBM’s financial performance; for example, client experience, market share growth and workforce development. diversity and inclusion of IBM’s workforce. For 2021, no qualitative adjustment was made. The Compensation Committee reviews the financial scoring, diversity modifier, and proposed qualitative adjustments, and approves the final AIP funding level. 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 AIP, which covers approximately 5,0004,000 IBM executives, includes this individual cap at three times the individual target to ensure differentiated pay for performance. For the Chairman and CEO, the cap is two times target.
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 generally paid on or before March 15 of the year following the end of such period. This incentive design ensures payouts are aligned to IBM’s overall business performance and diversity goals while also ensuring individual executive accountability for specific business objectives. 20192021 AIP Payout ResultsBased on full year financial performance against total IBM revenue operating net income, and operating cash flow, the weighted incentive score was 91.
(1) | Based on AIP payout table.
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(2) | Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance metrics.
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93. In addition, executive representation of women globally, and Black and Hispanic executives in the United States improved by 1.0 point, 1.5 points and 0.4 points, respectively in 2021. This improvement in executive representation for these groups resulted in the diversity modifier increasing the weighted incentive score by 5 points, to 98. (1)
Based on AIP payout table. (2)
IBM Revenue and Operating Cash Flow are presented on a consolidated basis, which includes activity from discontinued operations related to the separation of Kyndryl. Operating Cash Flow is a non-GAAP financial metric. See Appendix A for information on how we calculate these performance metrics. 2022 Notice of Annual Meeting & Proxy Statement | 2021 Compensation Discussion and Analysis 37
Performance Share Unit Program The Performance Share Unit (PSU) metrics for the 2017–20192019-2021 performance period were Operating EPS and Free Cash Flow, unchanged from previous years.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 2017–2019 performance period exceeded those cumulative three-year targets for the previous performance period (2016–2018). 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 PSU 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 PSU Program takesmay also take into account extraordinary events. For the 2017–2019 performance period, results are adjusted to exclude the impact of the Red Hat acquisition. | | | 36
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At the end of each three-year performance period, the Compensation Committee approves the determination of actual performance relative topre-established targets, and the number of PSUs are adjusted up or down from 0% to 150% of targets, based on the approved actual performance. There is no qualitative adjustment to In addition, the PSU program score.The PSU score is calculated asProgram has a weighted average of results against targets for Operating EPS (70%) and Free Cash Flow (30%). The calculation for the 2017–2019 performance period is shown in the table below.
| | | | | | | | | 2017–2019 Performance Period | | Operating EPS* | | | Free Cash Flow* | | | | | 3 Year Cumulative Target | | | $44.45 | | | | $35.7B | | | | | 3 Year Cumulative Performance | | | $41.18 | | | | $36.9B | | | | | % Attainment | | | 93% | | | | 103% | | | | | Incentive Score | | | 83 | | | | 108 | | | | | Weighting | | | 70% | | | | 30% | | | | Final Score | | | 90 | |
* | Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance metrics.
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| 2017 Operating EPS as originally reported, prior to restatement for adoption for 2018 FASB guidance on pension.
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| Targets and scoring exclude the impact of the Red Hat acquisition.
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Starting with the 2018–2020 PSU Program and continued in subsequent programs,a Relative Return on Invested Capital (ROIC) modifier has been added to the program design. . 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 Relative ROIC Modifier | | | | The PSU score is calculated as a weighted average of results against targets for Operating EPS (70%) and Free Cash Flow (30%). The calculation for the 2019-2021 performance period is shown in the table below. For the 2019-2021 performance period, the ROIC modifier was 0%. While IBM ROIC was at the 65th percentile of the S&P 500 Index (excluding financial services), it did not exceed the median of S&P Information Technology Index. | |
(1)
Based on PSU payout table. (2)
Non-GAAP financial metric. ROIC equals consolidated net operating profits after tax (consolidated GAAP net income plus after-tax interest expense) divided by the eventsum of the weighted final score of Operating EPSaverage debt and Free Cash Flow is 0,average total stockholders’ equity over the ROIC modifier would not apply.RELATIVE ROIC MODIFIER
Red Hat Acquisition andperiod. Due to the Open PSU Performance Periods
In connection with the July 9, 2019 closingsignificant nature of the Red Hat acquisition, the 2019–2021 PSU program targets incorporateCompany utilizes a computation of ROIC excluding goodwill associated with the acquisition. The goodwill that was generated is primarily attributable to the assembled workforce of Red Hat performance.and the increased synergies expected to be achieved over time from the integration of Red Hat products into the Company’s various integrated solutions. The target updates resulted in an increasecalculation also excludes current period U.S. tax reform charges due to theits unique, non-recurring nature.
(3)
Non-GAAP financial metrics. Free Cash Flow target andamounts are on a reductionconsolidated basis, which includes activity from discontinued operations related to the separation of Kyndryl. Operating EPS target, almost entirely driven by acumulative performance is calculated based on 2019 and 2020 historical as reported amounts, with immaterial share adjustments, and 2021 Operating EPS, adjusted for discontinued operations less separationrelated charges. See Appendix A for GAAP to Non-GAAP reconciliation. non-cashImpact of Significant One-Time Events on the Open PSU Performance Periods purchase accounting
As previously disclosed in connection with the separation of Kyndryl, 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 prior to the announced plan to separate Kyndryl. In February 2021, the Committee approved an adjustment to deferred revenue required by US GAAP. The updated targets are higher than external guidance shared with stockholders at IBM’s Investor Briefing on August 2, 2019, and are higher than the targets for the previous performance period (2018–2020). For the other two2019-2021 and 2020-2022 PSU programs, set prior to incorporate the acquisition (2017–2019planned impact of the 2021 separation of Kyndryl, including one-time transaction-related cash charges associated with the separation, and 2018–2020), targetsactions taken to enable the separation of Kyndryl and scoring will excludeIBM’s growth. Following the separation of Kyndryl on November 3, 2021 into its own publicly traded company with approximately $19 billion in revenue, a final target adjustment was made for all three open PSU programs. The final adjustment was made to incorporate the impact of Red Hat, as those plans were well underway atseparating Kyndryl, including the timeearly separation of Kyndryl two months ahead of schedule. As a result of the acquisition.adjustments made for the Kyndryl separation and actions taken to enable IBM’s growth strategy, EPS and Free Cash Flow targets for the 2019-2021 PSU program are lower than those for the 2018-2020 PSU program. 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 October 4, 2021.
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Section 2: Compensation Program GovernanceStockholder Engagement
IBM continually reviews and enhances 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 theoff-season, to solicit their feedback on a variety of topics.
In 2019, 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 2019. IBM’s Chairman and CEO, 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 2019 Annual Meeting. Thisin-depth engagement process provides valuable feedback to the Compensation Committee on an ongoing basis.
Overall, our stockholders continue to support the Company’s compensation program 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 2019:
We modified our Annual Incentive Program (AIP) to remove Strategic Imperatives revenue as a financial metric and replace it with total IBM Revenue.
2019 AIP and 2019 – 2021 Performance Share Unit (PSU) program targets were updated to include the Red Hat acquisition.
In an effort to provide increased transparency, IBM provided a supplemental disclosure to the 2019 Proxy Statement regarding the design of IBM’s executive compensation programs. The level of detail in the supplemental disclosure is now incorporated in this Proxy Statement.
Compensation Practices 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 strong governance practices. | | | What We Do | | What We Don’t Do |
| | | | Tie a significant portion of pay to Company performance
| | | | | | Mitigate risk taking by emphasizing long-term equity incentives, placing caps on potential payments, and maintaining robust clawback provisions
| | | | | | Require significant share ownership by the Chairman and CEO, the Executive Vice PresidentChairman and Senior Vice Presidents
| | | | | | Utilize noncompetition and nonsolicitation agreements for senior executives
| | | | | | Remove impact of share repurchase on executive incentives | | | |
| | | |
| What We Don’t Do | | | | | | No individual severance orchange-in-control agreements for executive officers
| | | | | | No excise taxgross-ups for executive officers
| | | | | | No dividend equivalents on unearned RSUs/PSUs
| | | | | | No hedging/pledging of IBM stock
| | | | | | No stock option repricing, exchanges or stock options granted below market value
| | | | | | No guaranteed incentive payouts for executive officers
| | | | | | No accelerated vesting of equity awards for executive officers
| | | | | | No above-market returns on deferred compensation plans |
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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, the Executive Vice President (EVP)Chairman, and Senior Vice Presidents (SVPs). EachWithin 5 years of hire or promotion, each is required to own a minimum number of IBM shares or equivalents that is equal to a multiple of salary at the time of hire, promotion, or election as an Executive Officer. The minimum multiple of salary required is in excess of standard market practice within 5 yearspractice. Following the separation of hireKyndryl, IBM refreshed the minimum number of IBM shares or promotion.equivalents that are required to be owned based on each senior leader’s base salary at the time of the Kyndryl separation, and the post-separation IBM stock price. Stock Ownership Requirements | | | | | | | | | Ownership Requirements as a Multiple of Salary | | NEO Name | | IBM Minimum Requirement | | Median Peer Group Minimum Requirement | | | | | V.M. Rometty | | 10 | | | 6 | | | | | J.J. Kavanaugh | | 7 | | | 3–4 | | | | | M.J. Schroeter | | 7 | | | 3–4 | | | | | J.E. Kelly III | | 7 | | | 3–4 | | | | | M.H. Browdy | | 7 | | | 3–4 | |
Mrs. Rometty
| | | | Ownership Requirements as a Multiple of Salary | | | NEO Name | | | IBM Minimum Requirement | | | Median Peer Group Minimum Requirement | | | A. Krishna | | | 10 | | | 7 | | | J.J. Kavanaugh | | | 7 | | | 4 | | | G. Cohn | | | 7 | | | 4 | | | T. Rosamilia | | | 7 | | | 4 | | | M.H. Browdy | | | 7 | | | 4 | |
2022 Notice of Annual Meeting & Proxy Statement | 2021 Compensation Discussion and Analysis 39
In over a year as Chairman and CEO, Mr. Krishna owns common stock and stock-based holdings with a value over 30above his ownership requirement (about 12 times herhis base salary, which is more than 3 times the required holdings,salary) as of December 31, 2019.2021. More information on Mrs. Rometty’sMr. Krishna’s holdings can be found in the Common Stock and Stock-Based Holdings of Directors and Executive Officers Table. As a group, the Chairman and CEO, the EVPVice Chairman and SVPs, inclusive of the NEOs, owned shares or equivalents valued at over $160$91 million as of December 31, 2019; in fact,2021; as of that date, this group held, on average, more than 10about 6 times their base salary.salary, and are all on track to reach their ownership goal within 5 years of hire or promotion. The following table illustrates which equity holdings count towards stock ownership requirements: | | | | | | | | | | | | | |
| | | | | IBM shares owned personally or by members of the officer’s immediate family sharing the same household
| | | | | | Unvested equity awards, including PSUs, RPSUs, RSUs, and RRSUs | | | | | | | | Holdings in the IBM Stock Fund of the 401(k) Plus Plan and the Excess 401(k) Plus Plan
| | | | | | Unexercised stock options | | | | | | | | Shares of IBM stock deferred under the Excess 401(k) Plus Plan | | Unvested equity awards, including PSUs, RSUs, and RRSUs
Unexercised stock options | | | |
Stock Ownership Continues Beyond Retirement Finally, our programs are designed to ensure alignment with IBM’s long-term interests past the retirement date for our Chairman and CEO, the EVPVice Chairman and SVPs. 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. SharesFor example, shares for Mrs. RomettyMr. Krishna that remainremained restricted and subject to post-retirement performance of IBM represent 1.4 times hermore than 110% of his share ownership requirement as of December 31, 2019, and2021; assuming future performance at target. Compensation Committee Consultant The Committee enters into a consulting agreement with its outside compensation consultant on an annual basis. In 2019,2021, 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 ChairmanChair 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 determined that there is no conflict of interest with regard to Semler Brossy.
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How Compensation Decisions Areare 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 Chairman and CEO, the EVPVice Chairman 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 Chairman and CEO’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. 402022 Notice of Annual Meeting & Proxy Statement | 2021 Compensation Discussion and Analysis
2. Determining Annual Incentive Payouts Evaluation of Chairman and CEO Results 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 determining annual incentive plan payouts 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 the year and the overall Company incentive score. The Committee considers all of this information in developing its recommendations, which are then presented to the independent members of the IBM Board of Directors for further review, discussion, and final approval. Evaluation of EVPVice Chairman and SVP Results by the Chairman and CEO and the Compensation Committee Executives work with their managers throughout the year to update their own results against their stated goals. The self-assessments of the EVPVice Chairman and SVPs are reviewed by the Senior Vice President of Human Resources (SVP HR) and the Chairman and CEO, who evaluate the information. Following thisin-depth review and taking into account the Company incentive score, the Chairman and CEO makes compensation recommendations to the Compensation Committee based on an evaluation of the EVPVice Chairman and each SVP’s performance for the year, and the Committee decides whether to approve or adjust the Chairman and CEO’s recommendations for the EVPVice Chairman 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 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 flow of executive talent in and out of IBM from other 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 Committeere-examined the benchmark group for 20192021 and determined that companies which meet the following criteria should be included in the 20192021 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.IBM, and whose business strategy results in substantial competition for senior leadership talent. For 20192021 compensation decisions, the Committee approved the following benchmark group using the criteria above. 2021 BENCHMARK GROUP: | Accenture | | | Boeing | | | Johnson & Johnson | | | Raytheon | | 40 | Alphabet | 2020 Notice of Annual Meeting & Proxy Statement | 2019 Compensation Discussion and Analysis
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2019 BENCHMARK GROUP:
| | Cisco Systems | | | Microsoft | | | Salesforce | | Accenture | Amazon.com | Caterpillar | | General Electric Dow | | | Oracle | | | UPS | | | Apple | | | General Electric | | | PepsiCo | | | Verizon | | Alphabet | AT&T | Chevron | | Hewlett Packard Enterprise | | PepsiCo | Pfizer | | | | | | Bank of America | | | Amazon.com | Intel | Cisco Systems | | HP Inc. Qualcomm | | Pfizer
| | | | | Apple
| | DowDuPont
| | Intel
| | United Technologies
| | | | | AT&T
| | ExxonMobil
| | Johnson & Johnson
| | UPS
| | | | | Boeing
| | Ford
| | Microsoft
| | Verizon |
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For 20202022 compensation decisions, the Committee revised the benchmark group criteria as follows, to increase the weighting of peers in the technology industry and to better align with the overall size and scope of IBM following the separation of Kyndryl. •
Companies in the technology industry with revenue that exceeds $10 billion (down from $15 billion), plus •
Additional companies in other industries, with revenue that exceeds $30 billion (down from $40 billion), and that have a global complexity similar to IBM, and whose business strategy results in substantial competition for senior leadership talent. For 2022 compensation decisions, the Committee approved the samefollowing benchmark group withusing the exclusioncriteria above, which is a better balance between prominent technology competitors and large-scale companies of DowDuPont givensimilar size of IBM after Kyndryl separated, and more accurately represents IBM’s competition for senior leadership talent. As a result of the dissolution of DowDuPont in 2019. Dow remains inchanges, the 2020median revenue for the 2022 benchmark group decreased by approximately $15 billion compared to the 2021 benchmark group. 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. 2022 BENCHMARK GROUP: | Accenture | | | Boeing | | | Microsoft | | | UPS | | | Adobe | | | Cisco Systems | | | Oracle | | | Verizon | | | Alphabet | | | General Electric | | | PepsiCo | | | Visa | | | Amazon.com | | | Honeywell | | | Qualcomm | | | VMware | | | AT&T | | | Hewlett Packard Enterprise | | | Raytheon | | | | | | Bank of America | | | Intel | | | Salesforce | | | | |
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 relevantbroader benchmark group. Evaluation of Chairman and CEO 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 the Chairman and CEO. The independent members of the IBM Board of Directors review and provide final approval. Evaluation of EVP/Vice Chairman and SVP Target Pay by the Chairman and CEO and the Compensation Committee The Chairman and CEO makes compensation recommendations on the EVP’sVice Chairman and SVPs’ target compensation to the Compensation Committee. 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 thatof separation of employment or retirement will have.retirement. The Committee decides whether to approve or adjust the Chairman and CEO’s recommendations for the EVPVice Chairman 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.
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Section 3: Compensation Decisions for the Chairman and CEO and Named Executive Officers | | | 2019
2021 Annual Incentive Decision for the Chairman and CEO | | | | | For 20192021 performance, the Board approved an annual incentive payment of $5.0 million,$2,940,000, which represented 100%98% of Mrs. Rometty’sMr. Krishna’s target opportunity.opportunity and was in line with the Company incentive score. | | | | | In addition to overall IBM 20192021 revenue performance of $77.1$57.4 billion and $12.8 billion cash from operationspre-tax, income of $10.2 billion,(1) the Compensation Committee noted the following achievements for Mrs. Rometty,Mr. Krishna, which have positioned IBM for sustained growth going forward: | | | | | • Second consecutive
IBM Hybrid Cloud revenue grew to over $20B, now 35% of IBM and growing 19% at constant currency.(2) •
Consulting grew high single digits for the year, of revenueand Software exited 4th quarter with 10% growth at constant currency, excluding divestitures*.(2) including 5 points from incremental external sales to Kyndryl. • Gross profit expanded 0.9 pointsyear-to-year, reflecting the continued focus on higher-value offerings.
Over 3,800 clients using our Hybrid Cloud platform, up >1,000 Year-to-Year. • Cloud revenue now totals over $21 billion, solidifying IBM’s position as one of the top three cloud providers.• Record Red Hat revenue
Reduced Debt by $10B in 2nd half of 2019, when normalized for historical comparability*.Portfolio and Investment
• Successful close of2021, down $21B since the Red Hat acquisitionAcquisition.
Portfolio and Investment •
Realigned operating model to a platform-centric approach with four new reportable segments: Consulting, Software, Infrastructure and Financing. •
Completed the separation of Kyndryl on July 9, 2019, with strong synergies establishedNovember 3, 2021, ahead of the year-end timeline. •
Closed 15 strategic acqisitions in 2nd half2021, focused on strengthening our hybrid cloud capabilities. | | | Leadership in Innovation •
Deployed Eagle 127-Qubit system, the first quantum chip that breaks the 100-qubit barrier. Societal Impact •
Successfully deployed components of 2019.• Divested nearly $2 billion annual revenue fromnon-strategic businesses, improving future growth.
• Softwareour privacy program and services now represent ~90% of IBM’s revenue.
• Strong launch of z15 System, and modernization oforganizational best practices into IBM software portfolio withcommercial offerings, including IBM Cloud Paks.
Recognized by JUST Capital’s ESG ranking as first in industry for customer privacy. • Launched IBM Public Cloud for Financial Services. | | Leadership in the Enterprise
• Achieved #1 patent position for 27th consecutive year,
Significant progress toward our goal of reducing IBM’s greenhouse gas emissions 65% by 2025, with a record 9,200+ new patents in 2019, with about half in AI, cloud computing, and quantum computing.• Continued advanced leadership in quantum computing; achieved 53 qubit system for broad use, and announced the Quantum Computation Center with the world’s largest fleet of 15 quantum computing systems.
• Record Net Promoter Score in top 1/3rd of industry benchmark.
Societal Impact
• Led the industry by moving beyond principles in committing54% reduction to a code of conduct for the ethical use of AI. Created tools such as IBM Watson OpenScale and AI Explainability 360 to help detect bias and increase explainability of AI machine learning models and developed concrete policy recommendations for the precision regulation of facial recognition technologies and design for AI.
• Advanced the P-Tech 6-year high school concept; with 220 schools in 24 countries, this innovative education model enables low income students entry to high-paying tech jobs without a college degree, and has established a pipeline of 150,000 students with the skills and credentials for the digital economy.
date. Talent Development and Leadership • Worked with the Board to develop a world class succession process, culminating
Increased skills across all four key technical areas: AI, Cloud, Quantum, and Security. •
Improved executive diversity; representation of women executives globally improved by 1 point, Black executives in the election of Arvind Krishna as CEOUS grew by 1.5 points, and James Whitehurst as President, effective April 6, 2020.• Worked with the Board on director refreshment to ensure new viewpoints and fresh perspectivesHispanic executives in the Boardroom.
US grew by 0.4 points. • Continued strengthening of the inclusive IBM culture, with record results in diverse leadership across all groups.• Record employee
Employee engagement amid record participation.and inclusiveness index both continued to increase year-to-year. | | |
| 2020
| 2022 Compensation Decisions for the Chairman and CEO | | | | | For 2020,2022, the independent members of the Board made no changechanges to Mrs. Rometty’sMr Krishna’s base salary or target annual incentive. Sheincentive, which was just below the median total target compensation of the 2022 benchmark group that was updated following the separation of Kyndryl. He was granted an annual long-term incentive award with a planned value of $13.3 million,valued at $13.75M, which was also unchanged from 2019. The 2020 long-term incentive award is granted 100% in 2020–20222021. This grant comprised 60% of 2022-2024 Performance Share Units, which increases the portion20% of Mrs. Rometty’sRestricted Stock Units, and 20% of Stock Options. For 2022, 77% of Mr. Krishna’s annual total target compensation that is tied to performance-based incentives to 92%,at risk, which is up from 69%65% in 2019.A significant portion2021 due to the introduction of the total package remains at risk and based on Company performance, with only 8%Stock Options as a component of pay delivered as base salary that is not at risk. The short-term, performance-basedhis long-term incentive target was increased in 2015 to reflect the importance of annual execution in the portfolio shifts that would be needed to deliver future, long-term shareholder value. It has not been further increased since 2015. The Board and Compensation Committee have ensured the balance of the CEO compensation is long-term, largely performance-based, and aligned to shareholder interest. This is further supported by other compensation policies like outright stock ownership guidelines where the requirement for the CEO, at 10 times salary, is significantly above the peer group median. The CEO currently has outright stock holdings at more than 30 times her base salary. grant. | | |
* | Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance metrics.
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(1)
Cash from operations is presented on a consolidated basis, which includes activity from discontinued operations related to the separation of Kyndryl. (2)
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| Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance metrics.
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2019
2021 Annual Incentive Decisions for Mr. Kavanaugh, Mr. Schroeter, Dr. Kelly,Cohn, Mr. Rosamilia, and Ms. Browdy The Compensation Committee also made decisions for the following named executive officers (NEOs), based on overall corporate performance as described in the Business Highlights and Executive Summary and an assessment of their individual contributions, many of which are summarized below: | James J. Kavanaugh | | | Senior Vice President and Chief Financial Officer | |
Generated strong free cash flow*
Accelerated revenue growth; exited 4th quarter with 126% realization8.6% revenue growth at constant currency,* including approximately 3.5 points from incremental external sales to Kyndryl. Delivered value through focus with successful separation of GAAP Net Income. Kyndryl on November 3, 2021, and 15 acquisitions completed in 2021 for $3B. Returned $7 billion$6B to stockholders and reducedwhile reducing debt by $10 billion$10B in 2021; over $21B since acquiring Red Hat.Enabled significant
| Gary Cohn | | | Vice Chairman | |
Business development aligned to IBM’s future portfolio, actions, including completionthe strategy that led to the divestiture of healthcare data and analytics assets that are currently part of the $34 billion Red Hat acquisition,Watson Health business. Developed partnerships with clients to expand brand awareness in hybrid cloud and divestitureAI. Worked with client teams on account planning and client relationship management. Led relations with influential industry and government leaders on policy in the areas of $2 billionIT modernization and data transformation, driving and responding to policy initiatives on cybersecurity and data privacy innon-strategic the face of escalating threats. revenues, positioning IBM’s return to sustainable revenue growth.Drove significant productivity savings through agile, robotic process automation, AI and operational excellence.
| Tom Rosamilia | | Martin J. Schroeter | | Senior Vice President Global Markets of IBM Software and Chairman, North America | |
IBM revenue grew at constant currency on
Positioned mainframe as a full year basis excluding divestitures*, but did not achieve its full-year objective.Amplified IBM’s role in aiding client’s digital transformation and positioned IBM as the enterprise leader for Hybrid Cloud.
Accelerated Red Hat revenuecore component of a hybrid cloud architecture.
Lead growth in 2nd half of 2019 when normalized for historical comparability*,4th quarter software revenue, and generated significant pipeline in 2nd half of 2019 for IBM synergy offerings.Cloud Pak deployments. Aligned software strategy to support hybrid multi-cloud. | John E. Kelly III
| | Executive Vice President
|
Achieved #1 patent position for 27th consecutive year, received a record 9,200+ patents in 2019, with about half in AI, cloud computing, and quantum computing.
Established a new corporate-wide privacy team, led by a new Chief Privacy Officer, enhancing IBM’s share of voice on critical issues with clients and governments globally.
Watson Health improved profitability and is positioned for the future by scaling new AI offerings, but did not achieve its full-year objectives.
| Michelle H. Browdy | | | Senior Vice President and General Counsel | |
Responsible for globallegal and regulatory clearancesupport worldwide for all aspects of the $34 billion Red Hat acquisition, drivingspin-off of Kyndryl, enabling separation on November 3, 2021, ahead of the transactionyear-end timeline. Continue to a close eight months after the initial announcement.Key player in shapingenhance IBM’s Cybersecuritycybersecurity and Privacy structure and governanceprivacy posture globally, providing legal, security and policy support and helping drive deployment of best practices into commercial offerings.
Refresh intellectual property legal strategy to better protect IBM’s innovation agenda in key technology areas going forward. * Non-GAAP financial metric. See Appendix A for information on trust, cyber and data privacy matters.Published 29th Annual Environmental Report and continued to drive ESG leadership, including IBM’s recent call for a carbon tax, and recognition for “Best Shareholder Engagement”.
* | Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance metrics.
| how we calculate this performance metric.
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Following the process outlined above and based on business and individual performance, the Compensation Committee approved the 20192021 annual incentive payouts below for these NEOs: | Name | | | | Name
| | 20192021 Annual Incentive Payouts | (1) | | J.J. Kavanaugh | | | $1,437,700 | | J.J. Kavanaugh | G. Cohn | | $1,064,000 | 1,548,400 | | | T. Rosamilia | | | 1,064,000 | | M.J. Schroeter | | | 948,000
| | | | J.E. Kelly III
| | | 703,200
| | | | M.H. Browdy | | | 982,300 1,266,300 | |
Taking into consideration the actual salary, annual
(1)
The named executive officers each had an incentive payout, vested restricted stock units and long-term incentive award for the period 2017–2019, these NEOs earned from 77%–84%target equal to 135% of their annual total target compensation in 2019.2020salary for 2021.
2022 Compensation Decisions for Mr. Kavanaugh, Mr. Schroeter, Dr. Kelly,Cohn, Mr. Rosamilia and Ms. Browdy The Committee also approved the following compensation elements for 2020:2022: base salary, annual incentive target, Performance Share Unit (PSU) and, Restricted Stock Unit (RSU) and Stock Option grants under the Long-Term Performance Plan. For Long-Term Incentive Plan grants, the mix of vehicles is 65%60% PSUs, 20% RSUs and 35% RSUs,20% Stock Options (new in 2022), which aligns with market practice. This mix provides competitive pay, while at the same time ensuring a strong link between pay and performance, and creates the right balance relative to peers with which we compete for talent. For 2020,2022, based on the compensation decisions detailed below at target, 63%74% of the NEOs’ (excluding the Chairman and CEO) pay is at risk. | | |
| | | | 63% of the NEOs’ (excluding the Chairman and CEO) annual total target compensation is at risk
| | |
| | | | | | | | | | | | | | | | | | | | | | | 2020 Cash | | | | | | 2020 Long-Term Incentive Awards(1) | | Name | | Salary Rate | | | Annual Incentive Target | | | | | | Performance Share Units | | | Restricted Stock Units | | | | | | | | J.J. Kavanaugh(2) | | | $968,000 | | | | $1,307,000 | | | | | | | | $5,037,500 | | | | $2,712,500 | | | | | | | | M.J. Schroeter(2) | | | 968,000 | | | | 1,307,000 | | | | | | | | 6,045,000 | | | | 3,255,000 | | | | | | | | J.E. Kelly III | | | 868,000 | | | | 1,172,000 | | | | | | | | 4,095,000 | | | | 2,205,000 | | | | | | | | M.H. Browdy(2) | | | 894,000 | | | | 1,206,000 | | | | | | | | 2,860,000 | | | | 1,540,000 | |
(1) | PSUs and RSUs will be granted, if applicable, on June 8, 2020 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 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, 2022, and the award will pay out in February 2023. The restricted stock units will vest 25% per year on each anniversary of the date of grant.
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(2) | The 2020 salary rates will be effective July 1, 2020 and the 2020 annual incentive targets were effective January 1, 2020 per our standard process.
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| | | | 2022 Cash(1) | | | 2022 Long-Term Incentive Awards(2) | | | Name | | | Salary Rate | | | Annual Incentive Target | | | Performance Share Units | | | Restricted Stock Units | | | Stock Options | | | J.J. Kavanaugh | | | | $ | 1,064,000 | | | | | $ | 1,436,000 | | | | | $ | 5,400,000 | | | | | $ | 1,800,000 | | | | | $ | 1,800,000 | | | | G. Cohn | | | | | 1,170,000 | | | | | | 1,580,000 | | | | | | 4,350,000 | | | | | | 1,450,000 | | | | | | 1,450,000 | | | | T. Rosamilia | | | | | 894,000 | | | | | | 1,206,000 | | | | | | 3,900,000 | | | | | | 1,300,000 | | | | | | 1,300,000 | | | | M.H. Browdy | | | | | 936,000 | | | | | | 1,264,000 | | | | | | 3,000,000 | | | | | | 1,000,000 | | | | | | 1,000,000 | | |
(1)
Salary increases for the Named Executive Officers, if applicable, will be effective April 1, 2022. (2)
PSUs, RSUs and Stock Options will be granted on February 21, 2022 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 actual number of Stock Options granted on this date will be determined by dividing the value shown by the product of (1) the average of IBM’s closing stock price for the 30 active trading days prior to the date of grant and (2) an option valuation factor of .1429 (to reflect the discounted value of Stock Options compared to full value awards). The performance period for the PSUs ends December 31, 2024, and the award will pay out in February 2025. The Restricted Stock Units and Stock Options will vest 25% per year on each anniversary of the date of grant. 2022 Notice of Annual Meeting & Proxy Statement | 2021 Compensation Discussion and Analysis 45
Section 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 executives and employees. Based on this comprehensive review, we concluded that our compensation program does not encourage excessive risk taking for the following reasons: •
Our programs appropriately balance short- and long-term incentives, with approximately 74%72% of 20202022 annual total target compensation for the Chairman and CEO, the EVPVice Chairman, and SVPs as a group provided in equity. •
Our executive compensation program pays for performance against financial targets that are set to be challenging to motivate a high degree of business performance, with an emphasis on longer-term financial success and prudent risk management. •
Our incentive plans include a profit metric as a significant component of performance to promote disciplined progress toward financial goals. None of IBM’s incentive plans are based solely on signings or revenue targets, which mitigates the risk of employees focusing exclusively on the short term. •
Qualitative factors beyond the quantitative financial metrics are a key consideration in the determination of individual executive compensation payments. How our executives achieve their financial results, integrate across lines of business and demonstrate leadership consistent with IBM values are key to individual compensation decisions. •
As explained in the 20192022 Potential Payments Upon Termination Narrative, we further strengthened our retirement policies on equity grants for our senior leaders beginning in 2009 to ensure that the long-term interests of IBM continue to be the focus, even as these executives approach retirement. •
Our stock ownership guidelines require that the Chairman and CEO, the EVPVice Chairman, and each SVP hold a significant amount of IBM equity to further align their interests with stockholders over the long term. •
IBM has a policy that requires a clawback of cash incentive payments in the event that an executive officer’s conduct leads to a restatement of IBM’s financial results. Likewise, IBM’s equity plan has a clawback provision which states that awards may be cancelled and certain gains repaid if a senior executive engages in activity that is detrimental to IBM. To further reinforce our commitment to ethical conduct, the IBM Excess 401(k) Plus Plan allows the clawback of certain IBM contributions if a participant engages in activity that is detrimental to IBM. 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. Under IBM’s long-standing practices and policies, all equity awards are approved before or on the date of grant. The exercise price ofat-the-money stock options 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 average of IBM’s closing stock price for the 30 active trading days prior to the date of grant.grant for PSUs and RSUs. For Stock Options, the IBM stock price is further adjusted by an option valuation factor, to reflect the discounted value of Stock Options compared to full value awards. 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 the EVPVice Chairman and SVPseach SVP are approved by the Compensation Committee. All equity awards for employees other than the Chairman and CEO, the EVPVice Chairman and SVPs are approved by the Chairman and CEO, the EVPVice Chairman and SVPs 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 of the 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.
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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 executive 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 2,0001,600 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; and (iii) a lower payment would have been made to the officer based upon the restated 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; 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. The Performance Team consists of approximately 6070 of our senior leaders who run IBM business units and geographies and includes the Chairman and CEO, and the EVPVice Chairman, and each 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 contract, 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. 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. UntilA “covered employee”, under Section 162(m) as amended, is the CEO, the CFO, the three highest paid executive officers, and any other individual who was a covered employee of the Company for the preceding tax years beginning after December 31, 2016. Prior to 2018 (before the Tax Cut and Jobs ActAct), a deduction was signed into law on December 22, 2017,available for 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 thiscompensation. Transition rules allow a deduction for 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 thethis 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 Although 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 the EVP and SVPs under IBM’s Long-Term Performance Plans should qualify as performance-based. 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 2019, 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 continues to believe that a strong link between pay and performance is critical to align executive and shareholderstockholder interests. IBM and the Committee will continue to ensure that a significant portion of pay for our EVPVice Chairman and SVPs, including the Chairman and CEO, is at risk and subject to the attainment of performance goals.
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2021 Summary Compensation Table and Related Narrative Salary (Column (c))2021 SUMMARY COMPENSATION TABLE
| Name and Principal Position | | | | | | | | | | | | | | | Stock | | | Option | | | Non-Equity Incentive Plan | | | Change in Retention | | | Change in Pension | | | Nonqualified Deferred Compensation | | | All Other | | | | | | | | | (a) | | | Salary | (1) | | Bonus | (2) | | Awards | (3) | | Awards | (4) | | Compensation | (5) | | Plan Value | (6) | | Value | (7) | | Earnings | (8) | | Compensation | (9)(10) | | Total | (11) | | Year (b) | | | ($) (c) | | | ($) (d) | | | ($) (e) | | | ($) (f) | | | ($) (g) | | | ($) (h) | | | ($) (h) | | | ($) (h) | | | ($) (i) | | | ($) (j) | | | A. Krishna, Chairman and CEO(12) | | | 2021 | | | | $ | 1,500,000 | | | | | $ | 0 | | | | | $ | 12,605,507 | | | | $ 0 | | | $2,940,000 | | | N/A | | | | $ | 0 | | | | $ 0 | | | $505,452 | | | | $ | 17,550,959 | | | | 2020 | | | | | 1,352,591 | | | | | | 0 | | | | | | 13,159,118 | | | | 0 | | | 2,181,000 | | | N/A | | | | | 42,806 | | | | 0 | | | 274,167 | | | | | 17,009,682 | | | | J.J. Kavanaugh, Senior VP and CFO | | | 2021 | | | | $ | 968,000 | | | | | $ | 0 | | | | | $ | 7,563,384 | | | | $ 0 | | | $1,437,700 | | | $ 0 | | | | $ | 0 | | | | $ 0 | | | $200,534 | | | | $ | 10,169,618 | | | | 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 | | | | G. Cohn, Vice Chairman(12) | | | 2021 | | | | $ | 1,170,000 | | | | | $ | 1,000,000 | | | | | $ | 6,180,787 | | | | $ 0 | | | $1,548,400 | | | N/A | | | | | N/A | | | | $ 0 | | | $ 2,417 | | | | $ | 9,901,604 | | | | T. Rosamilia, Senior VP of IBM Software and Chairman, North America(12) | | | 2021 | | | | $ | 830,000 | | | | | $ | 0 | | | | | $ | 5,959,005 | | | | $ 0 | | | $1,064,000 | | | $ 0 | | | | $ | 0 | | | | $ 0 | | | $250,119 | | | | $ | 8,103,124 | | | | M.H. Browdy, Senior VP and General Counsel | | | 2021 | | | | $ | 894,000 | | | | | $ | 0 | | | | | $ | 4,354,627 | | | | $ 0 | | | $1,266,300 | | | N/A | | | | | N/A | | | | $ 0 | | | $135,930 | | | | $ | 6,650,857 | | | | 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 | | |
Note: For assumptions used in determining the fair value of stock and option awards, see Note A (Significant Accounting Policies — Stock-Based Compensation) to IBM’s 2021 Consolidated Financial Statements. (1)
Amounts shown in the salarythis column reflect the actual salary amount paid to each named executive officer during 2019.2021. (2)
Mr. Cohn’s offer letter included a cash sign-on payment; $1,000,000 of that was paid on December 31, 2021. Mr. Cohn will need to repay the sign-on if his employment with IBM reviews salaries for each named executive officer annually during a common review cycle. Mrs. Rometty has not received a salary increaseis terminated within one year following the payment, unless his employment is terminated due to death, disability or without cause (as such term is defined in his IBM non-competition agreement). (3)
Amounts in this column reflect the years shown. 2019 salary increases for the other named executive officers, if applicable, took effect on July 1, 2019. Bonus (Column (d))
No bonuses were awarded to the named executive officers in the years shown in the 2019 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 oftotal Performance Share Units (PSUs) and Restricted Stock Units (RSUs) granted in each fiscal year shown, computed in accordance with accounting guidance (excluding any risk.
Amounts include the aggregate grant date fair values of forfeiture as per SEC regulations). The values shown for the PSUs are calculated at the Target number as described below. The values shown for the PSUs and RSUsbelow, calculated in accordance with accounting guidance; these amounts 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 2019 Summary Compensation Table and in the 2019 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.
Performance targets are typically set at the beginning of the three-year performance period and are approved by the Compensation Committee (for example, targets for the 2017–2019 performance period were set for cumulative three-year attainment in operating earnings per share and free cash flow in the beginning of 2017).
At the end of the three-year performance period, the Compensation Committee approves the determination of actual performance relative topre-established targets, and the number of PSUs is adjusted up or down based on the approved actual performance. Beginning with the 2018–2020 performance period, the number of PSUs that pay out may be modified further based on IBM’s Return on Invested Capital (ROIC) performance relative to broader market indices. For more information about this ROIC modifier, please refer to the
| 2019–2021 PSUs | description of our Performance Share Unit Program in Section 1 of the 2019 Compensation Discussion and Analysis. | | Threshold | | | Target | | | Max* | | | Metrics | | | Attainment % / Payout % | | | Attainment % / Payout % | | | Attainment % / Payout % | | | Operating EPS (70%) | | | 70% / 25% | | | 100% / 100% | | | 120% / 150% | | | Free Cash Flow (30%) | | | 70% / 25% | | | 100% / 100% | | | 120% / 150% | |
PSUs granted to U.S. executives vest on December 31 of the end of the performance period. Payout for all PSUs is in the February following the end of the performance period.
There are no dividends or dividend equivalents paid on PSUs.
Vesting and Payout Calculations
* Note: The performance period for the awards granted in 2019 is January 1, 2019 through December 31, 2021, and the awards will pay out in February 2022. PSU awards granted in 2019 will be adjusted for performance, as described below. Outstanding PSUs are typically cancelled if the executive’s employment is terminated. See the 2019 Potential Payments Upon Termination Narrative for information on payout of unvested PSUs upon certain terminations.
Payout will not be made for performance below the thresholds, as described below.
See Section 1 of the 2019 Compensation Discussion and Analysis for information on performance targets for the PSU program.
Threshold Number (listed in column (f) of the 2019 Grants of Plan Based Awards Table):
| – | The Threshold Number of PSUs is 25% of the Target number.
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| – | The Threshold Number of PSUs will be earned for achievement of the Threshold Level, which is 70% of both business objectives (operating earnings per share and free cash flow).
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| – | 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.
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| – | 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.
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Target Number (listed in column (g) of the 2019 Grants of Plan-Based Awards Table):
| – | The Target number of PSUs will be earned if 100% of the business objectives are achieved.
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Maximum Number (listed in column (h) of the 2019 Grants of Plan-Based Awards Table):
| – | The Maximum number of PSUs earned based on business objectives is 150% of the Target number.
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| – | The Maximum number of PSUs will be earned for achieving 120% of both business objectives.
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The relativeRelative ROIC modifier may further modify the final payout up or down by up to 20 points, based on IBM’s ROIC performance relative
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to broader market indices. (See the “Performance Share Unit Program” description in Section 1 of the Compensation Discussion and Analysis for additional detail on the ROIC Modifier). As a result, the total Maximummaximum number of PSUs earned could be up to 170% of the Target number. Restricted Stock Units (RSUs)
At the Maximum number, these values for Mr. Krishna would be: 2021: $13,928,980; 2020: $14,540,788; for Mr. Kavanaugh: 2021: $8,357,494; 2020: $8,195,713; 2019: $5,594,668; for Mr. Cohn: 2021: $6,829,751; for Mr. Rosamilia: 2021: $6,584,652; for Ms. Browdy: 2021: $4,811,810; 2020: $4,653,236; 2019: $4,147,858. Amounts also include the aggregate grant date fair values of RSUs may include RRSUs. In 2019, RSUs, but not RRSUs, were granted to all named executive officers.General Terms
One RSU or RRSU is equivalentgrants, if applicable, calculated 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
RSUs typically fully vest in four years,accordance with 25% vesting each year.
RRSUs typically fully vest in a two to five year period. These awards are occasionally given to select senior executivesaccounting guidance; these amounts reflect an adjustment for the purposeexclusion of providing additional value to retain the executive through the vesting date.dividend equivalents.
Payout of RSUs and RRSUs at each vesting date is typically contingent on the recipient remaining employed by IBM through that vesting date. See the 2019 Potential Payments Upon Termination Narrative for information on payout of unvested RSUs upon certain terminations.(4)
All deferred shares, comprised of shares that were deferred by the participant (Deferred IBM Shares), in the 2019 Nonqualified Deferred Compensation Table may include certain previously-granted RRSUs. Executives have not been allowed to defer payment of RSUs.
Option Awards (Column (f))
There were no option awards granted to any of the named executive officers in any of the years shown in the 20192021 Summary Compensation Table. (5)
Non-Equity Incentive Plan Compensation (Column (g))Amounts in this column representinclude payments under IBM’s Annual Incentive Program (AIP). General Terms
All named executive officers participate in this program. The performance period is the fiscal year (January 1 through December 31)31, 2021). See Section 1 Mr. Krishna’s target was 200% of the 2019 Compensation Discussion and Analysis for information on performance targets for AIP.
Payout Range
Mrs. Rometty had a target of $5 million for 2019. Thehis base salary rate. All other named executive officers had targetsan annual target of 135% of their 2021 salary rate for 2019.rate. See column (d)(c) of the 20192021 Grants of Plan- BasedPlan-Based Awards Table for the target payout.
Threshold payout ($0), column (d) for each named executive officer is $0 (seethe target payout, and column (c)(e) for the maximum payout. (6)
See the 2021 Retention Plan Narrative for a full description of the Retention Plan. Assumptions can be found immediately after the 2021 Pension Benefits 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 2019, Grants of Plan-Based Awards Table). Maximum payout for each named executive officer is three times the target (see column (e) of the 2019 Grants of Plan-Based Awards Table). Beginning in 2018, maximum payout opportunity for only the Chairman2020 and CEO is two times the target.
Vesting and Payout
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 beginning 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.
2021, Change in Retention Plan Value (Column (h))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 2021 Mr. Kavanaugh ($17,604) and Mr. Rosamilia ($121,275). (7)
See the 2021 Pension Benefits Narrative for a full description of the Pension Plan. Assumptions can be found immediately after the 2021 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 2019, 2020 and 2021, 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: 2021 for Mr. Krishna ($5,861), Mr. Kavanaugh ($4,072) and Mr. Rosamilia ($10,820), and 2020 for Mr. Kavanaugh ($9,281). (8)
IBM does not provide above-market or preferential earnings on deferred compensation. See the 2021 Nonqualified Deferred Compensation Narrative for information about deferred compensation. 482022 Notice of Annual Meeting & Proxy Statement | 2021 Summary Compensation Table and Related Narrative
(9)
Amounts in this column include the following for 2021: for Mr. Krishna: tax reimbursements of $31,826 and IBM contributions to defined contribution plans of $294,480; for Mr. Kavanaugh: tax reimbursements of $15,129 and IBM contributions to defined contribution plans of $171,544; for Mr. Rosamilia: tax reimbursements of $11,046, IBM contributions to defined contribution plans of $147,040; and for Ms. Browdy: IBM contributions to defined contribution plans of $120,211. See the 2021 Summary Compensation Table Narrative below for a description and information about these items. (10)
Amounts in this column titledalso include the following perquisites for 2021: for Mr. Krishna: personal financial planning, ground transportation, family attendance at business-related events, personal travel on company aircraft $127,722, and other personal expenses; for Mr. Kavanaugh: annual executive physical, family attendance at business-related events, and other personal expenses; for Mr. Rosamilia: personal financial planning, ground transportation, personal security, annual executive physical, family attendance at business-related events, personal travel on company aircraft $60,570, and other personal expenses; for Ms. Browdy: personal financial planning and other personal expenses. See the 2021 Summary Compensation Table Narrative below for a description and information about the aggregate incremental cost calculations for perquisites. (11)
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, represent the annual change in Retention Plan Value from December 31, 2018 to December 31, 2019. Mr. Schroeter and Ms. Browdy do not have a benefit under the Retention Plan. See the 2019 Retention Plan Narrative for a description of the Retention Plan.
Change in Pension Value, (Column (h)) Amounts in the column titled Change in Pension Value represent the annual change in Pension Value from December 31, 2018 to December 31, 2019 for each eligible named executive officer. Ms. Browdy does not have a benefit under any IBM defined benefit pension plan.
See the 2019 Pension Benefits Narrative for a description of the applicable defined benefit pension plan.
Nonqualified Deferred Compensation Earnings (Column (h))and All Other Compensation. IBM does
(12)
Mr. Krishna was not pay above-market or preferential earnings on nonqualified deferred compensation. See thea named executive officer in IBM’s 2020 Proxy Statement; therefore, 2019 Nonqualified Deferred Compensation Narrativedata is excluded for a description of the nonqualified deferred compensation plans in which thehim. Mr. Cohn and Mr. Rosamilia were not named executive officers participate.in the 2021 or 2020 Proxy Statement; therefore, 2020 and 2019 data is excluded for them. Mr. Cohn was hired on December 28, 2020.
2021 Summary Compensation Table Narrative — All Other Compensation (Column (i)) Amounts in this column represent the following as applicable: •
Amounts represent payments that IBM has made to the named executive officers to cover taxes incurred by them for certain business-related taxable expenses. •
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These expenses for a named executive officer may include: tax equalization payments related to prior year international assignments in accordance with IBM’s standard mobility policy, cost of family travel to and attendance at business-related events, business-related local lodging and incidental expenses, and business-related ground transportation expenses (see Ground Transportation below). IBM Contributions to Defined Contribution Plans •
Amounts represent IBM matching and automatic contributions to the individual accounts for each named executive officer.officer under IBM’s 401(k) Plus and Excess 401(k) Plus Plans. •
Under IBM’s 401(k) Plus Plan, eligible participants hired or rehired by IBM U.S. before January 1, 2005, including Mrs. Rometty, Mr. Kavanaugh and Dr. Kelly, 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 Mr. Schroetera person’s date of hire and Ms. Browdy, 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. Ms. Browdy joined IBM in 2006.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 2019, the2021, Messrs. Krishna, Kavanaugh and Rosamilia are eligible to receive matching contributions up to 6% of eligible pay. Mr. Cohn and Ms. Browdy are eligible for up to 5% matching contributions. The automatic contribution percentage was 4% for Mrs. Rometty; 2% for Mr.Messrs. Krishna, Kavanaugh, and Dr. Kelly;Rosamilia; and 1% for Mr. SchroeterCohn and Ms. Browdy. •
Under IBM’s Excess 401(k) Plus Plan, IBM makes matching contributions and automatic 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, including Mrs. Rometty, Mr. KavanaughThe matching and Dr. Kelly, 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 Mr. Schroeter and Ms. Browdy, who complete the plan’s service requirement, are eligible for up to 5% matching contributions. In addition, for all eligible participants, IBM makes automatic contributions equal to a percentage of the sum of (i) the amount the participant elects to defer underfor the Excess 401(k) Plus Plan and (ii)for each named executive officer are the participant’s eligible compensation in excess ofsame percentages as described for the Internal Revenue Code compensation limits. The automatic contribution percentage generally depends on the participant’s pension plan eligibility on December 31, 2007, and in 2019, the automatic contribution percentage was 4% for Mrs. Rometty; 2% for Mr. Kavanaugh and Dr. Kelly; and 1% for Mr. Schroeter and Ms. Browdy. For purposes of calculating the matching contribution and the automatic contribution under theIBM 401(k) Plus Plan the participant’s eligible compensation excludes the amount the participant elects to defer under the Excess 401(k) Plus Plan.above.
•
See the 20192021 Nonqualified Deferred Compensation Narrative for additional details on the nonqualified deferred compensation plans. plan.Life and Travel Accident Insurance Premiums •
Amounts represent insurance premiums paid by IBM on behalf of the named executive officers. •
These executive officers are covered by life insurance policies under the same terms as other U.S. full-time regular employees. •
Life insurance for executives hired or rehired by IBM U.S. before January 1, 2004, including Mrs. Rometty, Mr.Messrs. Krishna, Kavanaugh and Dr. Kelly,Rosamilia, 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 Mr. SchroeterCohn and Ms. Browdy, is one times salary plus annual incentive program target, with a maximum coverage of $1,000,000. •
In addition, IBM provides Travel Accident Insurance for most employees in connection with business travel. Travel Accident Insurance for all eligible employees and executives is up to five times salary plus annual incentive target with a maximum coverage amount of $15,000,000. The following describes perquisites (and their aggregate incremental cost calculations) provided to the named executive officers in 2019.2021. Personal Financial Planning In 2019,2021, 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
•
Amounts represent the aggregate incremental cost to IBM for travel not directly related to IBM business. •
IBM’s security practices provide that all air travel by the Chairman and CEO, 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. 2022 Notice of Annual Meeting & Proxy Statement | 2021 Summary Compensation Table and Related Narrative49
•
The aggregate incremental cost for Mrs. Rometty’sMr. Krishna’s personal travel is included in column (i) of the 20192021 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. non-business• occasions.
Additionally, personal travel or commutation in 20192021 on Company aircraft by named executive officers other than Mrs. Rometty,Mr. Krishna, and the aggregate incremental cost, if any, of travel by the officer’s family or other guests when accompanying the officer on both business andnon-business occasions is also included. •
Also, from time to time, named executive officers who are members of the boards of directors of certain other companies andnon-profit organizations travel on Company aircraft to those outside board meetings. These amounts may include travel related to participation on these outside boards. • | | | 2020 Notice of Annual Meeting & Proxy Statement | 2019 Summary Compensation Table and Related Narrative
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Any aircraft travel by named executive officers for an annual executive physical under the corporate wellness program is included in these amounts.
Aggregate Incremental Cost Calculation •
The aggregate incremental cost for the use of Company aircraft for personal travel, including travel to outside boards, is calculated by multiplying the hourly variable maintenance cost rate for the specific aircraft by the number of flight hours used, plus the actual costs for fuel, parking, landing fees, crew expenses and catering. •
The maintenance rate for each aircraft is periodically reviewed by IBM’s flight operations team and adjusted as necessary to reflect changes in costs. •
The aggregate incremental cost includes deadhead flights (i.e., empty flights to and from the IBM hangar or any other location). •
The aggregate incremental cost for any charter flights is the full cost to IBM of the charter. •
IBM’s security practices provide that the Chairman and CEO be driven to and from work by IBM personnel in a car leased by IBM or by an authorized car service. •
In addition, under IBM’s security practices, the Chairman and CEO may use a Company-leased car with an IBM driver or an authorized car service fornon-business occasions. Further, the family of the Chairman and CEO may use a Company-leased car with an IBM driver or an authorized car service onnon-business occasions or when accompanying the Chairman and CEOthem on business occasions. •
Other named executive officers may use a Company-leased car with an IBM driver or an authorized car service for business-related transportation, travel to outside board meetings, and an annual executive physical under IBM’s corporate wellness program. Family members and other guests may accompany these named executive officers other than the Chairman and CEO in a Company-leased car with an IBM driver or an authorized car service on these occasions. •
Amounts reflect the aggregate incremental cost, if any, for the above-referenced items.
Aggregate Incremental Cost Calculation The incremental cost for•
For the Company-leased car with an IBM driver, or an authorized car service for commutation andnon-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 for
•
For an authorized car service, the incremental cost is the full cost to IBM for such service. •
Under IBM’s security practices, IBM provides security personnel for the Chairman and CEO on certainnon-business occasions, and for thehis family of the Chairman and CEO on certainnon-business occasions, or when accompanying herthem on business occasions. •
Amounts include the aggregate incremental cost, if any, of security personnel for those occasions. •
In addition, amounts also include the cost of home security systems and monitoring for the Chairman and CEO, and any other named executive officers, if applicable.
Aggregate Incremental Cost Calculation •
The aggregate incremental cost for security personnel is the cost of any commercial airfare to and from the destination, hotels, meals, car services, and salary and travel expenses of any additional subcontracted personnel if needed. •
The aggregate incremental cost for installation, maintenance, and monitoring services for home security systems reflects the full cost to IBM for these items. Annual Executive Physical •
IBM covers the cost of an annual executive physical for the named executive officers under IBM’s corporate wellness program. •
Amounts represent any payments by IBM for the named executive officers under this program, if applicable. Family Travel and Attendance at Business-Related Events •
Business-related events attended by the named executive officers and their family members may include meetings, dinners, and receptions with IBM’s clients, executive management or board members. •
Amounts represent the aggregate incremental cost, if any, of travel and/or meals and entertainment for the family members of the named executive officers to attend business-related events. •
Amounts represent the cost of meals and lodging for the named executive officers who traveled for their annual executive physical under IBM’s corporate wellness program. •
Amounts also include expenses associated with participation on outside boards other than those disclosed as Personal Travel on Company Aircraft and Ground Transportation. •
Amounts also include items relating to tax services for prior year international assignments in accordance with IBM’s standard mobility policy, business events, and administrative charges incurred by executives. | | | 50
| | 2020 Notice of Annual Meeting & Proxy Statement | 2019 Summary Compensation Table and Related Narrative
|
2019 SUMMARY COMPENSATION TABLE50
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name and Principal Position (a) Year (b) | | Salary ($) (c) | | | Bonus ($) (d) | | | Stock Awards(1) ($) (e) | | | Option Awards(2) ($) (f) | | | Non-Equity Incentive Plan Compensation ($) (g) | | | Change in Retention Plan Value(3) ($) (h) | | | Change in Pension Value(4) ($) (h) | | | Nonqualified Deferred Compensation Earnings(5) ($) (h) | | | All Other Compensation(6)(7) ($) (i) | | | Total(8) ($) (j) | | | V.M. Rometty, Chairman, President and CEO | | 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 | | 2017 | | | 1,600,000 | | | | 0 | | | | 10,428,720 | | | | 0 | | | | 5,100,000 | | | | 79,951 | | | | 494,882 | | | | 0 | | | | 891,797 | | | | 18,595,350 | | | J.J. Kavanaugh, Senior VP and CFO | | 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 | | 2017 | | | 649,000 | | | | 0 | | | | 3,136,575 | | | | 0 | | | | 919,000 | | | | 11,766 | | | | 33,651 | | | | 0 | | | | 119,808 | | | | 4,869,800 | | | M.J. Schroeter, Senior VP, IBM Global Markets | | 2019 | | $ | 936,000 | | | | $0 | | | $ | 8,118,340 | | | | $0 | | | | $ 948,000 | | | | N/A | | | | $ 4,487 | | | | $0 | | | | $ 211,675 | | | $ | 10,218,501 | | 2018 | | | 905,000 | | | | 0 | | | | 4,872,751 | | | | 0 | | | | 1,074,400 | | | | N/A | | | | 7,702 | | | | 0 | | | | 170,549 | | | | 7,030,402 | | 2017 | | | 828,500 | | | | 0 | | | | 4,312,687 | | | | 0 | | | | 1,181,000 | | | | N/A | | | | 11,436 | | | | 0 | | | | 138,538 | | | | 6,472,162 | | | J.E. Kelly III, Executive Vice President | | 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 | | 2017 | | | 830,500 | | | | 0 | | | | 4,312,687 | | | | 0 | | | | 861,000 | | | | 127,911 | | | | 70,056 | | | | 0 | | | | 240,339 | | | | 6,442,493 | | | M.H. Browdy, Senior VP and General Counsel(9) | | 2019 | | $ | 744,500 | | | | $0 | | | $ | 3,753,766 | | | | $0 | | | | $ 982,300 | | | | N/A | | | | N/A | | | | $0 | | | | $ 107,504 | | | $ | 5,588,070 | |
| Note: For assumptions used in determining the fair value of stock and option awards, see Note A (Significant Accounting Policies – Stock-Based Compensation) to IBM’s 2019 Consolidated Financial Statements.
|
(1) | Amounts in this column reflect the total Performance Share Units (PSUs) and Restricted Stock Units (RSUs).
|
| Amounts include the aggregate grant date fair values of PSUs at the Target number (described in the 2019 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 Mrs. Rometty would be: 2019: $12,829,069; 2018: $11,935,509; 2017: $10,168,002; for Mr. Kavanaugh: 2019: $5,594,668; 2018: $4,711,494; 2017: $3,058,222; for Mr. Schroeter: 2019: $8,970,714; 2018: $5,384,454; 2017: $4,204,970; for Dr. Kelly: 2019 $5,787,591; 2018: $5,115,348; 2017: $4,204,970; for Ms. Browdy: 2019: $4,147,858.
|
| Amounts also include the aggregate grant date fair values of RSUs granted to Mrs. Rometty, Mr. Kavanaugh, Mr. Schroeter, Dr. Kelly and Ms. Browdy, 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 2019 Summary Compensation Table.
|
(3) | Assumptions can be found immediately after the 2019 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 2017, and 2018, and 2019, 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 2019 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 2017, and 2018, and 2019, 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. For 2018, the change in Pension Value for the named executive officers resulted in the following negative amount for Mrs. Rometty $(349,181).
|
(5) | IBM does not provide above-market or preferential earnings on deferred compensation. See the 2019 Nonqualified Deferred Compensation Narrative for information about deferred compensation.
|
(6) | Amounts in this column include the following for 2019: Mrs. Rometty: tax reimbursements of $30,391 and IBM contributions to defined contribution plans of $565,000; for Mr. Kavanaugh: IBM contributions to defined contribution plans of $126,224; for Mr. Schroeter: tax reimbursements of $33,149 and contributions to defined contribution plans of $120,624; for Dr. Kelly: IBM contributions to defined contribution plans of $82,332; and for Ms. Browdy: IBM contributions to defined contribution plans of $92,152.
|
(7) | Amounts in this column also include the following perquisites for 2019: 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 $237,311, and other personal expenses; for Mr. Schroeter: personal financial planning, personal security, annual executive physical, family attendance at business-related events of $33,879, and other personal expenses; for Dr. Kelly: ground transportation, personal security, annual executive physical, family attendance at business-related events, personal travel on Company aircraft of $82,289, and other personal expenses; for Ms. Browdy: personal financial planning and other personal expenses. See the 2019 Summary Compensation Table Narrative for a description and information about the aggregate incremental cost calculations for perquisites.
|
(8) | Amounts in this column reflect the total of the following columns: Salary, Bonus, Stock Awards, Option Awards,Non-Equity Incentive Plan Compensation, Change in Retention Plan Value, Change in Pension Value, Nonqualified Deferred Compensation Earnings and All Other Compensation.
|
(9) | Ms. Browdy was not a named executive officer in IBM’s 2018 or 2019 Proxy Statement; therefore, this table does not provide 2017 or 2018 data for her.
| 2022 Notice of Annual Meeting & Proxy Statement | 2021 Summary Compensation Table and Related Narrative
| | | 2020 Notice of Annual Meeting & Proxy Statement | 2019 Summary Compensation Table
| | 51
|
20192021 GRANTS OF PLAN-BASED AWARDS TABLE | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name (a) Type of Award(1) | | Grant Date (b) | | | Compensation Committee Approval Date | | | Estimated Future Payouts UnderNon-Equity Incentive Plan Awards | | | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | | All Other Stock Awards: Number of Shares of Stock or Units(3) (#) (i) | | | All Other Option Awards: Number of Securities Underlying Options (#) (j) | | | Exercise or Base Price of Option Awards ($/Sh) (k) | | | Closing Price on the NYSE on the Date of Grant ($/Sh) | | | Grant Date Fair Value of Stock and Option Awards(4) ($) (l) | | | Threshold ($) (c) | | | Target ($) (d) | | | Maximum ($) (e) | | | Threshold (#) (f) | | | Target (#) (g) | | | Maximum (#) (h) | | V.M. Rometty | | AIP | | | N/A | | | | 01/29/2019 | | | | 0 | | | | 5,000,000 | | | | 10,000,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | 06/07/2019 | | | | 01/29/2019 | | | | | | | | | | | | | | | | 16,018 | | | | 64,073 | | | | 108,924 | | | | | | | | | | | | | | | | | | | | 7,546,518 | | RSU | | | 06/07/2019 | | | | 01/29/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 34,501 | | | | | | | | | | | | | | | | 4,063,528 | | J.J. Kavanaugh | | AIP | | | N/A | | | | 01/29/2019 | | | | 0 | | | | 1,120,000 | | | | 3,360,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | 06/07/2019 | | | | 01/29/2019 | | | | | | | | | | | | | | | | 6,986 | | | | 27,942 | | | | 47,501 | | | | | | | | | | | | | | | | | | | | 3,291,009 | | RSU | | | 06/07/2019 | | | | 01/29/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 15,046 | | | | | | | | | | | | | | | | 1,772,118 | | M.J. Schroeter | | AIP | | | N/A | | | | 01/29/2019 | | | | 0 | | | | 1,264,000 | | | | 3,792,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | 06/07/2019 | | | | 01/29/2019 | | | | | | | | | | | | | | | | 11,201 | | | | 44,803 | | | | 76,165 | | | | | | | | | | | | | | | | | | | | 5,276,897 | | RSU | | | 06/07/2019 | | | | 01/29/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 24,125 | | | | | | | | | | | | | | | | 2,841,443 | | J.E. Kelly III | | AIP | | | N/A | | | | 01/29/2019 | | | | 0 | | | | 1,172,000 | | | | 3,516,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | 06/07/2019 | | | | 01/29/2019 | | | | | | | | | | | | | | | | 7,226 | | | | 28,905 | | | | 49,139 | | | | | | | | | | | | | | | | | | | | 3,404,431 | | RSU | | | 06/07/2019 | | | | 01/29/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 15,565 | | | | | | | | | | | | | | | | 1,833,246 | | M.H. Browdy | | AIP | | | N/A | | | | 01/29/2019 | | | | 0 | | | | 1,034,000 | | | | 3,102,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | 06/07/2019 | | | | 01/29/2019 | | | | | | | | | | | | | | | | 5,179 | | | | 20,716 | | | | 35,217 | | | | | | | | | | | | | | | | | | | | 2,439,930 | | RSU | | | 06/07/2019 | | | | 01/29/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 11,155 | | | | | | | | | | | | | | | | 1,313,836 | |
| Name (a) Type of Award(1) | | | Grant Date (b) | | | Compensation Committee Approval Date | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | | | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | | All Other Stock Awards: Number of shares of Stock | | | All Other Option Awards: Numberof Securities Underlying Options (#) (j) | | | Exercise or Base Price of Option Awards ($/Sh) (k) | | | Closing Price on the NYSE on the Date of Grant ($/Sh) | | | Grant Date Fair Value of Stock and Option | | | Threshold ($) (c) | | | Target ($) (d) | | | Maximum ($) (e) | | | Threshold (#) (f) | | | Target (#) (g) | | | Maximum (#) (h) | | | or Units(3) (#) (i) | | | Awards ($) (l) | (4)
| | A. Krishna | | | AIP | | | | | N/A | | | | | | 01/25/2021 | | | | | | 0 | | | | | | 3,000,000 | | | | | | 6,000,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | | | 06/08/2021 | | | | | | 01/25/2021 | | | | | | | | | | | | | | | | | | | | | | | | 15,980 | | | | | | 63,918 | | | | | | 108,661 | | | | | | | | | | | | | | | | | | | | | 8,193,533 | | | | RSU | | | | | 06/08/2021 | | | | | | 01/25/2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 34,418 | | | | | | | | | | | | | | | 4,411,974 | | | | J.J. Kavanaugh | | | AIP | | | | | N/A | | | | | | 01/25/2021 | | | | | | 0 | | | | | | 1,307,000 | | | | | | 3,921,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | | | 06/08/2021 | | | | | | 01/25/2021 | | | | | | | | | | | | | | | | | | | | | | | | 9,588 | | | | | | 38,351 | | | | | | 65,197 | | | | | | | | | | | | | | | | | | | | | 4,916,173 | | | | RSU | | | | | 06/08/2021 | | | | | | 01/25/2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 20,651 | | | | | | | | | | | | | | | 2,647,211 | | | | G. Cohn | | | AIP | | | | | N/A | | | | | | 12/15/2020 | | | | | | 0 | | | | | | 1,580,000 | | | | | | 4,740,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | | | 01/04/2021 | | | | | | 12/15/2020 | | | | | | | | | | | | | | | | | | | | | | | | 1,615 | | | | | | 6,458 | | | | | | 10,979 | | | | | | | | | | | | | | | | | | | | | 683,063 | | | | PSU | | | | | 01/04/2021 | | | | | | 12/15/2020 | | | | | | | | | | | | | | | | | | | | | | | | 3,133 | | | | | | 12,533 | | | | | | 21,306 | | | | | | | | | | | | | | | | | | | | | 1,325,688 | | | | PSU | | | | | 01/04/2021 | | | | | | 12/15/2020 | | | | | | | | | | | | | | | | | | | | | | | | 4,748 | | | | | | 18,990 | | | | | | 32,283 | | | | | | | | | | | | | | | | | | | | | 2,008,750 | | | | RSU | | | | | 01/04/2021 | | | | | | 12/15/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 20,451 | | | | | | | | | | | | | | | 2,163,286 | | | | T. Rosamilia | | | AIP | | | | | N/A | | | | | | 01/25/2021 | | | | | | 0 | | | | | | 1,120,000 | | | | | | 3,360,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | | | 06/08/2021 | | | | | | 01/25/2021 | | | | | | | | | | | | | | | | | | | | | | | | 7,554 | | | | | | 30,216 | | | | | | 51,367 | | | | | | | | | | | | | | | | | | | | | 3,873,340 | | | | RSU | | | | | 06/08/2021 | | | | | | 01/25/2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 16,271 | | | | | | | | | | | | | | | 2,085,665 | | | | M.H. Browdy | | | AIP | | | | | N/A | | | | | | 01/25/2021 | | | | | | 0 | | | | | | 1,206,000 | | | | | | 3,618,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | | | 06/08/2021 | | | | | | 01/25/2021 | | | | | | | | | | | | | | | | | | | | | | | | 5,520 | | | | | | 22,081 | | | | | | 37,538 | | | | | | | | | | | | | | | | | | | | | 2,830,508 | | | | RSU | | | | | 06/08/2021 | | | | | | 01/25/2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 11,890 | | | | | | | | | | | | | | | 1,524,120 | | |
(1)
Type of Award: AIP = Annual Incentive Program PSU = Performance Share Unit RSU = Restricted Stock Unit Each of these awards was granted under IBM’s 1999 Long-Term Performance Plan.Plan (“LTPP”). For RSUs and PSUs that were granted prior to the separation of Kyndryl on November 3, 2021, the number of units were adjusted to ensure the value of the award immediately prior to the separation was maintained immediately after the separation, as described in the Employee Matters Agreement and in accordance with IBM’s LTPP. See the 20192021 Summary Compensation Table Narrative for additional information on these types of awards.(2) | PSU awards will be adjusted based on performance and paid in February 2022.
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(3) | RSU awards vest 25% on June 7, 2020, June 7, 2021, June 7, 2022, and June 7, 2023, 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 (see 2019 Potential Payments Upon Termination Narrative for a description of these eligibility requirements).
|
(4) | The amounts in this column reflect the aggregate grant date fair values of PSU and RSU awards calculated in accordance with accounting guidance. The values shown for the PSU awards are based on the Target number, as described in the 2019 Summary Compensation Table Narrative. The values shown for the PSUs and RSUs reflect an adjustment for the exclusion of dividend equivalents.
|
(2)
PSU awards will be adjusted based on performance and paid in February 2024. (3)
| | | 52
| | 2020 Notice of Annual Meeting & Proxy Statement | 2019 Grants of Plan-based Awards Table
| Other than for Mr. Cohn, RSU awards vest 25% on June 8, 2022, June 8, 2023, June 8, 2024, and June 8, 2025, 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. Mr. Cohn’s January 2021 RSU award vests 25% per year on January 4, 2022, January 4, 2023, January 4, 2024, and January 4, 2025, provided that he is an employee of IBM as of those dates unless he meets certain requirements to be eligible for continued vesting. See 2021 Potential Payments Upon Termination Narrative for a description of these eligibility requirements. (4)
The amounts in this column reflect the aggregate grant date fair values of PSU and RSU awards calculated in accordance with accounting guidance. The values shown for the PSU awards are based on the Target number, as described in the 2021 Summary Compensation Table. The values shown for the PSUs and RSUs reflect an adjustment for the exclusion of dividend equivalents.
2022 Notice of Annual Meeting & Proxy Statement | 2021 GRANTS OF PLAN-BASED AWARDS TABLE51
Pay Ratio The ratio of the CEO’s annual total compensation to that of the median employee’s annual total compensation is 258:1. This ratio is based on annual total compensation of $17,550,959 for the CEO (as reported in the Summary Compensation Table) and $67,926 for the median employee. The base salary for the median employee was $45,197. The median employee used for the pay ratio disclosure was determined as of October 1, 2021 using annual base pay for IBM employees on that date (excluding Kyndryl employees, who would separate and begin employment with Kyndryl on November 4, 2021); all foreign currencies were converted to U.S. dollars. The calculation to determine the median employee was updated this year as required by SEC rules, due to a significant change in the workforce resulting from the separation of Kyndryl. The new calculation resulted in a new median employee from a different country given the global dynamics of IBM’s workforce. The Company believes that this calculation is a reasonable estimate of the pay ratio. 2021 Outstanding Equity Awards at FiscalYear-End Table and Related Narrative Option Awards (ColumnsAwards(Columns (b)–(f)) •
In accordance with IBM’s Long-Term Performance Plan (LTPP), the exercise price of stock options is not less than the average of the high and low prices of IBM common stock on the New York Stock Exchange (NYSE) on the date of grant. •
Options generally expire ten years after the date of grant. •
The option recipient must remain employed by IBM through each vesting date in order to receive any potential payout value. •
IBM has not granted any option awards that are Equity Incentive Plan Awards. Stock Awards (ColumnsAwards(Columns (g)–(j))
Number of Shares or Units of Stock That Have Not Vested(Column (g)) The amounts in this column are the number of RSUs or RRSUs that were outstanding as of December 31, 2019.2021 (adjusted on November 4, 2021 following the separation of Kyndryl, in accordance with IBM’s LTPP). Market Value of Shares or Units of Stock That Have Not Vested(Column (h)) The amounts in this column are the value of the RSU or RRSU 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 20192021 fiscal year ($134.04)133.66). Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (Column(Column (i)) The amounts in this column are the number of PSUs or RPSUs that were outstanding as of December 31, 2019.2021 (adjusted on November 4, following the separation of Kyndryl, in accordance with IBM’s LTPP). Performance Share Units and retention Performance Share Units •
Amounts in column (i) reflect the Target number for each PSU and RPSU award. •
The performance criteria for IBM’s PSU programIBM PSUs and RPSUs is based on cumulative three-year rolling targets. Therefore, measuring annual performance against these targets is not meaningful. •
See Section 1 of the 20192021 Compensation Discussion and Analysis, as well as the 20192021 Summary Compensation Table, Narrative, for a detailed description of the PSU program and RPSUs, including payout calculations. •
The table below provides the payout levels for all outstanding PSU and RPSU awards for each of the named executive officers. A Maximum number of PSUs earned is 150% of the Target number based on business objectives, plus up to an additional 20 points (for a maximum of 170%) based on the relative ROIC modifier. A Maximum number of RPSUs earned is 120% (inclusive of an additional 20 points based on the relative ROIC modifier for the relevant performance period). 20192021 OUTSTANDING PSU and RPSU AWARD PAYOUT LEVELS | | | | | | | | | | | | | | | | | Name | | Grant Date | | | Threshold | | | Target | | | Maximum | | | | | | | V.M. Rometty | | | 06/08/2018 | | | | 13,508 | | | | 54,032 | | | | 91,854 | | | | 06/07/2019 | | | | 16,018 | | | | 64,073 | | | | 108,924 | | | | | | | J.J. Kavanaugh | | | 06/08/2018 | | | | 5,332 | | | | 21,329 | | | | 36,259 | | | | 06/07/2019 | | | | 6,986 | | | | 27,942 | | | | 47,501 | | | | | | | M.J. Schroeter | | | 06/08/2018 | | | | 6,094 | | | | 24,375 | | | | 41,438 | | | | 06/07/2019 | | | | 11,201 | | | | 44,803 | | | | 76,165 | | | | | | | J.E. Kelly III | | | 06/08/2018 | | | | 5,789 | | | | 23,157 | | | | 39,367 | | | | 06/07/2019 | | | | 7,226 | | | | 28,905 | | | | 49,139 | | | | | | | M.H. Browdy | | | 06/08/2018 | | | | 3,860 | | | | 15,438 | | | | 26,245 | | | | 06/07/2019 | | | | 5,179 | | | | 20,716 | | | | 35,217 | |
| Name | | | Grant Date | | | Threshold | | | Target | | | Maximum | | | A. Krishna | | | | | 12/17/2019 | | | | | | 143,910 | | | | | | 179,888 | | | | | | 215,866 | | | | | | | | | 06/08/2020 | | | | | | 18,740 | | | | | | 74,960 | | | | | | 127,432 | | | | | | | | | 06/08/2021 | | | | | | 15,980 | | | | | | 63,918 | | | | | | 108,661 | | | | J.J. Kavanaugh | | | | | 06/08/2020 | | | | | | 10,563 | | | | | | 42,250 | | | | | | 71,825 | | | | | | | | | 06/08/2021 | | | | | | 9,588 | | | | | | 38,351 | | | | | | 65,197 | | | | G. Cohn | | | | | 01/04/2021 | | | | | | 3,133 | | | | | | 12,533 | | | | | | 21,306 | | | | | | | | | 01/04/2021 | | | | | | 4,748 | | | | | | 18,990 | | | | | | 32,283 | | | | T. Rosamilia | | | | | 06/08/2020 | | | | | | 8,178 | | | | | | 32,710 | | | | | | 55,607 | | | | | | | | | 06/08/2021 | | | | | | 7,554 | | | | | | 30,216 | | | | | | 51,367 | | | | M.H. Browdy | | | | | 06/08/2020 | | | | | | 5,997 | | | | | | 23,988 | | | | | | 40,780 | | | | | | | | | 06/08/2021 | | | | | | 5,520 | | | | | | 22,081 | | | | | | 37,538 | | |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(Column (j)) The amounts in this column are the values of PSU and RPSU 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 20192021 fiscal year ($134.04)133.66).
| | | 2020 Notice of Annual Meeting & Proxy Statement | 2019 Outstanding Equity Awards at Fiscal Year-End Table and Related Narrative
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2019522022 Notice of Annual Meeting & Proxy Statement | 2021 Outstanding Equity Awards at Fiscal Year-End Table and Related Narrative
2021 OUTSTANDING EQUITY AWARDS AT FISCALYEAR-END TABLE TABLE | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Option Awards | | | | | | Stock Awards | | Name (a) Grant Date | | Number of Securities Underlying Unexercised Options (#) Exercisable (b) | | | Number of Securities Underlying Unexercised Options (#) Unexercisable (c) | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) | | | Option Exercise Price ($) (e) | | | Option Expiration Date (f) | | | | | | Type of Award | | | Grant Date | | | Number of Shares or Units of Stock That Have Not Vested(1) (#) (g) | | | Market Value of Shares or Units of Stock That Have Not Vested(2) ($) (h) | | | Type of Award | | | Grant Date | | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(3) (#) (i) | | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(2) ($) (j) | | | | | | | | | | | | | | | | | V.M. Rometty | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 01/26/16 | | | 375,000 | | | | 0 | | | | N/A | | | $ | 129.08 | | | | 01/25/26 | | | | | | | | RSU | | | | 06/08/16 | | | | 8,026 | | | $ | 1,075,805 | | | | PSU | | | | 06/08/18 | | | | 54,032 | | | $ | 7,242,449 | | 01/26/16 | | | 375,000 | | | | 0 | | | | N/A | | | | 135.22 | | | | 01/25/26 | | | | | | | | RSU | | | | 06/08/17 | | | | 13,300 | | | | 1,782,732 | | | | PSU | | | | 06/08/19 | | | | 64,073 | | | | 8,588,345 | | 01/26/16 | | | 375,000 | | | | 0 | | | | N/A | | | | 141.37 | | | | 01/25/26 | | | | | | | | RSU | | | | 06/08/18 | | | | 21,821 | | | | 2,924,887 | | | | | | | | | | | | | | | | | | 01/26/16 | | | 375,000 | | | | 0 | | | | N/A | | | | 153.66 | | | | 01/25/26 | | | | | | | | RSU | | | | 06/07/19 | | | | 34,501 | | | | 4,624,514 | | | | | | | | | | | | | | | | | | Total | | | 1,500,000 | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 77,648 | | | | 10,407,938 | | | | | | | | | | | | 118,105 | | | | 15,830,794 | | J.J. Kavanaugh | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/16 | | | | 2,113 | | | | 283,227 | | | | PSU | | | | 06/08/18 | | | | 21,329 | | | | 2,858,939 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/17 | | | | 4,000 | | | | 536,160 | | | | PSU | | | | 06/08/19 | | | | 27,942 | | | | 3,745,346 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/18 | | | | 8,614 | | | | 1,154,621 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/07/19 | | | | 15,046 | | | | 2,016,766 | | | | | | | | | | | | | | | | | | Total | | | 0 | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 29,773 | | | | 3,990,773 | | | | | | | | | | | | 49,271 | | | | 6,604,285 | | M.J. Schroeter | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/16 | | | | 3,018 | | | | 404,533 | | | | PSU | | | | 06/08/18 | | | | 24,375 | | | | 3,267,225 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/17 | | | | 5,500 | | | | 737,220 | | | | PSU | | | | 06/08/19 | | | | 44,803 | | | | 6,005,394 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/18 | | | | 9,844 | | | | 1,319,490 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/07/19 | | | | 24,125 | | | | 3,233,715 | | | | | | | | | | | | | | | | | | Total | | | 0 | | | �� | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 42,487 | | | | 5,694,957 | | | | | | | | | | | | 69,178 | | | | 9,272,619 | | J.E. Kelly III | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/16 | | | | 3,319 | | | | 444,879 | | | | PSU | | | | 06/08/18 | | | | 23,157 | | | | 3,103,964 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/17 | | | | 5,500 | | | | 737,220 | | | | PSU | | | | 06/08/19 | | | | 28,905 | | | | 3,874,426 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/18 | | | | 9,352 | | | | 1,253,542 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/07/19 | | | | 15,565 | | | | 2,086,333 | | | | | | | | | | | | | | | | | | Total | | | 0 | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 33,736 | | | | 4,521,973 | | | | | | | | | | | | 52,062 | | | | 6,978,390 | | M.H. Browdy | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/16 | | | | 1,993 | | | | 267,142 | | | | PSU | | | | 06/08/18 | | | | 15,438 | | | | 2,069,310 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/17 | | | | 3,500 | | | | 469,140 | | | | PSU | | | | 06/08/19 | | | | 20,716 | | | | 2,776,773 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/18 | | | | 6,235 | | | | 835,739 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/07/19 | | | | 11,155 | | | | 1,495,216 | | | | | | | | | | | | | | | | | | Total | | | 0 | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 22,883 | | | | 3,067,237 | | | | | | | | | | | | 36,154 | | | | 4,846,082 | |
PSU | = Performance Share Unit
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RSU | = Restricted Stock Unit
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(1) | The amounts shown in column (g) of the 2019 Outstanding Equity Awards at FiscalYear-End Table are RSU awards that have not yet vested. See the 2019 Summary Compensation Table Narrative for additional information on these types of awards. The Vesting Schedule for Unvested RSUs table below shows the vesting schedules for these outstanding awards. In 2016, 2017, 2018, and 2019, each named executive officer received RSU awards that vest 25% per year on the first through the fourth anniversaries of the grant date.
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(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 2019 fiscal year ($134.04).
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(3) | The amounts shown in column (i) of the 2019 Outstanding Equity Awards at FiscalYear-End Table are PSU awards that have not yet vested. See the 2019 Summary Compensation Table Narrative for additional information on PSU awards. The Vesting Schedule for Unvested PSUs table below shows the vesting schedules for these outstanding PSU awards (reflecting Target payout), all of which are paid out in February following the end of the performance period.
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| | 2020 Notice of Annual Meeting & Proxy Statement | 2019 Outstanding Equity Awards at FiscalYear-End Table and Related Narrative
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| | | | Option Awards | | | Stock Awards | | | | | | Number of Securities Underlying Unexercised Options | | | Number of Securities Underlying Unexercised Options | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned | | | Option Exercise | | | Option | | | | | | | | | | | | | | | Number of Shares or Units of Stock That Have | | | Market Value of Shares or Units of Stock That Have | | | | | | | | | | | | | | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have | | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have | | | Name | | | (#) | | | (#) | | | Options | | | Price | | | Expiration | | | | | | | | | | | | | | | Not Vested | (1) | | Not Vested | (2) | | | | | | | | | | | | | | Not Vested | (3) | | Not Vested | (2) | | (a) Grant Date | | | Exercisable (b) | | | Unexercisable (c) | | | (#) (d) | | | ($) (e) | | | Date (f) | | | Type of Award | | | Grant Date | | | (#) (g) | | | ($) (h) | | | Type of Award | | | Grant Date | | | (#) (i) | | | ($) (j) | | | A. Krishna | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/08/18 | | | | 3,108 | | | | $ | 415,415 | | | | | | RPSU | | | | | | 12/17/19 | | | | | | 88,602 | | | | | $ | 11,842,543 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RRSU | | | | | | 12/11/18 | | | | 66,656 | | | | | 8,909,241 | | | | | | RPSU | | | | | | 12/17/19 | | | | | | 91,286 | | | | | | 12,201,287 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/07/19 | | | | 8,042 | | | | | 1,074,894 | | | | | | PSU | | | | | | 06/08/20 | | | | | | 74,960 | | | | | | 10,019,154 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/08/20 | | | | 30,273 | | | | | 4,046,289 | | | | | | PSU | | | | | | 06/08/21 | | | | | | 63,918 | | | | | | 8,543,280 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/08/21 | | | | 34,418 | | | | | 4,600,310 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | 0 | | | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | 142,497 | | | | $ | 19,046,149 | | | | | | | | | | | | | | | | | | 318,766 | | | | | $ | 42,606,264 | | | | J.J. Kavanaugh | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/08/18 | | | | 2,968 | | | | $ | 396,703 | | | | | | PSU | | | | | | 06/08/20 | | | | | | 42,250 | | | | | $ | 5,647,135 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/07/19 | | | | 7,774 | | | | | 1,039,073 | | | | | | PSU | | | | | | 06/08/21 | | | | | | 38,351 | | | | | | 5,125,995 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/08/20 | | | | 17,063 | | | | | 2,280,641 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/08/21 | | | | 20,651 | | | | | 2,760,213 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | 0 | | | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | 48,456 | | | | $ | 6,476,630 | | | | | | | | | | | | | | | | | | 80,601 | | | | | $ | 10,773,130 | | | | G. Cohn | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RRSU | | | | | | 12/28/20 | | | | 50,510 | | | | $ | 6,751,167 | | | | | | PSU | | | | | | 01/04/21 | | | | | | 12,533 | | | | | $ | 1,675,161 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 01/04/21 | | | | 20,451 | | | | | 2,733,481 | | | | | | PSU | | | | | | 01/04/21 | | | | | | 18,990 | | | | | | 2,538,203 | | | | Total | | | | | 0 | | | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | 70,961 | | | | $ | 9,484,648 | | | | | | | | | | | | | | | | | | 31,523 | | | | | $ | 4,213,364 | | | | T. Rosamilia | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/08/18 | | | | 3,108 | | | | $ | 415,415 | | | | | | PSU | | | | | | 06/08/20 | | | | | | 32,710 | | | | | $ | 4,372,019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/07/19 | | | | 7,774 | | | | | 1,039,073 | | | | | | PSU | | | | | | 06/08/21 | | | | | | 30,216 | | | | | | 4,038,671 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/08/20 | | | | 13,210 | | | | | 1,765,649 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/08/21 | | | | 16,271 | | | | | 2,174,782 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | 0 | | | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | 40,363 | | | | $ | 5,394,919 | | | | | | | | | | | | | | | | | | 62,926 | | | | | $ | 8,410,690 | | | | M.H. Browdy | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/08/18 | | | | 2,148 | | | | $ | 287,102 | | | | | | PSU | | | | | | 06/08/20 | | | | | | 23,988 | | | | | $ | 3,206,236 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/07/19 | | | | 5,764 | | | | | 770,416 | | | | | | PSU | | | | | | 06/08/21 | | | | | | 22,081 | | | | | | 2,951,346 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/08/20 | | | | 9,688 | | | | | 1,294,898 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/08/21 | | | | 11,890 | | | | | 1,589,217 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | 0 | | | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | 29,490 | | | | $ | 3,941,633 | | | | | | | | | | | | | | | | | | 46,069 | | | | | $ | 6,157,582 | | |
Type of Award: PSU = Performance Share Unit RPSU = Retention Performance Share Unit RSU = Restricted Stock Unit RRSU = Retention Restricted Stock Unit (1)
The amounts shown in column (g) of the 2021 Outstanding Equity Awards at Fiscal Year-End Table are unvested RSU and RRSU awards. See the 2021 Compensation Discussion and Analysis and the 2021 Summary Compensation Table Narrative for additional information on these types of awards. Mr. Krishna’s and Mr. Cohn’s RRSU awards vest on the anniversary of the grant date in 2022 and 2023 according to the vesting schedule in the table below, provided they are an employee of IBM on each vesting date. The Vesting Schedule for Unvested RSUs table below shows the vesting schedules for these outstanding awards. In 2018, 2019, 2020 and 2021, each named executive officer other than Mr. Cohn received RSU awards that vest 25% per year on the first through the fourth anniversaries of the grant date (Mr. Cohn was hired in 2020, so his RSU granted in January 2021 vests 25% per year on the first through the fourth anniversaries of the grant date). (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 2021 fiscal year ($133.66). (3)
The amounts shown in column (i) of the 2021 Outstanding Equity Awards at Fiscal Year-End Table are PSU and RPSU awards that have not yet vested. See the 2021 Compensation Discussion and Analysis and the 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 and RPSUs for all Named Executive Officers are paid out in February following the end of the respective performance period. 2022 Notice of Annual Meeting & Proxy Statement | 2021 Outstanding Equity Awards at Fiscal Year-End Table and Related Narrative 53
VESTING SCHEDULE FOR UNVESTED RSUs and RRSUs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Vesting Schedule | | Name | | Type of Award | | | Grant Date | | | 2020 | | | 2021 | | | 2022 | | | 2023 | | | | | | | | | V.M. Rometty | | | RSU | | | | 06/08/2016 | | | | 8,026 | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/2017 | | | | 6,650 | | | | 6,650 | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/2018 | | | | 7,273 | | | | 7,273 | | | | 7,275 | | | | | | | | | | | | | | | | RSU | | | | 06/07/2019 | | | | 8,625 | | | | 8,625 | | | | 8,625 | | | | 8,626 | | | | | | | | | J.J. Kavanaugh | | | RSU | | | | 06/08/2016 | | | | 2,113 | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/2017 | | | | 2,000 | | | | 2,000 | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/2018 | | | | 2,871 | | | | 2,871 | | | | 2,872 | | | | | | | | | | | | | | | | RSU | | | | 06/07/2019 | | | | 3,761 | | | | 3,761 | | | | 3,761 | | | | 3,763 | | M.J. Schroeter | | | RSU | | | | 06/08/2016 | | | | 3,018 | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/2017 | | | | 2,750 | | | | 2,750 | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/2018 | | | | 3,281 | | | | 3,281 | | | | 3,282 | | | | | | | | | | | | | | | | RSU | | | | 06/07/2019 | | | | 6,031 | | | | 6,031 | | | | 6,031 | | | | 6,032 | | | | | | | | | J.E. Kelly III | | | RSU | | | | 06/08/2016 | | | | 3,319 | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/2017 | | | | 2,750 | | | | 2,750 | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/2018 | | | | 3,117 | | | | 3,117 | | | | 3,118 | | | | | | | | | | | | | | | | RSU | | | | 06/07/2019 | | | | 3,891 | | | | 3,891 | | | | 3,891 | | | | 3,892 | | M.H. Browdy | | | RSU | | | | 06/08/2016 | | | | 1,993 | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/2017 | | | | 1,750 | | | | 1,750 | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/2018 | | | | 2,078 | | | | 2,078 | | | | 2,079 | | | | | | | | | | | | | | | | RSU | | | | 06/07/2019 | | | | 2,788 | | | | 2,788 | | | | 2,788 | | | | 2,791 | |
| | | | | | | | | | | | | | | | Vesting Schedule | | | Name | | | Type of Award | | | Grant Date | | | 2022 | | | 2023 | | | 2024 | | | 2025 | | | A. Krishna | | | | | RSU | | | | | | 06/08/2018 | | | | | | 3,108 | | | | | | | | | | | | | | | | | | | | | | | | | | | RRSU | | | | | | 12/11/2018 | | | | | | 33,328 | | | | | | 33,328 | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/07/2019 | | | | | | 4,020 | | | | | | 4,022 | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/08/2020 | | | | | | 10,091 | | | | | | 10,091 | | | | | | 10,091 | | | | | | | | | | | | | | | RSU | | | | | | 06/08/2021 | | | | | | 8,604 | | | | | | 8,604 | | | | | | 8,604 | | | | | | 8,606 | | | | J.J. Kavanaugh | | | | | RSU | | | | | | 06/08/2018 | | | | | | 2,968 | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/07/2019 | | | | | | 3,885 | | | | | | 3,889 | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/08/2020 | | | | | | 5,687 | | | | | | 5,688 | | | | | | 5,688 | | | | | | | | | | | | | | | RSU | | | | | | 06/08/2021 | | | | | | 5,162 | | | | | | 5,163 | | | | | | 5,163 | | | | | | 5,163 | | | | G. Cohn | | | | | RRSU | | | | | | 12/28/2020 | | | | | | 27,359 | | | | | | 23,151 | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 01/04/2021 | | | | | | 5,112 | | | | | | 5,113 | | | | | | 5,112 | | | | | | 5,114 | | | | T. Rosamilia | | | | | RSU | | | | | | 06/08/2018 | | | | | | 3,108 | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/07/2019 | | | | | | 3,885 | | | | | | 3,889 | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/08/2020 | | | | | | 4,403 | | | | | | 4,403 | | | | | | 4,404 | | | | | | | | | | | | | | | RSU | | | | | | 06/08/2021 | | | | | | 4,067 | | | | | | 4,068 | | | | | | 4,068 | | | | | | 4,068 | | | | M.H. Browdy | | | | | RSU | | | | | | 06/08/2018 | | | | | | 2,148 | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/07/2019 | | | | | | 2,880 | | | | | | 2,884 | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/08/2020 | | | | | | 3,228 | | | | | | 3,229 | | | | | | 3,231 | | | | | | | | | | | | | | | RSU | | | | | | 06/08/2021 | | | | | | 2,972 | | | | | | 2,973 | | | | | | 2,972 | | | | | | 2,973 | | |
VESTING SCHEDULE FOR UNVESTED PSUSPSUs and RPSUs | | | | | | | | | | | | | | | | | | Vesting Schedule | | Name | Name | | | Grant Date | | | Dec-2020Dec-2022 | | | Dec-2021Dec-2023 | | | A. Krishna | | | | | 12/17/2019 | | | | | | 88,602 | | | | | | | | | V.M. Rometty | | | | | | 12/17/2019 | | | | | | | | | | | | 91,286 | | | | | | | | | 06/08/20182020 | | | | 54,032 | | 74,960 | | | | | | | | | | | | | | | 06/08/2021 | | | | | | | | | | | | 63,918 | | | | J.J. Kavanaugh | | | | | 06/07/201908/2020 | | | | | | 42,250 | | 64,073 | | | | | | | | | | | | | 06/08/2021 | | | | | | | | | | | | 38,351 | | | J.J. Kavanaugh | G. Cohn | | | | | 01/04/2021 | | | | | | 12,533 | | | | | | | | | | | | | | | 01/04/2021 | | | | | | | | | | | | 18,990 | | | | T. Rosamilia | | | | | 06/08/20182020 | | | | 21,329 | | 32,710 | | | | | | | | | | | | | | | 06/08/2021 | | | | | | | | | | | | 30,216 | | | | M.H. Browdy | | | | | 06/07/201908/2020 | | | | | | 23,988 | | 27,942 | | | | | | | | | | | M.J. Schroeter | | | 06/08/20182021 | | | | 24,375 | | | | | | | | | | 22,081 | | | 06/07/2019 | | | | | | | | 44,803 | | | | | | J.E. Kelly III
| | | 06/08/2018 | | | | 23,157 | | | | | | | | | | | | | 06/07/2019 | | | | | | | | 28,905 | | | | | | M.H. Browdy
| | | 06/08/2018 | | | | 15,438 | | | | | | | | | | | | | 06/07/2019 | | | | | | | | 20,716 | |
20192021 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) | | | | | | | V.M. Rometty | | | 0 | | | | 0 | | | | 66,409 | | | $ | 8,888,951 | | | | | | | J.J. Kavanaugh | | | 0 | | | | 0 | | | | 29,127 | | | | 3,722,877 | | | | | | | M.J. Schroeter | | | 0 | | | | 0 | | | | 52,592 | | | | 7,049,935 | | | | | | | J.E. Kelly III | | | 0 | | | | 0 | | | | 41,553 | | | | 5,562,571 | | | | | | | M.H. Browdy | | | 0 | | | | 0 | | | | 25,332 | | | | 3,405,388 | |
(1) | Amounts shown in these columns reflect PSU, RSU, and RRSU awards that vested during 2019.
| | | | 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 | | | | | | 151,030 | | | | | $ | 20,242,361 | | | | J.J. Kavanaugh | | | | | 0 | | | | | | 0 | | | | | | 32,036 | | | | | | 4,496,542 | | | | G. Cohn | | | | | 0 | | | | | | 0 | | | | | | 37,676 | | | | | | 4,993,179 | | | | T. Rosamilia | | | | | 0 | | | | | | 0 | | | | | | 31,430 | | | | | | 4,406,151 | | | | M.H. Browdy | | | | | 0 | | | | | | 0 | | | | | | 23,011 | | | | | | 3,223,290 | | |
(1)
Amounts shown in these columns reflect PSU, RPSU, RSU, and RRSU awards that vested during 2021. The PSU and RPSU award for the 2017–2019 performance period vested on December 31, 2019, and paid out to each named executive officer on February 1, 2020; 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 2019 Summary Compensation Table Narrative for details on these types of awards. |
Pay Ratio
The ratio of the CEO’s annual total compensation to that of the median employee’s annual total compensation is 354:1. This ratio is based on annual total compensation of $20,160,865 for the CEO (as reported in2019-2021 performance period vested on December 31, 2021, and paid out to each named executive officer on February 1, 2022; 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 Compensation Discussion and Analysis and the 2021 Summary Compensation Table)Table for details on these types of awards.
542022 Notice of Annual Meeting & Proxy Statement | 2021 Outstanding Equity Awards at Fiscal Year-End Table and $56,896 for the median employee. The median employee used for the pay ratio disclosure in the Company’s 2018 and 2019 Proxy Statements was determined as of October 1, 2017 using annual base pay for IBM employees on that date; all foreign currencies were converted to U.S. dollars. The original median employee has since left the Company; accordingly, the Company has used another employee whose compensation is substantially similar to the original median employee, based on the compensation measure used to select the original median employee at that time. For purposes of determining our median employee in 2017, 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.
| Related Narrative
| | | 2020 Notice of Annual Meeting & Proxy Statement | 2019 Outstanding Equity Awards at FiscalYear-End Table and Related Narrative
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2021 Retention Plan Narrative General Description and Purpose During themid-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 duringat this time. In this environment, IBMtime and a retention plan, formally called the “IBM Supplemental Executive Retention Plan” (Retention Plan), was 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
The Retention Plan was closed to new participants effective May 1, 2004, and will not be replaced by any other plan.Futurefuture accruals under the Retention Plan stopped on December 31, 2007, therefore, a2007. A participant’s Retention Plan benefit does not consider pay earned or service performed after such date.Paymentsdate, and 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
The Retention Plan is discussed in its own section instead of in the Pension Benefits section. As a consequence,section, and the amounts reflected below are separately presented in the 20192021 Retention Plan Table and are not included in the 20192021 Pension Benefits Table. The 20192021 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. KellyMr. Rosamilia are eligible for a benefit under the Retention Plan. Mr. Schroeter isKrishna, Mr. Cohn and Ms. Browdy are 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. Ms. Browdy was hired afterunder the Retention Plan was closed to new participants.Plan. Description of Retention Plan •
The Retention Plan provides for payment of an annual benefit as long as the participant satisfies the age, service, pay, and job level requirements. •
Effective July 1, 1999, IBM amended the Retention Plan to provide a new benefit formula, but allowed participants who met certain age, service, and pay level conditions as of June 30, 1999 to continue to earn benefits under the prior formula if the prior formula provides a greater benefit. •
Retention Plan benefits are subject to forfeiture and rescission if an executive is terminated for cause or engages in competitive or other activity detrimental to IBM during or following employment. Material Terms and Conditions: 1995 Retention Plan •
The benefits provided under the Retention Plan for Mr. Kavanaugh and Dr. Kelly are determined under the Retention Plan formula in effect prior to the July 1, 1999 amendment (1995 Retention Plan). •
Benefits are available under the 1995 Retention Plan only if a participant terminates employment, becomes disabled or dies on or after meeting the early retirement age and service requirement, holds an executive-level position immediately prior to termination or death, and has final average pay of at least $160,000 immediately prior to termination, disability or death. •
The benefit provided under the 1995 Retention Plan is payable only as an annuity beginning on the first day of the month following termination of employment (subject to asix-month delay for “specified employees” as required under Section 409A of the Internal Revenue Code). •
While Mr. Kavanaugh’s benefit is determined under the 1995 Retention Plan, he was partially grandfathered under this formula which means that his accruals stopped December 31, 2003 and the threshold to determine his benefit is $233,400 instead of $311,400 for fully grandfathered participants . If the participantMr. Kavanaugh terminates employment on or after age 60, the 1995his Retention Plan benefit expressed as an annual single life annuity is equal to:
•
If the participant terminates employment before age 60, the annual single life annuity resulting from the sum of the amounts specified in (1) through (4) is reduced as specified in the Retention Plan. For example, if a participant terminates at age 59, the benefit is reduced by 3%, at age 58, by 7%, and at age 57, by 11%. •
The benefit of a participant in the 1995 Retention Plan will not be less than the benefit that would be provided if the participant were in the 1999 Retention Plan, as described in the next subsection. Material Terms and Conditions: 1999 Retention Plan •
The benefits provided under the Retention Plan to Mrs. RomettyMr. Rosamilia are determined under the Retention Plan formula in effect on and after the July 1, 1999 amendment (1999 Retention Plan). •
Benefits are available under the 1999 Retention Plan if a participant holds an executive-level position immediately prior to termination or death, has final average pay in excess of $405,400 on both January 1, 2007 and immediately prior to termination or death, and either: —
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 2022 Notice of Annual Meeting & Proxy Statement | 2021 Retention Plan Narrative 55
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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). | | prior to termination or death, has final average pay in excess of $405,400 on both January 1, 2007 and immediately prior to termination or death, and either:
|
| – | | 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). | •If the participant terminates employment after attaining age 60 and completing at least five years of service, the 1999 Retention Plan benefit expressed as an annual single life annuity is equal to:
•
In no event will the sum of the amounts in (1) and (2) exceed 65% times final average pay times a fraction (no greater than 1), the numerator of which is the participant’s years of service and the denominator of which is 35. •
A participant who terminates employment after attaining age 55, but prior to attaining age 60, who completes at least 15 years of service, and who receives Compensation Committee and chairman and chief executive officer approval (or Board approval in the case of the two highest paid officers) as described above, will receive a reduced single life annuity. The reduced single life annuity will be determined by reducing the sum of the amounts specified in (1) and (2) by 0.5% for each month that the benefit commencement date precedes age 60. Compensation Elements Included in Calculations •
The definitions of eligible final average pay and eligible compensation for purposes of the Retention Plan have the same meanings as under the Pension Credit Formula in the IBM Personal Pension Plan. •
The Retention Plan is unfunded and maintained as a book reserve (notional) account. •
No funds are set aside in a trust or otherwise; participants in the Retention Plan are general unsecured creditors of IBM regarding the payment of their Retention Plan benefits. Policy Regarding Extra Years of Credited Service •
Generally, a participant’s years of credited service for benefits are based on the years an employee participated in the IBM Personal Pension Plan through December 31, 2007, the date accrual of future benefits stopped. | | Personal Pension Plan through December 31, 2007, the date accrual of future benefits stopped.
|
Available Forms of Payment •
A participant’s benefit is only payable in the form of an annuity with monthly benefit payments beginning on the first day of the month following termination of employment (subject to asix-month delay for “specified employees” as required under Section 409A of the Internal Revenue Code). Lump sum payments are not available under the Retention Plan. •
A participant may elect to receive his or her benefit in the form of a single life annuity or in certain other actuarially equivalent forms of payment. Annual Retention Plan Benefit •
The annual Retention Plan benefit that was earned as of December 31, 2007 and that is payable as a single life annuity beginning at the earliest unreduced retirement age (as defined in the next subsection) for each eligible named executive officer is detailed in the table below. | | | | | Name
| | Annual Retention Plan Benefit at
Earliest Unreduced Retirement Age
| | | | | Name | | | Annual Retention Plan Benefit at Earliest Unreduced Retirement Age | | | J.J. Kavanaugh | | | | $ | 18,757 | | | | T. Rosamilia | | | | | 87,795 | | |
V.M. Rometty
| | | $ 96,830
| | | | J.J. Kavanaugh
| | | 16,314
| | | | J.E. Kelly III
| | | 594,027
| |
Present Value of Accumulated Benefit •
The present value of accumulated benefit shown in the 20192021 Retention Plan Table below is the value as of December 31, 20192021 of the annual Retention Plan benefit that was earned as of December 31, 2007. •
The earliest unreduced retirement age is the earliest age an eligible named executive officer may start receiving the Retention Plan benefit without a reduction for early commencement. As of December 31, 2019, Mrs. Rometty and Dr. Kelly had2021, Mr. Rosamilia reached the earliest unreduced retirement age. Because Mr. Kavanaugh did not attain age 60 by December 31, 2019,2021, 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 2019 Retention Plan Table2021 Pension Benefits Table. 20192021 RETENTION PLAN TABLE | | | | | | | | | | | | | | | Name (a) | | Plan Name (b) | | Number of Years Credited Service(1) (#) (c) | | | Present Value of Accumulated Benefit(2) ($) (d) | | | Payments During Last Fiscal Year ($) (e) | | | | | | | V.M. Rometty | | Retention
Plan | | | 26 | | | $ | 1,649,913 | | | | $0 | | | | | | | J.J. Kavanaugh | | Retention
Plan | | | 12 | | | | 232,961 | | | | 0 | | | | | | | J.E. Kelly III | | Retention
Plan | | | 27 | | | | 8,828,849 | | | | 0 | |
| | | 2020 Notice of Annual Meeting & Proxy Statement | 2019 Retention Plan Narrative
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| | | | | | | Number of Years Credited | | | Present Value of Accumulated | | | Payments During Last | | | | | | | | | Service | (1) | | Benefit | (2) | | Fiscal Year | | | Name (a) | | | Plan Name (b) | | | (#) (c) | | | ($) (d) | | | ($) (e) | | | J.J. Kavanaugh | | | Retention Plan | | | | | 12 | | | | | $ | 309,586 | | | | | $ | 0 | | | | T. Rosamilia | | | Retention Plan | | | | | 25 | | | | | | 1,584,285 | | | | | | 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 12 additional years of service with IBM after that date.
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(2) | (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 14 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, 2019:
Measurement date: December 31, 2019
Interest rate for present value: 3.1%
To determine Personal Pension Account benefit:
| – | | 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 to convert Personal Pension Account balance to single life annuity is 2020 Personal Pension Account Optional Combined Unisex Table |
Mortality(pre-commencement): None
Mortality (post-commencement):
| – | Base Table: ModifiedRP-2014 White Collarsex-distinct annuitant tables with adjustment to 2006 by backing outMP-2014 improvement and further adjusting the mortality rates by a factor of 1.016
|
| – | Improvement Scale: A modified ScaleMP-2019 projection table with projected improvements starting in 2006 for healthy mortality. The modified table is based on the RPEC 2014 v2019 model, with the same 20 year diagonal convergence period and 10 year horizontal convergence period and underlying weighting percentages for the age/period andyear-of-birth cohort periods. The long-term improvement rates are 0.75% up to age 85, linearly decreasing to 0.0% at age 115
|
Withdrawal rates: None
Retirement rates: None prior to Assumed Retirement Age
Normal Retirement Age: Age 60 for Retention Plan, Age 65 for IBM Personal Pension Plan
Assumed Retirement Age: Later of Age 60 for Retention Plan, Age 65 for IBM Personal Pension Plan, or current age
Accumulated benefit is calculated based on credited service and final average pay as of December 31, 2007
Offset for benefit payable under the IBM Personal Pension Plan is determined based on the single life annuity that would be payable under the plan beginning on the first day of the month following the assumed termination of employment
Present value isPlan. For assumptions used to calculate the present value, ofsee the single life annuity payable at assumed retirement age beginning on the first day of the month following the assumed termination of employment. Thesix-month delay under the Retention Plan for “specified employees” as required under Section 409A of the Internal Revenue Code was disregarded for this purpose
All results shown are estimates only; actual benefits will be based on precise credited service and compensation history, which will be determined at termination of employment
Assumptions“Assumptions used to determine present value as of December 31, 2018: 2021 for each eligible named executive officer’ immediately following the 2021 Pension Benefits table.The column titled Change in
562022 Notice of Annual Meeting & Proxy Statement | 2021 Retention Plan Value in the 2019 Summary Compensation Table quantifies the change in the present value of the Retention Plan benefit from December 31, 2018 to December 31, 2019Narrative
To determine the present value of the Retention Plan benefit as of December 31, 2018, the same assumptions that are described above to determine present value as of December 31, 2019 were used, except (1) a 4.1% interest rate, ModifiedRP-2014 White Collarsex-distinct annuitant tables with adjustment to 2006 by backing outMP-2014 improvement and further adjusting the mortality rates at each age (averaging approximately 1.016); and the ModifiedMP-2018 improvement scale, and (2) to determine the Personal Pension Account benefit, the following were used: | – | Interest crediting rate: 3.6% for 2019 and after
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| – | Interest rate to convert Personal Pension Account balance to annual single life annuity: 3.2133% for years 1–5, 4.2667% for years 6–20, and 4.5767% for year 21 and after
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Mortality table for Personal Pension Account balance conversion: 2019 Personal Pension Account Optional Combined Unisex Table
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| | 2020 Notice of Annual Meeting & Proxy Statement | 2019 Retention Plan Narrative
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20192021 Pension Benefits Narrative
The 20192021 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. Mrs. Rometty, Mr.Messrs. Krishna, Kavanaugh Mr. Schroeter and Dr. KellyRosamilia have pension benefits under the U.S. defined benefit pension plan, andplan. Neither Mr. Cohn nor Ms. Browdy does not 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 atax-qualified plan and anon-tax qualified plan. Effective January 1, 2008, thenon-tax qualified plan was renamed the IBM Excess Personal Pension Plan and is referred to herein as the Nonqualified Plan, and thetax-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. •
Effective July 1, 1999, IBM amended the IBM Personal Pension Plan to provide a new benefit formula, but allowed participants who met certain age and service conditions as of June 30, 1999, to elect to continue to earn benefits under the prior formulas, including the Pension Credit Formula. •
Accrual of future benefits under the IBM Personal Pension Plan stopped on December 31, 2007. Accordingly, a participant’s pension benefit does not consider pay earned and service credited after such date. •
The Qualified Plan provides funded,tax-qualified benefits up to the limits on compensation and benefits under the Internal Revenue Code. •
The Nonqualified Plan provides unfunded, nonqualified benefits in excess of the limits on compensation. IBM U.S. Personal Pension Plan (Qualified(Qualified Plan) Purpose of the Qualified Plan •
The Qualified Plan was designed to providetax-qualified pension benefits that are generally available to all U.S. regular employees. •
The cessation of accruals under the Qualified Plan and the continued IBM contributions under thetax-qualified defined contribution plan, the IBM 401(k) Plus Plan, reflects IBM’s desire to provide appropriate benefits for its employees, consistent with the changing needs of IBM’s workforce and the changing nature of retirement benefits provided by IBM’s current competition. Material Terms and Conditions: Pension Credit Formula under the Qualified Plan
The benefits under the Qualified Plan for Mrs. Rometty are determined under the Pension Credit Formula. Mrs. Rometty satisfied the eligibility requirements for the Pension Credit Formula in 1999. The Pension Credit Formula is a pension equity formula that provides annual benefits based on a participant’s total point value divided by an annuity conversion factor.
The total point value is equal to total base points times final average pay plus total excess points times final average pay in excess of Social Security Covered Compensation.
For purposes of the Pension Credit Formula, final average pay is equal to average compensation over the final five years of employment or the highest consecutive five calendar years of compensation, whichever is greater, prior to 2008.
The annuity conversion factor ispre-determined according to the IBM Personal Pension Plan document.
Prior to 2008, participants earned points as follows: 0.16 base points each year until a 4.25 base point cap was reached, and 0.03 excess points each year until a 0.75 excess point cap was reached.
The total point value is converted to an annuity at the benefit commencement date based onpre-determined annuity conversion factors.
A participant may receive his or her benefit immediately following termination of employment, or may defer benefit payments until any time between early retirement age and normal retirement age.
Early retirement age is defined as:
| – | Any age with 30 years of service;
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| – | Age 55 with 15 years of service; or
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| – | Age 62 with five years of service.
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As of December 31, 2019, Mrs. Rometty had attained early retirement age.
Under the Pension Credit Formula, a participant who terminates employment and whose pension benefit commences before his or her normal retirement age will receive smaller monthly annuity payments than if his or her benefit commences at normal retirement age.
Instead of receiving his or her entire benefiteither under the Pension Credit Formula as an annuity, a participant may elect to receive a portion(for those who met certain eligibility criteria in 1999) or the Personal Pension Account described below. The named executive officers’ benefits under the Qualified Plan are determined under the Personal Pension Account formula and therefore this disclosure will only address the material terms of such formula under the benefit as an unsubsidized lump sum. The lump sum amount is based on the benefit the participant earned before January 1, 2000.IBM Personal Pension Plan.
Material Terms and Conditions: Personal Pension Account Formula under the Qualified Plan Mr.•
Messrs. Krishna’s, Kavanaugh’s, Mr. Schroeter’s and Dr. Kelly’sRosamilia’s benefit under the Qualified Plan is determined under the Personal Pension Account formula, which is a cash balance formula. •
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
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eligible named executive officers’ eligible compensation for that year. The interest credits are based on the annual interest rate onone-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. Compensation Elements Included in Calculations •
Prior to 2008, eligible compensation was generally equal to the total amount that is included in income including: | – | Recurring payments under any form of variable compensation plan (excluding stock options and other equity awards); and
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| – | 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.
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—
Salary; —
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. •
Equity compensation – stock options,— Stock Options, RSUs, RRSUs, and PSUs –— was excluded from eligible compensation. •
Compensation for a year was limited to the compensation limit under the Internal Revenue Code. For 2007, the last year that benefits accrued under the Qualified Plan, the compensation limit was $225,000. In addition, benefits provided under the Qualified Plan may not exceed an annual benefit limit under the Internal Revenue Code (which in 20192021 was $225,000$230,000 payable as an annual single life annuity beginning at normal retirement age). •
Benefits under the Qualified Plan are funded by an irrevocable tax-exempt trust. tax-exempt• trust.
A participant’s benefits under the Qualified Plan are payable from the assets held by the tax-exempt trust. tax-exempt2022 Notice of Annual Meeting & Proxy Statement | trust.2021 Pension Benefits Narrative 57
Policy Regarding Extra Years of Credited Service •
Generally, a participant’s years of credited service are based on the years an employee participates in the Qualified Plan. •
The years of credited service for the eligible named executive officers are based only on their service while eligible for participation in the Qualified Plan. In 2005, Mr. Schroeter left IBM U.S. and became an executive of IBM Australia, and therefore, Mr. Schroeter’s years of credited service for benefit calculations in the 2019 Pension Benefits Table are based | | only on his service with IBM U.S. Because accruals under the Qualified Plan stopped on December 31, 2007, service performed after such date is not counted for any named executive officer.
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IBM U.S. Excess Personal Pension Plan (Nonqualified Plan) Purpose of the Nonqualified Plan •
The Nonqualified Plan provides Qualified Plan participants with benefits that may not be provided under the Qualified Plan because of the tax limits on eligible compensation. •
The benefit provided to a participant is payable following a separation from service from IBM (subject to thesix-month delay for “specified employees” as required under Section 409A of the Internal Revenue Code). Material Terms and Conditions of the Nonqualified Plan •
The Nonqualified Plan provides a benefit that is equal to the benefit that would be provided under the Qualified Plan if the compensation and benefit limits did not apply minus the benefit actually provided under the Qualified Plan disregarding the benefit limits. Nonqualified Plan Funding •
The Nonqualified Plan is unfunded and maintained as a book reserve (notional) account. •
No funds are set aside in a trust or otherwise; participants in the Nonqualified Plan are general unsecured creditors of IBM with respect to the payment of their Nonqualified Plan benefits. Policy Regarding Extra Years of Credited Service •
The years of credited service for the eligible named executive officers are based only on their service while eligible for participation in the Qualified Plan. Because accruals under the Nonqualified Plan stopped on December 31, 2007, service performed after such date is not counted. Available Forms of PaymentPension Credit Formula
A portion of the benefit that is available to Mrs. Rometty under the Qualified Plan may be paid as a lump sum. The portion is determined on the benefit that was earned before January 1, 2000.
The benefit available to Mrs. Rometty under the Nonqualified Plan may only be paid as an annuity.
Personal Pension Account •
Under the terms of the Qualified Plan, the entire benefit may be paid as a lump sum. Under the terms of the Nonqualified Plan, Mr. Schroeter’s entire Nonqualified Plan benefit must be paid as a mandatory lump sum. Mr.
•
Messrs. Krishna, Kavanaugh, and Dr. KellyRosamilia have elected to receive their Nonqualified Plan benefit in a lump sum immediately following separation from service. •
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The maximum lump sum amount that the eligible named executive officers could have elected to receive under the Qualified Plan and Nonqualified Plan, as of January 1, 20202022 if they had a separation from service from IBM on December 31, 20192021 was equal to: | | | | | | | | | | | | | | | Maximum Lump Sum | | Name | | Qualified Plan | | | Nonqualified Plan | | | Total Available Lump Sum | | | | | | V.M. Rometty | | $ | 578,596 | | | | N/A | | | $ | 578,596 | | | | | | J.J. Kavanaugh | | | 170,864 | | | | 73,933 | | | | 244,797 | | | | | | M.J. Schroeter | | | 66,966 | | | | 22,819 | | | | 89,785 | | | | | | J.E. Kelly III | | | 482,186 | | | | 1,048,526 | | | | 1,530,712 | |
| Name | | | Maximum Lump Sum | | | Qualified Plan | | | Nonqualified Plan | | | Total Available Lump Sum | | | A. Krishna | | | | $ | 262,694 | | | | | $ | 82,835 | | | | | $ | 345,529 | | | | J.J. Kavanaugh | | | | | 177,408 | | | | | | 76,765 | | | | | | 254,173 | | | | T. Rosamilia | | | | | 467,847 | | | | | | 146,543 | | | | | | 614,390 | | |
•
A participant may elect to receive his or her entire benefit, or the portion of the benefit that is not paid as a lump sum, in the form of a single life annuity or in certain other actuarially equivalent forms of payment. •
The annual pension benefit that was earned as of December 31, 2007, and that is payable as a single life annuity beginning at normal retirement age for each of the eligible named executive officers is below. Because Mr.Messrs. Krishna, Kavanaugh, Mr. Schroeter and Dr. KellyRosamilia will receive a lump sum payment for their Nonqualified Plan benefits, no amount is represented for them in the Nonqualified Plan column below: | | is represented for them in the Nonqualified Plan column below:
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| | | | | | | | | | | | | | | | | | Annual Pension Benefit at Normal Retirement Age | Name | | Qualified Plan | | Nonqualified Plan | | Total Benefit | | | | | V.M. Rometty | | | $ | 82,083 | | | | $ | 342,761 | | | | $ | 424,844 | | | | | | J.J. Kavanaugh | | | | 15,655 | | | | | N/A | | | | | 15,655 | | | | | | M.J. Schroeter | | | | 5,947 | | | | | N/A | | | | | 5,947 | | | | | | J.E. Kelly III | | | | 33,619 | | | | | N/A | | | | | 33,619 | |
| Name | | | Annual Pension Benefit at Normal Retirement Age | | | Qualified Plan | | | Nonqualified Plan | | | Total Benefit | | | A. Krishna | | | | $ | 20,769 | | | | | | N/A | | | | | $ | 20,769 | | | | J.J. Kavanaugh | | | | | 12,546 | | | | | | N/A | | | | | | 12,546 | | | | T. Rosamilia | | | | | 34,552 | | | | | | N/A | | | | | | 34,552 | | |
Present Value of Accumulated Benefit •
The present value of accumulated benefit is the value as of December 31, 20192021 of the annual pension benefit that was earned as of December 31, 2007. •
The annual pension benefit is the benefit that is payable for the named executive officer’s life beginning at his or her normal retirement age. •
The normal retirement age is defined as the later of age 65 or the completion of one year of service. •
Certain assumptions were used to determine the present value of accumulated benefits. Those assumptions are described immediately following the 20192021 Pension Benefits Table. 2019582022 Notice of Annual Meeting & Proxy Statement | 2021 Pension Benefits Narrative
2021 PENSION BENEFITS TABLE As noted in the General Description and Purpose to the 20192021 Retention Plan Narrative, the 20192021 Pension Benefits Table does not include amounts reflected in the 20192021 Retention Plan Table. | | | | | | | | | | | | | | | Name (a) | | Plan Name (b) | | Number of Years Credited Service(1) (#) (c) | | | Present Value of Accumulated Benefit(2) ($) (d) | | | Payments During Last Fiscal Year ($) (e) | | | | | | | V.M. Rometty | | Qualified Plan | | | 26 | | | | $1,215,507 | | | | $0 | | | | Nonqualified Plan | | | | | | | 5,075,668 | | | | 0 | | | | Total Benefit | | | | | | | $6,291,175 | | | | $0 | | | | | | | J.J. Kavanaugh | | Qualified Plan | | | 12 | | | | $ 165,153 | | | | $0 | | | | Nonqualified Plan | | | | | | | 70,659 | | | | 0 | | | | Total Benefit | | | | | | | $ 235,812 | | | | $0 | | | | | | | M.J. Schroeter | | Qualified Plan | | | 4 | | | | $ 66,531 | | | | $0 | | | | Nonqualified Plan | | | | | | | 21,971 | | | | 0 | | | | Total Benefit | | | | | | | $ 88,502 | | | | $0 | | | | | | | J.E. Kelly III | | Qualified Plan | | | 27 | | | | $ 496,200 | | | | $0 | | | | Nonqualified Plan | | | | | | | 1,048,526 | | | | 0 | | | | Total Benefit | | | | | | | $1,544,726 | | | | $0 | |
(1) | Reflects years of credited service as of December 31, 2007, which was the date accruals under the Qualified Plan and the Nonqualified Plan stopped. Each of the named executive officers in this table has 12 additional years of service with IBM after that date.
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(2) | While the accruals under the Qualified Plan and the Nonqualified Plan stopped on December 31, 2007, the value of the Qualified Plan and Nonqualified Plan benefits for the eligible named executive officers will continue to change based on their ages and the assumptions used to calculate the present value of the accumulated benefit.
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| | | | | | | Number of Years | | | Present Value of | | | Payments During | | | | | | | | | Credited Service | (1) | | Accumulated Benefit | (2) | | Last Fiscal Year | | | Name (a) | | | Plan Name (b) | | | (#) (c) | | | ($) (d) | | | ($) (e) | | | A. Krishna | | | Qualified Plan | | | | | 17 | | | | $283,895 | | | | $ | 0 | | | | | | | Nonqualified Plan | | | | | | | | | 75,922 | | | | | 0 | | | | | | | Total Benefit | | | | | | | | | $359,817 | | | | $ | 0 | | | | J.J. Kavanaugh | | | Qualified Plan | | | | | 12 | | | | $155,881 | | | | $ | 0 | | | | | | | Nonqualified Plan | | | | | | | | | 66,578 | | | | | 0 | | | | | | | Total Benefit | | | | | | | | | $222,459 | | | | $ | 0 | | | | T. Rosamilia | | | Qualified Plan | | | | | 25 | | | | $499,374 | | | | $ | 0 | | | | | | | Nonqualified Plan | | | | | | | | | 137,990 | | | | | 0 | | | | | | | Total Benefit | | | | | | | | | $637,364 | | | | $ | 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 14 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, 20192021 for each eligible named executive officer: •
Measurement date: December 31, 20192021 •
Interest rate for present value: 3.1%2.6% •
To determine Personal Pension Account benefit: | – | Interest crediting rate: 2.7% for 2020 and after
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| – | 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
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| – | —
Interest crediting rate: 1.1% for 2022 and after —
Interest rate to convert Personal Pension Account balance to single life annuity: 0.7433% for years 1 – 5, 2.5967% for years 6 – 20, and 3.1133% for year 21 and after —
Mortality table to convert Personal Pension Account balance to single life annuity is 2022 Pension Protection Act Optional Combined Unisex Table •
Mortality table to convert Personal Pension Account balance to single life annuity is 2020 Personal Pension Account Optional Combined Unisex Table |
Mortality(pre-commencement): None None
•
Mortality (post-commencement): | – | Base Table: ModifiedRP-2014 White Collarsex-distinct annuitant tables with adjustment to 2006 by backing outMP-2014 improvement and further adjusting the mortality rates by a factor of 1.016
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— | | | 2020 Notice of Annual Meeting & Proxy Statement |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 2019 Pension Benefits Narrative
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—
| – | Improvement Scale: A modified Scale MP-2021 projection table starting in 2006 for healthy mortality. The modified table is based on the MIM 2021 model, with the same 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 •
MP-2019 projection table starting in 2006 for healthy mortality. The modified table is based on the RPEC 2014 v 2019 model, with the same 20 year diagonal convergence period and 10 year horizontal convergence period and underlying weighting percentages for the age/period andyear-of-birth cohort periods. The long-term improvement rates are 0.75% up to age 85, linearly decreasing to 0.0% at age 115
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Withdrawal rates: None •
Retirement rates: None prior to Assumed Retirement Age •
Normal Retirement Age: Age 60 for Retention Plan, Age 65 for IBM Personal Pension Plan •
Assumed Retirement Age: Later of Age 60 for Retention Plan, Age 65 for IBM Personal Pension Plan, or current age •
Accumulated benefit is calculated based on credited service and compensation history as of December 31, 2007 Benefit payable as a single life annuity in
•
In the case of the qualified Personal Pension Credit Formula andAccount formula, the benefit is payable as a 50% lump sum/50% annuity for Dr. Kelly and a 90% lump sum/10% annuity for Messrs. Krishna and Kavanaugh, and Schroeter in the case of the qualified Personal Pension Account Formulaa 50% lump sum/50% annuity for Mr. Rosamilia, beginning on the first day of the month following a separation from service from IBM. The Excess Plan’s Personal Pension Plan Account formula benefit for Messrs. Krishna, Kavanaugh and Schroeter and Dr. KellyRosamilia is payable as a lump sum. Thesix-month delay under the Nonqualified Plan for “specified employees” as required under Section 409A of the Internal Revenue Code was disregarded for this purpose The Pension Credit Formula conversion factor is based on age at December 31, 2007 and commencement at age 65•
All results shown are estimates only; actual benefits will be based on precise credited service and compensation history, which will be determined at separation from service from IBM Assumptions to determine present value as of December 31, 2018:2020: •
The column titled Change in Pension Value in the 20192021 Summary Compensation Table quantifies the change in the present value of the pension benefit from December 31, 20182020 to December 31, 20192021 •
To determine the present value of the pension benefit as of December 31, 2018,2020, the same assumptions that are described above to determine the present value as of December 31, 20192021 were used, except a (1) 4.1%2.2% interest rate, ModifiedRP-2014 White Collarsex-distinct annuitant tables with adjustment to 2006 by backing outMP-2014 improvement and further adjusting the mortality rates at each age (averaging approximately 1.016); and ModifiedMP-2018 MP-2020 improvement scale, and (2) to determine the Personal Pension Account benefit, the following were used: | – | Interest crediting rate: 3.6% for 2019 and after
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| – | Interest rate to convert Personal Pension Account balance to single life annuity: 3.2133% for years 1–5, 4.2667% for years 6–20, and 4.5767% for year 21 and after
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| – | Mortality table for Personal Pension Account balance conversion: 2019 Personal Pension Account Optional Combined Unisex Table
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—
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 for Personal Pension Account balance conversion: 2021 Pension Protection Act Optional Combined Unisex Table 2022 Notice of Annual Meeting & Proxy Statement | 2021 Pension Benefits Narrative 59 | | | 62
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2021 Nonqualified Deferred Compensation Narrative IBM Excess 401(k) Plus Plan – — U.S. General Description and Purpose •
Effective January 1, 2008, the IBM Executive Deferred Compensation Plan (EDCP) was amended and renamed the IBM Excess 401(k) Plus Plan. IBM employees, including the named executive officers, who are eligible to participate in the IBM 401(k) Plus Plan and whose eligible pay is expected to exceed the Internal Revenue Code compensation limit for the applicable plan year are eligible to participate in the Excess 401(k) Plus Plan. The purpose of the Excess 401(k) Plus Plan is to provide employees with the opportunity to save for retirement on atax-deferred basis and provide benefits that would be provided under the qualified IBM 401(k) Plus Plan if the compensation limits did not apply. •
The 20192021 Nonqualified Deferred Compensation Table shows the employee deferrals (executive contributions), IBM match (registrant contributions), automatic contributions (registrant contributions), discretionary awards (registrant contributions) and investment gain or loss (aggregate earnings) for each named executive officer during 2019.2021. •
The table also shows the total balance that each named executive officer has accumulated over all the years he or she has participated in the plan. •
Account balances in the Excess 401(k) Plus Plan are comprised of cash amounts that were deferred by the participant or contributed by IBM (Basic Account), and all deferred shares, comprised of shares that were deferred by the participant (Deferred IBM Shares). Generally, amounts deferred and vested prior to January 1, 2005 are not subject to Section 409A of the Internal Revenue Code, while amounts deferred and vested on and after January 1, 2005 are subject to Section 409A of the Internal Revenue Code. •
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. The Excess 401(k) Plus Plan allows the clawback of
•
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 (including but not limited to competitive business activity, disclosure of confidential IBM information or solicitation of IBM clients or employees)., the Excess 401(k) Plus Plan allows for clawback of any such contributions made in the 12- month period prior to such detrimental activity through separation of employment. Compensation Eligible for Deferral under Excess 401(k) Plus Plan •
An eligible employee may elect to defer up to 80% of salary and eligible performance pay, which includes annual incentive program payments. •
In both cases, the Internal Revenue Code requires the deferral elections to be made before the calendar year in which the compensation is earned. •
Prior to January 1, 2008, under the EDCP, any executive, includingnon-U.S. executives, could have elected to defer receipt of shares of IBM stock that otherwise would be paid as | | a result of the vesting of certain restricted stock unit awards granted on or before December 31, 2007 under IBM’s Long-Term Performance Plan (LTPP). Such deferral occurred when the awards vested.
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as a result of the vesting of certain restricted stock unit awards granted on or before December 31, 2007 under IBM’s Long-Term Performance Plan (LTPP). Such deferral occurred when the awards vested. •
In addition, in accordance with Internal Revenue Service rules, an executive could have also elected to defer receipt of shares of IBM stock that otherwise would be paid on or before February 1, 2008 as a result of the vesting of Performance Share Unit (PSU) awards under IBM’s LTPP. •
There are no outstanding deferral elections that would result in any future deferral of stock. •
Dividend equivalents on Deferred IBM Shares are paid in cash at the same rate and on the same date as the dividends paid to IBM stockholders, and are contributed to the Basic Account. Excess 401(k)Plus Plan Funding •
The Excess 401(k) Plus Plan is unfunded and maintained as a book reserve (notional) account. •
No funds are set aside in a trust or otherwise; participants in the plan are general unsecured creditors of IBM for payment of their Excess 401(k) Plus Plan accounts. IBM Matching Contributions •
IBM credits matching contributions to the Basic Account of each eligible participant who defers salary or eligible performance pay under the Excess 401(k) Plus Plan. •
The matching contributions equal the 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. The maximum matching contribution percentage for a participant is the same as the participant’s percentage under the IBM 401(k) Plus Plan. Generally, participants hired or rehired by IBM U.S. before January 1, 2005, are eligible for up to 6% matching contributions; generally, participants hired or rehired by IBM U.S. on or after January 1, 2005 and who complete one year of service, are eligible for up to 5% matching contributions. Mrs. Rometty,Mr. Krishna, Mr. Kavanaugh, and Dr. KellyMr. Rosamilia are eligible for a 6% matching contribution. Mr. SchroeterCohn and Ms. Browdy are eligible for a 5% matching contribution. Effective January 1, 2016, the matching contributions equal the sum of: (i) a participant’s match rate times the amount the participant elects to defer under the Excess 401(k) Plus Plan; and (ii) the participant’s match rate times the eligible compensation after reaching the Internal Revenue Code compensation limits. IBM Automatic Contributions •
Effective January 1, 2008, IBM credits automatic contributions to the Basic Account of each eligible participant. •
The automatic contributions equal 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. The automatic contribution percentage for a participant is the participant’s automatic
602022 Notice of Annual Meeting & Proxy Statement | 2021 Nonqualified Deferred Compensation Narrative
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| | 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 Mr. Kavanaugh and Dr. Kelly; and 1% for Mr. Schroeter and Ms. Browdy.
| 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; 2% for Messrs. Krishna, Kavanaugh and Rosamilia; and 1% for Mr. Cohn and Ms. Browdy.•
Matching contributions and automatic contributions are made once annually at the end of the year. In order to receive such IBM contributions each year, a participant must have completed the service requirement, and must be employed on December 15 of the plan year. However, if a participant separates from service (including going on long-term disability) prior to December 15, and the participant has: | – | —
At least 30 years of service; —
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 30 years of service; |
| – | At least 15 years of service and is at least age 55;
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| – | At least 5 years of service and is at least age 62; or
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| – | At least 1 year of service and is at least age 65;
|
or, effective July 1 2016,year of service and is at least age 65;
or, 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. •
Effective for the period of January 1, 2008 through June 30, 2009, IBM credited transition credits to an eligible 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. Under the terms of the IBM 401(k) Plus Plan, Mr.Messrs. Krishna, Kavanaugh and Dr. KellyRosamilia were eligible to receive transition credits. •
A participant’s contributions to the Basic Account are adjusted for earnings and losses, until it has been completely distributed, based on investment choices selected by the participant. •
IBM does not pay guaranteed, above-market or preferential earnings in the Excess 401(k) Plus Plan. •
The available investment choices are the same as the primary investment choices available under the IBM 401(k) Plus Plan, which are as follows (with 20192021 annual rates of return indicated for each): | – | Target Retirement 2010 Fund (14.05%)
|
| – | Target Retirement 2015 Fund (15.91%)
|
| – | Target Retirement 2020 Fund (17.95%)
|
| – | Target Retirement 2025 Fund (20.11%)
|
| – | Target Retirement 2030 Fund (22.33%)
|
| – | Target Retirement 2035 Fund (24.18%)
|
| – | Target Retirement 2040 Fund (24.87%)
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| – | Target Retirement 2045 Fund (24.88%)
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| – | Target Retirement 2050 Fund (24.91%)
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| – | Target Retirement 2055 Fund (24.92%)
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| – | Income Plus Fund (13.48%)
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| – | Conservative Fund (17.04%)
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| – | Aggressive Fund (24.25%)
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| – | Interest Income Fund (3.08%)
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| – | Inflation Protected Bond Fund (8.43%)
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| – | Total Bond Market Fund (8.78%)
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| – | High Yield & Emerging Markets Bond Fund (15.14%)
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| – | Total Stock Market Index Fund (30.93%)
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| – | Total International Stock Market Index Fund (22.36%)
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| – | Global Real Estate Stock Index Fund (25.03%)
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| – | Long-Term Corporate Bond Fund (23.96%)
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| – | Large Company Index Fund (31.50%)
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| – | —
Target Retirement 2020 Fund (7.62%) —
Target Retirement 2025 Fund (9.64%) —
Target Retirement 2030 Fund (11.75%) —
Target Retirement 2035 Fund (13.76%) —
Target Retirement 2040 Fund (15.79%) —
Target Retirement 2045 Fund (17.05%) —
Target Retirement 2050 Fund (17.20%) —
Target Retirement 2055 Fund (17.23%) —
Target Retirement 2060 Fund (17.23%) —
Target Retirement 2065 Fund (17.28%) —
Income Plus Fund (6.07%) —
Conservative Fund (8.98%) —
Moderate Fund (12.13%) —
Aggressive Fund (16.58%) —
Interest Income Fund (2.21%) —
Inflation Protected Bond Fund (5.88%) —
Total Bond Market Fund (-1.69%) —
High Yield & Emerging Markets Bond Fund (-.35%) —
Total Stock Market Index Fund (25.66%) —
Total International Stock Market Index Fund (8.52%) —
Global Real Estate Stock Index Fund (29.51%) —
Long-Term Corporate Bond Fund (-1.18%) —
Large Company Index Fund (28.69%) —
Large-Cap Value Index Fund (25.16%) —
Large-Cap Growth Index Fund (27.58%) —
Small/Mid-Cap Stock Index Fund (12.83%) —
Small-Cap Value Index Fund (28.28%) —
Small-Cap Growth Index Fund (2.90%) —
European Stock Index Fund (16.63%) —
Pacific Stock Index Fund (2.85%) —
Emerging Markets Stock Index Fund (.93%) —
Real Estate Investment Trust Index Fund (43.66%) —
International Real Estate Index Fund (10.54%) —
IBM Stock Fund (16.63%)* *
Performance includes dividend equivalent reinvestment •
Large-Cap Value Index Fund (26.56%)
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| – | Large-Cap Growth Index Fund (36.39%)
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| – | Small/Mid-Cap Stock Index Fund (28.27%)
|
| – | Small-Cap Value Index Fund (22.42%)
|
| – | Small-Cap Growth Index Fund (28.72%)
|
| – | European Stock Index Fund (24.05%)
|
| – | Pacific Stock Index Fund (19.17%)
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| – | Emerging Markets Stock Index Fund (20.40%)
|
| – | Real Estate Investment Trust Index Fund (25.80%)
|
| – | International Real Estate Index Fund (23.75%)
|
| – | IBM Stock Fund (23.58%)*
|
* | Performance includes dividend equivalent reinvestment
|
A participant may change the investment selections for new payroll deferrals as frequently as each semi-monthly pay cycle and may change investment selections for existing account balances daily, subject to excessive trading restrictions. •
Effective January 1, 2008, the IBM match under the Excess 401(k) Plus Plan is notionally invested in the investment options in the same manner participant contributions are notionally invested. •
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| | 2020 Notice of Annual Meeting & Proxy Statement | 2019 Nonqualified Deferred Compensation Narrative
|
Because Deferred IBM Shares are credited, maintained, and ultimately distributed only as shares of IBM’s common stock, they may not be transferred to any other investment choice at any time. •
On a quarterly basis, dividend equivalents are credited to a participant’s account with respect to all or a portion of such account that is deemed to be invested in the IBM Stock Fund at the same rate as dividends to IBM stockholders. A dividend equivalent for the Kyndryl distribution, was credited to participant’s account with respect to the portion of such account that was deemed to be investing in the IBM Stock Fund at the same rate as dividends to IBM stockholders. •
Aggregate earnings on Deferred IBM Shares during the last fiscal year, as reported in column (d) of the 20192021 Nonqualified 2022 Notice of Annual Meeting & Proxy Statement | 2021 Nonqualified Deferred Compensation Narrative 61
Deferred Compensation Table, are calculated as the change in the price of IBM’s common stock between December 31, 20182020 and December 31, 20192021 for all Deferred IBM Shares that were contributed prior to 2019.2021. •
Aggregate earnings reflect an $8 quarterly administrative fee. Payouts, Withdrawals, and Other Distributions •
No payouts, withdrawals or other distributions from the Basic Account are permitted prior to a separation from service from IBM. •
At termination, the balance in an eligible executive’s Basic Account that was deferred prior to January 1, 2005 is paid to the executive in an immediate lump sum unless: (a) the balance exceeds $25,000; and (b) the executive satisfies the following age and service criteria: | – | At least age 55 with 15 years of service;
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| – | At least age 62 with 5 years of service;
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| – | At least age 65 with 1 year of service;
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| – | 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
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| – | Commencing benefits under the IBM Long-Term Disability Plan.
|
—
At least age 55 with 15 years of service; —
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. •
As of December 31, 2018, Mrs. Rometty2021, Messrs. Krishna, Kavanaugh and Dr. KellyRosamilia had satisfied the age and service criteria. Although Mr. Schroeter also satisfied the age and service criteria, he does not have a pre-2005• account balance under the Excess 401(k) Plus Plan.
If the participant has satisfied the age, service, and account balance criteria at termination, but has not made a valid advance election of another form of distribution, the amount of the participant’s Basic Account that was deferred prior to January 1, 2005 is paid in a lump sum in February of the year following separation. •
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. •
The participant’s Basic Account with respect to amounts deferred on or after January 1, 2005 may be distributed in the following forms as 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 2019,2021, 50% of this limit was $140,000)$145,000), the amounts deferred on or after January 1, 2005 are distributed in a lump sum on the date installments would have otherwise begun. •
Distribution elections may be changed in advance of separation, in accordance with Internal Revenue Code rules. •
Distribution elections apply to both the Basic Account and the Deferred Shares Account. Further, within the Basic Account and the Deferred Shares Account, different distribution elections are permitted to be made for the amounts that were deferred before January 1, 2005 and the amounts that were deferred on or after January 1, 2005. •
At December 31, 2019,2021, the named executive officers had the following distribution elections on file: | – | Mrs. Rometty – 10 annual installments for all amounts
|
| – | Mr. Kavanaugh –
—
Mr. Krishna — Lump sum paid in February of the year following separation for pre-2005 amounts, and immediate lump sum for post-2004 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. Cohn — 10 annual installments for all amounts —
Mr. Rosamilia — lump sum in February of the year following separation for all amounts —
Ms. Browdy — immediate lump sum following separation for all amounts •
pre-2005 amounts, and lump sum in February of the year following separation for post-2004 amounts.
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| – | Mr. Schroeter – lump sum in February of the year following separation for all amounts
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| – | Dr. Kelly – lump sum in February of the year following separation forpre-2005 amounts, and 10 annual installments for post-2004 amounts
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| – | Ms. Browdy – lump sum in February of the year following separation for all amounts
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Deferred IBM Shares are distributed only in the form of shares of IBM’s common stock. •
These distribution rules are subject to Section 409A of the Internal Revenue Code, including, for example, the rule that a “specified employee” may not receive a distribution of post-2004 deferrals until at least six months following a separation from service from IBM. All named executive officers, were “specified employees” under Section 409A at the end of the last fiscal year.
| | | 2020 Notice of Annual Meeting & Proxy Statement | 2019 Nonqualified Deferred Compensation Narrative
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|
2019622022 Notice of Annual Meeting & Proxy Statement | 2021 Nonqualified Deferred Compensation Narrative
2021 NONQUALIFIED DEFERRED COMPENSATION TABLE | | | | | | | | | | | | | | | | | | | | | | | | | Name (a) | | Plan | | Executive Contributions in Last FY(1) ($) (b) | | | | | Registrant Contributions in Last FY(2) ($) (c) | | | Aggregate Earnings in Last FY(3) ($) (d) | | | Aggregate Withdrawal/ Distributions ($) (e) | | | Aggregate Balance at Last FYE(4) ($) (f) | | | | | | | | | | V.M. Rometty | | Basic Account | | | $322,200 | | | Match | | | $322,200 | | | $ | 2,015,533 | | | | $0 | | | $ | 16,532,827 | | | | | | | | | | Automatic | | | 214,800 | | | | | | | | | | | | | | | | Deferred IBM Shares | | | 0 | | | | | | 0 | | | | 568,404 | | | | 0 | | | | 3,740,252 | | | | Total | | | $322,200 | | | | | | $537,000 | | | $ | 2,583,937 | | | | $0 | | | $ | 20,273,079 | | | | | | | | | | J.J. Kavanaugh | | Basic Account | | | $157,500 | | | Match | | | $ 79,293 | | | $ | 859,957 | | | | $0 | | | $ | 4,343,943 | | | | | | | | | | Automatic | | | 26,431 | | | | | | | | | | | | | | | | Deferred IBM Shares | | | 0 | | | | | | 0 | | | | 3,035 | | | | 0 | | | | 19,972 | | | | Total | | | $157,500 | | | | | | $105,724 | | | $ | 862,992 | | | | $0 | | | $ | 4,363,915 | | | | | | | | | | M.J. Schroeter | | Basic Account | | | $106,624 | | | Match | | | $ 86,520 | | | $ | 458,554 | | | | $0 | | | $ | 2,632,700 | | | | | | | | | | Automatic | | | 17,304 | | | | | | | | | | | | | | | | Deferred IBM Shares | | | 0 | | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | Total | | | $106,624 | | | | | | $103,824 | | | $ | 458,554 | | | | $0 | | | $ | 2,632,700 | | | | | | | | | | J.E. Kelly III | | Basic Account | | | $ 35,280 | | | Match | | | $ 35,280 | | | $ | 2,401,648 | | | | $0 | | | $ | 14,639,808 | | | | | | | | | | Automatic | | | 24,652 | | | | | | | | | | | | | | | | Deferred IBM Shares | | | 0 | | | | | | 0 | | | | 65,999 | | | | 0 | | | | 434,290 | | | | Total | | | $ 35,280 | | | | | | $ 59,932 | | | $ | 2,467,647 | | | | $0 | | | $ | 15,074,098 | | | | | | | | | | M.H. Browdy | | Basic Account | | | $ 62,794 | | | Match | | | $ 62,794 | | | $ | 115,611 | | | | $0 | | | $ | 1,315,041 | | | | | | | | | | Automatic | | | 12,558 | | | | | | | | | | | | | | | | Deferred IBM Shares | | | 0 | | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | Total | | | $ 62,794 | | | | | | $ 75,352 | | | $ | 115,611 | | | | $0 | | | $ | 1,315,041 | |
(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 2019 Summary Compensation Table. These amounts are: $79,200 for Mrs. Rometty; $157,500 for Mr. Kavanaugh; $42,160 for Mr. Schroeter; $35,280 for Dr. Kelly; and $23,225 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 2019 Summary Compensation Table. The amounts reported as IBM contributions to defined contribution plans in footnote 6 to the 2019 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 2019 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 $8 quarterly administrative fee.
|
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| | 2020 Notice of Annual Meeting & Proxy Statement | 2019 Nonqualified Deferred Compensation Narrative
|
| | | | | | | Executive Contributions | | | | | | Registrant Contributions | | | Aggregate Earnings in | | | Aggregate Withdrawal/ | | | Aggregate Balance at | | | | | | | | | in Last FY | (1) | | | | | in Last FY | (2) | | Last FY | (3) | | Distributions | | | Last FYE | (4) | | Name (a) | | | Plan | | | ($) (b) | | | | | | ($) (c) | | | ($) (d) | | | ($) (e) | | | ($) (f) | | | A. Krishna | | | Basic Account | | | | $ | 203,460 | | | | Match | | | | $ | 203,460 | | | | | $ | 525,047 | | | | | $ | 0 | | | | | $ | 6,176,682 | | | | | | | | | | | | | | | | Automatic | | | | | 67,820 | | | | | | | | | | | | | | | | | | | | | | | | | Deferred IBM Shares | | | | | 0 | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | | Total | | | | $ | 203,460 | | | | | | | | $ | 271,280 | | | | | $ | 525,047 | | | | | $ | 0 | | | | | $ | 6,176,682 | | | | J.J. Kavanaugh | | | Basic Account | | | | $ | 242,000 | | | | Match | | | | $ | 111,258 | | | | | $ | 1,049,138 | | | | | $ | 0 | | | | | $ | 6,906,210 | | | | | | | | | | | | | | | | Automatic | | | | | 37,086 | | | | | | | | | | | | | | | | | | | | | | | | | Deferred IBM Shares | | | | | 0 | | | | | | | | | 0 | | | | | | 1,159 | | | | | | 0 | | | | | | 19,915 | | | | | | | Total | | | | $ | 242,000 | | | | | | | | $ | 148,344 | | | | | $ | 1,050,297 | | | | | $ | 0 | | | | | $ | 6,926,125 | | | | G. Cohn | | | Basic Account | | | | $ | 0 | | | | Match | | | | $ | 0 | | | | | $ | (8) | | | | | $ | 0 | | | | | $ | 480 | | | | | | | | | | | | | | | | Automatic | | | | | 488 | | | | | | | | | | | | | | | | | | | | | | | | | Deferred IBM Shares | | | | | 0 | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | | Total | | | | $ | 0 | | | | | | | | $ | 488 | | | | | $ | (8) | | | | | $ | 0 | | | | | $ | 480 | | | | T. Rosamilia | | | Basic Account | | | | $ | 92,880 | | | | Match | | | | $ | 92,880 | | | | | $ | 483,034 | | | | | $ | 0 | | | | | $ | 4,296,187 | | ��� | | | | | | | | | | | | | | Automatic | | | | | 30,960 | | | | | | | | | | | | | | | | | | | | | | | | | Deferred IBM Shares | | | | | 0 | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | | Total | | | | $ | 92,880 | | | | | | | | $ | 123,840 | | | | | $ | 483,034 | | | | | $ | 0 | | | | | $ | 4,296,187 | | | | M.H. Browdy | | | Basic Account | | | | $ | 85,676 | | | | Match | | | | $ | 85,676 | | | | | $ | 104,557 | | | | | $ | 0 | | | | | $ | 1,794,757 | | | | | | | | | | | | | | | | Automatic | | | | | 17,135 | | | | | | | | | | | | | | | | | | | | | | | | | Deferred IBM Shares | | | | | 0 | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | | Total | | | | $ | 85,676 | | | | | | | | $ | 102,811 | | | | | $ | 104,557 | | | | | $ | 0 | | | | | $ | 1,794,757 | | |
(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 2021 Summary Compensation Table. These amounts are: $72,600 for Mr. Krishna; $242,000 for Mr. Kavanaugh; $32,400 for Mr. Rosamilia; and $30,200 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 2021 Summary Compensation Table. The amounts reported as IBM contributions to defined contribution plans in footnote 9 to the 2021 Summary Compensation Table, except for Mr. Cohn, 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 2021 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. 2022 Notice of Annual Meeting & Proxy Statement | 2021 Nonqualified Deferred Compensation Narrative 63
2021 Potential Payments Upon Termination Narrative 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.officer 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). The 20192021 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 or solicitation of IBM clients or employees). This 20192021 Potential Payments Upon Termination Narrative and the 20192021 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 20192021 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 20192021 Pension Benefits Table. The 20192021 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 20192021 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) •
The AIP may provide a lump sum, cash payment in March of the year following resignation, retirement or involuntary termination without cause. An AIP payment may not be paid if an executive engages in activity that is detrimental to IBM. •
This payment is not triggered by termination; the existence and amount of any AIP payment is determined under the terms of the AIP applicable to all executives eligible to participate, in the plan, who are employed through December 31 of the previous year. •
AIP payments to executive officers are subject to clawback as described in Section 4 of the 20192021 Compensation Discussion and Analysis. •
For purposes of the 20192021 Potential Payments Upon Termination Table below, it is assumed 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 2020.2022. IBM Long-Term Performance Plans (LTPP) •
The named executive officers have certain outstanding equity grants under the LTPP including: | – | Restricted Stock Units (RSUs);
|
| – | Retention Restricted Stock Units (RRSUs); and/or
|
| – | Performance Share Units (PSUs).
|
—
Stock Options; —
Restricted Stock Units (RSUs); —
Retention Restricted Stock Units (RRSUs); and/or —
Performance Share Units (PSUs) or retention Performance Share Units (RPSUs). •
The LTPP and/or the named executive officers’ equity award agreements contain the following terms: | – | Generally, unvested stock options, RSUs, RRSUs, and PSUs are cancelled upon termination; and
|
| – | Vested stock options may be exercised only for 90 days following termination.
|
—
Generally, unvested Stock Options, RSUs, RRSUs, PSUs and RPSUs are cancelled upon termination; and —
Vested Stock Options may be exercised only for 90 days following termination. •
Payment of these awards is not triggered by termination of employment (because the awards would become payable under the terms of the LTPP if the named executive officer continued employment), but if he or she resigns, retires or is involuntarily terminated without cause after attaining age 55 with at least 15 years of service, the following terms apply: | – | Vested stock options
—
Vested Stock Options continue to be exercisable for the remainder of their ten-year term if approved by the Board, Compensation Committee or other appropriate senior management; and —
IBM prorates a portion of unvested PSU awards to continue to vest under their original vesting schedules. •
ten-year term if approved by the Board, Compensation Committee or other appropriate senior management; and
|
| – | IBM prorates a portion of unvested PSU awards to continue to vest under their original vesting schedules.
|
If an executive dies, outstanding stock options,Stock Options, RSU awards and RRSU awards would vest immediately, and outstanding PSU and RPSU awards would remain outstanding and continue to vest under their original vesting schedules. •
If an executive becomes disabled, outstanding stock options, RSU awardsStock Options, RSUs and RRSU awardsRRSUs would continue to vest under
642022 Notice of Annual Meeting & Proxy Statement | 2021 Potential Payments Upon Termination Narrative
| | | 2020 Notice of Annual Meeting & Proxy Statement | 2019 Potential Payments Upon Termination Narrative
| | 67
|
| | their original vesting schedules, and outstanding PSU awards would remain outstanding and continue to vest under their original vesting schedules. |
Beginning with PSU and RSU awards granted in 2009, inoutstanding PSUs and RPSUs would remain outstanding and continue to vest under their original vesting schedules.
•
In cases other than death or disability, certain executives may be eligible for continued vesting of these awards after separation. | – | 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, and effective for Stock Options granted after 2021, unvested Stock Options may continue to vest upon termination, if the following criteria are met for our named executive officers: •
The executive is on the Performance Team at the time of departure; •
For RSU awards and Stock Options, at least one year has passed since the award grant date; and for PSU awards, at least one year has passed in the performance period; •
The executive has reached age 55 with 15 years of service at the time of departure; and •
The payout has been approved by appropriate senior management, the Compensation Committee or the Board, in their discretion. | – | The Chairman and CEO is also eligible for the payouts described upon termination, except she must have reached 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.
|
—
The 2019Chairman 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. Unvested Stock Options will continue to vest and vested Stock Options (including those that vest after termination of employment) will be exercisable for the remainder of the original contractual term of the Stock Option. •
The 2021 Potential Payments Upon Termination Table assumes the following: | – | Amounts shown include the payout of the 2017 PSU awards calculated using the actual performance achieved for the 2017–2019 performance period and the 2019 fiscalyear-end closing price of $134.04 for IBM common stock; and
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| – | Outstanding 2018 and 2019 PSU awards were not included because there is no guarantee of payment on these awards as they are subject to meeting threshold performance criteria.
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| – | Amounts shown include the value of 2016, 2017, and 2018 RSU awards, if the required retirement criteria is met, at the fiscalyear-end closing price of $134.04 for IBM common stock because theone-year service requirement from grant has been completed; and
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| – | Outstanding 2019 RSU awards are not included because the required service of at least one year since the award date of grant has not been completed.
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—
Amounts shown include the payout of the 2019 PSU awards calculated using the actual performance achieved for the 2019-2021 performance period and the 2021 fiscal year-end closing price of $133.66 for IBM common stock; and —
Outstanding 2020 and 2021 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 2018, 2019, and 2020 RSU awards, if the required retirement criteria is met, at the fiscal year-end closing price of $133.66 for IBM common stock because the one-year service requirement from grant has been completed; and —
Outstanding 2021 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 awards for executive 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.release or 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. IBM Supplemental Executive Retention Plan (Retention Plan) •
Payments under the Retention Plan are triggered by resignation, retirement or involuntary termination without cause after attainment of eligibility criteria. •
Eligibility criteria are described in the 20192021 Retention Plan Narrative. •
Retention Plan payments are paid as an annuity beginning on the first day of the month following termination of employment (subject to asix-month delay for “specified employees” as required under Section 409A of the Internal Revenue Code). •
At termination, the executive chooses either a single life annuity or an actuarially equivalent joint and survivor annuity. •
The 20192021 Potential Payments Upon Termination Table reflects the annual amount payable as a single life annuity. •
This table does not reflect the following provisions that would apply in accordance with Section 409A of the Internal Revenue Code: | – | The payment would be delayed six months following termination; and
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| – | Amounts not paid during the delay would be paid (with interest) in July 2020.
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—
The payment would be delayed six months following termination; and —
Amounts not paid during the delay would be paid (with interest) in July 2022. •
Retention Plan payments are subject to forfeiture and rescission if an executive is terminated for cause or engages in activity that is detrimental to IBM at any time prior to or following commencement of Retention Plan payments. IBM Excess 401(k) Plus Plan •
As described in the 20192021 Nonqualified Deferred Compensation Narrative, payment of the named executive officers’ Excess 401(k) Plus Plan accounts (Basic Accounts and any Deferred IBM Shares) is triggered by resignation, retirement or involuntary termination. •
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 the12-month period prior to the detrimental activity through the date of termination. •
The 20192021 Potential Payments Upon Termination Table indicates the estimated amount and the time and form of payment, determined by either the executive’s distribution election in effect, if any, or the plan’s default distribution provision. 2022 Notice of Annual Meeting & Proxy Statement | 2021 Potential Payments Upon Termination Narrative 65
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•
Estimated payments were calculated using the aggregate account balance as of the last business day of the fiscal year end, without assumptions for the following between such date and the distribution date(s): | – | Investment gains and losses on the Basic Account (including dividend equivalent reinvestment for the IBM Stock Fund); and
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| – | Fluctuations in the market price of IBM stock for Deferred IBM Shares.
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—
Investment gains and losses on the Basic Account (including dividend equivalent reinvestment for the IBM Stock Fund); and —
Fluctuations in the market price of IBM stock for Deferred IBM Shares. •
The tables do not reflect: | – | That payment of amounts deferred after December 31, 2004 (and the associated earnings) are subject to asix-month delay for “specified employees” as required under Section 409A of the Internal Revenue Code; or
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| – | Any other restriction on such payments imposed by the requirements of Section 409A of the Internal Revenue Code.
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—
That payment of amounts deferred after December 31, 2004 (and the associated earnings) are subject to a six-month delay for “specified employees” as required under Section 409A of the Internal Revenue Code; or —
Any other restriction on such payments imposed by the requirements of Section 409A of the Internal Revenue Code. Retiree Medical and Life Insurance 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) •
Amounts credited by IBM to a hypothetical account may be used to offset the cost of eligible medical, dental, and vision insurance coverage for former employees and their eligible dependents. •
Generally, all regular full-time or part-time U.S. IBM employees who meet the following criteria are eligible to use amounts from the account for these purposes: | – | Hired before January 1, 2004;
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| – | Not within five years of earliest retirement eligibility under the prior IBM Retirement Plan on June 30, 1999; and
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| – | —
Hired before January 1, 2004; —
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. |
Mrs. Rometty and Dr. Kellywere 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.
•
Messrs. Krishna, Kavanaugh, and Rosamilia would have been eligible for this benefit following a separation from service on the last business day of the fiscal year end. Access to Group Health Care Coverage •
Eligible employees may purchase retiree health care coverage under an IBM-sponsored retiree medical option. The cost of this coverage is paid solely by the employee, but the coverage is priced at IBM retiree group rates. •
Generally, all regular full-time or part-time U.S. IBM employees who meet the following criteria are eligible to purchase such coverage: —
Hired on or after January 1, 2004, and meet the following age and service requirements at separation from service: •
At least age 55, with at least five years of service; and either •
The employee’s age and years of service equal 65; or •
Withdrawal-eligible for the Future Health Account and the funds in the account have been fully depleted. —
Hired prior to January 1, 2004 but are not eligible for either the IBM Retiree Benefits Plan or the Future Health Account, and at separation of service employee is at least age 55 or later, and the employee’s age and years of service equal at least 65. •
Ms. Browdy would have been eligible for this benefit following a separation from service on the last business day of the fiscal year end. •
Mr. KavanaughCohn 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. Access to Group Health Care Coverage
Eligible employees may purchase retiree health care coverage under an
IBM-sponsored retiree medical option. The cost of this coverage is paid solely by the employee, but the coverage is priced at IBM retiree group rates.
Generally, all regular full-time or part-time U.S. IBM employees who meet the following criteria are eligible to purchase such coverage:
| – | Hired on or after January 1, 2004, and meet the following age and service requirements at separation from service:
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At least age 55, with at least five years of service; and either
The employee’s age and years of service equal 65; or
Withdrawal-eligible for the Future Health Account and the funds in the account have been fully depleted.
| – | Hired prior to January 1, 2004 but are not eligible for either the IBM Retiree Benefits Plan or the Future Health Account, and at separation of service employee is at least age 55 or later, and the employee’s age and years of service equal at least 65.
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Mr. Schroeter and Ms. Browdy would have been eligible for this benefit following a separation from service on the last business day of the fiscal year end.
IBM Retiree Group Life Insurance •
Employees who retire on or after January 1, 2016 will have the option to purchase life insurance at preferred rates, paid solely at their expense.
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2019662022 Notice of Annual Meeting & Proxy Statement | 2021 Potential Payments Upon Termination Narrative
2021 POTENTIAL PAYMENTS UPON TERMINATION TABLE | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nonqualified Deferred Compensation | | | | | | | | | LTPP | | | | | | 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 ($) | | | | | | | | | | V.M. Rometty | | Termination(1) | | | $5,000,000 | | | | $1,860,000 | | | | $11,742,842 | | | $ | 96,830 | | | | $1,653,283 | (7) | | | $374,025 | (7) | | | | | | | | | | | For Cause | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1,599,583 | (7) | | | 374,025 | (7) | | | | | | | | | J.J. Kavanaugh | | Termination(1) | | | 1,064,000 | | | | 0 | | | | 1,792,383 | | | | 0 | | | | 4,008,362 | (8) | | | 19,972 | (8) | | | | | | | | | | | For Cause | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 3,902,638 | (8) | | | 19,972 | (8) | | | | | | | | | M.J. Schroeter | | Termination(1) | | | 948,000 | | | | 0 | | | | 4,925,702 | | | | N/A | | | | 2,632,700 | (9) | | | 0 | | | | | | | | | | | | For Cause | | | 0 | | | | 0 | | | | 0 | | | | N/A | | | | 2,528,876 | (9) | | | 0 | | | | | | | | | | J.E. Kelly III | | Termination(1) | | | 703,200 | | | | 0 | | | | 4,900,100 | | | | 594,027 | | | | 5,690,590 | (10) | | | 434,290 | (10) | | | | | | | | | | | For Cause | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 5,684,597 | (10) | | | 434,290 | (10) | | | | | | | | | M.H. Browdy | | Termination(1) | | | 982,300 | | | | 0 | | | | 1,568,268 | | | | N/A | | | | 1,315,041 | (9) | | | 0 | | | | | | | | | | | | For Cause | | | 0 | | | | 0 | | | | 0 | | | | N/A | | | | 1,239,689 | (9) | | | 0 | |
(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).
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(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 2020.
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(3) | Assumes each named executive officer exercised all vested,in-the-money options at $134.04 (the fiscalyear-end closing price of IBM common stock on the NYSE).
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(4) | Assumes IBM released each named executive officer’s PSU award, granted in 2017 according to its policy, for the three-year performance period ending December 31, 2019. 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, 2017 and 2018 RSU awards are included if required retirement criteria is met, 2019 RSU awards are not included because the required service of at least one year since the award date of grant has not been completed.
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(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.
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(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.
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(7) | Approximate annual amount payable for 10 years starting in February 2020. 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 2019 Nonqualified Deferred Compensation Table.
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(8) | Sum of the annual amount of Basic Account deferred prior to January 1, 2005 payable for 2 years starting in February 2020 ($335,581) and the amount of the Basic Account deferred on or after January 1, 2005 payable in a lump sum in February 2020 ($3,672,781). 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 2019 Nonqualified Deferred Compensation Table.
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(9) | Payable in a lump sum in February 2020. 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 2019 Nonqualified Deferred Compensation Table.
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(10) | Sum of the amount of Basic Account deferred prior to January 1, 2005 payable in a lump sum in February 2020 ($4,696,232) and the approximate annual amount of the Basic Account deferred on or after January 1, 2005 payable for 10 years starting in February 2020 ($994,358). Deferred IBM Shares are paid as shares of IBM common stock. For Cause, the termination payment from the Basic Account is reduced to reflect forfeiture of Match and Automatic Contribution made during the last 12 months under plan terms; the forfeiture causes a decrease in the payout of amounts that were deferred on or after January 1, 2005. See column (c) in 2019 Nonqualified Deferred Compensation Table.
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| | 2020 Notice of Annual Meeting & Proxy Statement | 2019 Potential Payments Upon Termination Narrative
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| | | | | | | | | | | | | LTPP | | | | | | | | | Nonqualified Deferred Compensation Excess 401(k)(6) | | | | | | | | | Annual Incentive | | | Stock | | | Stock | | | Retention | | | Basic | | | Deferred IBM | | | | | | Termination | | | Program | (2) | | Options | (3) | | Awards | (4) | | Plan | (5) | | Account | | | Shares | | | Name | | | Scenario | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | A. Krishna | | | Termination(1) | | | | $ | 2,940,000 | | | | $0 | | | | $ | 14,317,392 | | | | | | N/A | | | | | $ | 6,176,682(7) | | | | | $ | 0(7) | | | | | | | For Cause | | | | | 0 | | | | 0 | | | | | 0 | | | | | | N/A | | | | | | 5,905,402(7) | | | | | | 0(7) | | | | J.J. Kavanaugh | | | Termination(1) | | | | | 1,437,700 | | | | 0 | | | | | 6,108,797 | | | | | | 14,678 | | | | | | 6,446,735(8) | | | | | | 19,915(8) | | | | | | | For Cause | | | | | 0 | | | | 0 | | | | | 0 | | | | | | 0 | | | | | | 6,298,390(8) | | | | | | 19,915(8) | | | | G. Cohn | | | Termination(1) | | | | | 1,548,400 | | | | 0 | | | | | 535,175 | | | | | | N/A | | | | | | 488(9) | | | | | | 0 | | | | | | | For Cause | | | | | 0 | | | | 0 | | | | | 0 | | | | | | N/A | | | | | | 0(9) | | | | | | 0 | | | | T. Rosamilia | | | Termination(1) | | | | | 1,064,000 | | | | 0 | | | | | 5,612,517 | | | | | | 87,795 | | | | | | 4,296,187(10) | | | | | | 0 | | | | | | | For Cause | | | | | 0 | | | | 0 | | | | | 0 | | | | | | 0 | | | | | | 4,172,347(10) | | | | | | 0 | | | | M.H. Browdy | | | Termination(1) | | | | | 1,266,300 | | | | 0 | | | | | 4,126,084 | | | | | | N/A | | | | | | 1,794,757(11) | | | | | | 0 | | | | | | | For Cause | | | | | 0 | | | | 0 | | | | | 0 | | | | | | N/A | | | | | | 1,691,946(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 2022. (3)
Assumes each named executive officer exercised all vested, in-the-money Stock Options at $133.66 (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 2019 according to its policy, for the three-year performance period ending December 31, 2021. 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 2018, 2019 and 2020 RSU awards are included if required retirement criteria is met, 2021 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 2022. 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 2021 Nonqualified Deferred Compensation Table. (8)
Sum of the approximate annual amount of Basic Account deferred prior to January 1, 2005 payable for 2 years starting in February 2022 ($479,391) and the amount of the Basic Account deferred on or after January 1, 2005 payable in a lump sum in February 2022 ($5,967,344). 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 2021 Nonqualified Deferred Compensation Table. (9)
Amount payable as a lump sum because Mr. Cohn’s balance is not greater than the threshold amount of $152,000 required to have amount paid in installments under the plan. For Cause, the termination payment from the Basic Account is reduced to $0, to reflect forfeiture of Automatic Contribution made during the last 12 months under plan terms. Mr. Cohn’s balance consists of automatic contributions and earning thereon. See column (c) in 2021 Nonqualified Deferred Compensation Table. (10)
Payable in a lump sum in February 2022. 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 2021 Nonqualified Deferred Compensation Table. (11)
Payable in an immediate lump sum following separation. 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 2021 Nonqualified Deferred Compensation Table. 2022 Notice of Annual Meeting & Proxy Statement | 2021 Potential Payments Upon Termination Narrative 67
Report of the Audit Committee of the Board of Directors The Audit Committee hereby reports as follows: | 1. | Management has the primary responsibility for the financial statements and the reporting process, including the system of internal accounting controls. The Audit Committee, in its oversight role, has reviewed and discussed the audited financial statements with IBM’s management.
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| 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).
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| 3. | The Audit Committee has received the written disclosures and the letter from PricewaterhouseCoopers LLP (PwC) required by applicable requirements of the PCAOB regarding PwC’s communications with the Audit Committee concerning independence, and has discussed with PwC its independence.
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| 4. | 1.
Management has the primary responsibility for the financial statements and the reporting process, including the system of internal accounting controls. The Audit Committee, in its oversight role, has reviewed and discussed the audited financial statements with IBM’s management. 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 received the written disclosures and the letter from PricewaterhouseCoopers LLP (PwC) required by applicable requirements of the PCAOB regarding PwC’s communications with the Audit Committee concerning independence, and has discussed with PwC its independence. 4.
The Audit Committee has an established charter outlining the practices it follows. The charter is available on IBM’s website athttp://www.ibm.com/investor/att/pdf/auditcomcharter.pdf. 5.
IBM’s Audit Committee has policies and procedures that require the pre-approval by the Audit Committee of all fees paid to, and all services performed by, IBM’s independent registered public accounting firm. At the beginning of each year, the Audit Committee approves the proposed services, including the nature, type, and scope of service contemplated and the related fees, to be rendered by the firm during the year. In addition, pursuant to authority delegated by the Audit Committee, the Audit Committee chair may approve engagements that are outside the scope of the services and fees approved by the Audit Committee, which are later presented to the Committee. For each category of proposed service, the independent registered public accounting firm is required to confirm that the provision of such services does not impair its independence. Pursuant to the Sarbanes-Oxley Act of 2002, the fees and services provided as noted in the table below were authorized and approved by the Audit Committee in compliance with the pre-approval policies and procedures described herein. 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, 2021, for filing with the Securities and Exchange Commission. P.R. Voser (chair)
http://www.ibm.com/investor/governance/audit-committee-charter.html. |
| 5. | IBM’s Audit Committee has policies and procedures that require thepre-approval by the Audit Committee of all fees paid to, and all services performed by, IBM’s independent registered public accounting firm. At the beginning of each year, the Audit Committee approves the proposed services, including the nature, type, and scope of service contemplated and the related fees, to be rendered by the firm during the year. In addition, pursuant to authority delegated by the Audit Committee, the Audit Committee chair may approve engagements that are outside the scope of the services and fees approved by the Audit Committee, which are later presented to the Committee. For each category of proposed service, the independent registered public accounting firm is required to confirm that the provision of such services does not impair its independence. Pursuant to the Sarbanes-Oxley Act of 2002, the fees and services provided as noted in the table below were authorized and approved by the Audit Committee in compliance with thepre-approval policies and procedures described herein.
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| 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 onForm 10-K for the fiscal year ended December 31, 2019, for filing with the Securities and Exchange Commission.
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M.L. Eskew (chair)
D.N. Farr P.R. Voser
F.H. Waddell
Members M.J. HowardF.W. McNabb III 682022 Notice of Annual Meeting & Proxy Statement | Report of the Audit Committee as ofFebruary 25, 2020, the date of the filingBoard of the
Annual Report on Form10-KDirectors for the fiscal
year ended December 31, 2019
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Non-Audit FeesSet 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) | | 2019 | | | 2018 | | | | | Audit Fees | | $ | 54.7 | | | $ | 51.5 | | | | | Audit Related Fees | | | 30.8 | | | | 33.8 | | | | | Tax Fees | | | 2.1 | | | | 1.1 | | | | | All Other Fees | | | 0.4 | | | | 0.4 | | | | | Total | | $ | 88.0 | | | $ | 86.8 | |
| (Dollars in millions) | | | 2021 | | | 2020 | | | Audit Fees | | | | $ | 53.7 | | | | | $ | 52.8 | | | | Audit Related Fees | | | | | 48.8 | | | | | | 42.6 | | | | Tax Fees | | | | | 1.2 | | | | | | 1.3 | | | | All Other Fees | | | | | 0.7 | | | | | | 0.5 | | | | Total | | | | $ | 104.4 | | | | | $ | 97.2 | | |
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 2019,2021, these services included approximately $22$28 million for independent assessments for service organization control reports.reports and approximately $15 million associated with the spin-off of IBM’s managed infrastructure services business. For 2018,2020, these services included approximately $23$26 million for independent assessments for service organization control reports.reports and approximately $10 million associated with the spin-off of IBM’s managed infrastructure services business. 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 equivalenttax-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 technical accounting and other software licenses, training services, certain benchmarking work, and other permissible advisory services, including general information services. 2022 Notice of Annual Meeting & Proxy Statement | Audit and Non-Audit Fees69 | | | 72
| | 2020 Notice of Annual Meeting & Proxy Statement | Audit andNon-Audit Fees
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2. Ratification of Appointment of IndependentRegistered Public Accounting Firm IBM’s Audit Committee is directly responsible for the appointment, compensation (including advance approval of audit andnon-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 2020.2022. 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 2019.2021. 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: •
PwC’s capability and expertise in addressing and advising on the breadth and complexity of IBM’s global operations; •
PwC’s independence and tenure as IBM’s auditor; •
PwC’s strong performance on the IBM audit, including the extent and quality of PwC’s communications with the Audit Committee and the results of an internal, worldwide survey of PwC’s service and quality; •
Analysis of known litigation or regulatory proceedings involving PwC; •
Public Company Accounting Oversight Board reports;reports (PCAOB); •
Appropriateness of PwC’s fees for audit andnon-audit services; and •
PwC’s reputation for integrity and competence in the fields of accounting and auditing. 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: •
Private meetings between the Audit Committee and PwC throughout the year; •
Annual evaluation by the Audit Committee; •
Pre-approval by the Audit Committee of non-audit services; non-audit• services;
Lead engagement partner rotation at least every 5 years; the Audit Committee selects a new lead audit engagement partner after a rigorous process, including candidate interviews; | | partner after a rigorous process, including candidate interviews;
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Concurring audit partner rotation at least every 5 years; •
Auxiliary engagement partner rotation at least every 7 years; •
Hiring restrictions for PwC employees at IBM; and •
Internal quality reviews by, or of, PwC, including the performance of procedures to monitor and assess PwC’s independence from its audit clients, as well as the results of peer reviews by other public accounting firms and PCAOB inspections. Accountability to Stockholders •
PwC’s representative will be present at the annual meeting and will have an opportunity to make a statement and be available to respond to appropriate questions. 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: •
Institutional knowledge and deep expertise necessary for a large, multinational company with IBM’s breadth of global operations and business; •
Higher audit quality developed through experience with more than 250 annual statutory audits in almost 100 countries; and •
No onboarding or educating a new auditor, which would require a significant time commitment and expense, and distract from management’s focus on operational execution, financial reporting and internal controls. | | | | | THE IBM BOARD OF DIRECTORS AND THE AUDIT COMMITTEE RECOMMEND A VOTE FOR THIS PROPOSAL.
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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.In 2019, IBM’s strong finish, with accelerated
IBM delivered $57.4B in revenue and $12.8B cash from operations.(1) The separation of Kyndryl on November 3, 2021 helped optimize our portfolio and allow the Company to focus on its hybrid cloud and AI growth in the fourth quarter, led to our second consecutive year of revenuestrategy. Revenue growth at constant currency excluding divestitures*. For(2) accelerated in 2021, exiting the year, cloud revenue4th quarter at 8.6% including approximately 3.5 points from incremental external sales to Kyndryl. Hybrid Cloud Revenue grew 19% at constant currency,(2) and now makes up 35% of IBM revenue. The company also returned $6B to over $21 billion, representing 27% of total IBM revenue, which solidifies our position as a leaderstockholders through dividends, and reduced debt $10B in enterprise cloud. Our shift to higher-value revenue and improved services productivity delivered a 90 basis point increase in gross profit margins.The Company continued to transform its portfolio with the closure of the Red Hat acquisition. The synergies from the deal accelerated Red Hat revenue growth in the second half of 2019 and resulted in Red Hat’s first $1 billion revenue quarter in the fourth quarter, normalized for historical comparability*. In addition, IBM divested $2 billion innon-strategic business revenues improving thego-forward growth profile of the Company.
IBM achieved this performance and made these investments while maintaining its strong cash flow generation and returning cash to stockholders. The Company raised its dividend for the 24th consecutive year, resulting in more than $7 billion cash returned to stockholders. Additionally, we reduced our debt by $10 billion2021 ($21B since acquiring Red Hat, keeping our balance sheet strong.
Hat). These results reflect the significant actions we have taken to repositionstrategically position IBM for high-value, sustainable growth in the years ahead.growth. In 2019,2021, we once again engaged in a robustincreased our investor outreach program to gather investor feedback. The Chairmanensure we fully understood our investors’ feedback and CEO andconcerns following the independent Lead Director, participated along with members of IBM’s senior management in this engagement.vote on our 2021 say on pay proposal. The Company offered to engage with investors representing more than 50%55% of the shares that voted on Say on Pay at the 20192021 Annual Meeting. Through our discussionsMeeting, and ultimately met with investors representing more than 35% of voted shares. Through their feedback, we learned that they generally remained supportive of our pay programs, with the exception of the one-time equity grant to James Whitehurst in connection with him signing an IBM non-compete agreement. We discussed the uniqueness of the business situation related to the award for Mr. Whitehurst, and our formal Say on Pay vote results, investors reaffirmed their supportreassured stockholders that one-time awards for the Company’s compensation policiesnamed executive officers are not a common practice, and programs, which focus on long-term financial performance that drives stockholder value.no one-time awards were provided to any named executive officers in 2021. In the context of investor feedback, pay decisions continued to be made based on our financial performance relative to our goals, while taking into consideration the significant reshaping of IBM’s portfolio as a hybrid cloud and AI Company. The Company’s performance metrics that were revamped in 2021 to reinforce the Company’s portfoliostrategic focus on sustainable revenue growth and strong cash generation were maintained for the 2022 Annual Incentive Program and the 2022-2024 Performance Share Unit program. In addition, beginning in 2022, Stock Options were introduced as part of the overall equity pay mix for IBM executives, to accelerate our leadership in cloud, Artificial Intelligence (AI) blockchain, security, and other emerging areas that are positioning IBM for sustained growth going forward.ensure a portion of their equity does not generate value unless IBM’s stock price increases. IBM’s named executive officers are identified in the 20192021 Summary Compensation Table, and pages 32-7032-67 describe the compensation of these officers. 69%Beginning in 2022, with the introduction of Stock Options, 77% of target pay for the Chairman and CEO, (increasing to 92% in 2020), and 63%74% of target pay for the other Named Executive Officers, is at risk and subject to rigorous performance targets.targets and stock price growth. The rigor of these targets is evident in the payouts. For 20192021 performance, the Board approved an annual incentive payment of $5.0$2.940 million for Mrs. Rometty.Mr. Krishna, which was 98% of target and in line with the Company annual incentive score. This award is based on Mrs. Rometty’s exceptionalMr. Krishna’s personal leadership in several areas including transforming IBM’soptimizing the Company’s portfolio forby successfully separting Kyndryl on November 3, 2021; returning IBM to sustainable performance in 2020 and beyond throughrevenue growth; driving the Red Hat acquisition and divesting non-strategic businesses; achieving record resultsongoing improvement in IBM’s diverse leadership representation; industry-leading innovation and research in quantum computing and AI; groundbreaking personal leadership on ethics and AI and preparing society for the futurecontinued improvement in employee engagement in a year of work; and finally, her work with the Board to develop a world-class succession process, culminating in naming Arvind Krishna as IBM CEO and James Whitehurst as President, effective April 6, 2020.Overall, for 2019, Mrs. Rometty earned 85% of her total target annual compensation. Over the past 5 years, Mrs. Rometty has earned an average of 73% of her total target compensation.
significant change. 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 our compensation policies and programs 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.” (1)
Cash from operations is presented on a consolidated basis, which includes activity from discontinued operations related to the separation of Kyndryl. (2)
Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance metrics. * | Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance metrics.
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| | | | | THE IBM BOARD OF DIRECTORS RECOMMENDSA VOTE FOR THIS PROPOSAL.
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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. 2022 Notice of Annual Meeting & Proxy Statement | 3. Management Proposal on Advisory Vote on Executive Compensation (Say on Pay) 71 | | | 74
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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 three proposals for the reasons stated after each proposal.
4. Stockholder Proposal on ShareholderStockholder Special Meeting Right to Remove DirectorsManagement has been advised that James McRitchie and Myra K. Young of 9295 Yorkship Court, Elk Grove, CA 95758, the beneficial owner of 30 IBM shares, intend to submit the following proposal at the meeting:
Proposal 4 – Shareholder Right to Remove Directors
Resolved: Shareholders ask our board to undertake such steps as may be necessary to permit removal of directors by a majority vote of shareholders with or without cause.
Supporting Statement: Best corporate governance practice is to allow shareholders, by majority vote, to elect their directors and allow for the removal of directors with or without cause by a majority vote of shares voted and against directors.
In December 2015, the Delaware Court of Chancery (the “Court”) issued a decision,In Re VAALCO Energy, Inc., in which the Court interpreted Section 141(k) of General Corporation Law of the State of Delaware and held that if a company does not have (i) a classified board of directors or (ii) cumulative voting in election of directors, then such company may not provide in its certificate of incorporation or bylaws that its directors may be removed only for cause. Prior to theVAALCO decision, it was unclear whether Section 141(k) prohibited allowing director removal only for cause when a company did not have classified board or did not allow for a cumulative vote.
Although International Business Machines Corporation (IBM) is incorporated in New York State, not Delaware, the Delaware ruling would suggest review of organizational and governing documents is prudent, particularly at companies such as IBM, with declassified boards. New York Consolidated Laws, Business Corporation Law – BSC § 706. Removal of directors. Subdivision (b) provides: “If the certificate of incorporation or theby-laws so provide, any or all of the directors may be removed without cause by vote of the shareholders.”
To obtain a board majority between annual meetings in an emergency situation, shareholders must be able to create vacancies and be able to fill them. Although IBM allows shareholders to call a special meeting, the main purpose of calling a special meeting is to change the board between annual meetings.
The current right of shareholders to call a special meeting can accomplish little if directors cannot be removed without cause. SeeThe Never-Ending Quest for Shareholder Rights: Special Meetings and Written Consent by Emiliano Catan and Marcel Kahan, November 2018 athttps://corpgov.law.harvard.edu/2019/05/31/the-never-ending-quest-for-shareholder-rights-special-meetings-and-written-consent/.
Shareholder rights to call a special meeting and to act by written consent are two complimentary ways to bring an important matter to the attention of both management and shareholders outside the annual meeting cycle. IBM shareholders have no effective right to act by written consent because such consents must be unanimous. Similarly, our right to call a special meeting is constrained by allowing removal of directors only for cause.
Increase Shareholder Value
Vote for Shareholder Right to Remove Directors – Proposal 4
| | | | | YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
| IBM has a long history of incorporating stockholder feedback into its governance practices. This is the first time that this proposal has been received by IBM, and in the spirit of accountability, we want to hear from you, our stockholders. We will update the Company’sby-laws appropriately if the proposal receives a majority of the votes cast.
On the proposal itself, your Board of Directors recommends a vote against the proposal because it believes that the subject matter of this proposal is unnecessary in light of New York state law as well as the existing practices contained in the company’s governing documents.
Under the laws of the State of New York, IBM stockholders already have the right, including between annual meetings, to remove any or all directors “for cause”. Further, IBM stockholders currently have the right to vote on the election of each director once every year at the Annual Meeting of Stockholders. The Board believes that the Annual Meeting of Stockholders is the appropriate time for stockholders to evaluate directors and vote on the composition of the Board, as this is when our
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| | | stockholders are in possession of relevant information and performance indicators of individual directors and IBM. IBM’s
by-laws provide, except in the case of a contested election, for the election of directors to be by a majority of the votes cast at a stockholder meeting. An incumbent director who fails to receive a majority of votes cast by stockholders must tender their resignation to the Board. The independent directors of the Board, giving due consideration to the best interests of IBM and its stockholders, must then evaluate the relevant facts and circumstances, and decide on whether to accept the tendered resignation.IBM has long demonstrated its commitment to sound principles of corporate governance, including by not having a classified or staggered board or multiple year terms for directors. Subjecting IBM to spurious director removal campaigns not related to “for cause” events has the potential to be costly and distracting to IBM, the Board, and you, our stockholders.
In sum, the Board believes that the adoption of this proposal is unnecessary and inadvisable because IBM’s existing corporate governance structure is already appropriately designed to hold the Board accountable to IBM stockholders.
THEREFORE, THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
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5. Stockholder Proposal on the Right to Act by Written Consent
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 – Right to Act by Written Consent4 — Special Shareholder Meeting Improvement Shareholders request thatask our board of directors undertake suchto take the steps as may be necessary to permit written consent by shareholders entitled to castamend the minimum number of votes that would be necessary to authorize the action at a meeting at which all shareholders entitled to vote thereon were present and voting. This written consent isappropriate company governing document to give the owners of a combined 10% of our outstanding common stock the power to call a special shareholder meeting. It is important to have a more reasonable stock ownership percentage to call for a special shareholder meeting to help make up for the fact that we do not have a right to act by written consent. Many companies give shareholders both the fullest powerright to call a special meeting and a right to act by written consent. IBM shareholders are in favor of a right to act by written consent. IBM shareholders gave 42% support to a shareholder proposal for a right to act by written consent consistent with applicable law. in 2020. This includes42% support most likely represents a majority of the shares that have access to proxy voting advice that is independent of our biased management which is adamantly against additional rights for shareholders which in turn would mean greater management accountability when our stock is down from $180 in 2017. Our biased management is thus getting a free ride on the backs of small shareholders who have no recourse but to rely on the biased view of management. And 40% of IBM stock is held by non-institutional investors who are the smaller IBM shareholders who lack independent proxy voting advice. Our management is best served by providing the means for 10% of shareholders to bring emerging opportunities or solutions to problems to the attention of management and all shareholders. Also shareholder abilityengagement is a toothless way to initiateintroduce new ideas to management. And management can abruptly discontinue or drastically restructure any appropriate topic for written consent.Our company requires 25% of sharesshareholder engagement program if it fails to combine their holdingsgive less than cheerleading support to management.
It is important to have a more reasonable stock ownership percentage to call for a special shareholder meeting — a higher level thanto help make up for the 10% of shares permitted by many states of incorporation. Dozens of Fortune 500 companies provide for both shareholder rights —fact that we have no right to act by written consent and to callIBM shareholders are in favor of a special meeting.Our higher 25% threshold for shareholders to call a special meeting is one more reason that we should have the right to act by written consent. Plus our higher 25% threshold has bureaucratic pitfalls that trigger minor shareholder errors that could mean that 50% of shares would need to ask for a special meeting in order to be sure of obtaining the threshold of 25% of requests without errors. One can be sure that management will have an eagle eye to spot any errors.
Hundreds of major companies enable shareholder action by written consent. This proposal topic won majority shareholder support at 13 major companies in a single year. This included 67%- support at both Allstate and Sprint. Hundreds of major companies enable shareholder action by written consent. This proposal topic would have received a still higher vote than 67% at Allstate and Sprint if more shareholders had access to independent corporate governance data and recommendations.
Taking action by written consent in place of a meeting is a means shareholders can use to raise important matters outside the normal annual meeting cycle like the election of a new director.
This is important to consider after our Lead Director, Michael Eskew, received the highest negative votes of any director in 2019. With long-tenure of
14-years Mr. Eskew can hardly be considered impendent. It is not a surprise that Shirley Jackson, who chairs our Governance Committee, received the second highest negative votes. Ms. Jackson has had high negative votes for many years at a number of large companies. Our combined Chairman/CEO, Virginia Rometty, received our third highest negative votes. IBM stock has fallen from $162 to $142 in5-years of a robust market.This proposal topic would have received majority support at our 2018 annual meeting if our management had simply allowed shareholders to make up their own minds. This is a proposal topic that can gain increased shareholder support even if management opposes it. For instance Flowserve Corporation opposed this proposal topic and support increased from 43% to 51% inone-year.
Please vote yes: Right to Act by Written Consent – Special Shareholder Meeting Improvement — Proposal 5 4722022 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals
| YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL. | | 76 | 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 at https://www.ibm.com/investor/att/pdf/IBM_Bylaws.pdf. | 2020 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals
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| | | | The current 25% threshold is consistent with market practice and already accurately reflects the preference of IBM’s stockholders. At IBM’s 2010, 2017 and 2018 Annual Meetings, the same proponent presented this same proposal seeking to lower the 25% threshold to 10%. On each occasion, a majority of the votes cast voted against lowering the threshold, clearly demonstrating the stockholders’ support for the 25% threshold. | YOUR
| | The Board believes that maintaining the 25% ownership threshold strikes an appropriate balance between allowing shareholders the right to call a special meeting and avoiding unnecessary financial burdens and corporate disruptions associated with a minority of shareholders calling a special meeting. 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. Reducing the ownership threshold to 10% could enable a small minority of shareholders (currently, as few as two) to call a special meeting at any time on any topic, constrained by no fiduciary obligations. IBM’s current 25% threshold helps to ensure that any special meeting will be in the interests of more than just a few stockholders. Further, a lower threshold is not necessary in light of IBM’s history of strong governance practices and shareholder rights, including its independent Lead 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 three 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. | 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.
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 accessby-law provision, annual election of directors by majority vote, no supermajority provisions in our charter documents, and annually enhanced proxy disclosure that gives stockholders extensive insight into the Board’s oversight of management, as well asbest-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 the 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. In short, the Board does not believe that majority written consent 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 ornon-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. |
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5. Stockholder Proposal to Have an Independent Board Chairman Management has been advised that Kenneth Steiner, 14 Stoner Avenue, 2M,Ave., Great Neck, NY 11021, the owner of at least 500100 shares of IBM stock, intends to submit the following proposal at the meeting: Proposal 6 – 5 — Independent Board Chairman The Shareholders request that our Boardboard of Directors todirectors adopt as a policy, and amend ourthe governing documents as necessary, to require that the ChairmanChair of the Board of Directors to be an independent member of the Board whenever possible. Although it would be better to have an immediate transition toBoard. If an independent Boarddirector is not available then a non independent director, other than the CEO, can be named as Chairman the Board would have the discretionfor a term of 3 months to phase6 months. This policy could be phased in this policywhen there is a contract renewal for our currect CEO or for the next Chief Executive OfficerCEO 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. Compliance with this policy is waived if no independent director is available and willing to serve as Chairman.
This proposal topic won 50%-plus support at 5 major U.S. companies in
one-year including 73%-support at Netflix. These 5 majority votes would have been still higher if all shareholders had access to independent proxy voting advice.This proposal won 41%-support52% support at Boeing and 54% at Baxter International in 2019 which is up substantially from 29%-support2020. Boeing then adopted this proposal topic in 2015. It is possible that this 41%-support translates into majority support from the IBM shareholders who had access to independent proxy voting advice. It is unfortunate that Shirley Jackson, who chairs our Nomination and Governance Committee, has responsibility to review this proposal. Ms. Jackson received the second highest IBM negative votes in 2019. In 2019 negative votes Ms. Jackson was in second place to Michael Eskew, the IBM Lead Director.
Ms. Jackson has had a track record of high negative votes for many years at a number of large companies and may hold a record for lifetime negative votes received by a director. In regard to Ms. Jackson’s role in selecting new directors — the 2 most recent additions to the IBM Board have no major company director experience and IBM, in spite of its stagnation, still has a market capitalization of more than $100 Billion.
An independent Chairman is best positioned to build up the oversight capabilities of our directors while our CEO addresses the challengingday-to-day issues facing the company.June 2020. The roles of Chairman of the Board and CEO are fundamentally different and should not be held by 2 directors, a CEO and a Chairman who is completely independent of the same person. There shouldCEO and our company.
This proposal won 41% shareholder support at the 2021 IBM annual meeting. This 41% support could represent more than 51% support from the share that have access to independent proxy voting advice. IBM management resistant to this proposal topic may be getting a clear division of responsibilities between these positions to insure a balance of power and authorityfree ride on the Board.backs of small shareholders who do not have access to independent proxy voting advice. For a large company IBM seems to have a greater than usual percentage of small shareholders who do not have access to independent proxy voting advice. The role of the CEO and management is to run the company. The role of the Board of Directors is to provide independent oversight of management and the CEO. Thus there is a potential conflict of interest for a CEO to have the oversight role of Chairman. A CEO serving as Chair can result in excessive management influence on the Board and weaker oversight of management. The CEO becomes his own boss. With the current CEO serving as Chair that means giving up a substantial check and balance safeguard that can only occur with an independent Board Chairman. A lead director is no substitute for an independent board chairman. A lead director cannot call a special shareholder meeting and cannot even call a special meeting of the board. The lack of an independent Board Chairman is a great way to discourage new outside ideas and a great way to encourage the CEO to pursue projectes that would not stand up to effective oversight. In an example from a company whose share price went from $130 to $200 in 10 months, the 2020 Lowe’s annual meeting proxy said Lowe’s independent directors determined that having a separate Chairman and Chief Executive Officers affords the CEO the opportunity to focus his time and energy on managing the business and allows the Chairman to devote his time and attention to Board oversight and governance. Meanwhile IBM stock is in a hole compared to its $180 price in 2017. Please vote yes:Independent Board Chairman – — Proposal 65 742022 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, your Board split the Chairman and CEO roles during previousthe last two CEO transitions. Thesetransitions to ensure a seamless and successful leadership transition. The transitions have served as a model for public company succession planning. Limiting the candidate pool as suggested by the proponent will inhibit the ability of the Board to exercise its fiduciary obligation to identify the best leadership for IBM. | | | The Company’s Lead Director role is robust and ensures effective independent oversight at all times. | | | An essential part of our current independent leadership structure is the independent Lead Director position, recently renamed from Presidingposition. The Company’s Lead Director based on communication with our investors, to more clearly communicate the scoperole is robust and importance of this role.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; |
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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 •
occasionally attending certain other committee meetings in addition toof each of the committee that he chairs.Board’s committees. | | | IBM’s current leadership structure is optimal for the Company at this time. | | | The Directors and Corporate Governance Committee and the Board continuously evaluate the appropriate leadership structure for IBM. After its most recent review, in consideration of the strength of its independent Board and corporate governance practices, the full Board has 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 Mrs. Rometty’s characterMr. Krishna’s vision for the Company and the quality of herhis 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 thethis 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. | |
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| 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 addition, the Board has a long history of proactively responding to stockholder issues, such as implementing proxy access, a majority voting policy for director elections, and granting stockholders the power to call a special meeting of stockholders. Most recently, the Company has been on the forefront of strong governance practices as a signatory to the Commonsense Principles 2.0, bringing the company and investor viewpoints on critical governance matters together. The Company also endorses the Investor Stewardship Group’s principles on corporate governance to promote strong governance practices.
| | | 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. | |
762022 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals
6. Stockholder Proposal Requesting a Public Report on the Use of Concealment Clauses Management has been advised that Jay Stanley Weisfeld Trust, P.O Box 158, Rochester, VT 05767, the owner of at least 150 shares of IBM stock, intends to submit the following proposal at the meeting: Resolved: Shareholders of International Business Machines Corporation (“IBM”) ask that the Board of Directors prepare a public report assessing the potential risks to the company associated with its use of concealment clauses in the context of harassment, discrimination and other unlawful acts. The report should be prepared at reasonable cost and omit proprietary and personal information. Supporting Statement: Concealment clauses are defined as any employment or post-employment agreement, such as arbitration, non-disclosure or non-disparagement agreements, that IBM asks employees or contractors to sign which would limit their ability to discuss unlawful acts in the workplace, including harassment and discrimination. Whereas: IBM wisely uses concealment clauses in employment agreements to protect corporation information, such as intellectual capital and trade secrets. However, IBM has not excluded from these clauses their workers’ rights to speak openly about harassment, discrimination and other unlawful acts. Given this, investors cannot be confident in their knowledge of IBM’s workplace culture. A healthy workplace culture is linked to strong returns. McKinsey found that companies in the top quartile for workplace culture post a return to shareholders 60 percent higher than median companies and 200 percent higher than organizations in the bottom quartile.1 A study by Wall Street Journal found that over a five-year period, the 20 most diverse companies in the S&P 500 had an average annual stock return that was almost six percentage points higher than the 20 least diverse companies.2 In contrast, a workplace that tolerates harassment invites legal, brand, financial and human capital risk. Companies may experience reduced morale, lost productivity, absenteeism and challenges in attracting and retaining talent.3 Employees who engage in harmful behavious may also be shielded from accountability. Pinterest paid $22.5 million to settle a gender discrimination lawsuit brought by a former executive after years of binding employees who settled discrimination claims to concealment agreements. Shareholders ultimately sued Pinterest executives alleging a breach of fiduciary duty by “perpetrating or knowingly ignoring the long-standing and systemic culture of discrimination and retaliation.”4 Similarly, in 2020, Alphabet agreed to limit confidentiality restrictions associated with harassment and discrimination cases as part of a $300 million settlement of shareholder lawsuits alleging the company created a toxic work environment.5 In 2021 a jury found that IBM had wrongfully terminated an employee who raised concerns about racial bias in compensation.6 In recent years, IBM has also paid settlements related to allegations of gender discrimination and the EEOC has found that the company “engaged in systemic age discrimination7. Investors seek assurance that more missteps are not occuring at IBM, hidden from view via the use of concealment clauses. California law prohibits concealment clauses in employment agreements involving recognized forms of discrimination and unlawful activity. IBM works under a patchwork of state laws related to the use of concealment clauses and may benefit from consistent practices across all employees and contractors 1
https://www.mckinsey.com/business-functions/organization/our-insights/the-organization-blog/culture-4-keys-to-why-it-matters 2
https://www.wsj.com/articles/the-business-case-for-more-diversity-11572091200 3
Https://conference.iza.org/conference_files/LaborMarkets_2021/sockin_j28322.pdf 4
https://www.institutionalinvestor.com/article/b1phvnsfffr2bp/Retirement-System-Sues-Pinterest-Board-and-Execs-Over-Discrimination 5
https://www.nytimes.com/2020/09/25/technology/google-sexual-harassment-lawsuit-settlement.html 6
https://prnewswire.com/news-releases/milberg-wins-11-1-million-verdict-for-ibm-sales-manager-fired-after-reporting-bias-301270316.html https://www.propublica.org/article/the-u-s-equal-employment-opportunity-commission-confirms-a-pattern-of-age-discrimination-at-ibm 7
https://www.protocol.com/bulletins/ibm-pay-discrimination-settlement 2022 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals 77
| YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL. | | 2020 Notice
| IBM has been a leader in corporate diversity and inclusion for decades and is deeply committed to fostering a healthy, safe, and productive work environment for all IBMers. We do not believe this proposal is necessary for the reasons stated below. | | | IBM DOES NOT PREVENT EMPLOYEES FROM DISCUSSING THE TERMS AND CONDITIONS OF THEIR EMPLOYMENT AND DOES NOT REQUIRE EMPLOYEES TO AGREE TO ARBITRATION AS A CONDITION OF EMPLOYMENT | | | IBM does not require employees to sign any documents agreeing to arbitration as a condition of Annual Meeting & Proxy Statement | Stockholder Proposalsemployment in the United States. Outside of the United States, our agreements may vary based on relationships with works councils or other local requirements. | | | 79 IBM also does not preclude employees from discussing the terms and conditions of their employment. While IBM does require its employees to enter into a confidentiality agreement to protect its proprietary and confidential information and intellectual property, this agreement does not prevent employees from discussing their own experiences with non-inclusive behavior. | | | Where mutually agreed by the parties and legally permitted, IBM may use confidentiality provisions in limited circumstances, such as in settlements of lawsuits, or as part of voluntarily agreed exit agreements. Notably, these provisions do not prevent employees from filing claims with or participating in investigations conducted by the Equal Employment Opportunity Commission or otherwise reporting to a government agency. | | | IBM DOES NOT TOLERATE DISCRIMINATION OR HARASSMENT AND HAS IN PLACE CLEAR POLICIES, PROCEDURES AND PRACTICES TO PROTECT AND SUPPORT THE IBMER | | | Safe and Productive Work Environment | | | IBM’s Business Conduct Guidelines, which apply to all IBM employees, speak directly to maintaining a safe and productive work environment. IBM strives to maintain for its employees a healthy, safe, and productive work environment free from discrimination and harassment, whether based on race, color, religion, gender, gender identity or expression, sexual orientation, pregnancy, national origin, genetics, disability, age or any other factors that are unrelated to IBM’s legitimate business interests. IBM will not tolerate sexual advances or comments, racial or religious slurs or jokes, or any other conduct, such as bullying, that creates or encourages an offensive or intimidating work environment. To foster a diverse and inclusive culture that supports a healthy, safe, and productive work environment, IBM provides several trainings related to preventing discrimination and harassment as well as several communication channels for employees to express concerns regarding non-inclusive behaviors. | | | Global Mandatory Training | | | On an annual basis, IBM conducts global mandatory trainings on the Business Conduct Guidelines, sexual harassment, and bullying prevention. IBM has also significantly bolstered employee education programs that strengthen IBMer advocacy for women and minorities by addressing sexism, racism, bias mitigation, allyship, covering, leading with inclusivity, and other related topics. These offerings are regularly refreshed. | | | Communication Channels and Resources | | | IBM provides several communication channels for employees to express concerns regarding non-inclusive behaviors (such as bullying, harassment, or discrimination). An employee is free to choose the communication channel that works best for them — their manager, senior management, human resources, or they can utilize IBM’s Open-Door policy, the Talk It Over@IBM team, or Employee Concerns. Employees are also able to report their complaints externally to the U.S. Equal Employment Opportunity Commission or other state agencies. IBM also uses a companywide instant messaging system, with several channels dedicated to diversity, inclusion, and workplace culture to facilitate communications. The goal of these channels is to foster engagement and encourage reporting of concern over non-inclusive behaviors. | | | IBM promptly and thoroughly reviews reports of non-inclusive behavior and will not tolerate threats or acts of retaliation against employees for any such report. | | | THE BOARD AND ITS COMMITTEES MAINTAIN STRONG OVERSIGHT OF IBM’S CULTURE AND WORK ENVIRONMENT | | | IBM’s Audit Committee oversees implementation of and compliance with the Business Conduct Guidelines through employee education and certification. The Audit Committee also regularly receives and discusses reports from IBM’s Chief Trust and Compliance Officer relating to human resources investigations, including any employment-related matters such as harassment and discrimination. Additionally, IBM’s Executive Compensation and Management Resources Committee oversees IBM’s human capital management and diversity and inclusion programs, including various communication channels, programs and practices, or training and education focused on the prevention of harassment, discrimination, bullying or retaliation. Finally, employees may directly contact IBM’s independent directors through email or mail. | |
782022 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals
| CONCLUSION | | | IBM does not tolerate discrimination or harassment. Given the strength of IBM’s culture, policies, practices, and anti-discrimination and anti-harassment resources, we do not believe the limited use of the clauses described by the proponent poses a significant risk to the company and do not believe that the requested report would add meaningful value to the policies, processes, practices, and resources that are already in place at IBM. | | | THEREFORE, THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL. | |
2022 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals 79
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 of your shares is usually your bank, broker or other intermediary. If you are not a record owner, please understand that IBM does not know that you are a stockholder, or how many shares you own. 2. | | 2.
I want to attend the Annual Meeting. What procedures must I follow? |
Admission to attend the 2022 Annual Meeting. What procedures must I follow?
The 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 record owners that received a Proxy Statement by mail: An admission ticket is attached to the proxy card sent with this Proxy Statement.
For record owners 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/IBM2022 (“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 what I 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? If you encounter any difficulties accessing the 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 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? 4.
| | What is the “record date” for the Annual Meeting? |
February 28, 2020. 25, 2022. 6.
Which IBM shares will be entitled to vote at the Annual Meeting? 5.
| | 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 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. 7.
Which IBM shares are included in the proxy card? 6.
| | Which IBM shares are included in the proxy card? |
For 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 record owners: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 replaceor your instructions that accompanied your proxy materials).
9.
Can I vote my shares without attending the names appearing on the 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.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.
Annual Meeting? 8.
| | 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 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
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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 27, 2020,24, 2022, 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 27, 2020,24, 2022, 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: You If 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 802022 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 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.11.
How can I contact IBM’s transfer agent? 10.
| | 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, KY40233-5005, or by telephoning888-IBM-6700 (outside the United States, Canada, and Puerto Rico781-575-2727). 12.
Other than the items in the proxy statement, what other items of business will be addressed at the Annual Meeting? 11.
| | 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. 13.
During the question period at the Annual Meeting, what topics will be discussed? 12.
| | 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 to www.proxyvote.com) 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 question. Additionally, each year IBM provides a portal through which stockholders may submit questions in advance of the 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 the Annual Meeting as a guest; however, you will not be able to vote or submit questions on the Annual Meeting Website before or during the meeting. 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? 13.
| | 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. 17.
How many shares of IBM stock are “outstanding”? 14.
| | How many shares of IBM stock are “outstanding”? |
As of February 10, 2020,11, 2022, there were 888,408,023899,309,986 shares of common stock outstanding and entitled to be voted. 18.
What is the voting requirement for electing IBM’s directors? 15.
| | 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. 19.
What is “broker discretionary voting”? 16.
| | 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. 20.
Are abstentions and broker non-votes counted as votes cast? 17.
| | Are abstentions and brokernon-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
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outcome of the matter subject to vote. Abstentions and brokernon-votes will not be considered “votes cast” based on current New York State law requirements and IBM’s certificate of incorporation andby-laws. 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? 18.
| | 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 abstentions count as votes cast? | | | Is broker discretionary voting allowed? | | Proposal | | Vote
Required
| | Do
abstentions
count as votes
cast? | | | Is broker
discretionary
voting
allowed? | | | | | | Election of Directors | | | Majority of votes cast | | | No | | | | No | | | | | | Ratification of Appointment of Pricewaterhouse CoopersPricewaterhouseCoopers LLP | | | Majority of votes cast | | | No | | | | Yes | | | | | | Management Proposal of Advisory Vote on Executive Compensation* | | | Majority of votes cast | | | No | | | | No | | | | | | Stockholder Proposals* | | | Majority of votes cast | | | No | | | | No | |
19. | | Who tabulates the votes? |
Votes are counted by employees
*
Advisory and non-binding 22.
Where can I find the voting results of Computershare Trust Company, N.A., IBM’s transfer agent and registrar, and certified by the Inspectors of Election (who are employees of First Coast Results, Inc.).Annual Meeting? 20.
| | 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 aForm 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 2022 Notice of Annual Meeting & Proxy Statement | Frequently Asked Questions81
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? To enroll for 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 2023 proxy material? 22.
| | How do I submit a proposal for inclusion in IBM’s 2021 proxy material? |
Stockholder proposals may be submitted for IBM’s 20212023 proxy material after the 20202022 Annual Meeting and must be received at our corporate headquarters no later than November 9, 2020.7, 2022. 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. 26.
How do I submit an item of business for the 2023 Annual Meeting? 23.
| | How do I submit an item of business for the 2021 Annual Meeting? |
Stockholders who intend to present an item of business at the 20212023 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 accessby-law provision, must provide notice of such business to IBM’s Secretary no earlier than October 10, 20208, 2022 and no later than November 9, 2020,7, 2022, as set forth more fully in, and in compliance with, IBM’sby-laws. 27.
I did not receive a copy of the Annual Report. How can I get one? 24.
| | 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. 29.
If I am a holder in street name, how may I obtain a separate set of proxy materials? 26.
| | 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. 30.Members of our household own IBM shares through a number of different brokerage firms. Will we continue to receive multiple sets of materials? | | | 82
| | 2020 Notice of Annual Meeting & Proxy Statement | Frequently Asked Questions
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27. | | 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. 31.
I received a notice of internet availability of proxy materials. What does this mean? 28.
| | 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 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. 29. | | I received my proxy materials in hard copy. How may I arrange32.
I previously consented to receive them electronically? |
To enroll for electronic delivery go to our Investor Relations website at http://www.ibm.com/investor/ and select “Stockholder services,” scroll down to “Consent for materials online,” click on either “ifof my proxy materials. Can you own stock directly in your name” or “if you own stock beneficially throughsend me a brokerage account,” and follow the instructions to enroll.hard copy of these proxy materials?
30.
| | I previously consented to receive electronic delivery of my proxy materials. Can you send me a hard copy of these proxy materials? |
For record owners: 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.31. | | Who is making this proxy solicitation and approximately how much will these solicitation activities cost? |
33.
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. | | Frank Sedlarcik
| Vice President and Secretary | March 9, 2020 |
Frank SedlarcikVice President and SecretaryMarch 7, 2022 | | | 2020 Notice of Annual Meeting & Proxy Statement | Frequently Asked Questions
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822022 Notice of Annual Meeting & Proxy Statement | Frequently Asked Questions
Appendix A – — Non-GAAP Financial Information and Reconciliations The rationale for management’s use ofnon-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, supplementally, the companymanagement separates business results into operating andnon-operating categories. Operating earnings from continuing operations is anon-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, certain impacts from the Kyndryl separation and discontinued operations and their related tax impacts.effects. Due to the unique,non-recurring nature of the enactment of the U.S. Tax Cuts and Jobs Act (“U.S.(U.S. tax reform”)reform), the companymanagement characterizes theone-time provisional charge recorded in the fourth quarter of 2017 and adjustments to that charge asnon-operating. Adjustments includetrue-ups, accounting elections and any changes to regulations, laws, audit adjustments, etc. that affect the recordedone-time charge. Management also characterizes direct and incremental charges incurred related to the Kyndryl separation as non-operating given their unique and non-recurring nature. These charges include applicable employee awards and tax impacts related to the separation. Given its unique and temporary nature, management has also characterized the unrealized gain on Kyndryl common stock recorded in other (income) and expense in the Consolidated Income Statement as non-operating. The gain reflects fair value changes in the shares that were retained by the company immediately following the separation, with the intent to dispose of such shares within twelve months after the distribution. For acquisitions, operating(non-GAAP) earnings exclude the amortization of purchased intangible assets and acquisition-related charges such asin-process research and development, transaction costs, applicable retention, restructuring and related expenses, tax charges related to acquisition integration andpre-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 significantly impacted by the size, type and frequency of the company’s acquisitions. All other spending for acquired companies is included in both earnings from continuing operations and in operating(non-GAAP) earnings. The impact of acquisitions over the prior 12 month period may be a driver of higher expense year to year. For retirement-related costs, the companymanagement characterizes certain items as operating and others asnon-operating, consistent with GAAP. The company includesWe include defined benefit plan and nonpension postretirement benefit plan service costs, multi-employer plan costs and the cost of defined contribution plans in operating earnings.Non-operating retirement-related costs 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 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 the company considers these costs to be outside of the operational performance of the business. Overall, the companymanagement 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 the company’s pension plans; improves visibility to management decisions and their impacts on operational performance; enables better comparison to peer companies; and allows the company to provide a long-term strategic view of the business going forward. The company’sIn addition, these non-GAAP measures provide a perspective consistent with areas of interest we routinely receive from investors and analysts. Our reportable segment financial results reflect pre-tax operating earnings from continuing operations, consistent with the company’sour 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 The company uses free cash flow as a measure to evaluate its operating results, plan share repurchasestockholder return levels, strategic investments and assess its ability and need to incur and service debt. Free cash flow and operating cash flow are presented on a consolidated basis, including activity from discontinued operations related to the separation from Kyndryl. The entire free cash flow amount is not necessarily available for discretionary expenditures. The 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 increasingour Financing receivables isare the basis for 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 bothpresents free cash flow and net cash from operating activities that excludeexcluding the effect of Global Financing receivables (“operating cash flow”). Free cash flow guidance is derived using an estimate of profit, working capital and operational cash flows. Since the 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 the company does not estimate a GAAP Net Cash from Operations expectation metric.receivables. When 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 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 businesses2022 Notice of Annual Meeting & Proxy Statement | Appendix A — Non-GAAP Financial Information and constant currencyReconciliationsTo provide better transparency on83
Key performance metrics are used to monitor the recurring performance of the ongoing business and are viewed as useful decision-making information for management and stockholders, including: Annual Recurring Revenue (ARR) ARR is a key performance metric management uses to assess the company provides totalhealth and growth trajectory of the Hybrid Platform & Solutions sub-segment within IBM Software. ARR is calculated by estimating the current quarter’s recurring, committed value for certain types of active contracts as of the period-end date and then multiplying that value by four. This value is based on each arrangement’s contract value and start date, mitigating fluctuations during the contract term, and includes the following consumption models: (1) software subscription agreements, including committed term licenses, (2) as-a-service arrangements (SaaS and PaaS) (3) maintenance and support contracts, (4) and security managed services contracts. ARR should be viewed independently of revenue growth rates excluding divested businessesas this performance metric and at constant currency. These divested businesses are includedits inputs may not represent the amount of revenue recognized in the company’s Other segment. | | | 84
| | 2020 Notice of Annual Meeting & Proxy Statement | Appendix A –Non-GAAP Financial Information and Reconciliations
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Revenue for Red Hat, normalized for historical comparability
On July 9, 2019, the company completed the acquisition of Red Hat, Inc. (Red Hat)period 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 deferredtherefore is not intended to represent current period 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) Red Hat revenue for the three months ended September 30, 2019 and December 31, 2019 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. In addition, normalized (non-GAAP) Red Hat revenue for the three months ended September 30, 2019 includes Red Hat standalone pre-acquisition revenue for July 1-8, 2019. The deferred revenue adjustment representsor revenue that would have beenwill be 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 appendix 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.
future periods. Return on Invested Capital (ROIC)The company 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.
The tables below provide reconciliations of the Company’s income statement results as reported under GAAP to its operating earnings presentation, which is anon-GAAP measure. measure. | | | | | | | | | | | | | | | | | | | | | ($ in millions except per share amount) For the year ended December 31, 2019 | | GAAP | | | Acquisition-Related Adjustments | | | Retirement-Related Adjustments | | | Tax Reform Impacts | | | Operating (Non-GAAP) | | | | | | | | Gross Profit | | $ | 36,488 | | | $ | 547 | | | $ | - | | | $ | - | | | $ | 37,035 | | | | | | | | Gross Profit Margin | | | 47.3 | % | | | 0.7 | 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 | | | 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 | | | 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 | | | 14.8 | % | | | | | | | Diluted Earnings Per Share: Continuing Operations | | $ | 10.57 | | | $ | 1.50 | | | $ | 0.58 | | | $ | 0.16 | | | $ | 12.81 | |
* | The tax impact on operating(non-GAAP)pre-tax income is calculated under the same accounting principles applied to the GAAPpre-tax income which employs an annual effective tax rate method to the results.
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| ($ in millions except per share amount) For the year ended December 31, 2021 | | | GAAP | | | Acquisition- Related Adjustments | | | Retirement- Related Adjustments | | | Tax Reform Impacts | | | Kyndryl Related Impacts | | | Operating (Non-GAAP) | | | Gross Profit | | | | $ | 31,486 | | | | | $ | 719 | | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | 32,205 | | | | Gross Profit Margin | | | | | 54.9% | | | | | | 1.3Pts | | | | | | —Pts | | | | | | —Pts | | | | | | —Pts | | | | | | 56.2% | | | | S,G&A | | | | $ | 18,745 | | | | | $ | (1.160) | | | | | $ | — | | | | | $ | — | | | | | $ | (8) | | | | | $ | 17,577 | | | | R,D&E | | | | | 6,488 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 6,488 | | | | Other (Income) & Expense | | | | | 873 | | | | | | (2) | | | | | | (1,282) | | | | | | — | | | | | | 126 | | | | | | (285) | | | | Total Expense & Other (Income) | | | | | 26,649 | | | | | | (1,162) | | | | | | (1,282) | | | | | | — | | | | | | 118 | | | | | | 24,324 | | | | Pre-tax Income from Continuing Operations | | | | | 4,837 | | | | | | 1,881 | | | | | | 1,282 | | | | | | — | | | | | | (118) | | | | | | 7,881 | | | | Pre-tax Income Margin from Continuing Operations | | | | | 8.4% | | | | | | 3.3Pts | | | | | | 2.2Pts | | | | | | —Pts | | | | | | (0.2)Pts | | | | | | 13.7% | | | | Provision for Income Taxes* | | | | $ | 124 | | | | | $ | 457 | | | | | $ | 251 | | | | | $ | (89) | | | | | $ | (37) | | | | | $ | 706 | | | | Effective Tax Rate | | | | | 2.6% | | | | | | 5.2Pts | | | | | | 2.8Pts | | | | | | (1.1)Pts | | | | | | (0.4)Pts | | | | | | 9.0% | | | | Income from Continuing Operations | | | | $ | 4,712 | | | | | $ | 1,424 | | | | | $ | 1,031 | | | | | $ | 89 | | | | | $ | (81) | | | | | $ | 7,174 | | | | Income Margin from Continuing Operations | | | | | 8.2% | | | | | | 2.5Pts | | | | | | 1.8Pts | | | | | | 0.2Pts | | | | | | (0.1)Pts | | | | | | 12.5% | | | | Diluted Earnings Per Share: Continuing Operations | | | | $ | 5.21 | | | | | $ | 1.57 | | | | | $ | 1.14 | | | | | $ | 0.10 | | | | | $ | (0.09) | | | | | $ | 7.93 | | |
*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. | | | 2020 Notice of Annual Meeting & Proxy Statement | Appendix A –Non-GAAP Financial Information and Reconciliations
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| ($ in millions except per share amount) For the year ended December 31, 2020 | | | GAAP | | | Acquisition- Related Adjustments | | | Retirement- Related Adjustments | | | Tax Reform Impacts | | | Kyndryl Related Impacts | | | Operating (Non-GAAP) | | | Gross Profit | | | | $ | 30,865 | | | | | $ | 726 | | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | 31,591 | | | | Gross Profit Margin | | | | | 55.9% | | | | | | 1.3Pts | | | | | | —Pts | | | | | | —Pts | | | | | | —Pts | | | | | | 57.3% | | | | S,G&A | | | | $ | 20,561* | | | | | $ | (1,117) | | | | | | — | | | | | | — | | | | | $ | — | | | | | $ | 19,445* | | | | R,D&E | | | | | 6,262 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 6,262 | | | | Other (Income) & Expense | | | | | 802 | | | | | | (2) | | | | | | (1,073) | | | | | | — | | | | | | — | | | | | | (273) | | | | Total Expense & Other (Income) | | | | | 28,293* | | | | | | (1,119) | | | | | | (1,073) | | | | | | — | | | | | | — | | | | | | 26,101* | | | | Pre-tax Income from Continuing Operations | | | | | 2,572* | | | | | | 1,845 | | | | | | 1,073 | | | | | | — | | | | | | — | | | | | | 5,490* | | | | Pre-tax Income Margin from Continuing Operations | | | | | 4.7% | | | | | | 3.3Pts | | | | | | 1.9Pts | | | | | | —Pts | | | | | | —Pts | | | | | | 9.9% | | | | Provision for Income Taxes** | | | | $ | (1,360) | | | | | $ | 411 | | | | | $ | 208 | | | | | $ | 110 | | | | | $ | — | | | | | $ | (630) | | | | Effective Tax Rate | | | | | (52.9)% | | | | | | 25.3Pts | | | | | | 14.1Pts | | | | | | 2.0Pts | | | | | | —Pts | | | | | | (11.5)% | | | | Income from Continuing Operations | | | | $ | 3,932* | | | | | $ | 1,434 | | | | | $ | 864 | | | | | $ | (110) | | | | | $ | — | | | | | $ | 6,120* | | | | Income Margin from Continuing Operations | | | | | 7.1% | | | | | | 2.6Pts | | | | | | 1.6Pts | | | | | | (0.2)Pts | | | | | | —Pts | | | | | | 11.1% | | | | Diluted Earnings Per Share: Continuing Operations | | | | $ | 4.38* | | | | | $ | 1.60 | | | | | $ | 0.96 | | | | | $ | (0.12) | | | | | $ | — | | | | | $ | 6.82* | | |
*Includes a $1.5 billion pre-tax charge for structural actions in the fourth quarter resulting in an impact of ($1.33) to diluted earnings per share from continuing operations and diluted operating (non-GAAP) earnings per share. **
The tax impact on operating (non-GAAP) pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income which employs an annual effective tax rate method to the results. | | | | | | | | | | | | | | | | | | | | | ($ in millions except per share amount) For the year ended December 31, 2018 | | GAAP | | | Acquisition-Related Adjustments | | | Retirement-Related Adjustments | | | Tax Reform Impacts | | | Operating (Non-GAAP) | | | | | | | | Gross Profit | | $ | 36,936 | | | $ | 372 | | | $ | - | | | $ | - | | | $ | 37,307 | | | | | | | | Gross Profit Margin | | | 46.4 | % | | | 0.5 | 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 | | | 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 | | | 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 | | | 15.9 | % | | | | | | | Diluted Earnings Per Share: Continuing Operations | | $ | 9.51 | | | $ | 0.71 | | | $ | 1.36 | | | $ | 2.23 | | | $ | 13.81 | |
* | 842022 Notice of Annual Meeting & Proxy Statement | Appendix A — Non-GAAP Financial Information and Reconciliations
| ($ in millions except per share amount) For the year ended December 31, 2019 | | | GAAP | | | Acquisition- Related Adjustments | | | Retirement- Related Adjustments | | | Tax Reform Impacts | | | Kyndryl Related Impacts | | | Operating (Non-GAAP) | | | Gross Profit | | | | $ | 31,533 | | | | | $ | 540 | | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | 32,073 | | | | Gross Profit Margin | | | | | 54.6% | | | | | | 0.9Pts | | | | | | —Pts | | | | | | —Pts | | | | | | —Pts | | | | | | 55.6% | | | | S,G&A | | | | $ | 18,724 | | | | | $ | (1,024) | | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | 17,700 | | | | R,D&E | | | | | 5,910 | | | | | | (53) | | | | | | — | | | | | | — | | | | | | — | | | | | | 5,857 | | | | Other (Income) & Expense | | | | | (1,012) | | | | | | 152 | | | | | | (576) | | | | | | — | | | | | | — | | | | | | (1,436) | | | | Interest Expense | | | | | 1,344 | | | | | | (228) | | | | | | — | | | | | | — | | | | | | — | | | | | | 1,116 | | | | Total Expense & Other (Income) | | | | | 24,327 | | | | | | (1,154) | | | | | | (576) | | | | | | — | | | | | | — | | | | | | 22,598 | | | | Pre-tax Income from Continuing Operations | | | | | 7,206 | | | | | | 1,693 | | | | | | 576 | | | | | | — | | | | | | — | | | | | | 9,475 | | | | Pre-tax Income Margin from Continuing Operations | | | | | 12.5% | | | | | | 2.9Pts | | | | | | 1.0Pts | | | | | | —Pts | | | | | | —Pts | | | | | | 16.4% | | | | Provision for Income Taxes* | | | | $ | 60 | | | | | $ | 358 | | | | | $ | 110 | | | | | $ | (146) | | | | | $ | — | | | | | $ | 382 | | | | Effective Tax Rate | | | | | 0.8% | | | | | | 3.6Pts | | | | | | 1.1Pts | | | | | | (1.5)Pts | | | | | | —Pts | | | | | | 4.0% | | | | Income from Continuing Operations | | | | $ | 7,146 | | | | | $ | 1,335 | | | | | $ | 466 | | | | | $ | 146 | | | | | $ | — | | | | | $ | 9,093 | | | | Income Margin from Continuing Operations | | | | | 12.4% | | | | | | 2.3Pts | | | | | | 0.8Pts | | | | | | 0.3Pts | | | | | | —Pts | | | | | | 15.8% | | | | Diluted Earnings Per Share: Continuing Operations | | | | $ | 8.00 | | | | | $ | 1.50 | | | | | $ | 0.52 | | | | | $ | 0.16 | | | | | $ | — | | | | | $ | 10.18 | | |
*
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. (non-GAAP)pre-tax income is calculated under the same accounting principles applied to the GAAPpre-tax income which employs an annual effective tax rate method to the results.
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| | | | | | | | | | | | | | | | | | | | | ($ in millions except per share amount) For the year ended December 31, 2017 | | GAAP | | | Acquisition-Related Adjustments | | | Retirement-Related Adjustments | | | Tax Reform Impacts | | | Operating (Non-GAAP) | | | | | | | | Gross Profit | | $ | 36,943 | | | $ | 449 | | | $ | - | | | $ | - | | | $ | 37,392 | | | | | | | | Gross Profit Margin | | | 46.7 | % | | | 0.6 | pts | | | - | pts | | | - | pts | | | 47.2 | % | | | | | | | S,G&A | | $ | 19,680 | | | $ | (509 | ) | | $ | - | | | $ | - | | | $ | 19,170 | | | | | | | | R,D&E | | | 5,590 | | | | - | | | | - | | | | - | | | | 5,590 | | | | | | | | Other (Income) & Expense | | | 1,125 | | | | (39 | ) | | | (1,341 | ) | | | - | | | | (255 | ) | | | | | | | Total Expense & Other (Income) | | | 25,543 | | | | (548 | ) | | | (1,341 | ) | | | - | | | | 23,654 | | | | | | | | Pre-tax Income from Continuing Operations | | | 11,400 | | | | 997 | | | | 1,341 | | | | - | | | | 13,738 | | | | | | | | Pre-tax Income Margin from Continuing Operations | | | 14.4 | % | | | 1.3 | pts | | | 1.7 | pts | | | - | pts | | | 17.4 | % | | | | | | | Provision for Income Taxes* | | $ | 5,642 | | | $ | 279 | | | $ | 485 | | | $ | (5,475 | ) | | $ | 931 | | | | | | | | Effective Tax Rate | | | 49.5 | % | | | (1.6) | pts | | | (1.3 | )pts | | | (39.9 | )pts | | | 6.8 | % | | | | | | | Income from Continuing Operations | | $ | 5,758 | | | $ | 718 | | | $ | 856 | | | $ | 5,475 | | | $ | 12,807 | | | | | | | | Income Margin from Continuing Operations | | | 7.3 | % | | | 0.9 | pts | | | 1.1 | pts | | | 6.9 | pts | | | 16.2 | % | | | | | | | Diluted Earnings Per Share: Continuing Operations | | $ | 6.14 | | | $ | 0.77 | | | $ | 0.91 | | | $ | 5.84 | | | $ | 13.66 | |
* | The tax impact on operating(non-GAAP)pre-tax income is calculated under the same accounting principles applied to the GAAPpre-tax income which employs an annual effective tax rate method to the results.
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The table below provides a reconciliation of IBM’s net cash flows which is presented on a consolidated basis, including activity from operating activities as reported under GAAPdiscontinued operations related to its freethe separation of Kyndryl. Free cash flow which is aand operating cash flow are non-GAAP measures. measure. | | | | | | | | | | | | | ($ in billions) For the year ended December 31: | | 2019 | | | 2018 | | | 2017 | | | | | | Net cash from operating activities per GAAP | | $ | 14.8 | | | $ | 15.2 | | | $ | 16.7 | | | | | | Less: the change in Global Financing receivables | | | 0.5 | | | | (0.3 | ) | | | 0.4 | | | | | | Net cash from operating activities, excluding Global Financing receivables | | | 14.3 | | | | 15.6 | | | | 16.3 | | | | | | Capital expenditures, net | | | (2.4 | ) | | | (3.7 | ) | | | (3.3 | ) | | | | | Free Cash Flow | | | 11.9 | | | | 11.9 | | | | 13.0 | | | | | | Acquisitions | | | (32.6 | ) | | | (0.1 | ) | | | (0.5 | ) | | | | | Divestitures | | | 1.1 | | | | - | | | | (0.2 | ) | | | | | Share Repurchase | | | (1.4 | ) | | | (4.4 | ) | | | (4.3 | ) | | | | | Common stock repurchases for tax withholdings | | | (0.3 | ) | | | (0.2 | ) | | | (0.2 | ) | | | | | Dividends | | | (5.7 | ) | | | (5.7 | ) | | | (5.5 | ) | | | | | Non-Global Financing Debt | | | 22.8 | | | | (0.5 | ) | | | 1.1 | | | | | | Other (includes Global Financing receivables and Global Financing debt) | | | 1.0 | | | | (1.6 | ) | | | 0.8 | | | | | | Change in cash, cash equivalents and short-term marketable securities | | $ | (3.2 | ) | | $ | (0.6 | ) | | $ | 4.1 | | | | | | FCF as percent of Income from Continuing Operations | | | 126 | % | | | 136 | %* | | | 226 | %* |
* | 111% in 2018 excluding charges of $2.0 billion, and 116% in 2017 excluding the charge of $5.5 billion associated with the enactment of U.S. tax reform.
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| ($ in billions) For the year ended December 31: | | | 2021 | | | 2020 | | | 2019 | | | Net cash from operating activities per GAAP* | | | | $ | 12.8 | | | | | $ | 18.2 | | | | | $ | 14.8 | | | | Less: the change in Financing receivables | | | | | 3.9 | | | | | | 4.3 | | | | | | 0.5 | | | | Net cash from operating activities, excluding Financing receivables | | | | | 8.9 | | | | | | 13.8 | | | | | | 14.3 | | | | Capital expenditures, net | | | | | (2.4) | | | | | | (3.0) | | | | | | (2.4) | | | | Free Cash Flow | | | | | 6.5** | | | | | | 10.8 | | | | | | 11.9 | | | | Acquisitions | | | | | (3.3) | | | | | | (0.3) | | | | | | (32.6) | | | | Divestitures | | | | | 0.1 | | | | | | 0.5 | | | | | | 1.1 | | | | Share Repurchase | | | | | — | | | | | | — | | | | | | (1.4) | | | | Common stock repurchases for tax withholdings | | | | | (0.3) | | | | | | (0.3) | | | | | | (0.3) | | | | Dividends | | | | | (5.9) | | | | | | (5.8) | | | | | | (5.7) | | | | Non-Financing Debt | | | | | (1.2) | | | | | | 0.2 | | | | | | 22.8 | | | | Other (includes Financing receivables and Financing debt) | | | | | (2.7) | | | | | | 0.2 | | | | | | 1.0 | | | | Change in cash, cash equivalents and short-term marketable securities | | | | $ | (6.7)+ | | | | | $ | 5.3 | | | | | $ | (3.2) | | |
*
Includes cash flows of discontinued operations of $1.6 billion, $4.4 billion and $4.5 billion in 2021, 2020 and 2019, respectively. **
| | | 86
| | 2020 Notice of Annual Meeting & Proxy Statement | Appendix A –Non-GAAP Financial Information and Reconciliations
| Includes cash impacts of approximately $1.4 billion for Kyndryl-related structural actions and separation charges. +
Includes the distribution from Kyndryl of $0.9 billion.
2022 Notice of Annual Meeting & Proxy Statement | Appendix A — Non-GAAP Financial Information and Reconciliations85
The tabletables below providesprovide reconciliation of revenue growth rates presented on a continuing operations basis and as reported under GAAP to revenue adjusting for constant currency (@CC), which is a non-GAAP measure. | | | | | | | | | | | | | | | | | | | | | 2019 | | | | | 2018 | | | | GAAP | | | @CC | | | | | GAAP | | | @CC | | | | | | | | Reconciliation of Revenue Growth Rates: | | | | | | | | | | | | | | | | | | | | | | | | | GBS | | | 0 | % | | | 2 | % | | | | | 3 | % | | | 2 | % | | | | | | | Cloud & Cognitive Software | | | 4 | % | | | 6 | % | | | | | 2 | % | | | 2 | % | | | | | | | Consulting | | | 4 | % | | | 6 | % | | | | | | | | | | | | | | | | | Cognitive Applications | | | 2 | % | | | 4 | % | | | | | | | | | | | | | | | | | Security | | | 12 | % | | | 14 | % | | | | | | | | | | | | | | | | | Cloud & Data Platform | | | 10 | % | | | 12 | % | | | | | | | | | | |
The tables below provide reconciliations
| | | | 2021 | | | | | | GAAP | | | @CC | | | Reconciliation of Revenue Growth Rates: | | | | | | | | | | | | | | | Software | | | | | 5% | | | | | | 4% | | | | Consulting | | | | | 10% | | | | | | 8% | | | | Business Transformation | | | | | 15% | | | | | | 13% | | | | Technology Consulting | | | | | 11% | | | | | | 10% | | | | Hybrid Cloud | | | | | 20% | | | | | | 19% | | |
| | | | GAAP | | | @CC | | | Reconciliation of IBM Revenue Growth Rates: | | | | | | | | | | | | | | | 1Q 2021 | | | | | 1.8% | | | | | | (1.3)% | | | | 2Q 2021 | | | | | 4.5% | | | | | | 0.7% | | | | 3Q 2021 | | | | | 2.4% | | | | | | 1.8% | | | | 4Q 2021 | | | | | 6.5% | | | | | | 8.6% | | |
| | | | 4Q 2021 | | | | | | GAAP | | | @CC | | | Reconciliation of IBM Revenue Growth Rates: | | | | | | | | | | | | | | | Software | | | | | 8% | | | | | | 10% | | |
862022 Notice of the Red Hat revenue as reported under GAAP to normalized revenue for historical comparability, which is a non-GAAP measure. | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | | | Change | Red Hat Revenue, Normalized for Historical Comparability | | September 30, 2019 | | September 30, 2018 | | | | YTY | | YTY @constant currency | | | | | | | Red Hat revenue as reported in IBM consolidated results(1) | | | | $371 | | | | | $ - | | | | | | | | | | | | | | | | | | | | Add: Red Hat revenue prior to acquisition(2) | | | | 84 | | | | | 829 | | | | | | | | | | | | | | | | | | | | Add: Purchase accounting deferred revenue and intercompany adjustments(3) | | | | 531 | | | | | - | | | | | | | | | | | | | | | | | | | | Red Hat revenue, normalized for historical comparability (non-GAAP) | | | | $987 | | | | | $829 | | | | | | | 19 | % | | | | 20 | % |
(1) | Represents GAAP revenue as reported by IBM, which is included in the Cloud & Cognitive Software segment.
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(2) | Red Hat revenue was included in IBM’s consolidated results beginning on July 9, 2019. Revenue for July 1- July 8, 2019 and the three months ended September 30, 2018 represents pre-acquisition Red Hat standalone revenue and is included for comparative purposes.
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(3) | Represents the third-quarter 2019 impact of the deferred revenue purchase accounting adjustments 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.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | | | Change | Red Hat Revenue, Normalized for Historical Comparability | | | | December 31, 2019 | | December 31, 2018 | | | | YTY | | YTY @constant currency | | | | | | | | Red Hat revenue as reported in IBM consolidated results(1) | | | | | | $ 573 | | | | | $ - | | | | | | | | | | | | | | | | | | | | | | | | Add: Red Hat revenue prior to acquisition(2) | | | | | | - | | | | | 863 | | | | | | | | | | | | | | | | | | | | | | | | Add: Purchase accounting deferred revenue and intercompany adjustments(3) | | | | | | 493 | | | | | - | | | | | | | | | | | | | | | | | | | | | | | | Red Hat revenue, normalized for historical comparability (non-GAAP) | | | | | | $1,066 | | | | | $863 | | | | | | | | | | 24 | % | | | | 24 | % |
(1) | Represents GAAP revenue as reported by IBM, which is included in the Cloud & Cognitive Software segment.
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(2) | Revenue for the three months ended December 31, 2018 represents pre-acquisition Red Hat standalone revenue and is included for comparative purposes.
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(3) | Represents the fourth-quarter 2019 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.
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The table below provides reconciliation of the year-to-year (YTY) change in the Company’s revenue as reported under GAAP to revenue adjusted for divested businessesAnnual Meeting & Proxy Statement | Appendix A — Non-GAAP Financial Information and currency, which is a non-GAAP measure. | | | | | | | | | | | Revenue Adjusted for Divested Businesses Reported in Other Segment and Currency | | Year Ended December 31, 2019 Change YTY | | Year Ended December 31, 2018 Change YTY | | | | Revenue as reported | | | | (3.1 | )% | | | | 0.6 | % | | | | Excluding other divested businesses | | | | 1.2 | Pts | | | | 0.3 | Pts | | | | Currency impact | | | | 2.1 | Pts | | | | (0.6 | ) Pts | | | | Revenue adjusting for divested businesses and currency (non-GAAP) | | | | 0.2 | % | | | | 0.3 | % |
The table below provides reconciliation of Return on Invested Capital (ROIC) GAAP to a non-GAAP measure.
| | | | | | | | | | | Reconciliation of ROIC - 2019 | | GAAP* | | Non-GAAP* | | | | Return on Invested Capital (ROIC) | | | | 14 | % | | | | 17 | % |
* | 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.
| Reconciliations
| | | | | | 2020 Notice of Annual Meeting & Proxy Statement | Appendix A –Non-GAAP Financial Information and Reconciliations | | 87 | | | | | | | | | |
| | | 88
| | 2020 Notice of Annual Meeting & Proxy Statement | IBM’s Historic Commitment to Corporate Responsibility & Sustainability
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| | | 2020 Notice of Annual Meeting & Proxy Statement | Continuing to Pursue the Highest Standards of Trust and Responsibility
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002CSP0094 For Against Abstain For Against Abstain MarkSCAN TOVIEW MATERIALS & VOTE INTERNATIONAL BUSINESS MACHINES CORPORATION 1 NEW ORCHARD RD, MD 325ARMONK, NY 10504 VOTE BY INTERNETBefore The Meeting - Go to www.proxyvote.com or scan the QR Barcode aboveUse the Internet to transmit your votes withvoting instructions and for electronic delivery of information. Vote by 11:59 p.m. Eastern Time on April 25, 2022, for shares held directly and by 11:59 p.m. Eastern Time on April 24, 2022, for shares held in the 401(k) Plus Plan. Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to create an X as shownelectronic Voting Instruction Form.During The Meeting - Go to www.virtualshareholdermeeting.com/IBM2022You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions.VOTE BY PHONE - 1-800-690-6903Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 p.m. Eastern Time on April 25, 2022, for shares held directly and by 11:59 p.m. Eastern Time on April 24, 2022, for shares held in the 401(k) Plus Plan. Have your proxy card in hand when you call, and then follow the instructions.VOTE BY MAILMark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. If you vote by telephone or Internet, please DO NOT mail back this example. Please do not write outside the designated areas. X 036P7F 1 U P X + + IMPORTANT ANNUAL MEETING INFORMATION A IBM’sProxy Card. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: D66478-P64849 KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY IBM's Directors recommend a vote FOR each director (please mark your vote for each director separately). PROXY/VOTING INSTRUCTION CARD SIGNED PROXIES RETURNED WITHOUT SPECIFIC VOTING DIRECTIONS WILL BE VOTED IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. C IBM’s Directors recommend a vote AGAINST Proposals 4, 5 and 6. 1. Election.1.Election of Directors for a Term of One Year 01 -YearNominees:ForAgainstAbstain1a. Thomas Buberl 05 - Michelle J. Howard 09 - Martha E. Pollack 02 - Michael L. Eskew 06 - Arvind Krishna 10 - Virginia M. Rometty 03 -Buberl!!!1b. David N. Farr 11 - Joseph R. Swedish For Against Abstain B IBM’sFarr!!!IBM's Directors recommend a vote FOR Proposalsproposals 2 and 3. For Against Abstain 3. Advisory Vote on Executive Compensation For Against Abstain 2. Ratification3.ForAgainstAbstain1c. Alex Gorsky!!!2.Ratification of Appointment of Independent Registered Public Accounting Firm For Against Abstain 07 -Registered!!!1d. Michelle J. Howard!!!3.Advisory Vote on Executive Compensation.!!!1e. Arvind Krishna!!!IBM's Directors recommend a vote AGAINST proposalsForAgainstAbstain1f. Andrew N. Liveris 04 - Alex Gorsky 08 - F.Liveris!!!4.Stockholder Proposal to Lower Special Meeting Right!!!1g.F. William McNabb III 12 - Sidney Taurel For Against Abstain 4. Stockholder Proposal on Shareholder Right to Remove Directors 5. Stockholder Proposal on the Right to Act by Written Consent For Against Abstain For Against Abstain 6. StockholderIII!!!5.Stockholder Proposal to Have an Independent Board Chairman 13 - PeterAn IndependentBoard Chairman.!!!1h.Martha E. Pollack!!!6.Stockholder Proposal Requesting Public Report on the use of Concealment Clauses.!!!1i.Joseph R. Voser 14 - FrederickSwedish!!!1j.Peter R. Voser!!!1k.Frederick H. Waddell Admission Ticket Electronic Voting Instructions InsteadWaddell!!!1l.Alfred W. Zollar!!!
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qIF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.q + . Annual Meeting Admission Ticket This is your admission ticketProxy Materials for the Annual Meeting:The Notice of Meeting, Proxy Statement and Annual Report are available at www.ibm.com/investor/materialD66479-P64849International Business Machines Corporation Annual Meeting of Stockholders to be held on Tuesday, April 28, 2020, at 10 a.m. at the Louisville Marriott Downtown Hotel, 280 W. Jefferson Street, Louisville, Kentucky 40202. Stockholders must have a ticket for admission to the meeting. This ticketStockholdersThis proxy is issued to the stockholder whose name appears on it and is non-transferable. PLEASE DETACH AND PRESENT THIS TICKET AND PHOTO IDENTIFICATION FOR ADMISSION TO THE ANNUAL MEETING. CAMERAS, CELLULAR PHONES, RECORDING EQUIPMENT AND OTHER ELECTRONIC DEVICES WILL NOT BE PERMITTED AT THE MEETING. Proxy Solicitedsolicited by the Board of Directors for the Annual Meeting of Stockholders — April 28, 2020 Virginia M. Rometty,DirectorsArvind Krishna, James J. Kavanaugh, Michelle H. Browdy and Frank Sedlarcik, or any of them with the power of substitution, are hereby appointed Proxies of the undersigned to vote all common stock of International Business Machines Corporation owned on the record date by the undersigned at the Annual Meeting of Stockholders to be held virtually via www.virtualshareholdermeeting.com/IBM2022 at the Louisville Marriott Downtown Hotel, 280 W. Jefferson Street, Louisville, Kentucky 40202, at 1010:00 a.m. Eastern Time on Tuesday, April 28, 2020,26, 2022, or any adjournment or postponement thereof. THEthereof.THE PROXIES WILL VOTE USING THE DIRECTIONS PROVIDED ON THE REVERSE SIDE OF THIS CARD. IF YOU SIGN AND RETURN THIS PROXY, BUT DO NOT PROVIDE SPECIFIC DIRECTION WITH RESPECT TO A VOTING ITEM, THIS PROXY WILL BE VOTED WITH RESPECT TO SUCH ITEM AS RECOMMENDED BY THE BOARD OF DIRECTORS. THE PROXIES ARE ALSO AUTHORIZED TO VOTE UPON ALL OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF, UTILIZING THEIR OWN DISCRETION AS SET FORTH IN THE NOTICE OF 2020THE 2022 ANNUAL MEETING AND PROXY STATEMENT. THISSTATEMENT.THIS CARD WILL ALSO BE USED TO PROVIDE VOTING INSTRUCTIONS TO THE TRUSTEE FOR ANY SHARES OF COMMON STOCK OF INTERNATIONAL BUSINESS MACHINES CORPORATION HELD IN THE IBM STOCK FUND INVESTMENT ALTERNATIVE UNDER THE IBM 401(k) PLUS PLAN ON THE RECORD DATE, AS SET FORTH IN THE NOTICE OF 20202022 ANNUAL MEETING AND PROXY STATEMENT. UNLESSSTATEMENT.UNLESS YOU USE THE INTERNET OR THE TELEPHONE TO VOTE YOUR SHARES, YOU MUST SIGN AND RETURN THIS PROXY IN ORDER FOR YOUR SHARES TO BE VOTED. (Shares willVOTED.Continued and to be voted as directed if this card is: 1. signed and returned or 2. shares are voted over the Internet or by telephone or 3. other specific arrangements are made to have the shares represented at the meeting.) D Date (mm/dd/yyyy) — Please print date below. Signature(s) — Please keep signature(s) within the box. Please date and sign below, and return this card in the enclosed envelope, or you may vote by using the Internet or telephone. IF VOTING BY MAIL, YOU MUST DATE, SIGN AND RETURN THIS CARD. Mark the box if you plan to attend the Annual Meeting. Dear IBM Stockholder: Your vote is important. Please read both sides of the attached 2020 IBM Proxy/Voting Instruction Card. You can vote your shares through the Internet, by telephone, or by marking, signing and returning your card. If you vote through the Internet or by telephone, please DO NOT mail back your proxy card. You are invited to attend the Annual Meeting of Stockholders on Tuesday, April 28, 2020, at 10 a.m. at the Louisville Marriott Downtown Hotel, 280 W. Jefferson Street, Louisville, Kentucky 40202. If you plan to attend the Annual Meeting, you should either mark the box provided below on the proxy card, or signify your intention to attend when you access the Internet or telephone voting system. We urge you to vote your shares. Thank you very much for your cooperation and continued loyalty as an IBM Stockholder. Frank Sedlarcik Vice President and Secretary +reverse side
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