International Business Machines
Summary:
We would like to see the Committee limit the amount of perquisites given out to the executives, along with a reduction in discretion regarding the bonus money. Although they have shown good judgment so far, we believe the bonus maximum is far too high. Some room for improvement here, but overall, keep up the good work IBM.
Analysis:
Because consumers and businesses are faced with rising bills for basic needs like food and energy, they are expected to spend less on computers and computer accessories. As a result, many in the industry may suffer over the next few years. The companies in this industry that are expected to succeed are the ones that sell products and services that save time and money.
IBM is one of those companies that focus on these types of products. In addition, they are well diversified internationally, with a strong focus on the high-growth emerging markets. In conjunction with their success, the stock price has seen some very strong gains over the last two years. The price has risen from $73 per share in mid-2006, to as high as $130 per share recently in July of 2008.
However, does runaway success breed runaway profits for executives? Not necessarily.
So… What Are They Paid?
Starting with salaries and options, we see about average numbers. While the CEO, Samuel Palmisano, is making a somewhat high salary of $1.8 million, the NEOs are averaging just $685,000. Options for the NEOs averaged just over a million dollars, while the CEOs option award equaled about five and a half million.
Stock awards were pretty high, but look at the stock price. We expected to see a pretty high number here. With the CEO receiving $7.8 million in stock awards and the NEOs receiving an average of $2.4 million, the rewards are high, but not overly excessive.
The non-equity incentives given out to the NEOs were pretty low, coming in at an average of $1 million. The CEO's bonus was on the high side at nearly $6 million, but considering the target was $5 million and the company had an exceptional year, this number seems reasonable. The maximum amount the Committee could give out to the CEO is a concern since it could be as high as $15 million. However, by only giving out slightly more than the target amount after a good year, the Committee has effectively shown that they have their heads on straight.
An area of concern would be the perquisites. Allowing the CEO personal use of the company aircraft to the tune of $400,000+ is much more than you would typically see. Mr. Palmisano also received over $350,000 in dividend equivalents, which allows you to convert dividend payments into shares, and over $150,000 in matching contributions.
Compensation Details:
| CEO | NEO Avg. | |
|---|---|---|
| Base Salary | $1,800,000 | $684,688 |
| Bonus | $0 | $220,000 |
| Stock | $7,801,294 | $2,414,693 |
| Options | $5,485,566 | $1,123,939 |
| non-Equity Incentives | $5,800,000 | $1,032,713 |
Reference Links:
(1) Annual
Proxy Statement
(2) Annual
Report