(1) | This column is comprised of shares of IBM common stock beneficially owned by the named person. Unless otherwise noted, voting power and investment power in the shares are exercisable solely by the named person, and none of the shares are pledged as security by the named person. Standard brokerage accounts may include nonnegotiable provisions regarding set-offs or similar rights. This column includes 135,267 shares in which voting and investment power are shared. The directors and officers included in the table disclaim beneficial ownership of shares beneficially owned by family members who reside in their households. The shares are reported in such cases on the presumption that the individual may share voting and/or investment power because of the family relationship. The shares reported in this column do not include 44,1602023.| | | | | | | | | | | | | | | | | Acquirable within 60 days | | | Value of
Common Stock
shares at
Fiscal Year End | | | | | | | Common | | | Stock-based | | | Options And | | | Directors’
DCEAP | | | | Name | | | Stock | (1) | | Holdings | (2) | | RSUs | (3) | | Shares | (4) | | ($) | (5) | | | Michelle H. Browdy | | | | | 119,442 | | | | | | 147,997 | | | | | | 30,898 | | | | | | N/A | | | | | | 19,534,739 | | | | | Marianne C. Brown(6) | | | | | 440(7) | | | | | | 440 | | | | | | 0 | | | | | | 119 | | | | | | 91,424 | | | | | Thomas Buberl | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 10,062 | | | | | | 1,645,640 | | | | | Gary D. Cohn | | | | | 52,958 | | | | | | 81,799 | | | | | | 45,162 | | | | | | N/A | | | | | | 8,661,281 | | | | | David N. Farr | | | | | 8,508(8) | | | | | | 8,508 | | | | | | 0 | | | | | | 19,438 | | | | | | 4,570,568 | | | | | Alex Gorsky | | | | | 4,444 | | | | | | 4,444 | | | | | | 0 | | | | | | 28,028 | | | | | | 5,310,796 | | | | | Michelle J. Howard | | | | | 144 | | | | | | 144 | | | | | | 0 | | | | | | 12,370 | | | | | | 2,046,665 | | | | | James J. Kavanaugh | | | | | 98,395(9) | | | | | | 148,834 | | | | | | 52,050 | | | | | | N/A | | | | | | 16,092,502 | | | | | Arvind Krishna | | | | | 307,431(10) | | | | | | 393,302 | | | | | | 84,150 | | | | | | N/A | | | | | | 50,280,340 | | | | | Andrew N. Liveris | | | | | 2,655 | | | | | | 2,655 | | | | | | 0 | | | | | | 37,598 | | | | | | 6,583,378 | | | | | F. William McNabb III | | | | | 9,250 | | | | | | 9,250 | | | | | | 0 | | | | | | 11,764 | | | | | | 3,436,840 | | | | | Michael Miebach(6) | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 363 | | | | | | 59,369 | | | | | Martha E. Pollack | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 13,998 | | | | | | 2,289,373 | | | | | Joseph R. Swedish | | | | | 5,261(11) | | | | | | 5,261 | | | | | | 0 | | | | | | 13,906 | | | | | | 3,134,763 | | | | | Robert D. Thomas | | | | | 33,482(12) | | | | | | 101,177 | | | | | | 64,896 | | | | | | N/A | | | | | | 5,475,981 | | | | | Peter R. Voser | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 26,414 | | | | | | 4,320,010 | | | | | Frederick H. Waddell | | | | | 3,763 | | | | | | 3,763 | | | | | | 0 | | | | | | 18,564 | | | | | | 3,651,581 | | | | | Alfred W. Zollar | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 5,637 | | | | | | 921,931 | | | | | Directors and executive officers as a group | | | | | 674,703(13) | | | | | | 961,796 | | | | | | 302,662(13) | | | | | | 198,261(13) | | | | | | 142,773,263 | | |
(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 186,396 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 6,807 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 Savings Plan, and Company contributions into the IBM Stock Fund under the Excess Savings Plan. Some of these restricted stock units may have been deferred under the Excess Savings 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 2023 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, 2023, and (ii) RSU awards that vest within 60 days after December 31, 2023. For Ms. Browdy, Mr. Cohn, Mr. Kavanaugh, Mr. Krishna, and Mr. Thomas, shares in this column are from IBM restricted stock awards which will vest within 60 days after December 31, 2023. (4)
Promised Fee Shares earned and accrued under the IBM Deferred Compensation and Equity Award Plan (DCEAP) as of December 31, 2023, 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 Director Compensation section 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 common stock on the New York Stock Exchange on the last business day of the 2023 fiscal year ($163.55). (6)
Ms. Brown joined the Board in December 2023 and Mr. Miebach joined the Board in October 2023. (7)
Voting and investment power are shared. (8)
Includes 450 shares in which voting and investment power are shared. (9)
Includes 11,061 shares in which voting and investment power are shared. (10)
Includes 169,145 shares in which voting and investment power are shared. (11)
Voting and investment power are shared. (12)
Includes 39 shares in which voting and investment power are shared. (13)
The total of these three columns represents less than 1% of IBM’s outstanding shares, and no individual’s beneficial holdings totaled more than 1/20 of 1% of IBM’s outstanding shares. 282024 Notice of Annual Meeting & Proxy Statement | Ownership of Securities
IBM Impact We believe IBM is a catalyst that makes the world work better. We aspire to make a lasting, positive impact in business ethics, our environment, and the communities in which we work and live. The IBM approach is embodied in the three pillars of our IBM Impact framework. It is informed through collaboration and engagement with a broad range of stakeholders and considers frameworks and initiatives such as the Global Reporting Initiative Standards, the Sustainability Accounting Standards Board Standards, the Task Force on Climate-Related Financial Disclosures, and the United Nations Sustainable Development Goals. Our latest Impact Report is available at https://www.ibm.com/impact/reports-and-policies. IBM Impact Framework | | Ethical Impact![[MISSING IMAGE: ic_ethicalimpact-pn.jpg]](/files/DEF 14A/0001104659-24-032641/ic_ethicalimpact-pn.jpg) | | | Equitable Impact ![[MISSING IMAGE: ic_equitableimpact-pn.jpg]](/files/DEF 14A/0001104659-24-032641/ic_equitableimpact-pn.jpg) | | | Environmental Impact ![[MISSING IMAGE: ic_environmentalimpact-pn.jpg]](/files/DEF 14A/0001104659-24-032641/ic_environmentalimpact-pn.jpg) | | | | Creating innovations, policies and practices that prioritize ethics, trust, transparency, and above all — accountability | | | Creating spaces and opportunities for everyone by focusing on diversity, equity, and inclusivity within IBM as well as the rightglobally | | | Creating better pathways to acquire investment power by withdrawing authority now delegated to various investment managers. |
(2)conserve natural resources, reduce pollution, and minimize climate-related risks | For executive officers, this column is comprised of the shares shown in the “Common Stock” column and, as applicable, all restricted stock units including retention restricted stock units, a retention performance share unit award, officer contributions into the IBM Stock Fund under the IBM Excess 401(k) Plus Plan, and Company contributions into the IBM Stock Fund under the Excess 401(k) Plus Plan. Some of these restricted stock units may have been deferred under the Excess 401(k) Plus Plan in accordance with elections made prior to January 1, 2008, and they will be distributed to the executive officers after termination of employment as described in the 2020 Nonqualified Deferred Compensation Narrative.
|
(3) | For executive officers, this column is comprised of (i) shares that can be purchased under an IBM stock option plan within 60 days after December 31, 2020, and (ii) RSU awards that vest within 60 days after December 31, 2020. For Mrs. Rometty, shares in this column are from a premium-priced option grant that can be purchased pursuant to an IBM stock option plan within 60 days after December 31, 2020. For Mr. Whitehurst, shares in this column are from a Red Hat restricted stock award that was converted pursuant to the Red Hat merger agreement into an IBM restricted stock award which will vest within 60 days after December 31, 2020.
|
(4) | Promised Fee Shares earned and accrued under the IBM Deferred Compensation and Equity Award Plan (DCEAP) as of December 31, 2020, including dividend equivalents credited with respect to such shares. Upon a director’s retirement, these shares are payable in cash or stock at the director’s choice (see 2020 Director Compensation Narrative for additional information).
|
(5) | Values in this column are calculated by multiplying the number of shares shown in the “Common Stock” column plus the “Directors’ DCEAP Shares” column by the closing price of IBM stock on the last business day of the 2020 fiscal year ($125.88).
|
(6) | Includes 450 shares in which voting and investment power are shared.
|
(7) | Includes 15,174 shares in which voting and investment power are shared.
|
(8) | Includes 49,128 shares in which voting and investment power are shared.
|
(9) | Includes 65,253 shares in which voting and investment power are shared.
|
(10) | Voting and investment power are shared.
|
(11) | The total of these three columns represents less than 1% of IBM’s outstanding shares, and no individual’s beneficial holdings totaled more than 1/4 of 1% of IBM’s outstanding shares.
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| | | 26 | | 2021 Notice of Annual Meeting & Proxy Statement | Ownership of Securities |
Environmental Ethical Impact
IBM is committed to developing policies and Social ResponsibilityCorporate social responsibilitypractices that prioritize ethics, trust, transparency, and accountability. For over a century, IBM has been a hallmarkearned the trust of IBM’s culture for over 100 years. With oversight fromour clients by responsibly managing their data. We earn the Board, we have long embraced a corporate philosophy that is inclusivetrust of all our stakeholders – from our customers, employees, suppliers and stockholders, to our communities andby ushering powerful new technologies into the world, around us. Eachethically and with purpose. We believe it is our responsibility to continue to contribute to diverse, global efforts that shape standards and best practices for current and emerging technologies, such as AI.
Putting our Principles of those stakeholdersTrust and Transparency into Practice IBM’s Principles for Trust and Transparency are the guiding values that distinguish IBM’s approach to AI ethics. They include: •
The purpose of AI is increasingly focusedto augment human intelligence; •
Data and insights belong to their creator; and •
New technology, including AI systems, must be transparent and explainable. These principles are supported by five pillars of trust that IBM developed to guide the responsible adoption of AI technologies: explainability, fairness, robustness, transparency and privacy. The IBM AI Ethics Board is actively engaged in supporting alignment with these principles and pillars to address generative AI and has published a white paper on environmental, socialthe opportunities, risks and governance, or “ESG,” practices and how they impact the Company and society. Our world-class governance practices are set out above in this Proxy Statement. In addition,mitigations for foundation models (https://www.ibm.com/impact/ai-ethics). IBM’s leadership in environmentalAI ethics in reflected in many external collaborations, including the Notre Dame — IBM Technology Ethics Lab, which in 2023 focused on the challenges of auditing AI systems and social responsibilityin 2024 will explore the ethical issues of foundation models in enterprises, among other projects. IBM also launched the AI Alliance, a group of leading organizations across industry, startup, academia, research and government coming together to support open innovation and open science in AI. The AI Alliance is focused on fostering an integral part of our long-term performance strategy,open community and we continueenabling developers and researchers to take bold actions that build upon our legacy ofaccelerate responsible stewardship.We encourage stockholdersinnovation in AI while ensuring scientific rigor, trust, safety, security, diversity and economic competitiveness, and IBM is proud to read our annual Corporate Responsibility Report which provides deep insight into all of our ESG initiatives and more, includingbe a mapping of key ESG metricsfounding member to SASB, and is available at: https://www.ibm.org/responsibility/reports. Based on feedback from our investor outreach, below we also provide some examples reflecting how we are:
Working to protect our environment for future generations.
Managing the historic challenges presented by COVID-19.
Embracing a diverse and inclusive workforce.
Being a responsible steward of technology.
Advocating for responsible public policy positions.
Protecting the Environment
In 2021, following record progress toward our renewable electricity and greenhouse gas emissions goals, IBM set next generation goals to continue our leadershiplead in sustainability. Notably, IBM now aims to reach net zero greenhouse gas emissions by 2030.
| For the past 30 consecutive years, IBM has voluntarily published its IBM and the Environment Report providing detailed information on our environmental programs and performance. IBM’s uninterrupted annual publication of this report since 1990 is unsurpassed across our industry. The most recent IBM and the Environment Report is available at https://www.ibm.com/ibm/environment/annual/reporting.shtml. You can also review IBM’s comprehensive contributions to the U.N. Sustainable Development Goals at https://files.ibm.org/responsibility/thought-leadership/pdfs/IBM_and_the_UN_Sustainable_Development_Goals.pdf.
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this space. 
| | | 2021 Notice of Annual Meeting & Proxy Statement | Environmental and Social Responsibility | | 27 |
Responding to COVID-19
The COVID-19 pandemic has brought challenges unlike any seen in
By providing an inclusive environment that encourages learning and exploration of new ideas and innovative approaches, we can make the moderngreatest impact with our clients, partners, colleagues, and the world. Our response has been guidedFostering a culture underpinned by four principles: (1) employee, clientour purpose, values, and community healthgrowth behaviors is top priority; (2) our plan and response must be data-driven and evidence-based; (3) we will comply with all government requirements; and (4) focus on business continuity and maintaining critical operations. At the outset, IBM immediately mobilized to move nearly all of our ~350,000what drives us. It’s what motivates employees to work remotely within two weeks and established resources for maintaining employee engagement, productivity and emotional support. We also assembled our resources and brought togetherdo their best work. Together, we think big, set the right communities of experts, including clients, governments, scientists, developers, partners, academic institutions, health agencies and IBMers, to work together and manage through the COVID-19 outbreak by doing what IBM does best: applying data, knowledge, computing power and insights to solve difficult problems. | Supporting our Communities During the Pandemic
| ✓ Spearheaded the COVID-19 High Performance Computing Consortium with the White House Office of Science and Technology Policy and the U.S. Department of Energy to provide access to the world’s most powerful high-performance computing resources in support of COVID-19 research
✓ Committed $200M in technology, services, and money to COVID-19 response efforts including to aid healthcare scientists, researchers, and educators
✓ Created precise incident mapping
✓ Raised funds for first responders and hospital workers
✓ Provided 300,000 New York students with equipment they need for online lessons
|
Supporting the IBMer
At IBM, our global workforce is highly skilled, reflective of the work we dopace for our clients’ digital transformationsindustry, forge partnerships, and in support of their mission-critical operations. We are passionately dedicated to our employees’ professional growthmake the world work better.
Embracing and personal well-being, investing in resources to help IBMers develop their skillsEnabling a Diverse and leadership potential, and building on IBM’s legacy of leading the market in welcoming and supporting a diverse, inclusive workforce. | | | | | Talent and Culture
| | Diversity and Inclusion
| | Health and Safety
| • IBM offers a compelling value proposition to employees: IBMers develop innovative technologies including Cloud, AI, quantum computing and cybersecurity, for clients whose businesses the world relies on
• 9 out of 10 IBMers have acquired strategic skills with IBMers completing more than 80 hours of learning per person in 2020
• Hundreds of thousands of IBMers globally participate in our annual engagement survey, with workforce engagement up more than 2 points year to year
• Every IBM manager and leader has access to their team and organization engagement levels along with actionable data-driven insights
• Attrition levels in 2020 were below the prior 5-year average
| | • We seek to ensure IBMers from diverse backgrounds are engaged, feel supported to be their authentic selves, build skills, and achieve their greatest potential
• IBM’s Board of Directors recently adopted a policy to commit IBM to annually publish a report assessing the Company’s diversity, equity and inclusion efforts and programs
• 9 out of 10 IBMers say they can be their authentic selves at work
• More than 33% IBMers identify as women
• Engagement was up year to year for women, Black and Hispanic IBMers
• IBM has had an equal pay policy since 1935; we have conducted statistical pay equity analysis for decades, and in 2020 this included all countries where we have employees
| | • We have a long-standing commitment to the health, safety and well-being of our employees
• Early in the course of the COVID-19 outbreak, we restricted travel, cancelled meetings and events, and prepared nearly 95% of our workforce to work from home
• Our robust case management system manages COVID-19 exposures
• Our comprehensive playbook on workplace health and safety measures will allow locations to reopen when pandemic conditions improve
• Employees are supported with 24/7 access to IBM’s world-class Health and Safety team for questions and concerns, education and bidirectional, timely and targeted communications
|
Inclusive Workforce | | | 28 | | 2021 Notice of Annual Meeting & Proxy Statement | Environmental and Social Responsibility |
| | | IBM continues to invest in skills and
re-skilling to make the digital era more inclusive
| | • P-TECH, our high school to career model focuses on students of color and educationally underserved students; P-TECH now spans 243 schools and 600 industry partners across 28 countries
• IBM’s “returnship” and apprenticeship programs create opportunities for hundreds of new IBMers
• Open P-TECH, our platform providing free online learning for students ages 14-20 on emerging technologies and professional competencies, has more than 224,000 users
• SkillsBuild, our platform providing free online learning for adults in need of skilling and reskilling, now serves more than 122,000 users globally
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The IBM Board’s Commitment to Diversity and Inclusion
The IBM Board of Directors strongly believes that much of theIBM’s future success of IBM depends on the caliber of its talent and the full engagement and inclusion of IBMers in the workplace. A diverseWe foster a culture of conscious inclusion and inclusive workplace leadsactive allyship where IBMers can make a positive impact on society and bring their authentic selves to greater innovation, agility, performance and engagement, enabling both business growth and societal impact. In furtherance of this mission,work. IBM has had an equal pay policy since 1935. We have conducted statistical pay equity analyses for decades, and in response2023 we continued this practice for all countries where we have employees. 2024 Notice of Annual Meeting & Proxy Statement | IBM Impact 29
Supporting our Employees IBM offers a competitive benefits program, designed to help employees build a solid foundation for meeting a diverse array of needs — health care, income protection, retirement security, and personal interests. IBMers worldwide have confidential, 24/7 access to critical mental health support through employee assistance programs and supplemental resources. Other programs include training for employees on resilience, ergonomics, and financial well-being. IBM is actively fostering an environment of growth, inclusion, innovation, and feedback. We support our employees’ professional development by investing in a range of advanced tools and resources that empower IBMers to direct their own career paths and build the skills required to pursue their goals. IBMers globally participate in our annual engagement with our stockholders, thesurvey, providing actionable, data-driven insights on workplace experience, inclusion, pride and propensity to recommend IBM Board formally adopted a policy committing the Company to report annually on the effectivenessas an employer. In 2023, more than 8 of our diversity and inclusion programs. IBM will publish a diversity and inclusion report10 IBMers who participated in the second quarter of 2021. Furthermore,survey responded that they felt engaged at work — a testament to our industry-leading talent practices. Community Development At IBM, we believe we have a shared commitment to create a better, more equitable world — for each other, and within our global community. We are expanding access to digital skills and employment opportunities so that more people — regardless of their background — can participate in the digital economy. In 2023, IBM committed to publish EEO-1 datatrain two million learners in 2022 afterAI by the completionend of 2026, with a focus on underrepresented communities. To achieve this goal at a global scale, we are expanding our collaborations with universities and partners to deliver AI training to adult learners and are launching new generative AI coursework through IBM SkillsBuild. Closing the Company’s spin-offskills gap is one of its managed infrastructure services business. | | | | |  | | IBM’s Be Equal employee pledge campaign champions diversity and inclusion for everyone, driving systemic, sustainable improvement for people in every community. Since its launch in 2019, tens of thousands of individuals worldwide have pledged their commitment to equal representation.
| | • Be Vocal
• Be Plural
• Be Active
• Be Supportive
• Be Progressive
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Operating with Trust and Transparency
IBM’s top priorities in this space. We are taking bold action to achieve this. For more than 10050 years, IBM has continuously strived for responsible innovation capablebeen committed to environmental responsibility — a commitment formalized by our first corporate environmental policy in 1971, which integrated environmental responsibility throughout the fabric of bringing benefitsour business. IBM views environmental leadership as a long-term strategic imperative, demonstrated today as we continue to everyoneset ambitious goals and not just a few. This philosophy is also appliedapply our technologies to artificial intelligence:accelerate solutions to global environmental challenges. Enabling Our Clients and Communities At IBM, we aim to createhelp clients and offer reliable technologycommunities achieve their sustainability goals by infusing trustworthy data with AI into daily operations enabled by expertise that can augment, not replace, human decision-making. Properly calibrated,operationalize sustainability to combat climate change. Enabling Our Clients: IBM’s sustainability technology, consulting and research capabilities make data visible and actionable. By leveraging AI can assist humans in making fairer choices, countering human biases, and promoting inclusivity.automation for scale and speed across functions, we accelerate clients’ business objectives and sustainability goals, increase productivity, reduce costs, waste and emissions — and help them meet regulatory requirements. Enabling Our Communities: Through programs like the IBM recognized early that clearly articulating principlesSustainability Accelerator, IBM addresses multiple environmental threats around the ethical deploymentworld. The program applies IBM technologies, such as watsonx, and an ecosystem of AI technologies was critical — backed byexperts to enhance and scale non-profit and government organization initiatives helping populations especially vulnerable to environmental threats. The program selects five projects around a strong commitment to putting words into practice. Our commitmenttheme every year. Currently, the IBM Sustainability Accelerator has three active cohorts: the first is represented by our long-standing values, our Trust and Transparency Principles, and several recent developments: IBM signedfocused on sustainable agriculture, the Vatican’s Rome Call for AI Ethics, created the Notre Dame-IBM Technology Ethics Lab, published our Points of Viewsecond on Facial Recognitionclean energy, and the Precision Regulationthird on water management. In 2024, we plan to deploy a fourth cohort focused on advancing resilient cities. 302024 Notice of AI, donated our AI Explainability 360 Toolkit as an open source resource, and contributed to the EU High-Level Expert Group’s Guidelines for Trustworthy AI.While continuing to collaborate with governments, companies and other organizations, we also embraced the need for an internal governance framework and process to evaluate opportunities based on well-defined guidance around privacy and security. We established an internal AI Ethics Board to work with experts through our business to centralize the assessment of more complicated questions. The board is comprised of a cross-disciplinary team of senior IBMers, co-chaired by IBM’s Chief Privacy Officer and AI Ethics Global Leader, and reports to the highest levels of the Company.
| | | | | The Purpose of AI
| | Data Insights and Ownership
| | Transparency and Explainability
| | | | 
| | 
| | 
| The purpose of AI is to augment human intelligence. At IBM, we believe AI should make all of us better at our jobs, and that the benefits of the AI era should touch the many.
| | Data and insights belong to their creator. IBM clients’ data is their data, and their insights are their insights.
| | New technology, including AI systems, must be transparent and explainable. Technology companies must be clear about who trains their AI systems, what data was used in that training and, most importantly, what went into their algorithms’ recommendations.
|
Annual Meeting & Proxy Statement | IBM Impact
| | | 2021 Notice of Annual Meeting & Proxy Statement | Environmental and Social Responsibility | | 29 |
Responsibly Advocating Public Policy IBM’s Government and Regulatory Affairs team engages in worldwide policy advocacy to drive growth and innovation in the digital economy.IBM has never had a political action committee (PAC), makes no political donations, and has always been committed to meaningful management, oversight, and accurate reporting of our engagement with government officials. To be clear, these policies do not putThrough deep expertise in specific areas of public policy relevant to its business, clients and communities, IBM at a disadvantage — instead, they empower usworks collaboratively with governments worldwide to promote meaningful policies that are good for business, employees,expand economic prosperity and all our stakeholders. Overadvance the past year, while America’s democratic institutions were tested and manyability of IBM’s corporate peers contemplated suspending financial contributionspowerful technologies to certain elected officials, we faced no such quandary. Consistent with our long-held principles, IBM was able to stay focusedhave positive impacts on substantive policy issues. society. | | | | | Political Contributions | |
| | | 
| | Political Contributions:IBM engages in policy, not politics. 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 contributionsgovernment. Our approach to advocacy is also grounded in a commitment to preserve and strengthen trust in civic institutions and, to that end, we have partnered with other leading companies and the University of Michigan’s Erb Institute to build and advance a set of principles to promote Corporate Political Responsibility (CPR). By sharing the merit of our non-giving advocacy strategy and deepening business engagement with the CPR principles, we work to increase transparency in the ways that corporations advocate on public policy issues. These principles are permitted by law. In short, IBM engagesfocused on strengthening trust in civic institutions and their interactions with business, and providing a framework for how business can responsibly influence public policy not politics.
without giving a dime to political candidates or campaigns. | |
IBM does not have a PAC and does not engage in independent expenditures or electioneering communications as defined by law.
| | | | Lobbying | |
| | | | | | 
| | Lobbying:IBM’s Government and Regulatory Affairs team is committed to advancing common sense public policies that benefit our business and communities. We seek to build trust in technology through precision regulation, a modernized digital infrastructure, promoting justice and equality for all citizens, and leveraging science and technology for good, including in the global fight against COVID-19.good. All IBM lobbying activities, including by third parties on behalf of IBM, require the prior approval of the IBM Office of Government and Regulatory Affairs and must comply with applicable law and IBM’s Business Conduct Guidelines.
| IBM files periodic reports with the Secretary of the U.S. Senate and the Clerk of the U.S. House of Representatives detailing its U.S. federal lobbying activities and expenditures, with U.S. state and municipal governments, where required, and with the European Union Transparency Register. | |
| | | 
| | Trade Associations:
IBM joins trade and industry associations that add value to IBM, its stockholders and employees. These groups have many members from a wide variety of industries, and cover broad sets of public policy and industry issues. Although IBM works to make our voice heard, there may be occasions where our views on an issue differ from those of a particular association. | We perform comprehensive due diligence on all of our trade associations to confirm they are reputable and have no history of malfeasance. Company policy prohibits them from using any IBM funds to engage in political expenditures, and we implement robust procedures to ensure they comply. Please visit https://www.ibm.com/policy/philosophy-and-governance-new/ for a list of the trade associations that we support, through annual payments of $50,000 or higher, that are directly engaged in U. S. lobbying. | | | | | The IBM Board of Directors, as part of its oversight function, periodically receives reports from senior management relating to IBM’s policies and practices regarding governmental relations, public policy, and any associated expenditures. | | | | | IBM’s senior management, under the leadership of IBM Government and Regulatory Affairs, closely monitors and coordinates all public policy advocacy efforts, as well as any lobbying activities. | |
| | IBM is proud to report that the Center for Political Accountability’s 20202023 Report on Corporate Political Disclosure and Accountability gave IBM a score of 98.6 out of 100, naming IBM a trendsetter in Political Disclosure and Accountability and recognizing IBM as one of only 2620 companies that fully prohibit the use of corporate assets to influence elections and as one of only 38 companies that prohibit both trade associations and non-profits from using Company contributions for election-related purposes. |
| | | | | | | | | Advocating on Social Justice
| Police Reform
Advocating for new federal rules that hold police more accountable for misconduct
| | Responsible Use of Technology
Condemning the contributions of technology to discrimination or racial injustice
| | Broadening Opportunities
Providing training and education for in-demand skills, to expand economic opportunity for communities of color
| | LGBT+ Rights
Fighting for LGBT+ workplace equality since 1984, when IBM first included sexual orientation in its equal opportunity policy
| | Immigration Reform
Standing with Dreamers and protecting the vital role that immigrants have always played in this country
|
IBM’s policies and practices with regard to public policy matters, including lobbying activities and expenditures, are available on its website: https://www.ibm.com/policy/government-regulatory-affairs/philosophy-governance/.
| | | 30 | | 2021 Notice of Annual Meeting & Proxy Statement | Environmental and Social Responsibility |
2024 Notice of Annual Meeting & Proxy Statement | IBM Impact 31
2023 Executive Compensation Report of the Executive Compensation andManagement 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. 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.Alex Gorsky
Frederick H. Waddell(chair)Andrew N. Liveris
Joseph R. Swedish
Martha E. Pollack
Thomas Buberl 
| | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Executive Compensation | | 31 |
322024 Notice of Annual Meeting & Proxy Statement | 2023 Executive Compensation
2023 Compensation Discussion and AnalysisExecutive Summary
Compensation
| | In 2023, IBM
delivered $61.9B in revenue, $11.2B of free cash flow, and
generated $13.9B in cash from operations. | | | | | | Revenue Generation Revenue year-to-year growth figures at constant currency.(1) | |
| Optimized Portfolio Positioned to Deliver High Value | | | | | | Recurring Revenue Acceleration | | | IBM continues to strengthen and reinforce its position in delivering high-value, differentiated technology to its clients | | | | | | About 50% of IBM revenue is recurring, with a high-value mix | |
| | 2023 Revenue Mix | | | 2023 Recurring Revenue Mix | | | | | | | Increased revenue mix due to higher growth Software and Consulting Software revenue grew 5% year-to-year Hybrid Platform & Solutions +5% year-to-year, including Red Hat +9% year-to-year Consulting revenue grew 6% year-to-year Broad-based growth across all business lines and geographies reflecting the strength of our consulting expertise and offerings | | | | | | 67% of recurring revenue now comes from high-growth Software Hybrid Platform & Solutions exited 2023 with over $14 billion in Annual Recurring Revenue(1) | |
Revenue year-to-year growth figures at constant currency.(1) Strategic Capital Allocation | | Completed 9 acquisitions
in 2023 for $5B, and invested nearly $7B in RD&E | | | | Returned $6B to stockholders
through dividends in 2023 | | | | Ended 2023 with $13.5B in cash and marketable securities, up over
$4.6B year-to-year | |
(1)
Non-GAAP financial metrics. See Appendix A for information is disclosed in this Proxy statement for both Mr. Krishna and Mrs. Rometty. Mr. Krishna succeeded Mrs. Rometty as Chief Executive Officer on April 6, 2020. He assumed the Chairman’s role beginning January 1, 2021. Mrs. Rometty was Executive Chairman until December 31, 2020, when she retired from the Company.IBM’s Strategic Pivot to Growth
Over the last several years, IBM has built the foundation to capitalize on the $1 trillion hybrid cloud market opportunity, accelerated with the 2019 acquisition of Red Hat that established IBM as the market-leading hybrid cloud platform. In 2020, IBM took further decisive action to redefine the future of the company and create value through focus. In October 2020, the Company announced the spin-off of the managed infrastructure services business, which will immediately be the market leader at twice the size of its nearest competitor.
As discussed with investors, the pending spin-off will enable IBM to focus on delivering sustainable growth as a hybrid cloud and AI company. This also represents a shift in the Company’s business model where the majority of revenue will now come from software and solutions, enabling acceleratedhow we calculate these performance metrics.
(2)
Year-to-Year revenue growth post separation. To realize this strategy, IBM is undertaking a number% includes incremental sales to Kyndryl (post-separation, through October 2022) of actions associated with the spin-off~1 point and the growth of the hybrid cloud business. These include structural~4 points for 2021 and transaction-related actions enabling the separation and ongoing competitiveness of the managed infrastructure services business, as well as increased reinvestment in the hybrid cloud platform. The Company plans to increase investment in innovation, skills expertise and ecosystems including targeted acquisitions to accelerate IBM’s hybrid cloud platform growth strategy.To reinforce the strategic shift, we revamped our executive compensation programs to ensure alignment with IBM’s growth strategy and investor expectations. The following comprehensive changes have been made to support this growth prioritization:
The 2021 Annual Incentive Program has been updated to include two metrics, Total IBM Revenue and Operating Cash Flow, each at equal weight. The equal weighting of both metrics emphasizes the revenue growth and cash generation necessary to support increased investment and stockholder return.
The Long-term Incentive Plan has been updated to introduce Total IBM Revenue at a 40% weighting along with a corresponding reduction to the Operating EPS metric from 70% to 30%, while maintaining Free Cash Flow at a 30% weight. This design change places further emphasis on revenue growth as the key driver for the Company’s success over the long-term.
Throughout IBM’s 110-year history, diversity and inclusion has been intrinsic to our corporate culture. The company believes growth and success can only be achieved by fostering a climate that values and seeks out diversity. In order to affirm management’s commitment to improving a diverse representation of our workforce, a modifier will be introduced to the Annual Incentive Program, providing a potential positive or negative adjustment to the AIP score depending on progress in diversity representation.
Given the importance of the next two years on executing the Company’s strategic shift to growth, on February 23, 2021 the Committee approved changes to the 2019-2021 and 2020-2022 Performance Share Unit targets incorporating the impact of the planned 2021 spin-off of the managed infrastructure services business, along with actions taken to enable the separation of NewCo and enable IBM’s growth strategy under current market conditions. Consistent with the Company’s long-standing practice of setting rigorous performance plans, cumulative targets for both plans remain higher than comparable metrics shared with investors on January 21, 2021.
The impacts of these significant strategic decisions on the Company’s executive compensation programs are discussed in the following Compensation Discussion and Analysis.
2022, respectively. | | | 32 | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis |
| In 2020, IBM delivered $73.6B in revenue, with a 48.3% gross profit margin, and generated $18.2B cash from operations.
|
Hybrid Cloud Platform Performance
IBM Cloud Revenue
Over $25B total Cloud revenue, more than doubling since 2015, and now making up over 34% of IBM revenue.
Red Hat Growth
Red Hat continued its momentum, with strong double-digit revenue growth(1).
Year-to-Year Gross Margin
Expanded gross margin, with continued shift to higher value and improved services productivity.
Establishing two Market-Leading Companies
Announced separation of the managed infrastructure services business into a new $19B* market-leading public company.
Strong Cash Generation And Strategic Capital Allocation
| | | | | | | | | Generated $10.8B
Free Cash Flow(1), with
196% realization(2) | | | | Return on
Invested Capital (ROIC)
14.5%(1, 3)
| | | | Returned $5.8B to
stockholders;
reduced debt by ~$11.5B
since June 2019 peak
|
(1) | Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance metrics.
|
(2) | 143% excluding $2B charge for 4Q 2020 structural action. See Appendix A for information on how we calculate this performance metric.
|
(3) | ROIC equals net operating profits after tax (GAAP net income from continuing operations plus after-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.
|
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, consolidated operating cash flow, operating net income from continuing operations, revenue for Red Hat normalized for historical comparability,and revenue growth rates adjusted for currency, 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-GAAPNon-GAAP Financial Information and Reconciliations.”
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2024 Notice of Annual Meeting & Proxy Statement | 2023 Compensation Discussion and Analysis 33
Our compensation strategy, with significant pay at risk, supports the drivers of IBM’s high value business model. For 2020,2023, at target, 65% approximately 77% of Mr. Krishna’s pay effective April 6, 2020 (when he became CEO) wasremained at risk and subject to attainment of rigorous performance goals. | | | | For 20202023 performance, the Board approved an annual incentive payment of $2,181,000$3,510,000 for Mr. Krishna, 85%which was 117% of target. The payout reflects a 100% Individual Contribution Factor (ICF) and the Annual Incentive Program (AIP) pool funding at 85%117%. 
| |  | | |
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 positioningstrong free cash flow generation, sustainable revenue generation (at constant currency), and the Company for sustainable growth as a hybrid cloud and AI company by announcing the spin-offcontinued optimization of the Company’s managed infrastructure business.portfolio, with an increased mix of higher growth software and consulting revenue. In addition, the Committee considered hisMr. Krishna’s personal leadership in continuing IBM’s leadership inAI and quantum computing, increasing diversity representation across all areas, and recorddriving IBM’s high performance culture, as well as continued best in class employee engagement in a challenging environment.engagement. Payouts in both the annual and long-term programs reflect rigorous performance goals.
| | Feedback from Our Investors Continues to Inform the Committee | | | •
IBM once again engaged withoffered year-round robust engagement to our stockholders, reaching out to over 100125 institutions and reached out to hundreds of thousands of individual registered and beneficial owners representingleading up to the 2023 Annual Meeting and then offering off-season engagement to stockholders owning more than 50%57% of the shares that voted on Say on Pay in 2020. | 2023. •
Our stockholder discussions and formal 20202023 Say on Pay vote reaffirmed investor support of our pay practices. | |
342024 Notice of Annual Meeting & Proxy Statement | 2023 Compensation Discussion and Analysis
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Section 1: Executive Compensation Program Design and Results Trust and personal responsibility in all 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 current U.S. executive compensation programs are: | | Type | | | | Type
| | Component | | | Key Characteristics | |
| | | | Current Year
Performance | | | | 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 | | | | Performance Share Units (PSUs) | | Equity awards are typically granted annually and may consist of PSUs and RSUs. Equity
| Annual 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.In addition,targets and a relative performance metric applies to all PSU 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.
metric. | | | | | Restricted Stock Units (RSUs) | | | RSUs vest over time; typically ratably over four years. | | | | | Stock Options | | Retention
| | Stock-Based Grants & Cash Awards | | Periodically,Stock Options vest over time; typically ratably over four years. The exercise price is at least 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 formvalue of Retention Restricted Stock Units (RRSUs), retention PSUs (RPSUs), premium-priced stock options or cash for certain executives. RRSU 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
| | Savings Plan
| | U.S. employees may participate in the IBM 401(k) Plus Plan by saving a portionstock price on the date of their pay ingrant, and will be exercisable for up to 10 years from the plan, and eligible employees may also participate in a non-qualified deferred compensation savings plan, which enables participants to save a portiondate 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.
Named Executive Officers (NEOs) may have legacy participation in closed retention and retirement plans, for which future accruals ceased as of December 31, 2007.
A full description of the Retention, Pension, and Non-Qualified Deferred Compensation plans is provided in this Proxy Statement, beginning with the 2020 Retention Plan Narrative.
| | grant. | | Non-qualified Savings Plan
| | | Pension Plans (closed)
| | | Supplemental Executive Retention Plan (closed)
| | | | | |
Other compensation elements include perquisites, which are used on a limited basis to ensure safety and productivity of executives, and retirement benefits.
Full Career Performance: Retention, Pension, and Savings:Periodically, awards may be made in the form of Retention Restricted Stock Units (RRSUs) or cash awards to help retain certain executives. Vesting of RRSUs typically range from two to five years and cash awards have a clawback if an executive leaves IBM before it is earned. | | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis | | 35 |
Eligible U.S. employees may participate in post-employment savings plans such as the IBM 401(k) Plus Plan, and a non-qualified deferred compensation plan. Effective January 1, 2024 the Company also provided a new cash balance retirement benefit in the IBM Personal Pension Plan to all eligible employees equal to 5% of eligible pay. In light of this change, the Company match and automatic contributions in the 401(k) Plan ended December 31, 2023; and effective January 1, 2024 employer contributions in the non-qualified deferred compensation savings plan moved to a consistent 5% matching contribution for all eligible employees.
2024 Notice of Annual Meeting & Proxy Statement | 2023 Compensation Discussion and Analysis 35
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.For performance-based programs ending in 2020, IBM measured performance across six key financial metrics:
2023 Metrics and Weightings | | | Annual Incentive Program (AIP) | | | | | | | | IBM Revenue (20%)
| | 
| | Operating Cash Flow* | | | | | | | | | | Measures total IBM revenue performance across the IBM portfolio of business | AIP
| | Operating Net Income (40%)
| |
| | Measures our profit and operational success
| | | | Operating Cash Flow* (40%)
| |
| | Important measure ofMeasures our ability to reinvest and return value to stockholders
shareholders | | | | | | Diversity Modifier: Affirms management’s commitment to diverse representation in our workforce that reflects the labor pool demographics of the communities in which we operate. | | |
| | | Performance Share Unit (PSU) Program(1) | | | | | | Revenue | | | | Operating EPS (70%)EPS* | |
| | Free Cash Flow* | | | | | | | | | | Measures revenue performance over three years | | | | | | | | Measures operating profitability on a per share basis | PSU
Program
over three years | | Free Cash Flow (30%)
| |
| | Important measure of
| | Measures our ability to reinvest and return value to stockholdersshareholders over multiplethree years | | | | | | ROIC Modifier
(beginning in 2018)
Performance adjusted by a relative Return on Invested Capital Modifier. | |
| | Reaffirms high value business model through a negative adjustment for ROIC below S&P 500 median, and a positive adjustment for ROIC above both the S&P 500 and S&P IT medians
|
*
Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance metrics. (1)
For PSU performance period 2020-2022, the metrics included were Operating EPS at 70%, Free Cash Flow at 30%, and the ROIC Modifier. IBM shares its financial model each year with investors in the context of its long-term strategy. To provide further transparency, into the rigor of our goal setting process, IBM discloses the performance attainment against financial targets for the most recent performance period, for both the Annual Incentive Program and the Performance Share Unit Program.AIP and PSU Design Updates Beginning in 2021
To reinforce the strategic shift of the Company’s business model announced in October 2020, when IBM announced the spin-off of the Company’s managed infrastructure services business, and to support the focus on delivering sustainable revenue growth and free cash flow as a hybrid cloud and AI company, the Committee revamped the performance metrics in our executive compensation programs as follows:
2021 Metrics and Weightings
| | | | | | | | | IBM Revenue (50%)
| |
| | Increased focus on total IBM revenue performance across the IBM portfolio of business (weighting increased from 20%)
| AIP
| | Operating Cash Flow* (50%)
| |
| | Increased focus on our ability to reinvest and return value to stockholders (weighting increased from 40%)
| | | Diversity Modifier
New in 2021
| |
| | Reinforces senior management’s focus on improving a diverse representation of our workforce
| | | IBM Revenue (40%)
New in 2021
| |
| | Reinforces focus on cumulative IBM revenue performance over multiple years
| PSU
Program
| | Operating EPS (30%)
| |
| | Measures operating profitability on a per share basis (weighting reduced from 70%)
| | Free Cash Flow (30%)
| |
| | Continues to be an important measure of our ability to reinvest and return value to stockholders over multiple years (weighting maintained)
| | | ROIC Modifier
| |
| | Reaffirms high value business model through a negative adjustment for ROIC below S&P 500 median, and a positive adjustment for ROIC above both the S&P 500 and S&P IT medians
|
*Net | Cash from Operating Activities, excluding Global Financing receivables.
|
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20202023 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 incentive program to reflect current business priorities.(AIP). These objectives translate to financial targets for IBM and for each business unit for purposes of determining the target funding of the AIP. Performance against business objectivesthe targets 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.rates. 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. For 2020, The diversity modifier affirms management’s commitment to diverse representation in our workforce that reflects the target was adjusted to exclude the impactlabor pool demographics of the $2.0 billion pre-tax chargescommunities in which we operate. A diverse workforce and an inclusive work environment fuel both innovation and creativity. The diversity modifier creates a common mechanism to align leaders with our commitment to creating an inclusive environment for structural actionsall. This modifier can result in a 5 point reduction, no impact, or 5 point increase to the AIP scoring. In 2023, the modifier was based on our progress in creating and developing a diverse executive population. Executive representation of women globally, as well as Black and Hispanic executives in the fourth quarter to simplifyUnited States, changed by +1.1 points, -0.2 points and optimize our operating model in support of+0.6 points, respectively for the announcement we made in our strategic update in October. Whileyear. In 2023, these results mean that the COVID-19 global pandemic had a significant impact on 2020 results, no adjustment was made to scoring due to COVID-19. The Committee determined that this approach best reflectedmodifier did not increase or decrease the stockholder experience in 2020. In addition,AIP scoring. Finally, the Chairman and CEO can recommend an adjustment, up or down, based on factors beyond IBM’s financial performance; this includes, for example, client experience, market share, growthresearch and diversityinnovation, and inclusion of IBM’s workforce. Although IBM made improvements in several non-financial areas in 2020, including record diversity across all representation groups,culture and engagement. Taking such matters into account for 2023, the Chairman and CEO did not recommend any qualitative increase onCompensation Committee approved an upward adjustment to the score given overall resultsof ten points reflecting progress in a challenging 2020 business environment.AI and quantum computing, IBM’s high performance culture, and employee engagement. The Compensation Committee reviews the financial scoring, diversity modifier, and proposed qualitative adjustments, and approves the final AIP funding level. 362024 Notice of Annual Meeting & Proxy Statement | 2023 Compensation Discussion and Analysis
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 (payoutsincentive. Payouts at this level are rare and only possible when IBM’s performance has also been exceptional).exceptional. The AIP, which covers approximately 5,0004,000 IBM executives, includes this individual cap at three times the individual target to ensureallow for 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 MarchApril 15 of the year following the end of such period.
![[MISSING IMAGE: fc_indicon-pn.jpg]](/files/DEF 14A/0001104659-24-032641/fc_indicon-pn.jpg) This incentive design ensures payouts are aligned to IBM’s overall business performance while also ensuring individual executive accountability for specific business objectives.2020
Based on full year financial performance against total IBMof revenue operating net income, and operating cash flow, the weighted incentiveIBM pool funding score was 85.
(1) | Based on AIP payout table.
|
(2) | Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance metrics.
|
117. (1)
Based on AIP payout table; the 2023 leveraged score resulted in 98% for Revenue and 116% for Operating Cash Flow; for Revenue, threshold attainment is 80% with a 50% payout, target attainment and payout is 100%, maximum attainment is 110% with a 200% payout; for Operating Cash Flow, threshold attainment is 70% with a 70% payout, target attainment and payout is 100%, maximum attainment is 120% with a 200% payout. (2)
Operating Cash Flow is a non-GAAP financial metric. See Appendix A for information on how we calculate this performance metric. Performance Share Unit Program The Performance Share Unit (PSU) metrics for the 2018–20202021-2023 performance period were Revenue, Operating EPS, and Free Cash Flow, unchanged from previous years. Flow.
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TargetsFinancial targets are established at the beginning of each three-year performance period. Both Operating EPS and Free Cash Flow cumulative three-year targets for the 2018-2020 performance period exceeded those cumulative three-year targets for the previous performance period (2017-2019). These targets are based on IBM’s financial model, as shared with investors, and the Board-approved annual budget. business objectives.
As discussed in prior years, in connection with the separation of Kyndryl in 2021, the Committee approved adjustments to the 2021-2023 PSU program targets in December 2021. The Committee’s longstanding practice is that the Company’s share repurchase activities have no effect on executive compensation. Actual operatingOperating EPS results and the target are adjusted to remove the impact of any difference between the actual share count and the budgetedtargeted share count, while simultaneously ensuring that executive compensation targets are normalizedcount. Revenue is adjusted for any planned buybacks that are incorporated into the Operating EPS target.fluctuations in foreign currency rates in all three years. Additionally, the scoring for the PSU Program takes into accountmay consider extraordinary events. For the 2018-20202021-2023 performance period, 2022 and 2023 results arewere adjusted to exclude the impact of the Red Hat acquisition. This approach is consistent with the adjustment made to the previous performance period (2017-2019). For 2018-2020, results were also adjusted to exclude the impact of the $2.0 billion pre-tax charges for structural actionsexiting our business in the fourth quarter to simplify and optimize our operating model in support of the announcement we made in our strategic update in October. While the COVID-19 global pandemic had a significant impact on the 2018-2020 results, there was no adjustment made to scoring due to COVID-19. The Committee determined that this approach best reflected the stockholder experience in 2020.Russia. At the end of each three-year performance period, the Compensation Committee approves the determination of actual performance relative to pre-established financial targets and the number of PSUs are adjusted up or down from 0% to 150% of targets, based on the approved actual performance. In addition, beginning with the 2018-2020 PSU Program has a Relative Return on Invested Capital (ROIC) modifier was added to the PSU program.modifier. 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. There is no qualitative adjustment to the PSU program score. RELATIVE ROIC MODIFIER
2024 Notice of Annual Meeting & Proxy Statement | 2023 Compensation Discussion and Analysis 37
The PSU score is calculated as a weighted average of results against targets for Revenue (40%), Operating EPS (70%(30%) and Free Cash Flow (30%). The calculation for the 2018-20202021-2023 performance period is shown in the table below. For the 2018-20202021-2023 performance period, the ROIC modifier was zero.0%. While IBM ROIC was atexceeded the 68th percentilemedian of the S&P 500 Index (excluding financial services), it did not exceed the median of the S&P Information Technology Index.
(1) | Based on PSU payout table.
|
(2) | Non-GAAP financial metrics. See Appendix A for GAAP to Non-GAAP reconciliation.
|
| Targets and scoring exclude the impact of the Red Hat acquisition and the $2B charge for Q4 2020 structural actions.
|
Impact of Significant One-Time Events on the Open PSU Performance Periods
As previously disclosed, in connection with the July 9, 2019 closing of the Red Hat acquisition, the 2019-2021 PSU program targets incorporate Red Hat performance. The target updates resulted in an increase to the Free Cash Flow target and a reduction to the Operating EPS target, almost entirely driven by a non-cash purchase accounting adjustment to deferred revenue required by US GAAP. The updated targets were higher than external guidance shared with stockholders at IBM’s Investor Briefing on August 2, 2019.
Cumulative three-year EPS and Cash Flow targets for the 2019-2021 and 2020-2022 Performance Share Unit (PSU) programs were set prior to the announcement of the planned 2021 spin-off of the managed infrastructure services business and related actions. IBM’s PSU programs consist of operational financial metrics that were substantially impacted by this significant unplanned event.
| | | 38 | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis |
(1)
For the 2019-2021 and 2020-2022 PSU programs, the Committee determined that the targets for these two outstanding PSU programs were no longer reflective of the company’s strategic direction and growth objectives as communicated to stockholders over the past year. The Committee approved an adjustment reducing the targets for the 2019-2021 and 2020-2022 PSU programs, incorporating the planned 2021 spin-off of the managed infrastructure services business including one-time transaction-related cash charges associated with the spin, and actions taken to enable the separation of NewCo and IBM’s growth strategy under current market conditions. The resulting targets remain rigorous and will continue to appropriately incent management in an important period. Consistent with the Company’s long-standing practice of setting rigorous performance plans, cumulative targets for both plans remain higher than comparable metrics shared with investors on January 21, 2021.
Unique Compensation Arrangements for James Whitehurst
In Mr. Whitehurst’s prior role as Chief Executive Officer of Red Hat, a portion of his 2020 compensation includes payments provided as a result of his participation in the following Red Hat compensation and benefit programs, as well as acquisition related agreements between IBM and Mr. Whitehurst, all of which existed prior to the close of the Red Hat acquisition on July 9, 2019.
Restricted Stock Awards
Mr. Whitehurst’s unvested Red Hat equity awards were converted into Restricted Stock Awards (RSAs) to receive IBM stock upon close of the Red Hat acquisition, at the same rate of conversion that was used to convert all of Red Hat’s outstanding stock into IBM stock.
Cash-Based Retention
As disclosed in the Merger Proxy Statement filed by Red Hat, Inc. with the SEC on December 12, 2018, in connection with the merger agreement between Red Hat and IBM, Mr. Whitehurst entered into a retention arrangement with IBM providing that Mr. Whitehurst shall be entitled to a $6M retention cash payment, with $2M paid on each of the 1st, 2nd, and 3rd anniversaries of the closing of the merger, respectively, subject to continued employment by IBM and accomplishment of key milestones for each of the three years.
The Committee approved the first $2M payment for Mr. Whitehurst in July 2020, in connection with the first anniversary of the closing of the merger. This payment was based on Mr. Whitehurst’s accomplishment of financial goals in delivering Red Hat revenue, pre-tax income and free cash flow, as well as increasing the number of clients utilizing IBM or Red Hat cloud container offerings, expanding Red Hat’s strategic partnerships, and successfully retaining key Red Hat talent in the first year following the closing of the merger.
Red Hat Annual Cash Bonus
Upon the close of the Red Hat acquisition, IBM adopted Red Hat’s Annual Cash Bonus Plan (ACB Plan) for Red Hat’s fiscal year 2020 (i.e., March 1, 2019 to February 29, 2020). As CEO of Red Hat, Mr. Whitehurst participated in this ACB Plan. Red Hat’s ACB Plan allowed for payouts from 0% - 200% of target incentive, based on accomplishment of Red Hat’s fiscal year financial performance (75% of payout) and performance against individual goals (25% of payout). For fiscal 2020, financial performance metrics included Red Hat’s Total Revenue, Cash from Operations, and Non-GAAP operating margin*, which were each weighted equally during this period.
Based on 166% achievement of the Plan’s financial performance metrics and 105% of Mr. Whitehurst’s individual goals, the Committee approved a payment of $2,487,375, or 150.75% of Mr. Whitehurst’s target bonus for this time period. A pro-rata portion of his total payment is included in the 2020 Summary Compensation Table, to reflect the amount earned for January and February of 2020. Effective March 1, 2020, Mr. Whitehurst became a participant of IBM’s Annual Incentive Program and was no longer a participant of Red Hat’s ACB Plan. *PSU payout levels displayed below.
(2)
Non-GAAP financial metric. See Appendix A for information on how we calculate this performance metric.New
(3)
2021-2023 Revenue result is calculated using historical 2021 consolidated revenue, including ten months of Kyndryl discontinued operations revenue, and 2022 and 2023 revenue as reported, adjusted for 2020: Mr. Whitehurst’s retention Performance Share Unit (RPSU) AwardIn 2020,fluctuations in foreign currency and impacts of separating business in Russia.
(4)
Non-GAAP financial metrics. 2021-2023 Operating EPS result is calculated based on 2021 historical as reported amounts adjusted to include discontinued operations. Operating EPS excludes certain separation related charges in 2021 and includes immaterial share adjustments in all three years. For 2022 and 2023, both Operating EPS and Free Cash Flow were adjusted to exclude the Committee approved an RPSU grantimpact of $15Mseparating business in planned valueRussia. Free Cash Flow amounts are on a consolidated basis, which includes activity from discontinued operations. See Appendix A for Mr. Whitehurst, which was awardedGAAP to non-GAAP reconciliation. 2021-2023 PSUs: Threshold, Target, and Max Attainment % and Payout %: | | | | | Threshold | | | Target | | | Max | | | | Financial Metrics | | | Attainment % / Payout % | | | Attainment % / Payout % | | | Attainment % / Payout % | | | | Revenue (40%) | | | 70% / 25% | | | 100% / 100% | | | 120% / 150% | | | | Operating EPS (30%)(1) | | | 70% / 25% | | | 100% / 100% | | | 120% / 150% | | | | Free Cash Flow (30%)(1) | | | 70% / 25% | | | 100% / 100% | | | 120% / 150% | |
(1)
Non-GAAP financial metrics. See Appendix A for information on March 2, 2020, prior to undertaking his role as IBM President. The RPSU was awarded as consideration for signing an IBM Non-Competition agreement (NCA). This NCA is broader than the non-competition provisions Mr. Whitehurst agreed to in connection with the acquisition of Red Hat, which limited competition within the then-existing scope of Red Hat’s business. The IBM NCA covers the scope of IBM’s business footprint, and aligns his NCA terms and conditions with other IBM leaders.One-third of the RPSU will vest and pay out on July 31, 2021, with no additionalhow we calculate these performance criteria. Two-thirds of the RPSU will vest and pay out on July 31, 2023; the number of units that pay out for this portion of the award is subject to the following performance criteria:
metrics. The relative ROIC modifier (previously described) that applies to PSUs for the 2020-2022
Note: For PSU performance period may also modify2020-2022, the number of units paid for this portion of the award up or down by up to 20 points, based on IBM’s ROIC performance relative to broader market indices. As a result, the minimum number earned for this portion of the RPSU could be as low as 80% of target,metrics included were Operating EPS at 70%, Free Cash Flow at 30%, and the maximum number earned could be up to 120%ROIC Modifier.
382024 Notice of target.Annual Meeting & Proxy Statement | 2023 Compensation Discussion and Analysis
| | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis | | 39 |
Section 2: Compensation Program Governance 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 2020, IBM once again engaged with over 100 institutional investors. Further, our process includes outreach to hundreds of thousands of individual registered and beneficial owners, who represent a majority of our retail base. The Company continued its enhanced engagement practices in 2020. IBM’s CEO, Executive Chairman, Lead Director, and members of IBM’s senior management participated in this engagement program. Overall, the Company offered to engage with investors representing more than 50% of the shares that voted on Say on Pay at the 2020 Annual Meeting.
| | Which Stockholders were Engaged | | | Who Engaged from IBM | | | | In 2023, IBM once again offered year-round robust engagement to our stockholders, reaching out to over 125 institutions and hundreds of thousands of individual registered and beneficial owners leading up to the 2023 Annual Meeting and then offering off-season engagement to stockholders owning more than 57% of the shares that voted on Say on Pay in 2023. | | | The Company continued its enhanced engagement practices in 2023. IBM’s Chairman and CEO, Lead Director, and members of IBM’s senior management participated in this engagement program. | |
![[MISSING IMAGE: color_arrowrule-pn.jpg]](/files/DEF 14A/0001104659-24-032641/color_arrowrule-pn.jpg) This in-depth engagement process provides valuable feedback to the Compensation Committee on an ongoing basis.Overall, our stockholders continue to support the Company’s compensation programs and practices. We heard from stockholders that they are strongly supportive of the overall design of the program, which focuses on long-term financial performance that drives stockholder value. Still, the Committee and the Board review and consider all of the investor feedback in making decisions relating to the design of our executive compensation programs. For example, the following changes occurred in 2020 and 2021: The mix of pay in Mr. Krishna’s new compensation package as Chief Executive Officer, including his Target Incentive at 200% of base pay, was aligned to the market. The new AIP and PSU Program metrics and weighting introduced for 2021 reinforces the longer-term strategic shift in the Company’s business model announced in October 2020.
In addition, the new Diversity modifier added to the 2021 AIP reinforces the Company’s focus on continued improvement in the diverse representation of the Company’s workforce.
Given the importance of the next two years on executing the Company’s strategic shift to growth, and investors’ focus on ensuring senior leaders’ compensation payouts are aligned with driving further growth, the Committee approved changes to financial targets for the 2019-2021 and 2020-2022 PSU Program, which incorporate the planned 2021 spin-off of the managed infrastructure services business, as well as actions taken to enable the successful separation of NewCo and IBM’s growth strategy.
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, Vice Chairman President, Executive Vice President and Senior Vice Presidents
•
Utilize noncompetition and nonsolicitation agreements for senior executives
•
Remove impact of share repurchase on executive incentives | | 
| | | | | | | | •
No individual severance or change-in-control agreements for executive officers
•
No excise tax gross-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 paymentvesting of equity awards for executive officers
•
No above-market returns on deferred compensation plans | |
| | | 40 | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis |
2024 Notice of Annual Meeting & Proxy Statement | 2023 Compensation Discussion and Analysis 39
Personal Stake in IBM’s Future through Stock Ownership Requirements Investors want the leaders of their companies to act like owners. That alignment, we believe, works best when senior leaders have meaningful portions of their personal holdings invested in the stock of their company. This is why IBM sets significant stock ownership requirements for IBM’s Chairman and CEO, President, Executive Vice President (EVP)Chairman, and Senior Vice Presidents (SVPs). Within 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 promotion.election as an Executive Officer. The minimum multiple of salary required is in excess of standard market practicepractice. Stock Ownership Requirements | | | | | | | | | | | | | | Ownership Requirements as a Multiple of Salary | NEO Name | | IBM Minimum Requirement | | Median Peer Group Minimum Requirement | | | | A. Krishna | | 10 | | 6-7 | | | | V.M. Rometty | | 10 | | 6-7 | | | | J.J. Kavanaugh | | 7 | | 4 | | | | J.M. Whitehurst | | 7 | | 4 | | | | J.E. Kelly III | | 7 | | 4 | | | | M.H. Browdy | | 7 | | 4 |
In less than a year as CEO,
| | | | | Ownership Requirements as a Multiple of Salary | | | | | | | IBM Minimum Requirement | | | Median Peer Group Minimum Requirement | | | | CEO | | | 10 | | | 7 | | | | Other NEOs | | | 7 | | | 4 | |
Mr. Krishna owns common stock and stock-based holdings nearabove his ownership requirement (about 9(over 35 times his base salary) as of December 31, 2020. Mrs. Rometty still owned common stock and stock-based holdings with a value of more than 30 times her base salary upon her retirement on December 31, 2020.2023. More information on Mr. Krishna’s and Mrs. Rometty’s holdings can be found in the Common Stock and Stock-Based Holdings of Directors and Executive Officers Table. As a group, the Chairman and CEO, ExecutiveVice Chairman President, EVP and SVPs, inclusive of the NEOs, owned shares or equivalents valued at over $160$155 million as of December 31, 2020; in fact,2023; as of that date, this group held, on average, more thanover 9 times their base salary.salary, and are all on track to meet or exceed their ownership goal within 5 years of hire or promotion. The following table illustrates which equity holdings count towards stock ownership requirements: | | | | | | | | | What Counts | | | | | | What Does Not Count | |
| | | | | | | | | | •
IBM shares owned personally or by members of the officer’s immediate family sharing the same household
•
Holdings in the IBM Stock Fund of the 401(k) Plus Plan and the Excess 401(k) Plus Plan
•
Shares of IBM stock deferred under the Excess 401(k) Plus Plan | |
| | | | | | | | •
Unvested equity awards including PSUs, RPSUs, 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, ExecutiveVice Chairman President, EVP 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. For example, shares for Mrs. RomettyMr. Krishna that remained restricted and subject to performance of IBM represent more than 2 times her100% of his share ownership requirement as of her December 31, 2020 retirement date;2023, 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 2020,2023, 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.
| | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis | | 41 |
How Compensation Decisions are Made
At any level, compensation reflects an employee’s value to the business — market value of skills, individual contribution and business results. To be sure we appropriately assess the value of senior executives, IBM follows an evaluation process, described here in some detail: 402024 Notice of Annual Meeting & Proxy Statement | 2023 Compensation Discussion and Analysis
1. Making Annual Performance Commitments All IBM employees, including the Chairman and CEO, ExecutiveVice Chairman President, EVP and SVPs, develop goals, both qualitative and quantitative, that they seek to achieve in a particular year in support of the business. The Board of Directors reviews and approves the CEO’sChairman and the Executive Chairman’sCEO’s performance goals and formally reviews progress and outcomes. As part of this process, many factors are considered, including an understanding of the business risks associated with the performance goals. 2. Determining Annual Incentive Payouts Evaluation of CEOChairman and Executive ChairmanCEO 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 payouts for both the CEOChairman and the Executive Chairman.CEO. This framework considers the CEO’sChairman and the Chairman’sCEO’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 President, 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 President, 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 this in-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 President, 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 President, 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
For 2023 and 2024 compensation decisions, the Committee re-examinedutilized the following benchmark group for 2020 and determined that companies which meet the following criteria should be included in the 2020 benchmark group:criteria: •
Companies in the technology industry with revenue that exceeds $15$10 billion, plus •
Additional companies (up to two per industry if available) in industries other than technology,industries, with revenue that exceeds $40$30 billion, and that have a global complexity similar to IBM, and whose business strategy results in substantial competition for senior leadership talent. For 2020both 2023 and 2024 compensation decisions, the Committee approved the following benchmark group using the criteria above. | | | 42 | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis |
2020 BENCHMARK GROUP:
| | | | | | | | | | | Accenture
| | Caterpillar | | General Electric | | Oracle
| | | | | Alphabet
| | Chevron | | Hewlett Packard Enterprise | | PepsiCo
| | | | | Amazon.com
| | Cisco Systems | | HP Inc. | | Pfizer
| | | | | Apple
| | Dow | | Intel | | United Technologies
| | | | | AT&T
| | ExxonMobil | | Johnson & Johnson | | UPS
| | | | | Boeing
| | Ford | | Microsoft | | Verizon
|
For 2021 compensation decisions, the Committee approved the following benchmark group,above, which they believe isachieves a better balance between prominent technology competitors and large-scale companies of similar size of IBM, and more accurately represents IBM’s competition for senior leadership talent. The data from compensation surveys and related sources form the primary external view of the market. In consideration of size and complexity, IBM’s philosophy is to generally target the 50th50th percentile of the market for cash and total compensation.
2021 BENCHMARK GROUP:
Benchmark Group: | | Accenture | | | | | | | | | | Accenture
| | Boeing | | Johnson & Johnson | Microsoft | Salesforce
| | UPS | | | | Adobe | | | Alphabet
| | Cisco Systems | | Microsoft | | United Technologies
| | | | | Amazon.com
| | Dow | | Oracle | | UPS
| Verizon | | | | Alphabet | | | Apple
| | General Electric | | | PepsiCo | | Verizon
| Visa | | | | Amazon.com | | | AT&T
| | Hewlett Packard Enterprise | | Pfizer | Qualcomm | | | VMware(1) | | | | AT&T | | | Honeywell | | | Raytheon | | | | | | Bank of America | | | Intel | | Qualcomm | Salesforce | | | | |
(1)
VMware was acquired by Broadcom in November 2023. 2024 Notice of Annual Meeting & Proxy Statement | 2023 Compensation Discussion and Analysis 41
Approach to Determining Individual Compensation
For individual compensation decisions, the benchmark information is used together with an internal view of individual performance relative to other executives and recognizing that the skills and experience of our senior executives are highly sought after by other companies and, in particular, by IBM’s competitors. Because factors such as performance and retention, as well as size and complexity of the job role, are considered when compensation decisions are made, the cash and total compensation for an individual named executive officer may be higher or lower than the target reference point of the broader benchmark group. Evaluation of CEOChairman and Executive ChairmanCEO Target Pay by the Compensation Committee
The Chair of the Compensation Committee works directly with the Committee’s compensation consultant to provide a decision-making framework for use by the Committee in setting target compensation opportunities for both the CEOChairman and Executive Chairman.CEO. The independent members of the IBM Board of Directors review and provide final approval. Evaluation of President/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 President’s, 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 of separation of employment or retirement. The Committee decides whether to approve or adjust the Chairman and CEO’s recommendations for the President, 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.
| | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis | | 43 |
422024 Notice of Annual Meeting & Proxy Statement | 2023 Compensation Discussion and Analysis
Section 3: Compensation Decisions for the Chairman and CEO Executive Chairman, and Named Executive Officers 2023 Annual Incentive Payment Decision for the Chairman and CEO | | | | 2020 Annual Incentive Decision for the CEO
| | For 20202023 performance, the Board approved an annual incentive payment of $2,181,000,$3,510,000, which represented 85%117% of Mr. Krishna’s target opportunity and was in line with the Company incentive score. | | | | | | In addition to overall IBM 20202023 revenue performance of $73.6$61.9 billion and pre-tax income of $4.6$13.9 billion cash from operations, the Compensation Committee noted the following achievements for Mr. Krishna, which have positioned IBM for sustained growth going forward: | |
BUSINESS RESULTS | | | | PORTFOLIO AND INVESTMENT | | Business Results
• IBM Hybrid Cloud
Software revenue grew to over $25B, now 34% of IBM5% year-to-year and growing 20% at constant currency, excluding divestitures*.• Red HatConsulting revenue growth of 18% at constant currency normalized for historical comparability*.
• IBM Z grew at 1%6% year-to-year at constant currency*.
Portfolio
•
Continued shift toward higher growth revenue, with ~75% of revenue now in Software and InvestmentConsulting • Announced acceleration
Free cash flow* generation of IBM’s Hybrid Cloud growth strategy to drive sustainable mid-single digit revenue growth, including the separation of the managed infrastructure services business into a new $19B** market-leading public company.• Expanded our Hybrid Cloud platform to$11.2B (+$1.9B year over 2,800 clients and 260 GBS engagements.
year)
| | | | •
Closed 79 strategic acquisitions across Cloudin 2023 and Cognitive Software and GBS,invested $7B in Research, Development, & Engineering, focused on expanding Hybrid Cloud and AI capabilities.capabilities •
Sustainable revenue growth for third consecutive year | |
LEADERSHIP IN
INNOVATION | Leadership
| | | SOCIETAL IMPACT
| | | | TALENT DEVELOPMENT
AND LEADERSHIP | | •
Delivered AI capabilities across the IBM technology stack through watsonx •
Extended IBM’s quantum-centric supercomputing | | | | •
Reduced IBM’s operational greenhouse gas emissions by 63%, with a goal of 65% by 2025 •
Centralized governance for data, privacy and AI in the Enterprisea single Integrated Governance Program, creating a consolidated, company-wide view enhancing regulatory compliance and time to market | | | | •
Continued advanced leadershipbest in quantum computing; deployed 65 qubit system. Total of 14 new systems deployed, of which 13 are quantum volume 32 or higher.Societal Impact
• AI Ethics Board delivered real-time guidance in response to COVID-19 and social justice use cases in emerging areas.
• Increased the P-Tech 6-year high school concept reach with 243 schools across 28 countries, this innovative education model enables low income students entry to high-paying tech jobs without a college degree. Launched the Open P-Tech learning platform, which now has 130,000 users.
Talent Development and Leadership
• Increased strategic skill depth by 42% year-to-year.
• Continued strengthening of the inclusive IBM culture, with representation up year-to-year across all areas.
• Recordclass employee engagement continued
•
Growth in a challenging environment, up over 2 points year-to-year.expertise levels for key skills (AI, Cloud, Security) | |
| | 2021
| 2024 Compensation Decisions for the Chairman and CEO | | | | | | For 2021,2024, the independent members of the Board made no changes to Mr. Krishna’s base salary, orwhich has not changed since he became CEO in April 2020. Mr. Krishna’s target annual incentive. Heincentive increased to $3.5 million and he was granted an annual long-term incentive award valued at $13.75M. This$20 million. Mr. Krishna’s target cash and total compensation are in line with the median of the 2024 benchmark group. Mr. Krishna’s long-term incentive grant is comprised 65% of 2021-202360% 2024-2026 Performance Share Units, and 35% of20% Restricted Stock Units.Units, and 20% Stock Options. For 2021, 65%2024, 78% of Mr. Krishna’s annual total target compensation is tiedat risk and subject to performance-based incentives.attainment of rigorous performance goals and IBM’s stock price performance. | | |
* | Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance metrics.
|
** | Trailing twelve months revenue through June 30, 2020, adjusted to reflect estimated historical sales between IBM and NewCo.
|
*
Non-GAAP financial metric. See Appendix A for information on how we calculate these performance metrics. 2024 Notice of Annual Meeting & Proxy Statement | 2023 Compensation for the Executive ChairmanMrs. Rometty’s bonus for 2020 was $4.25M, which represents 85% of her target bonus for the yearDiscussion and is in line with the Company incentive score. The Committee considered Mrs. Rometty’s efforts in ensuring a successful transition to Mr. Krishna throughout 2020 in recommending this bonus. Key accomplishments included:
Mentored CEO on Board matters and transitioned key government, client and investor relationships.
Led the Board, including continued Board refreshment with the naming of one new director. Average Board tenure is now 6 years (below S&P 500 average of 8 years).
Continued to represent IBM as a leading voice on policy matters and in forums such as the Business Round Table, Business Council, China Development Forum, Singapore Advisory Board, Business Executives for National Security, and France Tech for Good.
As disclosed by the Company in December 2020, the Board approved certain arrangements in connection with Mrs. Rometty’s retirement from the Company effective December 31, 2020. The arrangements approved by the Board included a post-retirement consulting arrangement for a three-year period following her retirement for services that the Company may ask her to provide from time to time, as an independent contractor. The fee for such services would be $20,000 per day for each day she provides 4 or more hours of services, and $10,000 for each day that she provides less than four hours. To help facilitate these services, the Board also agreed to provide continued use of IBM office space and an IBM assistant during this three-year consulting arrangement.
| | | 44 | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis |
Analysis 43
2023 Annual Incentive Decisions for Mr. Kavanaugh, Mr. Whitehurst, Dr. Kelly,Thomas, Mr. Cohn, 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, manysome of which are summarized below: | | JAMES J. KAVANAUGH | | | | James J. Kavanaugh
| | Senior Vice President, Finance & Operations and Chief Financial Officer |
Achieved over $14B year-end cash balance by generating $10.8B in free cash flow*, with 196% realization of GAAP Net Income, taking prudent funding actions while reducing overall debt, and leading efforts to optimize IBM’s financing portfolio.
Announced the acceleration of IBM’s Hybrid Cloud growth strategy to drive sustainable mid-single digit revenue growth, including the separation of the managed infrastructure services business into a new $19B** market leading public company.
In response to the global pandemic, transitioned IBM’s global workforce of ~350k employees to remote work, ensuring continuity of IBM business.
| | | | Optimized portfolio and drove productivity initiatives generating margin expansion in 2023. Achieved over $1.5 billion dollars in annual run-rate savings, with a path to deliver at least $3 billion in annual run-rate savings by the end of 2024. | | James M. Whitehurst
| Delivered free cash flow* of $11.2 billion, up $1.9 billion year-to-year, which enabled returning $6 billion to stockholders through dividends and investing over $5 billion to acquire 9 companies in 2023. | | | | Attracted new investors to IBM through strong engagement with shareholders; including one-on-one interactions, group functions, and participation in conferences. | |
| | ROBERT D. THOMAS | | | Senior Vice President, Software & Chief Commercial Officer |
Drove portfolio optimization and expansion, with 67% of investment focused in growth offerings.
Led cross-IBM growth through ecosystem and increased ecosystem commitment with GSIs Cloud Paks.
Continued acceleration of Red Hat acquisition and synergy, delivering year-to-year revenue growth and over 2,800 Hybrid Cloud platform clients.
| | | | Delivered 5% Software revenue growth, increasing client demand for watsonx and growing our AI footprint. | | John E. Kelly III
| Bolstered Software portfolio through investment in skills and innovation, including launching watsonx and driving strategic M&A. | | | | Continued transformation in go-to-market model to infuse more technical and experiential selling, leveraging expanded ecosystem and strategic partnerships. | |
| | GARY COHN | | Executive
| Vice PresidentChairman |
Achieved #1 patent position for 28th consecutive year, with over 9,100 patents in 2020.
Co-led IBM COVID-19 Task Force; ensured continuity of business while protecting all employees worldwide.
Built world class Privacy and Ethics team, and established a robust AI governance framework, including an AI Ethics Board.
| | | | Contributed to increased revenue and reach by leveraging IBM’s public and private partnerships. | | Michelle H. Browdy
| Expanded IBM’s presence and brand awareness with strategic clients by deepening senior relationships. | | | | Served as a spokesperson in discussions with global government leaders, media, and at public events to further advance IBM’s technology point of view. | |
| | MICHELLE H. BROWDY | | | Senior Vice President and General Counsel | | | | Provided legal and regulatory support for IBM’s growth initiatives globally, including supporting the company’s AI agenda at the research, regulatory and field level. | | | | Continued to enhance IBM’s cybersecurity, privacy, data governance and AI ethics posture as regulatory focus on these issues continued to heighten around the world. | | | | Focused on talent development globally to ensure availability of world class legal and regulatory skills to support IBM’s growth initiatives across geographies and business lines. | |
Responsible for legal and regulatory support worldwide for all aspects of the spin-off of the Company’s managed infrastructure services business.
Continued to enhance IBM’s cybersecurity and privacy posture globally, providing legal, security and policy support and driving compliance with new global privacy regulations.
Published 30th Annual Environmental Report and continued to drive ESG leadership.
*
Non-GAAP financial metric. See Appendix A for information on how we calculate thisthese performance metric.**Trailing | twelve months revenue through June 30, 2020, adjusted to reflect estimated historical sales between IBM and NewCo.
|
metrics.
| | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis | | 45 |
442024 Notice of Annual Meeting & Proxy Statement | 2023 Compensation Discussion and Analysis
Following the process outlined above and based on business and individual performance, the Compensation Committee approved the 20202023 annual incentive payouts below for these NEOs: | | Name | | Name
| | 20202023 Annual Incentive Payouts(1) | | | | J.J. Kavanaugh | | | $1,730,430 | | J.J. Kavanaugh
| R.D. Thomas | $1,176,300
| | 1,552,500 | | | | G. Cohn | | | 1,848,600 | | J.M. Whitehurst(2)
| | 1,455,813
| | | J.E. Kelly III(3)
| | 820,400
| | | M.H. Browdy | | 1,109,520
| 1,516,800 | |
(1) | The named executive officers other than Mr. Whitehurst each had an incentive target equal to 135% of their salary for 2020. Mr. Whitehurst had an incentive target of 150% of his prorated salary from March 1, 2020 – December 31, 2020.
|
(2) | Mr. Whitehurst’s payment also includes the prorated portion of Red Hat’s Annual Cash Bonus earned for January 1, 2020 – February 29, 2020, in addition to his prorated AIP earned for March 1, 2020 – December 31, 2020.
|
(3) | Dr. Kelly retired from the Company on December 31, 2020.
|
2021
(1)
The named executive officers each had an incentive target equal to 135% of their salary for 2023. 2024 Compensation Decisions for Mr. Kavanaugh, Mr. Whitehurst,Thomas, Mr. Cohn, and Ms. Browdy The Committee also approved the following compensation elements for 2021:2024: 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 equity vehicles is 65%60% PSUs, 20% RSUs and 35% RSUs,20% Stock Options, 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 2021,2024, based on the compensation decisions detailed below at target, 63%approximately 75% 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
| | |
| | | | | | | | | | | | | | | | | | | | | | 2021 Cash(1) | | | | | | 2021 Long-Term Incentive Awards(2) | Name | | Salary Rate | | | Annual Incentive Target | | | | | | Performance Share Units | | | Restricted Stock Units | | | | | | | J.J. Kavanaugh | | | $968,000 | | | | $1,307,000 | | | | | | | | $5,362,500 | | | $2,887,500 | | | | | | | J.M. Whitehurst | | | 1,200,000 | | | | 1,800,000 | | | | | | | | 7,150,000 | | | 3,850,000 | | | | | | | M.H. Browdy | | | 894,000 | | | | 1,206,000 | | | | | | | | 3,087,500 | | | 1,662,500 |
(1) | Mr. Kavanaugh, Mr. Whitehurst, and Ms. Browdy did not receive an increase to their Salary or Annual Incentive Target in 2021.
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(2) | PSUs and RSUs will be granted, if applicable, on June 8, 2021 to the named executive officers, including the Chairman and the CEO. The actual number of units granted on this date will be determined by dividing the value shown above by the average of IBM’s closing stock price for the 30 active trading days prior to the date of grant. The performance period for the PSUs ends December 31, 2023, and the award will pay out in February 2024. The restricted stock units will vest 25% per year on each anniversary of the date of grant.
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| Note: Annual PSU and RSU grant excludes a special one-time retention PSU grant for Jim Whitehurst on March 2, 2020, prior to him becoming President of IBM.
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NEO 2024 PAY MIX For 2024, 75% of the NEOs’ (excluding the Chairman and CEO) annual total target compensation is at risk. | | | 46 | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Compensation Discussion and Analysis |
![[MISSING IMAGE: bc_neotargepaymix-pn.jpg]](/files/DEF 14A/0001104659-24-032641/bc_neotargepaymix-pn.jpg) | | | | | 2024 Cash | | | 2024 Long-Term Incentive Awards(2) | | | | Name | | | Salary Rate(1) | | | Annual Incentive
Target | | | Performance
Share Units | | | Restricted
Stock Units | | | Stock Options | | | | J.J. Kavanaugh | | | $1,170,000 | | | | $ | 1,580,000 | | | | | $ | 6,150,000 | | | | | $ | 2,050,000 | | | | | $ | 2,050,000 | | | | | R.D. Thomas | | | 1,064,000 | | | | | 1,436,000 | | | | | | 5,700,000 | | | | | | 1,900,000 | | | | | | 1,900,000 | | | | | G. Cohn | | | 1,170,000 | | | | | 1,580,000 | | | | | | 4,800,000 | | | | | | 1,600,000 | | | | | | 1,600,000 | | | | | M.H. Browdy | | | 936,000 | | | | | 1,264,000 | | | | | | 3,780,000 | | | | | | 1,260,000 | | | | | | 1,260,000 | | |
(1)
Salary increases for the Named Executive Officers, if applicable, will be effective April 1, 2024. (2)
PSUs, RSUs and Stock Options were granted on February 21, 2024 to the named executive officers, including the Chairman and the CEO. The actual number of units granted on this date are 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 are 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 0.20 (to reflect the discounted value of Stock Options compared to full value awards). The performance period for the PSUs ends December 31, 2026, and the award will pay out in February 2027. RSUs and Stock Options will vest 25% per year on each anniversary of the date of grant.
2024 Notice of Annual Meeting & Proxy Statement | 2023 Compensation Discussion and Analysis 45
Section 4: Additional Information Compensation Program as itIt 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 doesprograms do not encourage excessive risk taking for the following reasons: •
Our programs appropriately balance short- and long-term incentives, with approximately 74%75% of 20212024 annual total target compensation provided in equity for the Chairman and CEO, President,Vice Chairman, and SVPs as a group provided in equity.group. •
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 component of performance to promote disciplined progress toward financial goals. None of IBM’s incentive plans areis 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 20202023 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, President, EVP,Vice Chairman, and each SVP hold a significant amount of IBM equity to further align their interests with stockholders over the long term. •
IBM has adopted a policy that requires a clawback of cash incentive payments in the event thatincentive-based compensation paid to an executive officer’s conduct leads toofficer if there is a restatement of IBM’s financial results.results that would have affected the amount of incentive-based compensation, regardless of whether the executive officer’s conduct lead to the restatement. Likewise, IBM’s equity plan has a clawback provision under which states that awards may be cancelled and certain gains repaid if a senioran 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 of at-the-money stock optionsStock Options is the average of the high and low market price of IBM common stock on the New York Stock Exchange 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, if different from the average of the high and low market price of IBM common stock on the New York Stock Exchange on the grant date, 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 average IBM closing 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 President, the EVP,Vice Chairman and each SVP are approved by the Compensation Committee. All equity awards for employees other than the Chairman and CEO, President, 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.advance, typically February 21st or the previous business day (if the 21st does not fall on a business day). For Officers, the February grant date is scheduled within one month of the Compensation Committee’s approval of any applicable equity awards (at the end of January). 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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462024 Notice of Annual Meeting & Proxy Statement | 2023 Compensation Discussion and Analysis
Every executive is held accountable to comply with IBM’s high ethical standards: IBM’s Values, including “Trust and Personal Responsibility in allAll 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 2,1001,500 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 after leaving IBM. The Committee has also implemented the followingadopted, in accordance with SEC and NYSE requirements, a policy for the clawback of cash incentive paymentsto claw back incentive-based compensation from executive officers in the event an executive officer’s conduct leads toof a restatement of IBM’s financial results: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 seniormultiple corporate leadership teams:teams, including the Performance Team and the Acceleration Team. The Performance Team consists of approximately 6585 of our most senior leaders who run IBM business units and geographies and includes the Chairman and CEO, President, EVP,Vice 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,its corporate leadership teams, 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. Until the Tax Cut and Jobs Act was signed into law on December 22, 2017, performance-based compensation was deductible, even if it caused the coveredA “covered employee, to have compensation in excess of $1 million. The Tax Cut and Jobs Act eliminated this performance-based compensation deduction going forward, but provided limited transition relief for compensation paid pursuant to a contract in effect as of November 2, 2017 that is not materially modified after such date. This means that certain outstanding performance-based compensation may continue to be deductible” under Section 162(m), but that all compensation after November 2, 2017, will be subject to the $1 million cap on deductibility. IBM will seek deductions for compensation under the transition relief consistent with applicable law. The Tax Cut and Jobs Act also expanded who a covered employee is under Section 162(m). Effective for 2017 and thereafter, a covered employee under Section 162(m) as amended, is the CEO, the CFO, (who previouslythe three highest paid executive officers, and any other individual who was not included) and eacha covered employee of the other three highest-paid executive officers.Company for the preceding tax years beginning after December 31, 2016. Although thisthe tax deduction for performance-based compensation has been eliminated for awards after November 2, 2017, IBM continues to believe that a strong link between pay and performance is critical to align executive and stockholder interests. IBM and the Committee will continue to ensure that a significant portion of pay for our EVPVice Chairman and SVPs, including the Chairman and CEO, is at risk and subject to the attainment of performance goals.
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2024 Notice of Annual Meeting & Proxy Statement | 2023 Compensation Discussion and Analysis 47
2023 Summary Compensation Table and Related Narrative Salary (Column (c))
2023 Summary Compensation Table | | Name and Principal Position | | | | | | | | | | | | | | | Stock | | | Option | | | Non-Equity Incentive Plan | | | Change in Pension | | | Nonqualified Deferred Compensation | | | All Other | | | | | (a) | | | Salary | (1) | | Bonus | (2) | | Awards | (3) | | Awards | (4) | | Compensation | (5) | | Value | (6) | | Earnings | (7) | | Compensation | (8)(9) | | Total | (10) | | | Year (b) | | | ($) (c) | | | ($) (d) | | | ($) (e) | | | ($) (f) | | | ($) (g) | | | ($) (h) | | | ($) (h) | | | ($) (i) | | | ($) (j) | | | | A. Krishna, Chairman and CEO | | | | 2023 | | | | $ | 1,500,000 | | | | | $ | 0 | | | | | $ | 11,483,809 | | | | $3,339,560 | | | $3,510,000 | | | | $ | 23,183 | | | | | $ | 0 | | | | $541,874 | | | | $ | 20,398,426 | | | | | 2022 | | | | | 1,500,000 | | | | | | 0 | | | | | | 8,927,701 | | | | 2,033,636 | | | 3,480,000 | | | | | 0 | | | | | | 0 | | | | 638,738 | | | | | 16,580,075 | | | | | 2021 | | | | | 1,500,000 | | | | | | 0 | | | | | | 12,605,507 | | | | 0 | | | 2,940,000 | | | | | 0 | | | | | | 0 | | | | 505,452 | | | | | 17,550,959 | | | | | J.J. Kavanaugh, Senior VP, F&O and CFO | | | | 2023 | | | | $ | 1,088,000 | | | | | $ | 0 | | | | | $ | 6,704,515 | | | | $1,949,711 | | | $1,730,430 | | | | $ | 15,264 | | | | | $ | 0 | | | | $203,369 | | | | $ | 11,691,289 | | | | | 2022 | | | | | 1,040,000 | | | | | | 0 | | | | | | 5,843,669 | | | | 1,331,106 | | | 1,665,760 | | | | | 19,187 | | | | | | 0 | | | | 233,263 | | | | | 10,132,985 | | | | | 2021 | | | | | 968,000 | | | | | | 0 | | | | | | 7,563,384 | | | | 0 | | | 1,437,700 | | | | | 0 | | | | | | 0 | | | | 200,534 | | | | | 10,169,618 | | | | | R.D. Thomas, Senior VP and Software Chief Commercial Officer(11) | | | | 2023 | | | | $ | 994,750 | | | | | $ | 0 | | | | | $ | 5,843,417 | | | | $1,699,249 | | | $1,552,500 | | | | $ | 3,170 | | | | | $ | 0 | | | | $241,228 | | | | $ | 10,334,314 | | | | | G. Cohn, Vice Chairman | | | | 2023 | | | | $ | 1,170,000 | | | | | $ | 0 | | | | | $ | 4,897,686 | | | | $1,424,239 | | | $1,848,600 | | | | | N/A | | | | | $ | 0 | | | | $196,565 | | | | $ | 9,537,090 | | | | | 2022 | | | | | 1,170,000 | | | | | | 0 | | | | | | 4,707,418 | | | | 1,072,289 | | | 1,832,800 | | | | | N/A | | | | | | 0 | | | | 169,418 | | | | | 8,951,925 | | | | | 2021 | | | | | 1,170,000 | | | | | | 1,000,000 | | | | | | 6,180,787 | | | | 0 | | | 1,548,400 | | | | | N/A | | | | | | 0 | | | | 2,417 | | | | | 9,901,604 | | | | | M.H. Browdy, Senior VP and General Counsel | | | | 2023 | | | | $ | 936,000 | | | | | $ | 0 | | | | | $ | 4,255,907 | | | | $1,237,603 | | | $1,516,800 | | | | | N/A | | | | | $ | 0 | | | | $157,847 | | | | $ | 8,104,157 | | | | | 2022 | | | | | 925,500 | | | | | | 0 | | | | | | 3,246,447 | | | | 739,505 | | | 1,466,240 | | | | | N/A | | | | | | 0 | | | | 147,753 | | | | | 6,525,445 | | | | | 2021 | | | | | 894,000 | | | | | | 0 | | | | | | 4,354,627 | | | | 0 | | | 1,266,300 | | | | | N/A | | | | | | 0 | | | | 135,930 | | | | | 6,650,857 | | |
Note: For assumptions used in determining the fair value of stock and option awards, see Note A (Significant Accounting Policies — Stock-Based Compensation) and Note U (Stock-Based Compensation) to IBM’s 2023 Consolidated Financial Statements. (1)
Amounts shown in the salarythis column reflect the actual salary amount paid to each named executive officer during 2020.2023. Salaries for
(2)
Mr. KrishnaCohn’s offer letter included a cash sign-on payment; $1,000,000 of that was paid on December 31, 2021. (3)
Amounts in this column reflect the total Performance Share Units (PSUs) and Mr. Whitehurst increased effective April 6, 2020, upon assuming their new roles as CEO and President, respectively. Mrs. Rometty did not receive a salary increase in the years shown. 2020 salary increases for the other named executive officers, if applicable, took effect on July 1, 2020. Bonus (Column (d))
As described in Section 1 of the 2020 Compensation Discussion and Analysis, during 2020, Mr. Whitehurst received the first of three potential annual retention payments under a retention arrangement entered into between Mr. Whitehurst and IBM prior to the close of the Red Hat acquisition. No bonuses were awarded to the other named executive officers in the years shown in the 2020 Summary Compensation Table.
Restricted Stock Awards (Column (e)) The amounts shown areUnits (RSUs).
Amounts include the aggregate grant date fair values of Performance Share Units (PSUs), retention Performance Share Units (RPSUs), and Restricted Stock Units (RSUs) granted in each fiscal year shown, computed in accordance with accounting guidance (excluding any risk of forfeiture as per SEC regulations). One unit is equivalent to one share of IBM common stock. The values shown for the PSUs and RPSUs are calculated at the Target number as described below. Valuesbelow, calculated in accordance with accounting guidance; these amounts reflect an adjustment for the exclusion of dividend equivalents.Performance Share Units (PSUs)
The following describes
At the material terms and conditionsMaximum number, these values for Mr. Krishna would be: 2023: $14,641,833; 2022: $11,382,727; 2021: $13,928,980; for Mr. Kavanaugh: 2023: $8,548,269; 2022: $7,450,586; 2021: $8,357,494; for Mr. Thomas: 2023: $7,450,269; for Mr. Cohn: 2023: $6,244,427; 2022: $6,001,912; 2021: $6,829,751; for Ms. Browdy: 2023: $5,426,231; 2022: $4,139,173; 2021: $4,811,810. Amounts also include the aggregate grant date fair values of PSUs as reportedRSU grants, if applicable, calculated in the column titled Stock Awards (column (e)) in the 2020 Summary Compensation Table and in the 2020 Grants of Plan-Based Awards Table under the heading Estimated Future Payouts Under Equity Incentive Plan Awards (columns (f), (g) and (h)).General Terms
Performance targets are typically set at the beginning of the three-year performance period and are approved by the Compensation Committee (for example, targetsaccordance with accounting guidance; these amounts reflect an adjustment for the 2018–2020 performance period were set for cumulative three-year attainmentexclusion of dividend equivalents.
(4)
This column reflects the grant date fair value of stock option grants, if applicable, calculated in operating earnings per share and free cash flow in the beginning of 2018). At the end of the three-year performance period, the Compensation Committee approves the determination of actual performance relative to pre-established targets, and the number of PSUs is adjusted up or down based on the approved actual performance. 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.
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.
accordance with accounting guidance. Vesting and Payout Calculations
The performance period for the awards granted in 2020 is January 1, 2020 through December 31, 2022, and the awards will pay out in February 2023. PSU awards granted in 2020 will be adjusted for performance, as described below.
Outstanding PSUs are typically cancelled if the executive’s employment is terminated. See the 2020 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 2020 Compensation Discussion and Analysis for more information on the PSU program.
Threshold Number (listed in column (f) of the 2020 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 performance for both business objectives (operating earnings per share and free cash flow), which is 70% of the target for each objective.
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| – | If either business objective is below 70% of the target, the Threshold Number of PSUs would be reduced by the relative weighting of that objective (e.g., 70% for operating earnings per share , or 30% for free cash flow).
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Target Number (listed in column (g) of the 2020 Grants of Plan-Based Awards Table):
| – | The Target number of PSUs will be earned if 100% of the target for both business objectives are achieved.
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Maximum Number (listed in column (h) of the 2020 Grants of Plan-Based Awards Table):
| – | The Maximum number of PSUs earned based on business objectives is 150% of the Target number.
|
| – | The Maximum number of PSUs will be earned for achieving 120% of the target for both business objectives.
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The relative ROIC modifier may modify the payout up or down by up to 20 points, based on IBM’s ROIC performance relative to broader market indices. As a result, the total Maximum number of PSUs earned could be up to 170% of the Target number.
Retention Performance Share Unit Grant (RPSUs)
As described in Section 1 of the Compensation Discussion and Analysis, Mr. Whitehurst was awarded an RPSU grant on March 2, 2020, prior to undertaking his role as IBM President. The key RPSU terms of this award is consistent with PSU awards described above, with the exception of the following unique terms.
Vesting and Payout – RPSUs that vest on July 31, 2021
One-third of Mr. Whitehurst’s RPSU award will vest and pay out on July 31, 2021, with no additional performance criteria required (listed in column (i) of the 2020 Grants of Plan based awards table).
(5)
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Vesting and Payout – RPSUs that vest on July 31, 2023
Two-thirds of Mr. Whitehurst’s RPSU award will vest and pay out on July 31, 2023 (payout at target is listed in column (g) of the 2020 Grants of Plan Based Awards Table). The final units paid may be adjusted up or down by up to 20 points based on IBM’s relative ROIC modifier for the 2020-2022 performance period (described above).
As a result, the total Minimum number of these RPSUs earned could be 80% of the RPSUs granted (listed in column (f) of the 2020 Grants of Plan based awards table), and the total Maximum number of these RPSUs earned could be up to 120% of the RPSUs granted (listed in column (h) of the 2020 Grants of Plan based awards table).
Restricted Stock Units (RSUs)
RSUs may include RRSUs. In 2020, no RRSUs were granted to named executive officers.
Vesting and Payout
RSUs fully vest in four years, with 25% vesting each year.
Payout of RSUs at each vesting date is typically contingent on the recipient remaining employed by IBM through that vesting date. See the 2020 Potential Payments Upon Termination Narrative for information on payout of unvested RSUs upon certain terminations.
All deferred shares, comprised of shares that were deferred by the participant (Deferred IBM Shares), in the 2020 Nonqualified Deferred Compensation Table may include certain previously-granted RRSUs. Since 2008, executives may not elect to defer payment of RSUs.
Non-Equity Incentive Plan Compensation (Column (g))
Amounts in this column include payments under IBM’s Annual Incentive Program (AIP). All, in which all named executive officers participate in this program.participate. The performance period is the fiscal year (January 1 through December 31)31, 2023).
Mr. KrishnaKrishna’s target was 200% of his base salary rate. All other named executive officers had an annual target of 135% of histheir 2023 salary rate when he was an SVP, prorated forrate. In the first three months of 2020. His annual target increased to 200% of his salary rate effective April 2020 (upon becoming CEO), which was prorated for the remaining nine months of 2020. The payout reflects amounts earned toward his prorated targets as SVP and as CEO, respectively. Mrs. Rometty had a target of $5 million for 2020. Mr. Whitehurst, who began participating in AIP on March 1, 2020, had a target of 150% of his prorated salary from March 1, 2020 – December 31, 2020. See column (d) of the 20202023 Grants of Plan-Based Awards Table, see column (c) for the target payout.
The other named executive officers had targets of 135% of their salary rate for 2020. SeeThreshold payout ($0), column (d) of the 2020 Grants of Plan-Based Awards Table for the target payout.
ThresholdTarget payout, (column (c) of the 2020 Grants of Plan-Based Awards Table) for each named executive officer is $0.
Maximum payout (columnand column (e) of the 2020 Grants of Plan-Based Awards Table) for the CEO and the Executive Chairman is two times the target.
Maximum payout forpayout. (6)
Although accruals under each of the other named executive officers is three times the target. See Section 1 of the 2020 Compensation Discussion and Analysis for more information on performance targets, vesting and payout of the AIP.
Mr. Whitehurst’s payment for January and February 2020
Amounts in this column for Mr. Whitehurst also include a prorated payment from Red Hat’s Annual Cash Bonus Plan for January and February 2020. See Section 1 of the Compensation Discussion and Analysis for additional details.
Change in Retention Plan Value (Column (h))
Amounts inand the column titled Change in RetentionIBM Personal Pension Plan Value represent the annualstopped on December 31, 2007, for 2021, 2022 and 2023, change in Retention Plan Value from December 31, 2019and Pension Value for the eligible named executive officers was due to December 31, 2020. Messrs. Krishnatheir age, changes in the discount rate, interest crediting rate, and Whitehurst, and Ms. Browdy do not have a benefit undermortality table. Assumptions can be found immediately after the 2023 Pension Benefits Table. Mr. Kavanaugh is the only eligible named executive officer in the Retention Plan.
SeePlan and the 2020change in Retention Plan NarrativeValue for a description of the Retention Plan.
Changehis benefit resulted in Pension Value (Column (h))
Amountsnegative amounts in the column titled Change in Pension Value represent the annual2023 ($8,528), 2022 ($169,948), and 2021 ($17,604). The change in Pension Value from December 31, 2019 to December 31, 2020 for each eligiblethe named executive officer. Neitherofficers resulted in the following negative amounts: 2022 for Mr. Whitehurst nor Ms. Browdy have a benefit under any IBM defined benefit pension plan.
See the 2020 Pension Benefits NarrativeKrishna ($51,317); and 2021 for a description of the applicable defined benefit pension plan.Mr. Krishna ($5,861) and Mr. Kavanaugh ($4,072).
Nonqualified Deferred Compensation Earnings (Column (h))
(7)
IBM does not payprovide above-market or preferential earnings on nonqualified deferred compensation. See the 2023 Nonqualified Deferred Compensation Narrative for information about deferred compensation. (8)
Amounts in this column include the following for 2023: for Mr. Krishna: tax reimbursements of $43,561 and IBM contributions to defined contribution plans of $398,400; for Mr. Kavanaugh: IBM contributions to defined contribution plans of $120,356; for Mr. Thomas: tax reimbursements of $38,037 and IBM contributions to defined contribution plans of $149,594; for Mr. Cohn: IBM contributions to defined contribution plans of $180,168; and for Ms. Browdy: IBM contributions to defined contribution plans of $144,134. For 2021 and 2022, the amounts in this column include Travel Accident Insurance and Group Life Insurance; such amounts are not included for 2023 because the Travel Accident Insurance and Group Life Insurance are available to all employees and does not discriminate in favor of executive officers. See the 2023 Summary Compensation Table Narrative below for a description and information about these items. (9)
Amounts in this column also include the following perquisites for 2023: for Mr. Krishna: personal financial planning, ground transportation, family attendance at business-related events, personal travel on company aircraft of $46,299, and other personal expenses; for Mr. Kavanaugh: personal financial planning, family attendance at business-related events, and personal travel on company aircraft of $66,056; for Mr. Thomas: ground transportation, family attendance at business related events of $29,311, personal travel on company aircraft, and other personal expenses; for Mr. Cohn: personal travel on company aircraft, family attendance at business related events, and other personal expenses; and for Ms. Browdy: personal financial planning, ground transportation, and other personal expenses. See the 2023 Summary Compensation Table Narrative below for a description and information about the aggregate incremental cost calculations for perquisites. (10)
Amounts in this column reflect the total of the following columns: Salary, Bonus, Stock Awards, Option Awards, Non-Equity Incentive Plan Compensation, Change in Pension Value, Nonqualified Deferred Compensation Earnings and All Other Compensation. (11)
Mr. Thomas was not a named executive officer in the 2022 or 2023 Proxy Statement; therefore, 2021 and 2022 data are excluded for him.
482024 Notice of Annual Meeting & Proxy Statement | 2023 Summary Compensation Table and Related Narrative
2023 Summary Compensation Table Narrative — All Other Compensation (Column(Column (i)) Amounts in this column represent the following as applicable: Amounts represent payments that•
Payments by IBM has made to the named executive officers to cover taxes incurred by them for certain business-related taxable expenses. These expenses, for a named executive officerwhich may include: cost of family travel to and attendance at business-related events, business-related local lodging and incidental expenses, certain relocation costs in accordance with IBM’s US relocation policy, and business-related ground transportation expenses (see Ground Transportation below).
| | | 50 | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Summary Compensation Table and Related Narrative |
IBM Contributions to Defined Contribution Plans Amounts represent •
IBM matching and automatic contributions to the individual accounts for each named executive officer under IBM’s 401(k) Plus and Excess 401(k) PlusSavings Plans. Mr. Whitehurst’s amount also includes a $785 matching contribution in accordance with the terms of Red Hat, Inc.’s 401(k) Plan. This plan was generally available to all of Red Hat, Inc.’s employees. Under IBM’s 401(k) Plus Plan, eligible participants can receive matching contributions, ranging from 2 to 6%, up to a percentage of eligible compensation (subject to Internal Revenue Code compensation limits), depending on a person’s date of hire and 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 2020, Mr. Krishna, Mrs. Rometty, Mr. Kavanaugh and Dr. Kelly are eligible to receive matching contributions up to 6% of eligible pay. Mr. Whitehurst and Ms. Browdy are eligible for up to 5% matching contributions. The automatic contribution percentage was 4% for Mrs. Rometty; 2% for Mr. Krishna, Mr. Kavanaugh, and Dr. Kelly; and 1% for Mr. Whitehurst 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. The matching and automatic contributions for the Excess 401(k) Plus Plan for each named executive officer are the same percentages as described for the IBM 401(k) Plus Plan above.•
See the 20202023 Nonqualified Deferred Compensation Narrative for additional details on the nonqualified deferred compensation 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 by IBM U.S. before January 1, 2004, including Mr. Krishna, Mrs. Rometty, Mr. Kavanaugh and Dr. Kelly, is two times salary plus annual incentive program target, with a maximum coverage amount of $2,000,000. Life insurance for executives hired by IBM U.S. on or after January 1, 2004, including Ms. Browdy, is one times salary plus annual incentive program target, with a maximum coverage of $1,000,000. Mr. Whitehurst elected to waive his life insurance coverage in excess of $50,000.
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 2020.2023. Personal Financial Planning In 2020,2023, 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 CEOChairman and the Executive Chairman,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 partythird-party security experts. •
The aggregate incremental cost for Mrs. Rometty’sMr. Krishna’s personal travel, is included in column (i) of the 2020 Summary Compensation Table. These amounts also include theincluding any aggregate incremental cost if any, of travel by their family members or other guests on both business and non-business occasions. For 2020, Mr. Krishna did not incur any incremental cost for personal air travel.occasions, is included in column (i) of the 2023 Summary Compensation Table. •
Additionally, personal travel or commutation in 20202023 on Company aircraft by named executive officers other than Mr. Krishna, or Mrs. Rometty, and the aggregate incremental cost, if any, of travel by the officer’s family or other guests when accompanying the officer on both business and non-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 and non-profit organizations travel on Company aircraft to those outside board meetings. These amounts may include travel related to participation on these outside boards. •
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.
| | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Summary Compensation Table and Related Narrative | | 51 |
•
IBM’s security practices provide that the CEOChairman and the Executive ChairmanCEO 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, Additionally, the Chairman and CEO and the Executive Chairmanhis family may use a Company-leased car with an IBM driver or an authorized car service for non-business occasions. Further, the family of the CEO and the Executive Chairman may use a Company-leased car with an IBM driver or an authorized car service on non-business occasions or when accompanying them 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, and 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 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 •
For the Company-leased car with an IBM driver, incremental 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. •
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 and the Executive Chairmanhis family on certain business and non-business occasions, and for their families on certain non-business occasions, or when accompanying them 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, Executive Chairman, and any other named executive officers, if applicable. 2024 Notice of Annual Meeting & Proxy Statement | 2023 Summary Compensation Table and Related Narrative 49
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 •
Amounts represent any payments by IBM coversfor 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. Relocation Expenses
Amounts represent any payments that IBM has made to, or on behalf of, a named executive officer for relocation related expenses in accordanceevents, such as meetings, dinners, and receptions with IBM’s standard US domestic relocation policy.clients, executive management, or board members.
•
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 business events retirement related items, and administrative charges incurred by executives. | | | 52 | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Summary Compensation Table and Related Narrative |
502024 Notice of Annual Meeting & Proxy Statement | 2023 Summary Compensation Table and Related Narrative
2020 SUMMARY COMPENSATION TABLE
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name and Principal Position (a) Year (b) | |
| Salary
($) (c) |
| |
| Bonus
($) (d) |
| |
| Stock
Awards ($) (e) |
(1) | |
| Option
Awards($) (f) |
(2) | |
| Non-Equity
Incentive Plan Compensation ($) (g) |
| |
| Change in
Retention Plan Value ($) (h) |
(3) | |
| Change in
Pension Value ($) (h) |
(4) | |
| Nonqualified
Deferred Compensation Earnings ($) (h) |
(5) | |
| All Other
Compensation ($) (i) |
(6)(7) | |
| Total
($) (j) | (8)
| | | A. Krishna, CEO(9) | | 2020 | | $ | 1,352,591 | | | | $0 | | | $ | 13,159,118 | | | | $0 | | | | $2,181,000 | | | | N/A | | | $ | 42,806 | | | | $0 | | | | $274,167 | | | $ | 17,009,682 | | | | V.M. Rometty, Executive Chairman(10) | | 2020 | | $ | 1,600,000 | | | | $0 | | | $ | 12,728,348 | | | | $0 | | | | $4,250,000 | | | | $100,604 | | | | $1,500,327 | | | | $0 | | | | $883,314 | | | $ | 21,062,593 | | 2019 | | | 1,600,000 | | | | 0 | | | | 11,610,046 | | | | 0 | | | | 5,000,000 | | | | 109,106 | | | | 967,778 | | | | 0 | | | | 873,935 | | | | 20,160,865 | | 2018 | | | 1,600,000 | | | | 0 | | | | 10,801,392 | | | | 0 | | | | 4,050,000 | | | | 0 | | | | 0 | | | | 0 | | | | 1,100,826 | | | | 17,552,218 | | | | J.J. Kavanaugh, Senior VP and CFO | | 2020 | | $ | 899,000 | | | | $0 | | | $ | 7,416,931 | | | | $0 | | | | $1,176,300 | | | | $94,229 | | | | $0 | | | | $0 | | | | $159,836 | | | $ | 9,746,296 | | 2019 | | | 787,500 | | | | 0 | | | | 5,063,127 | | | | 0 | | | | 1,064,000 | | | | 83,877 | | | | 11,804 | | | | 0 | | | | 129,884 | | | | 7,140,192 | | 2018 | | | 713,000 | | | | 0 | | | | 4,263,851 | | | | 0 | | | | 814,050 | | | | 0 | | | | 23,343 | | | | 0 | | | | 82,901 | | | | 5,897,145 | | | | J.M. Whitehurst, President(9)(11) | | 2020 | | $ | 1,173,864 | | | | $2,000,000 | | | $ | 22,418,228 | | | | $0 | | | | $1,455,813 | | | | N/A | | | | N/A | | | | $0 | | | | $130,562 | | | $ | 27,178,467 | | | | J.E. Kelly III, Executive Vice President(12) | | 2020 | | $ | 868,000 | | | | $0 | | | $ | 6,029,248 | | | | $0 | | | | $820,400 | | | | $376,478 | | | | $233,063 | | | | $0 | | | | $129,314 | | | $ | 8,456,503 | | 2019 | | | 868,000 | | | | 0 | | | | 5,237,677 | | | | 0 | | | | 703,200 | | | | 677,321 | | | | 53,005 | | | | 0 | | | | 184,864 | | | | 7,724,067 | | 2018 | | | 860,000 | | | | 0 | | | | 4,629,243 | | | | 0 | | | | 644,600 | | | | 0 | | | | 55,273 | | | | 0 | | | | 226,336 | | | | 6,415,452 | | | | M.H. Browdy, Senior VP and General Counsel(9) | | 2020 | | $ | 830,000 | | | | $0 | | | $ | 4,211,031 | | | | $0 | | | | $1,109,520 | | | | N/A | | | | N/A | | | | $0 | | | | $124,112 | | | $ | 6,274,663 | | 2019 | | | 744,500 | | | | 0 | | | | 3,753,766 | | | | 0 | | | | 982,300 | | | | N/A | | | | N/A | | | | 0 | | | | 107,504 | | | | 5,588,070 | | | |
Note: For assumptions used in determining the fair value OF CONTENTS
2023 Grants of stock and option awards, see Note A (Significant Accounting Policies - Stock-Based Compensation) to IBM’s 2020 Consolidated Financial Statements.(1) | Amounts in this column reflect the total Performance Share Units (PSUs), retention Performance Share Units (RPSUs), and Restricted Stock Units (RSUs).
|
| Amounts include the aggregate grant date fair values of PSUs and RPSUs (subject to performance criteria) at the Target number (described in the 2020 Summary Compensation Table Narrative), calculated in accordance with accounting guidance; these amounts reflect an adjustment for the exclusion of dividend equivalents. At the Maximum number, these values for Mr. Krishna would be: 2020: 14,540,788; for Mrs. Rometty: 2020: $21,638,238; 2019: $12,829,069; 2018: $11,935,509; for Mr. Kavanaugh: 2020: $8,195,713; 2019: $5,594,668; 2018: $4,711,494; for Mr. Whitehurst: 2020: $21,145,386; for Dr. Kelly: 2020: $6,662,318; 2019 $5,787,591; 2018: $5,115,348; for Ms. Browdy: 2020: $4,653,236; 2019: $4,147,858.
|
| Amounts also include the aggregate grant date fair values of RSUs grants, if applicable, calculated in accordance with accounting guidance; these amounts reflect an adjustment for the exclusion of dividend equivalents.
|
(2) | There were no option awards granted to any of the named executive officers in the years shown in the 2020 Summary Compensation Table.
|
(3) | Assumptions can be found immediately after the 2020 Retention Plan Table. Although accruals under the Retention Plan stopped on December 31, 2007, changes in Retention Plan Value can occur based on changes to participants’ ages and actuarial assumptions. For 2018, 2019 and 2020, Change in Retention Plan Value for the eligible named executive officers was due to their age, changes in the discount rate, interest crediting rate, and mortality table. The change in Retention Plan Value for the eligible named executive officers resulted in negative amounts in 2018 for Mrs. Rometty $(199,118), Mr. Kavanaugh $(53,853) and Dr. Kelly $(909,446).
|
(4) | Assumptions can be found immediately after the 2020 Pension Benefits Table. Although accruals under the IBM Personal Pension Plan stopped on December 31, 2007, changes in Pension Value can occur based on changes to participants’ ages and actuarial assumptions. For 2018, 2019 and 2020, Change in Pension Value for the named executive officers was due to their age, changes in the discount rate, interest crediting rate, and mortality table. The change in Pension Value for the named executive officers resulted in the following negative amounts: 2020 for Mr. Kavanaugh $(9,281), 2018 for Mrs. Rometty $(349,181).
|
(5) | IBM does not provide above-market or preferential earnings on deferred compensation. See the 2020 Nonqualified Deferred Compensation Narrative for information about deferred compensation.
|
(6) | Amounts in this column include the following for 2020: for Mr. Krishna: tax reimbursements of $15,496 and IBM contributions to defined contribution plans of $224,495; Mrs. Rometty: tax reimbursements of $24,737 and IBM contributions to defined contribution plans of $660,000; for Mr. Kavanaugh: IBM contributions to defined contribution plans of $156,540; for Mr. Whitehurst: tax reimbursements of $11,153 and IBM contributions to defined contribution plans of $71,217; for Dr. Kelly: IBM contributions to defined contribution plans of $125,696; and for Ms. Browdy: IBM contributions to defined contribution plans of $108,738.
|
(7) | Amounts in this column also include the following perquisites for 2020: for Mr. Krishna: personal financial planning, ground transportation, family attendance at business-related events, and other personal expenses; for Mrs. Rometty: personal financial planning, ground transportation, personal security, annual executive physical, family attendance at business-related events, personal travel on Company aircraft of $149,036, and other personal expenses; for Mr. Whitehurst: ground transportation, relocation expenses, personal travel on Company aircraft of $34,886, and other personal expenses; for Ms. Browdy: personal financial planning and other personal expenses. See the 2020 Summary Compensation Table Narrative for a description and information about the aggregate incremental cost calculations for perquisites.
|
(8) | Amounts in this column reflect the total of the following columns: Salary, Bonus, Stock Awards, Option Awards, Non-Equity Incentive Plan Compensation, Change in Retention Plan Value, Change in Pension Value, Nonqualified Deferred Compensation Earnings and All Other Compensation.
|
(9) | Mr. Krishna and Mr. Whitehurst were not named executive officers in IBM’s 2019 or 2020 Proxy Statement; therefore, 2018 and 2019 data is excluded for them. Mr. Krishna became Chief Executive Officer on April 6, 2020 and Chairman on January 1, 2021. Mr. Whitehurst became President on April 6, 2020. Ms. Browdy was not a named executive officer in IBM’s 2019 Proxy Statement; therefore, this table does not provide 2018 data for her.
|
(10) | Mrs. Rometty was Chairman, President and Chief Executive Officer until April 6, 2020, when she became Executive Chairman. Mrs. Rometty retired on December 31, 2020.
|
(11) | Mr. Whitehurst’s Non-Equity Incentive Plan compensation (column (g)) represents the pro-rata portion of his total Red Hat Annual Cash Bonus payment that was earned from January 1, 2020 through February 29, 2020, plus his prorated AIP payment earned from March 1, 2020 through December 31, 2020.
|
(12) | Dr. Kelly retired from the Company on December 31, 2020.
|
Plan-Based Awards Table | | 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 PlanAwards(2) | | | All Other
Stock
Awards:
Number of
shares
of Stock | | | All Other
Option
Awards:
Number of
Securities
Underlying | | | Exercise
or Base
Price of
Option | | | Closing
Price
on the
NYSE on
the Date
of Grant
($/Sh) | | | Grant Date
Fair Value
of Stock
and
Option | | | | Threshold
($)
(c) | | | Target
($)
(d) | | | Maximum
($)
(e) | | | Threshold
(#)
(f) | | | Target
(#)
(g) | | | Maximum
(#)
(h) | | | or Units
(#)
(i) | (3)
| | Options
(#)
(j) | (3)
| | Awards
($/Sh)
(k) | (4)
| | Awards
($)
(l) | (5)
| | | A. Krishna | | | | AIP | | | | | N/A | | | | | | 1/30/2023 | | | | | $ | 0 | | | | | $ | 3,000,000 | | | | | $ | 6,000,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | | | 2/21/2023 | | | | | | 1/30/2023 | | | | | | | | | | | | | | | | | | | | | | | | 18,369 | | | | | | 73,476 | | | | | | 124,909 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,612,857 | | | | | RSU | | | | | 2/21/2023 | | | | | | 1/30/2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 24,492 | | | | | | | | | | | | | | | | | | | | | | | | 2,870,952 | | | | | SO | | | | | 2/21/2023 | | | | | | 1/30/2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 146,923 | | | | | $ | 133.00 | | | | | $ | 131.71 | | | | | | 3,339,560 | | | | | J.J. Kavanaugh | | | | AIP | | | | | N/A | | | | | | 1/30/2023 | | | | | | 0 | | | | | | 1,479,000 | | | | | | 4,437,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | | | 2/21/2023 | | | | | | 1/30/2023 | | | | | | | | | | | | | | | | | | | | | | | | 10,724 | | | | | | 42,897 | | | | | | 72,925 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 5,028,386 | | | | | RSU | | | | | 2/21/2023 | | | | | | 1/30/2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 14,299 | | | | | | | | | | | | | | | | | | | | | | | | 1,676,129 | | | | | SO | | | | | 2/21/2023 | | | | | | 1/30/2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 85,777 | | | | | | 133.00 | | | | | | 131.71 | | | | | | 1,949,711 | | | | | R.D. Thomas | | | | AIP | | | | | N/A | | | | | | 1/30/2023 | | | | | | 0 | | | | | | 1,350,000 | | | | | | 4,050,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | | | 2/21/2023 | | | | | | 1/30/2023 | | | | | | | | | | | | | | | | | | | | | | | | 9,347 | | | | | | 37,387 | | | | | | 63,558 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,382,504 | | | | | RSU | | | | | 2/21/2023 | | | | | | 1/30/2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 12,463 | | | | | | | | | | | | | | | | | | | | | | | | 1,460,913 | | | | | SO | | | | | 2/21/2023 | | | | | | 1/30/2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 74,758 | | | | | | 133.00 | | | | | | 131.71 | | | | | | 1,699,249 | | | | | G. Cohn | | | | AIP | | | | | N/A | | | | | | 1/30/2023 | | | | | | 0 | | | | | | 1,580,000 | | | | | | 4,740,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | | | 2/21/2023 | | | | | | 1/30/2023 | | | | | | | | | | | | | | | | | | | | | | | | 7,834 | | | | | | 31,336 | | | | | | 53,271 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,673,206 | | | | | RSU | | | | | 2/21/2023 | | | | | | 1/30/2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 10,446 | | | | | | | | | | | | | | | | | | | | | | | | 1,224,480 | | | | | SO | | | | | 2/21/2023 | | | | | | 1/30/2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 62,659 | | | | | | 133.00 | | | | | | 131.71 | | | | | | 1,424,239 | | | | | M.H. Browdy | | | | AIP | | | | | N/A | | | | | | 1/30/2023 | | | | | | 0 | | | | | | 1,264,000 | | | | | | 3,792,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | | | 2/21/2023 | | | | | | 1/30/2023 | | | | | | | | | | | | | | | | | | | | | | | | 6,808 | | | | | | 27,230 | | | | | | 46,291 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,191,901 | | | | | RSU | | | | | 2/21/2023 | | | | | | 1/30/2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 9,077 | | | | | | | | | | | | | | | | | | | | | | | | 1,064,006 | | | | | SO | | | | | 2/21/2023 | | | | | | 1/30/2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 54,448 | | | | | | 133.00 | | | | | | 131.71 | | | | | | 1,237,603 | | |
(1)
| | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Summary Compensation Table and Related Narrative | | 53 |
Type of Award: 2020 GRANTS OF PLAN-BASED AWARDS TABLE
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name (a) Type of Award(1) | |
| Grant Date
(b) |
| |
| Compensation
Committee Approval Date |
| |
| Estimated Future Payouts Under Non-Equity Incentive Plan
Awards(2) |
| |
| Estimated Future Payouts Under Equity Incentive Plan
Awards(3) |
| |
| All Other
Stock Awards: Number of Shares of Stock or Units (#) (i) |
(4) | |
| All Other
Option Awards: Number of Securities Underlying Options (#) (j) |
| |
| Exercise
or Base Price of Option Awards ($/Sh) (k) |
| |
| Closing
Price on the NYSE on the Date of Grant ($/Sh) |
| |
| Grant Date
Fair Value of Stock and Option Awards ($) (l) |
(5) | | |
| Threshold
($) (c) |
| |
| Target
($) (d) |
| |
| Maximum
($) (e) |
| |
| Threshold
(#) (f) |
| |
| Target
(#) (g) |
| |
| Maximum
(#) (h) |
| | | A. Krishna | | AIP | | | N/A | | | | 04/28/2020 | | | | 0 | | | | 2,566,000 | | | | 5,488,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | 06/08/2020 | | | | 04/28/2020 | | | | | | | | | | | | | | | | 18,139 | | | | 72,554 | | | | 123,342 | | | | | | | | | | | | | | | | | | | | 8,553,391 | | RSU | | | 06/08/2020 | | | | 04/28/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 39,068 | | | | | | | | | | | | | | | | 4,605,727 | | | | V.M. Rometty | | AIP | | | N/A | | | | 01/28/2020 | | | | 0 | | | | 5,000,000 | | | | 10,000,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | 06/08/2020 | | | | 01/28/2020 | | | | | | | | | | | | | | | | 26,992 | | | | 107,968 | | | | 183,546 | | | | | | | | | | | | | | | | | | | | 12,728,348 | | | | J.J. Kavanaugh | | AIP | | | N/A | | | | 01/28/2020 | | | | 0 | | | | 1,307,000 | | | | 3,921,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | 06/08/2020 | | | | 01/28/2020 | | | | | | | | | | | | | | | | 10,224 | | | | 40,894 | | | | 69,520 | | | | | | | | | | | | | | | | | | | | 4,820,994 | | RSU | | | 06/08/2020 | | | | 01/28/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 22,020 | | | | | | | | | | | | | | | | 2,595,938 | | | | J.M. Whitehurst | | ACB | | | N/A | | | | 05/15/2019 | | | | 68,750 | | | | 275,000 | | | | 550,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | AIP | | | N/A | | | | 02/25/2020 | | | | 0 | | | | 1,487,500 | | | | 4,462,500 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RPSU | | | 03/02/2020 | | | | 02/25/2020 | | | | | | | | | | | | | | | | 55,003 | | | | 68,754 | | | | 82,505 | | | | | | | | | | | | | | | | | | | | 7,927,336 | | RPSU | | | 03/02/2020 | | | | 02/25/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 34,377 | | | | | | | | | | | | | | | | 3,963,668 | | PSU | | | 06/08/2020 | | | | 01/28/2020 | | | | | | | | | | | | | | | | 14,511 | | | | 58,043 | | | | 98,673 | | | | | | | | | | | | | | | | | | | | 6,842,689 | | RSU | | | 06/08/2020 | | | | 01/28/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 31,254 | | | | | | | | | | | | | | | | 3,684,534 | | | | J.E. Kelly III | | AIP | | | N/A | | | | 01/28/2020 | | | | 0 | | | | 1,172,000 | | | | 3,516,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | 06/08/2020 | | | | 01/28/2020 | | | | | | | | | | | | | | | | 8,311 | | | | 33,243 | | | | 56,513 | | | | | | | | | | | | | | | | | | | | 3,919,017 | | RSU | | | 06/08/2020 | | | | 01/28/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 17,900 | | | | | | | | | | | | | | | | 2,110,231 | | | | M.H. Browdy | | AIP | | | N/A | | | | 01/28/2020 | | | | 0 | | | | 1,206,000 | | | | 3,618,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | PSU | | | 06/08/2020 | | | | 01/28/2020 | | | | | | | | | | | | | | | | 5,805 | | | | 23,218 | | | | 39,471 | | | | | | | | | | | | | | | | | | | | 2,737,170 | | RSU | | | 06/08/2020 | | | | 01/28/2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 12,502 | | | | | | | | | | | | | | | | 1,473,861 | | | |
AIP = Annual Incentive Program ACB = Red Hat Inc.’s Annual Cash Bonus Plan (for which Mr. Whitehurst participated in Red Hat Inc.’s Fiscal Year End February 29, 2020
PSU = Performance Share UnitRPSU = Retention Performance Share Unit
RSU = Restricted Stock Unit SO = Stock Option Each of these awards was granted under IBM’s 1999 Long-Term Performance Plan.Plan (LTPP). See the 20202023 Summary Compensation Table Narrative for additional information on these types of awards.(2) | Mr. Krishna’s maximum AIP payout is capped at 3X the target for the first three months of the year as SVP, and at 2X the target for the remaining nine months as Chief Executive Officer. For Mr. Whitehurst, his target while on Red Hat’s Annual Cash Bonus (ACB) plan was prorated for two months worked in 2020. His maximum ACB payout was capped at 2X the target. His AIP target is prorated for the remaining 10 months of 2020, and his maximum AIP payout is capped at 3X the target (consistent with IBM SVPs).
|
(3) | PSU awards will be adjusted based on performance and paid in February 2023. Two-thirds of Mr. Whitehurst’s RPSU grant will vest on July 31, 2023. The units will be adjusted based on IBM’s ROIC performance during the 2020-2022 performance period as described in Section 1 of the 2020 Compensation Discussion and Analysis.
|
(4) | RSU awards vest 25% on June 8, 2021, June 8, 2022, June 8, 2023, and June 8, 2024, provided that in each case, the named executive officer is an employee of IBM as of those dates unless they meet certain requirements to be eligible for continued vesting. One-third of Mr. Whitehurst’s RPSU grant will vest on July 31, 2021, provided he is an IBM employee as of that date, unless he meets certain requirements to be eligible for continued vesting. No additional performance criteria is required for the award to vest. See 2020 Potential Payments Upon Termination Narrative for a description of these eligibility requirements.
|
(5) | The amounts in this column reflect the aggregate grant date fair values of PSU, RPSU and RSU awards calculated in accordance with accounting guidance. The values shown for the PSU and RPSU awards are based on the Target number, as described in the 2020 Summary Compensation Table Narrative. The values shown for the PSUs, RPSUs, and RSUs reflect an adjustment for the exclusion of dividend equivalents.
|
(2)
PSU awards will be adjusted based on performance and paid in February 2026. | | | 54 | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Grants of Plan-Based Awards Table |
(3)
The first tranche of the RSU and SO awards vested 25% on February 21, 2024. The remaining tranches will vest February 21, 2025, February 21, 2026, and February 21, 2027, 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 2023 Potential Payments Upon Termination Narrative for a description of these eligibility requirements. (4)
All SOs have an exercise price equal to the average of the high and low prices of IBM common stock on the New York Stock Exchange (NYSE) as of the grant date. (5)
The amounts in this column reflect the aggregate grant date fair values of PSU, RSU, and SO awards calculated in accordance with accounting guidance. The values shown for the PSU awards are based on the Target number, as described in the 2023 Summary Compensation Table. The values shown for the PSUs, RSUs, and SO awards reflect an adjustment for the exclusion of dividend equivalents.
2024 Notice of Annual Meeting & Proxy Statement | 2023 Grants of Plan-Based Awards Table 51
Pay Ratio
The ratio of the CEO’s annual total compensation to that of the median employee’s annual total compensation is 347:1 This ratio is based on annual total compensation of $17,009,682 for the CEO (as reported in the Summary Compensation Table) and $49,001 for the median employee. The median employee used for the pay ratio disclosure was determined as of October 1, 2020 using annual base pay for IBM employees on that date; 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, and resulted in a new median employee from a different country given the global dynamics of IBM’s workforce. While the base salary for the median employee has increased (the basis for which we identify our median employee), the total compensation of the median employee was not as high year over year. The Company believes that this calculation is a reasonable estimate of the pay ratio.
TABLE OF CONTENTS2020 2023 Outstanding Equity Awards at Fiscal Year-End Table and Related Narrative Option Awards (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 (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 RSAs, RSUs or RRSUs that were outstanding as of December 31, 2020. The amounts also include the portion of Mr. Whitehurst’s RPSU grant that is not subject to additional performance criteria.2023. Market Value of Shares or Units of Stock That Have Not Vested (Column (h)) The amounts in this column are the value of the RSA, RSU RRSU or RPSURRSU awards disclosed in column (g), calculated by multiplying the number of units by the closing price of IBM common stock on the New York Stock Exchange on the last business day of the 20202023 fiscal year ($125.88)163.55). Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (Column (i)) The amounts in this column are the number of PSUs that were outstanding as of December 31, 2020.2023. Performance Share Units and retention Performance Share Units •
Amounts in column (i) reflect the Target number for each PSU and RPSU award. For Mr. Whitehurst’s RPSU award, amounts include only the portion of the grant that is subject to performance criteria.
•
The performance criteria for IBM 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 20202023 Compensation Discussion and Analysis, as well as the 20202023 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. For Mr. Whitehurst, amounts include only the portion of his RPSU grant that is subject to performance criteria. A Maximum number of PSUs earned is 150%170% 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). 2020 OUTSTANDING 2023 Outstanding PSU and RPSU AWARD PAYOUT LEVELS | | | | | | | | | | | | | | | | | Name | | Grant Date | | | Threshold | | | Target | | | Maximum | | | | | | | A. Krishna | | | 06/07/2019 | | | | 7,226 | | | | 28,905 | | | | 49,139 | | | | | 12/17/2019 | | | | 207,898 | | | | 259,872 | | | | 311,846 | | | | | | 06/08/2020 | | | | 18,139 | | | | 72,554 | | | | 123,342 | | | | | | | V.M. Rometty | | | 06/07/2019 | | | | 16,018 | | | | 64,073 | | | | 108,924 | | | | | | 06/08/2020 | | | | 26,992 | | | | 107,968 | | | | 183,546 | | | | | | | J.J. Kavanaugh | | | 06/07/2019 | | | | 6,986 | | | | 27,942 | | | | 47,501 | | | | | | 06/08/2020 | | | | 10,224 | | | | 40,894 | | | | 69,520 | | | | | | | J.M. Whitehurst | | | 03/02/2020 | | | | 55,003 | | | | 68,754 | | | | 82,505 | | | | | | 06/08/2020 | | | | 14,511 | | | | 58,043 | | | | 98,673 | | | | | | | J.E. Kelly III | | | 06/07/2019 | | | | 7,226 | | | | 28,905 | | | | 49,139 | | | | | | 06/08/2020 | | | | 8,311 | | | | 33,243 | | | | 56,513 | | | | | | | M.H. Browdy | | | 06/07/2019 | | | | 5,179 | | | | 20,716 | | | | 35,217 | | | | | | 06/08/2020 | | | | 5,805 | | | | 23,218 | | | | 39,471 | |
Award Payout Levels | | Name | | | Grant Date | | | Threshold | | | Target | | | Maximum | | | | A. Krishna | | | | | 02/21/2022 | | | | | | 15,491 | | | | | | 61,963 | | | | | | 105,337 | | | | | | | | | | 02/21/2023 | | | | | | 18,369 | | | | | | 73,476 | | | | | | 124,909 | | | | | J.J. Kavanaugh | | | | | 02/21/2022 | | | | | | 10,140 | | | | | | 40,558 | | | | | | 68,949 | | | | | | | | | | 02/21/2023 | | | | | | 10,724 | | | | | | 42,897 | | | | | | 72,925 | | | | | R.D. Thomas | | | | | 02/21/2022 | | | | | | 7,886 | | | | | | 31,545 | | | | | | 53,627 | | | | | | | | | | 02/21/2023 | | | | | | 9,347 | | | | | | 37,387 | | | | | | 63,558 | | | | | G. Cohn | | | | | 02/21/2022 | | | | | | 8,168 | | | | | | 32,672 | | | | | | 55,542 | | | | | | | | | | 02/21/2023 | | | | | | 7,834 | | | | | | 31,336 | | | | | | 53,271 | | | | | M.H. Browdy | | | | | 02/21/2022 | | | | | | 5,633 | | | | | | 22,532 | | | | | | 38,304 | | | | | | | | | | 02/21/2023 | | | | | | 6,808 | | | | | | 27,230 | | | | | | 46,291 | | |
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 awards disclosed in column (i), calculated by multiplying the number of units by the closing price of IBM common stock on the New York Stock Exchange on the last business day of the 20202023 fiscal year ($125.88)163.55).
| | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Outstanding Equity Awards at Fiscal Year-End Table and Related Narrative | | 55 |
2020 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 522024 Notice of Annual Meeting & Proxy Statement | 2023 Outstanding Equity Awards at Fiscal Year-End Table and Related Narrative
TABLE | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Option Awards | | | Stock Awards | | Name (a) Grant Date | |
| Number of
Securities Underlying Unexercised Options (#) Exercisable (b) |
| |
| Number of
Securities Underlying Unexercised Options (#) Unexercisable (c) |
| |
| Equity
Incentive Plan
Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) |
| |
| Option
Exercise Price ($) (e) |
| |
| Option
Expiration Date (f) |
| |
| Type of
Award |
| |
| Grant
Date |
| |
| Number
of Sharesor Units of Stock That Have
Not Vested (#) (g) |
(1) | |
| Market Value
of Shares or Units of Stock That Have Not Vested ($) (h) |
(2) | |
| Type of
Award |
| |
| Grant
Date |
| |
| Equity
Incentive Plan Awards: Number of Unearned Shares,
Units or Other Rights
That Have
Not Vested (#) (i) |
(3) | |
| Equity
IncentivePlan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (j) |
(2) | A. Krishna | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/17 | | | | 2,250 | | | $ | 283,230 | | | | PSU | | | | 06/07/19 | | | | 28,905 | | | $ | 3,638,561 | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/18 | | | | 6,016 | | | | 757,294 | | | | RPSU | | | | 12/17/19 | | | | 259,872 | | | | 32,712,687 | | | | | | | | | | | | | | | | | | | | | | | | | RRSU | | | | 12/11/18 | | | | 88,710 | | | | 11,166,815 | | | | PSU | | | | 06/08/20 | | | | 72,554 | | | | 9,133,098 | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/07/19 | | | | 11,674 | | | | 1,469,523 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/20 | | | | 39,068 | | | | 4,917,880 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 147,718 | | | | 18,594,742 | | | | | | | | | | | | 361,331 | | | | 45,484,346 | | V.M. Rometty | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 01/26/16 | | | 375,000 | | | | 0 | | | | N/A | | | $ | 129.08 | | | | 01/25/26 | | | | RSU | | | | 06/08/17 | | | | 6,650 | | | | 837,102 | | | | PSU | | | | 06/07/19 | | | | 64,073 | | | | 8,065,509 | | 01/26/16 | | | 375,000 | | | | 0 | | | | N/A | | | | 135.22 | | | | 01/25/26 | | | | RSU | | | | 06/08/18 | | | | 14,548 | | | | 1,831,302 | | | | PSU | | | | 06/08/20 | | | | 107,968 | | | | 13,591,012 | | 01/26/16 | | | 375,000 | | | | 0 | | | | N/A | | | | 141.37 | | | | 01/25/26 | | | | RSU | | | | 06/07/19 | | | | 25,876 | | | | 3,257,271 | | | | | | | | | | | | | | | | | | 01/26/16 | | | 375,000 | | | | 0 | | | | N/A | | | | 153.66 | | | | 01/25/26 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 1,500,000 | | | | 0 | | | | | | | | | | | | | | | | 47,074 | | | | 5,925,675 | | | | | | | | | | | | 172,041 | | | | 21,656,521 | | J.J. Kavanaugh | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/17 | | | | 2,000 | | | | 251,760 | | | | PSU | | | | 06/07/19 | | | | 27,942 | | | | 3,517,339 | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/18 | | | | 5,743 | | | | 722,929 | | | | PSU | | | | 06/08/20 | | | | 40,894 | | | | 5,147,737 | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/07/19 | | | | 11,285 | | | | 1,420,556 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/20 | | | | 22,020 | | | | 2,771,878 | | | | | | | | | | | | | | | | | | Total | | | 0 | | | | 0 | | | | | | | | | | | | | | | | 41,048 | | | | 5,167,123 | | | | | | | | | | | | 68,836 | | | | 8,665,076 | | J.M. Whitehurst | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSA | | | | 07/09/19 | | | | 111,944 | | | | 14,091,511 | | | | RPSU | | | | 03/02/20 | | | | 68,754 | | | | 8,654,754 | | | | | | | | | | | | | | | | | | | | | | | | | RRSU | | | | 07/09/19 | | | | 110,671 | | | | 13,931,265 | | | | PSU | | | | 06/08/20 | | | | 58,043 | | | | 7,306,453 | | | | | | | | | | | | | | | | | | | | | | | | | RPSU | | | | 03/02/20 | | | | 34,377 | | | | 4,327,377 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/20 | | | | 31,254 | | | | 3,934,254 | | | | | | | | | | | | | | | | | | Total | | | 0 | | | | 0 | | | | | | | | | | | | | | | | 288,246 | | | | 36,284,406 | | | | | | | | | | | | 126,797 | | | | 15,961,206 | | J.E. Kelly III | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/17 | | | | 2,750 | | | | 346,170 | | | | PSU | | | | 06/07/19 | | | | 28,905 | | | | 3,638,561 | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/18 | | | | 6,235 | | | | 784,862 | | | | PSU | | | | 06/08/20 | | | | 33,243 | | | | 4,184,629 | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/07/19 | | | | 11,674 | | | | 1,469,523 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/20 | | | | 17,900 | | | | 2,253,252 | | | | | | | | | | | | | | | | | | Total | | | 0 | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | 38,559 | | | | 4,853,807 | | | | | | | | | | | | 62,148 | | | | 7,823,190 | | M.H. Browdy | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/17 | | | | 1,750 | | | | 220,290 | | | | PSU | | | | 06/07/19 | | | | 20,716 | | | | 2,607,730 | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/18 | | | | 4,157 | | | | 523,283 | | | | PSU | | | | 06/08/20 | | | | 23,218 | | | | 2,922,682 | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/07/19 | | | | 8,367 | | | | 1,053,238 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 06/08/20 | | | | 12,502 | | | | 1,573,752 | | | | | | | | | | | | | | | | | | Total | | | 0 | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | 26,776 | | | | 3,370,563 | | | | | | | | | | | | 43,934 | | | | 5,530,412 | |
OF CONTENTS 2023 Outstanding Equity Awards at Fiscal Year-End Table | | | | | Option Awards | | | Stock Awards | | | | | | | Number of
Securities
Underlying
Unexercised
Options | | | Number of
Securities
Underlying
Options
(#) | | | Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned | | | Option
Exercise | | | Option | | | | | | | | | | | | | | | Number
of Shares
or Units
That Have | | | Market Value
of Shares
or Units
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 | (2) | | Expiration | | | | | | | | | | | | | | | Not Vested | (3) | | Not Vested | (4) | | | | | | | | | | | | | | Not Vested | (5) | | Not Vested | (4) | | | (a) | | | Exercisable | | | Unexercisable | (1) | | (#) | | | ($) | | | Date | | | Type of | | | Grant | | | (#) | | | ($) | | | Type of | | | Grant | | | (#) | | | ($) | | | | Grant Date | | | (b) | | | (c) | | | (d) | | | (e) | | | (f) | | | Award | | | Date | | | (g) | | | (h) | | | Award | | | Date | | | (i) | | | (j) | | | | A. Krishna | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 02/21/22 | | | | | 36,134 | | | | | | 108,403 | | | | | | N/A | | | | | $ | 124.51 | | | | | | 02/20/32 | | | | | | RSU | | | | | | 06/08/20 | | | | 10,091 | | | | $ | 1,650,383 | | | | | | PSU | | | | | | 02/21/22 | | | | 61,963 | | | | $ | 10,134,049 | | | | | 02/21/23 | | | | | 0 | | | | | | 146,923 | | | | | | N/A | | | | | | 133.00 | | | | | | 02/20/33 | | | | | | RSU | | | | | | 06/08/21 | | | | 17,210 | | | | | 2,814,696 | | | | | | PSU | | | | | | 02/21/23 | | | | 73,476 | | | | | 12,017,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 02/21/22 | | | | 15,492 | | | | | 2,533,717 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 02/21/23 | | | | 24,492 | | | | | 4,005,667 | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | 36,134 | | | | | | 255,326 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 67,285 | | | | $ | 11,004,463 | | | | | | | | | | | | | | | | 135,439 | | | | $ | 22,151,049 | | | | | J.J. Kavanaugh | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 02/21/22 | | | | | 23,651 | | | | | | 70,955 | | | | | | N/A | | | | | $ | 124.51 | | | | | | 02/20/32 | | | | | | RSU | | | | | | 06/08/20 | | | | 5,688 | | | | $ | 930,272 | | | | | | PSU | | | | | | 02/21/22 | | | | 40,558 | | | | $ | 6,633,261 | | | | | 02/21/23 | | | | | 0 | | | | | | 85,777 | | | | | | N/A | | | | | | 133.00 | | | | | | 02/20/33 | | | | | | RSU | | | | | | 06/08/21 | | | | 10,326 | | | | | 1,688,817 | | | | | | PSU | | | | | | 02/21/23 | | | | 42,897 | | | | | 7,015,804 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 02/21/22 | | | | 10,140 | | | | | 1,658,397 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 02/21/23 | | | | 14,299 | | | | | 2,338,601 | | | | | | | | | | | | | | | | | | | | | Total | | | | | 23,651 | | | | | | 156,732 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 40,453 | | | | $ | 6,616,087 | | | | | | | | | | | | | | | | 83,455 | | | | $ | 13,649,065 | | | | | R.D. Thomas | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 02/21/22 | | | | | 18,395 | | | | | | 55,188 | | | | | | N/A | | | | | $ | 124.51 | | | | | | 02/20/32 | | | | | | RRSU | | | | | | 02/11/20 | | | | 36,782 | | | | $ | 6,015,696 | | | | | | PSU | | | | | | 02/21/22 | | | | 31,545 | | | | $ | 5,159,185 | | | | | 02/21/23 | | | | | 0 | | | | | | 74,758 | | | | | | N/A | | | | | | 133.00 | | | | | | 02/20/33 | | | | | | RSU | | | | | | 06/08/20 | | | | 3,673 | | | | | 600,719 | | | | | | PSU | | | | | | 02/21/23 | | | | 37,387 | | | | | 6,114,644 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 06/08/21 | | | | 6,885 | | | | | 1,126,042 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 02/21/22 | | | | 7,887 | | | | | 1,289,919 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 02/21/23 | | | | 12,463 | | | | | 2,038,324 | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | 18,395 | | | | | | 129,946 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 67,690 | | | | $ | 11,070,700 | | | | | | | | | | | | | | | | 68,932 | | | | $ | 11,273,829 | | | | | G. Cohn | | | | | | | | | | | | | | | | | 02/21/22 | | | | | 19,052 | | | | | | 57,159 | | | | | | N/A | | | | | $ | 124.51 | | | | | | 02/20/32 | | | | | | RSU | | | | | | 01/04/21 | | | | 10,226 | | | | $ | 1,672,462 | | | | | | PSU | | | | | | 02/21/22 | | | | 32,672 | | | | $ | 5,343,506 | | | | | 02/21/23 | | | | | 0 | | | | | | 62,659 | | | | | | N/A | | | | | | 133.00 | | | | | | 02/20/33 | | | | | | RSU | | | | | | 02/21/22 | | | | 8,169 | | | | | 1,336,040 | | | | | | PSU | | | | | | 02/21/23 | | | | 31,336 | | | | | 5,125,003 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 02/21/23 | | | | 10,446 | | | | | 1,708,443 | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | 19,052 | | | | | | 119,818 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 28,841 | | | | $ | 4,716,945 | | | | | | | | | | | | | | | | 64,008 | | | | $ | 10,468,509 | | | | | M.H. Browdy | | | | | | | | | | | | | | | | | 02/21/22 | | | | | 13,139 | | | | | | 39,420 | | | | | | N/A | | | | | $ | 124.51 | | | | | | 02/20/32 | | | | | | RSU | | | | | | 06/08/20 | | | | 3,231 | | | | $ | 528,430 | | | | | | PSU | | | | | | 02/21/22 | | | | 22,532 | | | | $ | 3,685,109 | | | | | 02/21/23 | | | | | 0 | | | | | | 54,448 | | | | | | N/A | | | | | | 133.00 | | | | | | 02/20/33 | | | | | | RSU | | | | | | 06/08/21 | | | | 5,945 | | | | | 972,305 | | | | | | PSU | | | | | | 02/21/23 | | | | 27,230 | | | | | 4,453,467 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 02/21/22 | | | | 5,634 | | | | | 921,441 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | | | 02/21/23 | | | | 9,077 | | | | | 1,484,543 | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | 13,139 | | | | | | 93,868 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 23,887 | | | | $ | 3,906,719 | | | | | | | | | | | | | | | | 49,762 | | | | $ | 8,138,576 | | |
PSU = Performance Share UnitRSA = Restricted Stock Award
RPSU = retention Performance Share Unit
RSU = Restricted Stock Unit RRSU = Retention Restricted Stock Unit(1) | The amounts shown in column (g) of the 2020 Outstanding Equity Awards at Fiscal Year-End Table are unvested RSA, RSU and RRSU awards, as well as the portion of Mr. Whitehurst’s RPSU that is not subject to additional performance criteria. See the 2020 Summary Compensation Table Narrative for additional information on these types of awards. Mr. Krishna’s RRSU vests on the anniversary of the grant date in 2021, 2022, and 2023 according to the vesting schedule in the table below, provided he is an employee of IBM on each vesting date. Mr. Whitehurst’s RPSUs that are not subject to additional performance criteria vests on July 31, 2021. Mr. Whitehurst’s previously outstanding equity awards as CEO of Red Hat were converted to RSAs upon the closing of IBM’s acquisition of Red Hat. The remaining RSAs for Mr. Whitehurst vests in January (4.5%), April (4.5%), May (56.0%), July (4.5%) and October (1.7%) 2021, and in January (1.7%), April (1.7%), May (23.9%), and July (1.7%) 2022. In addition, Mr. Whitehurst’s RRSU award vests on the anniversary of the grant date in 2022 and 2023, according to the vesting schedule in the table below, provided he is an IBM employee on each vesting date of his RSAs and RRSU awards. The Vesting Schedule for Unvested RSUs table below shows the vesting
|
(1)
The stock option awards granted vest 25% per year on the first through fourth anniversaries of the respective grant dates, provided the individual remains employed through each vesting date, unless they meet certain requirements to be eligible for continued vesting. | | | 56 | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Outstanding Equity Awards at Fiscal Year-End Table and Related Narrative |
(2)
The exercise prices shown in this column are equal to the high and low prices of IBM common stock on the New York Stock Exchange as of the grant date. (3)
The amounts shown in column (g) of the 2023 Outstanding Equity Awards at Fiscal Year-End Table are unvested RSU and RRSU awards. See the 2023 Compensation Discussion and Analysis and the 2023 Summary Compensation Table for additional information on these types of awards. Mr. Thomas’ RRSU award vests on the anniversary of the grant date in 2024 and 2025 provided he is an employee of IBM on each vesting date. In 2020, 2021, 2022, and 2023, 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 at the end of 2020, so his RSU granted in January 2021 vests 25% per year on the first through the fourth anniversaries of the grant date). (4)
Values in these columns are calculated by multiplying the number of units by the closing price of IBM common stock on the New York Stock Exchange on the last business day of the 2023 fiscal year ($163.55). (5)
The amounts shown in column (i) of the 2023 Outstanding Equity Awards at Fiscal Year-End Table are PSU awards that have not yet vested. See the 2023 Compensation Discussion and Analysis and the Summary Compensation Table Narrative for additional information on PSU awards. PSUs for all Named Executive Officers are paid out in February following the end of the respective performance period.
2024 Notice of Annual Meeting & Proxy Statement | 2023 Outstanding Equity Awards at Fiscal Year-End Table and Related Narrative 53
| schedules for these outstanding awards. In 2017, 2018, 2019 and, other than for Mrs. Rometty, in 2020, each named executive officer received RSU awards that vest 25% per year on the first through the fourth anniversaries of the grant date. Please note, although Dr. Kelly’s June 8, 2020 RSU grant had 17,900 shares outstanding at year-end, the RSUs are not included on the below table because the RSUs were forfeited upon his retirement on December 31, 2020. |
(2) | Values in these columns are calculated by multiplying the number of units by the closing price of IBM stock on the last business day of the 2020 fiscal year ($125.88).
|
(3) | The amounts shown in column (i) of the 2020 Outstanding Equity Awards at Fiscal Year-End Table are PSU and RPSU awards that have not yet vested. These awards include the portion of Mr. Whitehurst’s RPSU award that is subject to performance criteria. See the 2020 Summary Compensation Table Narrative for additional information on PSU and RPSU awards. The Vesting Schedule for Unvested PSUs and RPSUs table below shows the vesting schedules for these outstanding PSU and RPSU awards (reflecting Target payout). PSUs for all Named Executive Officers and the RPSUs for Mr. Krishna are paid out in February following the end of the respective performance period. The RPSUs for Mr. Whitehurst that are subject to performance criteria are paid out when they vest, on July 31, 2023, provided Mr. Whitehurst is an employee of IBM on that date.
|
VESTING SCHEDULE FOR UNVESTED RSUs, RSAs, RRSUs,TABLE OF CONTENTS
2023 Option Exercises and RPSUs (with no additionalStock Vested Table | | | | | Option Awards | | | Stock Awards(1) | | | | Name
(a) | | | Number of
Shares
Acquired
on Exercise
(#)
(b) | | | Value
Realized
on Exercise
($)
(c) | | | Number of
Shares
Acquired
on Vesting
(#)
(d) | | | Value
Realized
on Vesting
($)
(e) | | | | A. Krishna | | | | | 0 | | | | | $ | 0 | | | | | | 206,185 | | | | | $ | 32,883,416 | | | | | J.J. Kavanaugh | | | | | 0 | | | | | | 0 | | | | | | 50,335 | | | | | | 7,701,524 | | | | | R.D. Thomas | | | | | 0 | | | | | | 0 | | | | | | 43,649 | | | | | | 6,509,506 | | | | | G. Cohn | | | | | 0 | | | | | | 0 | | | | | | 46,938 | | | | | | 7,489,153 | | | | | M.H. Browdy | | | | | 0 | | | | | | 0 | | | | | | 29,511 | | | | | | 4,504,848 | | |
(1)
Amounts shown in these columns reflect PSU, RPSU, RSU, and RRSU awards that vested during 2023. The PSU and RPSU award for the 2021-2023 performance criteria) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Vesting Schedule | | | | | | | | | Name | | Type of Award | | | Grant Date | | | 2021 | | | 2022 | | | 2023 | | | 2024 | | | | | | | | | | | A. Krishna | | | RSU | | | | 06/08/2017 | | | | 2,250 | | | | | | | | | | | | | | RSU | | | | | | | 06/08/2018 | | | | 3,008 | | | | 3,008 | | | | | | | | | | RRSU | | | | | | | 12/11/2018 | | | | 24,194 | | | | 32,258 | | | | 32,258 | | | | | | RSU | | | | | | | 06/07/2019 | | | | 3,891 | | | | 3,891 | | | | 3,892 | | | | | | RSU | | | | | | | 06/08/2020 | | | | 9,767 | | | | 9,767 | | | | 9,767 | | | | 9,767 | | | | | | | | | | | V.M. Rometty | | | RSU | | | | 06/08/2017 | | | | 6,650 | | | | | | | | | | | | | | RSU | | | | | | | 06/08/2018 | | | | 7,273 | | | | 7,275 | | | | | | | | | | RSU | | | | | | | 06/07/2019 | | | | 8,625 | | | | 8,625 | | | | 8,626 | | | | | | | | | | | | | | | J.J. Kavanaugh | | | RSU | | | | 06/08/2017 | | | | 2,000 | | | | | | | | | | | | | | RSU | | | | | | | 06/08/2018 | | | | 2,871 | | | | 2,872 | | | | | | | | | | RSU | | | | | | | 06/07/2019 | | | | 3,761 | | | | 3,761 | | | | 3,763 | | | | | | RSU | | | | | | | 06/08/2020 | | | | 5,505 | | | | 5,505 | | | | 5,505 | | | | 5,505 | | | | | | | | | | | J.M. Whitehurst | | | RSA | | | | 07/09/2019 | | | | 79,553 | | | | 32,391 | | | | | | | | | | RRSU | | | | | | | 07/09/2019 | | | | | | | | 36,890 | | | | 73,781 | | | | | | RPSU | | | | | | | 03/02/2020 | | | | 34,377 | | | | | | | | | | | | | | RSU | | | | | | | 06/08/2020 | | | | 7,813 | | | | 7,813 | | | | 7,813 | | | | 7,815 | | | | | | | | | | | J.E. Kelly III | | | RSU | | | | 06/08/2017 | | | | 2,750 | | | | | | | | | | | | | | RSU | | | | | | | 06/08/2018 | | | | 3,117 | | | | 3,118 | | | | | | | | | | RSU | | | | | | | 06/07/2019 | | | | 3,891 | | | | 3,891 | | | | 3,892 | | | | | | | | | | | | | | | M.H. Browdy | | | RSU | | | | 06/08/2017 | | | | 1,750 | | | | | | | | | | | | | | RSU | | | | | | | 06/08/2018 | | | | 2,078 | | | | 2,079 | | | | | | | | | | RSU | | | | | | | 06/07/2019 | | | | 2,788 | | | | 2,788 | | | | 2,791 | | | | | | RSU | | | | | | | 06/08/2020 | | | | 3,125 | | | | 3,125 | | | | 3,125 | | | | 3,127 | | | |
VESTING SCHEDULE FOR UNVESTED PSUSperiod vested on December 31, 2023, and RPSUs (with performance criteria)
| | | | | | | | | | | | | | | | | | | | | | | | | | Vesting Schedule | | Name
| | Grant Date
| | | Dec-2021
| | | Dec-2022
| | | July-2023
| | | Dec-2023
| | | | | | | | | | A. Krishna
| | | 06/07/2019 | | | | 28,905 | | | | | | | | | | | | | | | | | 12/17/2019 | | | | 85,758 | | | | | | | | | | | | | | | | | 12/17/2019 | | | | | | | | 85,758 | | | | | | | | | | | | | 12/17/2019 | | | | | | | | | | | | | | | | 88,356 | | | | | 06/08/2020 | | | | | | | | 72,554 | | | | | | | | | | | | | | | | | | V.M. Rometty
| | | 06/07/2019 | | | | 64,073 | | | | | | | | | | | | | | | | | 06/08/2020 | | | | | | | | 107,968 | | | | | | | | | | | | | | | | | | J.J. Kavanaugh
| | | 06/07/2019 | | | | 27,942 | | | | | | | | | | | | | | | | | 06/08/2020 | | | | | | | | 40,894 | | | | | | | | | | | | | | | | | | J.M. Whitehurst
| | | 03/02/2020 | | | | | | | | | | | | 68,754 | | | | | | | | | 06/08/2020 | | | | 19,155 | | | | | | | | | | | | | | | | | 06/08/2020 | | | | | | | | 38,888 | | | | | | | | | | | | | | | | | | J.E. Kelly III
| | | 06/07/2019 | | | | 28,905 | | | | | | | | | | | | | | | | | 06/08/2020 | | | | | | | | 33,243 | | | | | | | | | | | | | | | | | | M.H. Browdy
| | | 06/07/2019 | | | | 20,716 | | | | | | | | | | | | | | | | | 06/08/2020 | | | | | | | | 23,218 | | | | | | | | | | | |
paid out to each named executive officer on February 1, 2024; the value of this PSU award was determined by multiplying the number of shares by the closing price of IBM common stock on the vesting date ($163.55). See the Compensation Discussion and Analysis and the 2023 Summary Compensation Table for details on these types of awards.2020 OPTION EXERCISES AND STOCK VESTED TABLE
| | | | | | | | | | | | | | | | | | | | Option Awards | | | Stock Awards(1) | | Name (a) | | Number of Shares Acquired on Exercise (#) (b) | | | Value Realized on Exercise ($) (c) | | | Number of Shares Acquired on Vesting (#) (d) | | | Value Realized on Vesting ($) (e) | | | | | | | | | A. Krishna | | | 0 | | | | $0 | | | | 43,255 | | | | 5,511,619 | | | | | | | | | V.M. Rometty | | | 0 | | | | 0 | | | | 68,937 | | | | 8,918,942 | | | | | | | | | J.J. Kavanaugh | | | 0 | | | | 0 | | | | 25,889 | | | | 3,342,863 | | | | | | | | | J.M. Whitehurst | | | 0 | | | | 0 | | | | 147,091 | | | | 17,819,509 | | | | | | | | | J.E. Kelly III | | | 0 | | | | 0 | | | | 29,518 | | | | 3,818,651 | | | | | | | | | M.H. Browdy | | | 0 | | | | 0 | | | | 19,570 | | | | 2,530,983 | | | |
(1) | Amounts shown in these columns reflect PSU, RSA, RSU, and RRSU awards that vested during 2020. The PSU award for the 2018-2020 performance period vested on December 31, 2020, and paid out to each named executive officer on February 1, 2021; the value of this PSU award was determined by multiplying the number of shares by the closing price of IBM stock on the vesting date. See the 2020 Summary Compensation Table Narrative for details on these types of awards.
|
| | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Outstanding Equity Awards at Fiscal Year-End Table and Related Narrative | | 57 |
542024 Notice of Annual Meeting & Proxy Statement | 2023 Outstanding Equity Awards at Fiscal Year-End Table and Related Narrative
2023 Retention Plan Narrative General Description and Purpose During the mid-1990s, an additional form of retention compensation was created for certain IBM U.S. leaders. The plan, formally called the “IBM Supplemental Executive Retention Plan” (Retention(Retention Plan), began in 1995 during a particularly trying time in IBM’s history when it faced challenges that many thought put its very existence at risk. Some key leaders were recruited away from IBM during this time. In this environment, IBM 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 Retention Plan was closed to new participants effective May 1, 2004, and will not be replaced by any other plan. Future accruals under the Retention Plan stopped on December 31, 2007, therefore, a participant’s Retention Plan benefit does not consider pay earned or service performed after such date.
Payments accrue based on age and service and are typically payable only after age 60, as a way to encourage senior leaders to continue working for IBM past the age when many others at IBM choose to retire.
Even though the Retention Plan provides for the payment of specified benefits after retirement, given the nature of this program as a retention vehicle, the The Retention Plan is discussed in its own section insteada nonqualified deferred compensation plan, which is unfunded, that provides for payment of inan annual benefit if the Pension Benefits section. As a consequence,participant satisfies the amounts reflected below are separately presented in the 2020 Retention Plan Tableage, service, pay, and are not included in the 2020 Pension Benefits Table.
The 2020 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.job level requirements. The Retention Plan is a U.S. Plan and eligibility is based on U.S. employment. Mrs. Rometty, Mr. Kavanaugh and Dr. Kelly are eligible for a benefit under the Retention Plan. Mr. Krishna is not eligible for a Retention Plan benefit because he did not meet all of the eligibility criteria. Mr. Whitehurst and Ms. Browdy were hired after thebenefit.
The Retention Plan was closed to new participants.Description of Retention Plan
The Retention Plan provides for payment of an annual benefit as long as the participant satisfies the age, service, pay,participants effective May 1, 2004, and job level requirements.
future accruals stopped on December 31, 2007. Effective July 1, 1999, IBM amended the Retention Plan was amended 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. The Retention Plan is separately presented in the 2023 Retention Plan Table and is not included in the 2023 Pension Benefits Table. Material Terms and Conditions: 1995 Retention Plan •
The benefits provided under the Retention Plan benefit for Mr. Kavanaugh and Dr. Kelly areis 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 at the time a participant terminates employment, becomes disabled or dies on or after meetingseparates from service they meet the early retirement age and service requirement, holds an executive-level position immediately prior to termination or death,separation from service, and has final average pay of at least $160,000 immediately prior to termination, disability or death.$160,000. The
•
While Mr. Kavanaugh’s benefit providedis 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 payable only as an annuity beginning on the first day$233,400 instead of the month following termination of employment (subject to a six-month delay$311,400 for “specified employees” as required under Section 409A of the Internal Revenue Code). 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. Rometty are determined under the Retention Plan formula in effect on and after the July 1, 1999 amendment (1999 Retention Plan).
| | | 58 | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Retention Plan Narrative |
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 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. Funding
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. 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 employmentseparation from service (subject to a six-month delay for “specified employees” as required under Section 409A of the Internal Revenue Code)tax law). 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 officerMr. Kavanaugh is detailed in the table below. | | | Name
| | Annual Retention Plan Benefit at
Earliest Unreduced Retirement Age
| | | V.M. Rometty
| | $94,681
| | | J.J. Kavanaugh
| | 18,956
| | | J.E. Kelly III
| | 583,528
|
| | Name | | | Annual Retention Plan Benefit at
Earliest Unreduced Retirement Age | | | | J.J. Kavanaugh | | | | $ | 10,097 | | |
Present Value of Accumulated Benefit •
The present value of accumulated benefit shown in the 20202023 Retention Plan Table below is the value as of December 31, 20202023 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, 2020, Mrs. Rometty and Dr. Kelly had reached the earliest unreduced retirement age. Because Mr. Kavanaugh did not attain age 60 by December 31, 2020, the earliest unreduced retirement age is his age on the first day of the month that coincides with or next follows the attainment of age 60. Certain assumptions were used to determine the present value of the annual accumulated Retention Plan benefit that is payable beginning at the earliest unreduced retirement age. Those assumptionsage are described immediately following the 20202023 Pension Benefits Table.
2023 Retention Plan Table.Table | | | | | | | | 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 | | | | | $ | 131,110 | | | | | $ | 0 | | |
| | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Retention Plan Narrative | | 59 |
2020 RETENTION PLAN TABLE
| | | | | | | | | | | | | | | Name (a) | | Plan Name
(b) | |
| Number of
Years Credited Service (#) (c) |
(1) | |
| Present
Value of Accumulated Benefit ($) (d) |
(2) | |
| Payments
During Last Fiscal Year ($) (e) |
| | | | | | V.M. Rometty | | Retention Plan | | | 26 | | | | $1,750,517 | | | | $0 | | | | | | | J.J. Kavanaugh | | Retention Plan | | | 12 | | | | 327,190 | | | | 0 | | | | | | | J.E. Kelly III | | Retention Plan | | | 27 | | | | 9,205,327 | | | | 0 | |
(1) | Reflects years of credited service as of December 31, 2007, which was the date accruals under the Retention Plan stopped. Each of the eligible named executive officers in this table has 13 additional years of service with IBM after that date. |
(2) | While the accruals under the Retention Plan stopped on December 31, 2007, the value of the Retention Plan benefit for the eligible named executive officers will continue to change based on their ages, the assumptions used to calculate the present value of the accumulated benefit, and the benefit that would be provided under the IBM Personal Pension Plan.
|
Assumptions to determine present value for each eligible named executive officer, as of December 31, 2020:
Measurement date: December 31, 2020
Interest rate for present value: 2.2%
To determine Personal Pension Account benefit:
| – | Interest crediting rate: 1.1% for 2021 and after
|
| – | Interest rate to convert Personal Pension Account balance to single life annuity: 0.5233% for years 1–5, 2.3033% for years 6–20, and 3.1533% for year 21 and after
|
| – | Mortality table to convert Personal Pension Account balance to single life annuity is 2021 Personal Pension Account Optional Combined Unisex Table
|
Mortality (pre-commencement): None
Mortality (post-commencement):
| – | Base Table: Modified RP-2014 White Collar sex-distinct annuitant tables with adjustment to 2006 by backing out MP-2014 improvement and further adjusting the mortality rates by a factor of 1.016
|
| – | Improvement Scale: A modified Scale MP-2020 projection table with projected improvements starting in 2006 for healthy mortality. The modified table is based on the RPEC 2014 v2020 model, with the same 20 year diagonal convergence period and 10 year horizontal convergence period and underlying weighting percentages for the age/period and year-of-birth cohort periods. The long-term improvement rates are 0.75% up to age 85, linearly decreasing to 0.0% at age 115
|
2007. Mr. Kavanaugh has 16 additional years of service with IBM after that date. Withdrawal rates: None(2)
Retirement rates: None priorFor assumptions used 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 iscalculate 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. The six-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, 2019:
2023” immediately following the 2023 Pension Benefits table.The column titled Change in
2024 Notice of Annual Meeting & Proxy Statement | 2023 Retention Plan Value in the 2020 Summary Compensation Table quantifies the change in the present value of the Retention Plan benefit from December 31, 2019 to December 31, 2020 To determine the present value of the Retention Plan benefit as of December 31, 2019, the same assumptions that are described above to determine present value as of December 31, 2020 were used, except (1) a 3.1% interest rate, Modified RP-2014 White Collar sex-distinct annuitant tables with adjustment to 2006 by backing out MP-2014 improvement and further adjusting the mortality rates at each age (averaging approximately 1.016); and the Modified MP-2019 improvement scale, and (2) to determine the Personal Pension Account benefit, the following were used:
| – | Interest crediting rate: 2.7% for 2020 and after
|
| – | Interest rate to convert Personal Pension Account balance to annual single life annuity: 2.0767% for years 1–5, 3.0433% for years 6–20, and 3.6367% for year 21 and after
|
Mortality table for Personal Pension Account balance conversion: 2020 Personal Pension Account Optional Combined Unisex TableNarrative55
| | | 60 | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Retention Plan Narrative |
2023 Pension Benefits Narrative The 20202023 Pension Benefits Tables show the number of years of credited service, present value of accumulated benefit and payments during the last fiscal year for each eligible named executive officer under the IBM U.S. defined benefit pension plan. Mr.As of December 31, 2023 Messrs. Krishna, Mrs. Rometty, Mr. Kavanaugh and Dr. Kelly haveThomas had pension benefits under the U.S. defined benefit pension plan. Neither Mr. Whitehurst nor Ms. Browdy have a benefit under any IBM defined benefit pension plan. U.S. Qualified Plan and Nonqualified Plan Descriptions — General The IBM Personal Pension Plan consists of a tax-qualified plan and a non-tax qualified plan. Effective January 1, 2008, the non-tax qualified plan was renamed the IBM Excess Personal Pension Plan and is referred to herein as the Nonqualified Plan, and the tax-qualified plan is referred to as the Qualified Plan. The combined plan is referred to herein as the IBM Personal Pension Plan. Effective January 1, 2005, the IBM Personal Pension Plan was closed to new participants. 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. •
Accrual of future benefits under the IBM Personal Pension Plan stopped on December 31, 2007, and a participant’s pension benefit does not consider pay earned and service credited after such date. IBM U.S. Personal Pension Plan (Qualified
(Qualified Plan) Purpose of the Qualified Plan •
The Qualified Plan was designed to provide tax-qualified pension benefits that arewere generally available to all U.S. regular employees. The cessation of accruals under the Qualified Plan and the continued IBM contributions under the tax-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 is pre-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 on pre-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;
|
| – | Age 55 with 15 years of service; or
|
| – | Age 62 with five years of service.
|
As of December 31, 2020, 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. As the named executive officers’ benefits under the Qualified Plan are determined under the Personal Pension Account formula, this disclosure will only address the material terms of the benefit as an unsubsidized lump sum. The lump sum amount is based on the benefit the participant earned before January 1, 2000.such formula.
Material Terms and Conditions: Personal Pension Account Formula under the Qualified Plan •
Messrs. Krishna’s, and Kavanaugh’s, and Dr. Kelly’sThomas’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
•
Under the Personal Pension Account formula prior to 2008, the eligible named executive officers above receive pay credits and interest credits to their respective Personal Pension Accounts. The pay credits for a year were equal to 5% of the eligible named executive officers’ eligible compensation for that year. The interest credits are based on the annual interest rate on one-year Treasury Constant Maturities plus 1%. Further, the eligible named executive officers may receive their benefit under the Personal Pension Account formula at any time following termination of employment, but may not defer the commencement of the benefit later than normal retirement age. If the eligible named executive officers’ benefit begins to be paid before normal retirement age, it will be reduced when compared to the benefit that would commence at normal retirement age. The eligible named executive officers may receive their benefit in either a lump sum equal to the Personal Pension Account balance, an annuity that is actuarially equivalent to the Personal Pension Account balance, or both a partial lump sum and a reduced annuity. | | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Pension Benefits Narrative | | 61 |
| | receive their benefit under the Personal Pension Account formula at any time following termination of employment, but may not defer the commencement of the benefit later than normal retirement age. If the eligible named executive officers’ benefit begins to be paid before normal retirement age, it will be reduced when compared to the benefit that would commence at normal retirement age. The eligible named executive officers may receive their benefit in the following forms: a lump sum equal to the Personal Pension Account balance, an annuity that is actuarially equivalent to the Personal Pension Account balance, or both a partial lump sum and a reduced annuity.
|
Compensation Elements Included in Calculations •
Prior to 2008, eligible compensation was generally equal to the total amount that is included in income including: | – | —
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, RSUs, RRSUs,plan (excluding Stock Options and PSUs other equity awards); and
— was excluded
Amounts deducted from eligible compensation.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. •
Compensation for a year was limited to the compensation limit under the Internal Revenue Code. For 2007,Code, which for 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 20202023 was $230,000$265,000 payable as an annual single life annuity beginning at normal retirement age). Qualified Plan Funding
Benefits under the Qualified Plan are funded by an irrevocable tax-exempt trust.
A participant’s benefits under the Qualified Plan are payable from the assets held by the tax-exempt trust.
Policy Regarding Extra Years of Credited Service Generally, a participant’s•
The years of credited service are based only 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 whilewas eligible for participation in the Qualified Plan.
Plan, through December 31, 2007.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 the six-month delay for “specified employees” as required under Section 409A of the Internal Revenue Code)tax law). 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
562024 Notice of IBM with respect to the payment of their Nonqualified Plan benefits.Annual Meeting & Proxy Statement | 2023 Pension Benefits Narrative
Policy Regarding Extra Years of Credited Service •
The years of credited service for the eligible named executive officers are based only on their service whilethe years an employee was 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. •
Messrs. Krishna, and Kavanaugh, and Dr. Kelly,Thomas have elected to receive their Nonqualified Plan benefit in a lump sum immediately following separation from service.
| | | 62 | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Pension Benefits Narrative |
•
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, 20212024 if they had a separation from service from IBM on December 31, 20202023 was equal to: | | | | | | | | | | | | | | Maximum Lump Sum | Name | | Qualified Plan | | | Nonqualified Plan | | | Total Available Lump Sum | | | | | A. Krishna | | $ | 258,008 | | | $ | 81,934 | | | $ 339,942 | | | | | V.M. Rometty | | | 652,731 | | | | N/A | | | 652,731 | | | | | J.J. Kavanaugh | | | 175,478 | | | | 75,930 | | | 251,408 | | | | | J.E. Kelly III | | | 678,225 | | | | 1,076,841 | | | 1,755,066 |
| | Name | | | Maximum Lump Sum | | | | Qualified
Plan | | | Nonqualified
Plan | | | Total Available
Lump Sum | | | | A. Krishna | | | | $ | 224,528 | | | | | $ | 87,850 | | | | | $ | 332,378 | | | | | J.J. Kavanaugh | | | | | 118,148 | | | | | | 81,412 | | | | | | 269,560 | | | | | R.D. Thomas | | | | | 92,471 | | | | | | 272 | | | | | | 92,743 | | |
•
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 Messrs. Krishna, and Kavanaugh, and Dr. KellyThomas will receive a lump sum payment for their Nonqualified Plan benefits, no amount is represented for them in the Nonqualified Plan column below: | | Name | | | Annual Pension Benefit at Normal
Retirement Age | | | | Qualified
Plan | | | Nonqualified
Plan | | | Total Benefit | | | | A. Krishna | | | | $ | 24,891 | | | | | | N/A | | | | | $ | 24,891 | | | | | J.J. Kavanaugh | | | | | 21,962 | | | | | | N/A | | | | | | 21,962 | | | | | R.D. Thomas | | | | | 14,605 | | | | | | N/A | | | | | | 14,605 | | |
| | payment for their Nonqualified Plan benefits, no amount is represented for them in the Nonqualified Plan column below:
|
| | | | | | | | | | | | | | Annual Pension Benefit at Normal
Retirement Age | Name | | Qualified Plan | | | Nonqualified Plan | | | Total Benefit | | | | | A. Krishna | | $ | 20,769 | | | | N/A | | | $ 20,769 | | | | | V.M. Rometty | | | 81,365 | | | $ | 340,058 | | | 421,423 | | | | | J.J. Kavanaugh | | | 12,351 | | | | N/A | | | 12,351 | | | | | J.E. Kelly III | | | 45,165 | | | | N/A | | | 45,165 |
Present Value of Accumulated Benefit •
The present value of accumulated benefit is the value as of December 31, 20202023 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 20202023 Pension Benefits Table. 2020 PENSION BENEFITS 2024 Notice of Annual Meeting & Proxy Statement | 2023 Pension Benefits Narrative 57
2023 Pension Benefits Table As noted in the General Description and Purpose to the 20202023 Retention Plan Narrative, the 20202023 Pension Benefits Table does not include amounts reflected in the 20202023 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) | | | | | | A. Krishna | | Qualified Plan | | | 17 | | | | $289,653 | | | $0 | | | Nonqualified Plan | | | | | | | 76,025 | | | 0 | | | | Total Benefit | | | | | | | $365,678 | | | $0 | | | | | | V.M. Rometty | | Qualified Plan | | | 26 | | | | 1,504,329 | | | $0 | | | Nonqualified Plan | | | | | | | 6,287,173 | | | 0 | | | | Total Benefit | | | | | | | 7,791,502 | | | $0 | | | | | | J.J. Kavanaugh | | Qualified Plan | | | 12 | | | | 158,880 | | | $0 | | | Nonqualified Plan | | | | | | | 67,651 | | | 0 | | | | Total Benefit | | | | | | | 226,531 | | | $0 | | | | | | J.E. Kelly III | | Qualified Plan | | | 27 | | | | 700,948 | | | $0 | | | Nonqualified Plan | | | | | | | 1,076,841 | | | 0 | | | | Total Benefit | | | | | | | 1,777,789 | | | $0 |
(1) | Reflects years of credited service as of December 31, 2007, which was the date accruals under the Qualified Plan and the Nonqualified Plan stopped. Each of the named executive officers in this table has 13 additional years of service with IBM after that date.
|
(2) | While the accruals under the Qualified Plan and the Nonqualified Plan stopped on December 31, 2007, the value of the Qualified Plan and Nonqualified Plan benefits for the eligible named executive officers will continue to change based on their ages and the assumptions used to calculate the present value of the accumulated benefit.
|
| | | | | | | | Number of Years | | | Present Value of | | | Payments During | | | | | | | | | | Credited Service | (1) | | Accumulated Benefit | | | Last Fiscal Year | | | | Name
(a) | | | Plan Name
(b) | | | (#)
(c) | | | ($)
(d) | | | ($)
(e) | | | | A. Krishna | | | Qualified Plan | | | | | 17 | | | | $245,597 | | | | $ | 0 | | | | | | | | Nonqualified Plan | | | | | | | | | 86,086 | | | | | 0 | | | | | | | | Total Benefit | | | | | | | | | $331,683 | | | | $ | 0 | | | | | J.J. Kavanaugh | | | Qualified Plan | | | | | 12 | | | | $180,497 | | | | $ | 0 | | | | | | | | Nonqualified Plan | | | | | | | | | 76,413 | | | | | 0 | | | | | | | | Total Benefit | | | | | | | | | $256,910 | | | | $ | 0 | | | | | R.D. Thomas | | | Qualified Plan | | | | | 9 | | | | $80,293 | | | | $ | 0 | | | | | | | | Nonqualified Plan | | | | | | | | | 232 | | | | | 0 | | | | | | | | Total Benefit | | | | | | | | | $80,525 | | | | $ | 0 | | |
(1)
Reflects years of credited service as of December 31, 2007. Each of the named executive officers in this table has 16 additional years of service with IBM after that date. Assumptions to determine present value as of December 31, 20202023 for each eligible named executive officer: •
Measurement date: December 31, 20202023 •
Interest rate for present value: 2.2%5.00% •
To determine Personal Pension Account benefit: | – | Interest crediting rate: 1.1% for 2021 and after
|
| – | Interest rate to convert Personal Pension Account balance to single life annuity: 0.5233% for years 1–5, 2.3033% for years 6–20, and 3.1533% for year 21 and after
|
| – | Mortality table to convert Personal Pension Account balance to single life annuity is 2021 Personal Pension Account Optional Combined Unisex Table
|
—
Interest crediting rate: 6.4% for 2024 and 3.80% for 2025 and after —
Interest rate to convert Personal Pension Account balance to single life annuity: 5.6000% for years 1-5, 5.7733% for years 6-20, and 5.7267% for year 21 and after —
Mortality table to convert Personal Pension Account balance to single life annuity is 2024 Pension Protection Act Optional Combined Unisex Table •
Mortality (pre-commencement): None
•
| | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Pension Benefits Narrative | | 63 |
Mortality (post-commencement): | – | Base Table: Modified RP-2014 White Collar sex-distinct annuitant tables with adjustment to 2006 by backing out MP-2014 improvement and further adjusting the mortality rates by a factor of 1.016
|
| – | Improvement Scale: A modified Scale MP-2020 projection table starting in 2006 for healthy mortality. The modified table is based on the RPEC 2014 v 2020 model, with the same 20 year diagonal convergence period and 10 year horizontal convergence period and underlying weighting percentages for the age/period and year-of-birth cohort periods. The long-term improvement rates are 0.75% up to age 85, linearly decreasing to 0.0% at age 115
|
—
Base Table: Modified PRI-2012 White Collar sex-distinct tables for retirees adjusted by a factor of 0.762 with improvement from 2012 to December 31, 2023. —
Improvement Scale: A modified Scale MP-2021 projection table. •
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 the case of the Pension Credit Formula and as a 50% lump sum/50% annuity for Dr. Kelly and a 90% lump sum/10% annuity for Messrs. Krishna and Kavanaugh in
•
In the case of the qualified Personal Pension Account Formulaformula, the benefit is payable as a 90% lump sum/10% annuity for Messrs. Krishna, Kavanaugh, and Thomas 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 Dr. KellyThomas is payable as a lump sum. The six-month delay under the Nonqualified Plan for “specified employees” as required under Section 409A of the Internal Revenue Code was disregarded for this purpose | | 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, 2019:2022: •
The column titled Change in Pension Value in the 20202023 Summary Compensation Table quantifies the change in the present value of the pension benefit from December 31, 20192022 to December 31, 20202023 •
To determine the present value of the pension benefit as of December 31, 2019,2022, the same assumptions that are described above to determine the present value as of December 31, 20202023 were used, except (1) a (1) 3.1%5.3% interest rate, Modified RP-2014PRI-2012 White Collar sex-distinct annuitant tables with adjustment to 2006for retirees adjusted by backing out MP-2014 improvement and further adjusting the mortality rates at each age (averaging approximately 1.016); and Modified MP-2019 improvement scale, anda factor of 0.762 (2) to determine the Personal Pension Account benefit, the following were used: | – | Interest crediting rate: 2.7% for 2020 and after
|
| – | Interest rate to convert Personal Pension Account balance to single life annuity: 2.0767% for years 1–5, 3.0433% for years 6– 20, and 3.6367% for year 21 and after
|
| – | Mortality table for Personal Pension Account balance conversion: 2020 Personal Pension Account Optional Combined Unisex Table
|
—
Interest crediting rate: 4.90% for 2023 and 4.40% for 2024 after —
Interest rate to convert Personal Pension Account balance to single life annuity: 4.4567% for years 1-5, 5.2367% for years 6-20, and 5.1467% for year 21 and after —
Mortality table for Personal Pension Account balance conversion: 2023 Pension Protection Act Optional Combined Unisex Table
| | | 64 | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Pension Benefits Narrative |
582024 Notice of Annual Meeting & Proxy Statement | 2023 Pension Benefits Narrative
2023 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 eligible employees with the opportunity to save for retirement on a tax-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 2020 Nonqualified Deferred Compensation Table shows Eligibility is based on those 401(k) participants whose eligible pay is expected to exceed the employee deferrals (executive contributions), IBM match (registrant contributions), automatic contributions (registrant contributions), discretionary awards (registrant contributions) and investment gain or loss (aggregate earnings)Internal Revenue Code compensation limit for each named executive officer during 2020.
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.applicable plan year.
•
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 is an unfunded plan and a participant’s account balance is not paid to, and cannot be accessed by, the participants until afteronly payable once a separationparticipant separates from service fromwith IBM. The Excess 401(k) Plus Plan allows the clawback of
•
Certain IBM matching and automatic contributions madeare subject to a participant’s account after March 31, 2010,forfeiture or recission if a participant is terminated for cause or engages in competitive or other activity that is detrimental to IBM (including but not limited to competitive business activity, disclosure of confidentialduring or following employment. •
Effective January 1, 2024, the IBM information or solicitation of401(k) Plus Plan was renamed the IBM clients or employees).401(k) Plan and the Excess 401(k) Plus Plan was renamed the IBM Excess Savings Plan. Compensation Eligible for Deferral under Excess 401(k) Plus Plan An eligible employee•
Participants 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 including non-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. | | 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
•
Through December 31, 2023, IBM creditscredited matching contributions each pay period to the Basic Account of each eligible participant who defersdeferred salary or eligible performance pay under the Excess 401(k) Plus Plan. •
The matching contributions equal the percentage of the sum of: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. 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 arewere 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, arewere eligible for up to 5% matching contributions. Mr. Krishna, Mrs. Rometty, Mr. Kavanaugh, and Dr. Kelly areMr. Thomas were eligible for a 6% matching contribution. Mr. WhitehurstCohn and Ms. Browdy arewere 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,•
Through December 31, 2023 IBM creditscredited automatic contributions each pay period 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 contribution
| | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Nonqualified Deferred Compensation Narrative | | 65 |
| | percentage under the IBM 401(k) Plus Plan. Generally, the percentage is 2% or 4% if the participant was hired or rehired by IBM U.S. before January 1, 2005 (depending on the participant’s pension percentage under the IBM 401(k) Plus Plan. Generally, the percentage is based on a participant’s retirement plan eligibility on December 31, 2007), or 1% if the participant was hired or rehired by IBM U.S. on or after January 1, 2005 and completes one year of service. For purposes of calculating the automatic contributions under the IBM 401(k) Plus Plan, the participant’s eligible pay excludes the amount the participant elects to defer under the Excess 401(k) Plus Plan. The automatic contribution percentage is 4% for Mrs. Rometty; 2% for Mr. Krishna, Mr. Kavanaugh and Dr. Kelly; and 1% for Mr. Whitehurst and Ms. Browdy.
|
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 1 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.
IBM Transition Credits
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. UnderIn addition, for participants hired or rehired by IBM U.S. on or after January 1, 2005, they must complete one year of service to be eligible. For purposes of calculating the terms ofautomatic contributions under the IBM 401(k) Plus Plan, Mr.,the participant’s eligible pay excludes the amount the participant elects to defer under the Excess 401(k) Plus Plan. The automatic contribution percentage was: 2% for Messrs. Krishna, Mr. Kavanaugh and Dr. Kelly were eligible to receive transition credits.Thomas; and 1% for Mr. Cohn and Ms. Browdy.
•
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 2020 annual rates of return indicated for each): | – | Target Retirement 2020 Fund (10.96%)
|
| – | Target Retirement 2025 Fund (11.62%)
|
| – | Target Retirement 2030 Fund (12.03%)
|
| – | Target Retirement 2035 Fund (12.58%)
|
| – | Target Retirement 2040 Fund (12.76%)
|
| – | Target Retirement 2045 Fund (12.73%)
|
| – | Target Retirement 2050 Fund (12.79%)
|
| – | Target Retirement 2055 Fund (12.78%)
|
includes the IBM Stock Fund. | – | Target Retirement 2060 Fund (12.89%)
|
| – | Target Retirement 2065 Fund (20.77%; from 7/1/2020 to 12/31/2020)
|
| – | Income Plus Fund (10.46%)
|
| – | Conservative Fund (11.51%)
|
| – | Aggressive Fund (12.46%)
|
| – | Interest Income Fund (2.74%)
|
| – | Inflation Protected Bond Fund (10.97%)
|
| – | Total Bond Market Fund (7.44%)
|
| – | High Yield & Emerging Markets Bond Fund (6.13%)
|
| – | Total Stock Market Index Fund (20.86%)
|
| – | Total International Stock Market Index Fund (11.42%)
|
| – | Global Real Estate Stock Index Fund (-6.99%)
|
| – | Long-Term Corporate Bond Fund (14.88%)
|
| – | Large Company Index Fund (18.43%)
|
| – | Large-Cap Value Index Fund (2.83%)
|
| – | Large-Cap Growth Index Fund (38.48%)
|
| – | Small/Mid-Cap Stock Index Fund (32.71%)
|
| – | Small-Cap Value Index Fund (4.85%)
|
| – | Small-Cap Growth Index Fund (34.91%)
|
| – | European Stock Index Fund (5.77%)
|
| – | Pacific Stock Index Fund (12.85%)
|
| – | Emerging Markets Stock Index Fund (15.28%)
|
| – | Real Estate Investment Trust Index Fund (-7.70%)
|
| – | International Real Estate Index Fund (-6.15%)
|
| – | IBM Stock Fund (-1.06%)*
|
*Performance includes dividend equivalent reinvestment
•
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. 2024 Notice of Annual Meeting & Proxy Statement | 2023 Nonqualified Deferred Compensation Narrative 59
•
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. •
| | | 66 | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Nonqualified Deferred Compensation Narrative |
Aggregate earnings on Deferred IBM Shares during the last fiscal year, as reported in column (d) of the 20202023 Nonqualified Deferred Compensation Table are calculated as the change in the price of IBM’s common stock between December 31, 20192022, and December 31, 20202023, for all Deferred IBM Shares that were contributed prior to 2020.Shares. •
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;
|
| – | 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.
|
—
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, 2020, Mr.2023, Messrs. Krishna Mrs. Rometty and Dr. KellyKavanaugh had satisfied the age and service criteria. •
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 2020,2023, 50% of this limit was $142,500)$165,000), 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, 2020, the named executive officers had the following distribution elections on file:
| – | Mr. Krishna — Lump sum paid in February of the year following separation for pre-2005 amounts, and immediate lump sum for post-2004 amounts.
|
| – | Mrs. Rometty — 10 annual installments for all amounts
|
| – | Mr. Kavanaugh — 2 annual installments for pre-2005 amounts, and lump sum in February of the year following separation for post-2004 amounts.
|
| – | Mr. Whitehurst — 10 annual installments for all amounts
|
| – | Dr. Kelly — lump sum in February of the year following separation for pre-2005 amounts, and 10 annual installments for post-2004 amounts
|
| – | Ms. Browdy — lump sum in February of the year following separation for all amounts
|
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.
| | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Nonqualified Deferred Compensation Narrative | | 67 |
2020 NONQUALIFIED DEFERRED COMPENSATION TABLE
| | | | | | | | | | | | | | | | | | | | | | | | | | | Name (a) | | Plan | |
| Executive
Contributions in Last FY ($) (b) |
(1) | | | | | |
| Registrant
Contributions in Last FY ($) (c) |
(2) | |
| Aggregate
Earnings in Last FY ($) (d) |
(3) | |
| Aggregate
Withdrawal/ Distributions ($) (e) |
| |
| Aggregate
Balance at Last FYE ($) (f) |
(4) | | | | | | | | | A. Krishna | | Basic Account | | | $151,271 | | | | Match | | | | $151,271 | | | $ | (264,353 | ) | | | $0 | | | $ | 5,176,894 | | | | | | | | | | | Automatic | | | | 50,424 | | | | | | | | | | | | | | | | Deferred IBM Shares | | | 0 | | | | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | | Total | | | $151,271 | | | | | | | | $201,695 | | | $ | (264,353 | ) | | | $0 | | | $ | 5,176,894 | | | | | | | | | | V.M. Rometty | | Basic Account | | | $378,900 | | | | Match | | | | $378,900 | | | $ | 965,856 | | | | $0 | | | $ | 18,509,083 | | | | | | | | | | | Automatic | | | | 252,600 | | | | | | | | | | | | | | | | Deferred IBM Shares | | | 0 | | | | | | | | 0 | | | | (227,697 | ) | | | 0 | | | | 3,512,556 | | | | | Total | | | $378,900 | | | | | | | | $631,500 | | | $ | 738,159 | | | | $0 | | | $ | 22,021,639 | | | | | | | | | | J.J. Kavanaugh | | Basic Account | | | $179,800 | | | | Match | | | | $100,680 | | | $ | 808,744 | | | | $0 | | | $ | 5,466,727 | | | | | | | | | | | Automatic | | | | 33,560 | | | | | | | | | | | | | | | | Deferred IBM Shares | | | 0 | | | | | | | | 0 | | | | (1,216 | ) | | | 0 | | | | 18,756 | | | | | Total | | | $179,800 | | | | | | | | $134,240 | | | $ | 807,528 | | | | $0 | | | $ | 5,485,483 | | | | | | | | | | J.M. Whitehurst | | Basic Account | | | $469,546 | | | | Match | | | | $44,443 | | | $ | 98,862 | | | | $0 | | | $ | 621,739 | | | | | | | | | | | Automatic | | | | 8,889 | | | | | | | | | | | | | | | | Deferred IBM Shares | | | 0 | | | | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | | Total | | | $469,546 | | | | | | | | $53,332 | | | $ | 98,862 | | | | $0 | | | $ | 621,739 | | | | | | | | | | J.E. Kelly III | | Basic Account | | | $113,100 | | | | Match | | | | $77,172 | | | $ | 516,887 | | | | $0 | | | $ | 15,372,692 | | | | | | | | | | | Automatic | | | | 25,724 | | | | | | | | | | | | | | | | Deferred IBM Shares | | | 0 | | | | | | | | 0 | | | | (26,438 | ) | | | 0 | | | | 407,851 | | | | | Total | | | $113,100 | | | | | | | | $102,896 | | | $ | 490,449 | | | | $0 | | | $ | 15,780,543 | | | | | | | | | | M.H. Browdy | | Basic Account | | | $76,365 | | | | Match | | | | $76,365 | | | $ | 18,669 | | | | $0 | | | $ | 1,501,713 | | | | | | | | | | | Automatic | | | | 15,273 | | | | | | | | | | | | | | | | Deferred IBM Shares | | | 0 | | | | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | | Total | | | $76,365 | | | | | | | | $91,638 | | | $ | 18,669 | | | | $0 | | | $ | 1,501,713 | |
(1) | A portion of the amount reported in this column (b) for each named executive officer’s Basic Account, is included within the amount reported as salary for that officer in column (c) of the 2020 Summary Compensation Table. These amounts are: $64,055 for Mr. Krishna; $78,900 for Mrs. Rometty; $179,800 for Mr. Kavanaugh; $469,546 for Mr. Whitehurst; $113,100 for Dr. Kelly; and $27,250 for Ms. Browdy.
|
(2) | For each of the named executive officers, the entire amount reported in this column (c) is included within the amount reported in column (i) of the 2020 Summary Compensation Table. The amounts reported as IBM contributions to defined contribution plans in footnote 6 to the 2020 Summary Compensation Table are larger because the amounts reported in that footnote also include IBM’s contributions to the IBM 401(k) Plus Plan.
|
(3) | None of the amounts reported in this column (d) are reported in column (h) of the 2020 Summary Compensation Table because IBM does not pay above-market or preferential earnings on deferred compensation.
|
(4) | Amounts reported in this column (f) for each named executive officer include amounts previously reported in IBM’s Summary Compensation Table in previous years when earned if that officer’s compensation was required to be disclosed in a previous year. Amounts previously reported in such years include previously earned, but deferred, salary, and incentive and IBM matching and automatic contributions. This total reflects the cumulative value of each named executive officer’s deferrals, IBM contributions and investment experience, including an $8 quarterly administrative fee.
|
| | | 68 | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Nonqualified Deferred Compensation Narrative |
602024 Notice of Annual Meeting & Proxy Statement | 2023 Nonqualified Deferred Compensation Narrative
2023 Nonqualified Deferred Compensation Table | | | | | | | | Executive
Contributions | | | | | | Registrant
Contributions | | | Aggregate
Earnings in | | | Aggregate
Withdrawal/ | | | Aggregate
Balance at | | | | | | | | | | in Last FY | (1) | | | | | in Last FY | (2) | | Last FY | (3) | | Distributions | | | Last FYE | (4) | | | Name
(a) | | | Plan | | | ($)
(b) | | | | | | ($)
(c) | | | ($)
(d) | | | ($)
(e) | | | ($)
(f) | | | | A. Krishna | | | Basic Account | | | | $ | 279,000 | | | | Match | | | | $ | 279,000 | | | | | $ | 764,356 | | | | | $ | 0 | | | | | $ | 7,928,063 | | | | | | | | | | | | | | | | | Automatic | | | | | 93,000 | | | | | | | | | | | | | | | | | | | | | | | | | | Deferred IBM Shares | | | | | 0 | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | | | Total | | | | $ | 279,000 | | | | | | | | $ | 372,000 | | | | | $ | 764,356 | | | | | $ | 0 | | | | | $ | 7,928,063 | | | | | J.J. Kavanaugh | | | Basic Account | | | | $ | 45,481 | | | | Match | | | | $ | 45,481 | | | | | $ | 1,599,006 | | | | | $ | 0 | | | | | $ | 7,965,280 | | | | | | | | | | | | | | | | | Automatic | | | | | 48,475 | | | | | | | | | | | | | | | | | | | | | | | | | | Deferred IBM Shares | | | | | 0 | | | | | | | | | 0 | | | | | | 3,376 | | | | | | 0 | | | | | | 24,369 | | | | | | | | Total | | | | $ | 45,481 | | | | | | | | $ | 93,956 | | | | | $ | 1,602,382 | | | | | $ | 0 | | | | | $ | 7,989,649 | | | | | R.D. Thomas | | | Basic Account | | | | $ | 81,893 | | | | Match | | | | $ | 81,893 | | | | | $ | 165,799 | | | | | | | | | | | $ | 1,250,762 | | | | | | | | | | | | | | | | | Automatic | | | | | 41,300 | | | | | | | | | | | | | | | | | | | | | | | | | | Deferred IBM Shares | | | | | 0 | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | | | Total | | | | $ | 81,893 | | | | | | | | $ | 123,193 | | | | | $ | 165,799 | | | | | $ | 0 | | | | | $ | 1,250,762 | | | | | G. Cohn | | | Basic Account | | | | $ | 1,466,240 | | | | Match | | | | $ | 133,640 | | | | | $ | 436,883 | | | | | $ | 0 | | | | | $ | 3,085,784 | | | | | | | | | | | | | | | | | Automatic | | | | | 26,728 | | | | | | | | | | | | | | | | | | | | | | | | | | Deferred IBM Shares | | | | | 0 | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | | | Total | | | | $ | 1,466,240 | | | | | | | | $ | 160,368 | | | | | $ | 436,883 | | | | | $ | 0 | | | | | $ | 3,085,784 | | | | | M.H. Browdy | | | Basic Account | | | | $ | 103,612 | | | | Match | | | | $ | 103,612 | | | | | $ | 180,156 | | | | | $ | 0 | | | | | $ | 2,500,562 | | | | | | | | | | | | | | | | | Automatic | | | | | 20,722 | | | | | | | | | | | | | | | | | | | | | | | | | | Deferred IBM Shares | | | | | 0 | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | | | Total | | | | $ | 103,612 | | | | | | | | $ | 124,334 | | | | | $ | 180,156 | | | | | $ | 0 | | | | | $ | 2,500,562 | | |
(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 2023 Summary Compensation Table. These amounts are: $70,200 for Mr. Krishna; $45,480 for Mr. Kavanaugh; $39,885 for Mr. Thomas; $0 for Mr. Cohn; and $30,300 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 2023 Summary Compensation Table. The amounts reported as IBM contributions to defined contribution plans in footnote 8 to the 2023 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 2023 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. 2024 Notice of Annual Meeting & Proxy Statement | 2023 Nonqualified Deferred Compensation Narrative 61
2023 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. Upon signing an updated IBM offer of employment on December 13, 2019, Mr. Whitehurst waived his right to any severance payments or accelerated vesting of RSAs due to termination without cause, that was provided by his October 28, 2018 employment offer. The only payments or benefits that would be provided by IBM to a named executive officer following a termination of employment would be provided under the terms of IBM’s existing compensation and benefit programs (as described below). The 20202023 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 limitedIBM. In addition, performance pay paid to competitive business activity, disclosure of confidential IBM information or solicitation of IBM clients or employees).executive officers, including each named executive officer, are subject to repayment under IBM’s recovery policy. This 20202023 Potential Payments Upon Termination Narrative and the 20202023 Potential Payments Upon Termination Table do not reflect payments that would be provided to each named executive officer under (i) the Qualified Plan; (ii) the Nonqualified Plan; (iii) the IBM 401(k) Plus Plan orPlan; (iv) the IBM Individual Separation Allowance PlanPlan; or (v) with respect to retiree medical or life insurance benefits, 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 2020 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 2020 Pension Benefits Table.
The 2020 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 20202023 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 MarchApril 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,executives, 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 2020 Compensation Discussion and Analysis.clawback. •
For purposes of the 20202023 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 2021.April 2024. 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) or retention Performance Share Units (RPSUs).
|
—
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, PSUs and RPSUs 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 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.
|
—
Vested Stock Options continue to be exercisable for the remainder of their ten-year term; 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.
•
| | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Potential Payments Upon Termination Narrative | | 69 |
If an executive becomes disabled, outstanding stock options,Stock Options, RSUs and RRSUs would continue to vest under their original vesting schedules, and outstanding 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 for our named executive officers:
|
—
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: •
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; 622024 Notice of Annual Meeting & Proxy Statement | 2023 Potential Payments Upon Termination Narrative
•
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, 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.
|
—
The 2020Chairman 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 based on the final program score. 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 2023 Potential Payments Upon Termination Table assumes the following: | – | Amounts shown include the payout of the 2018 PSU awards calculated using the actual performance achieved for the 2018–2020 performance period and the 2020 fiscal year-end closing price of $125.88 for IBM common stock; and
|
| – | Outstanding 2019 and 2020 PSU awards were not included because there is no guarantee of payment on these awards as they are subject to meeting threshold performance criteria.
|
| – | Amounts shown include the value of 2017, 2018, and 2019 RSU awards, if the required retirement criteria is met, at the fiscal year-end closing price of $125.88 for IBM common stock because the one-year service requirement from grant has been completed; and
|
| – | Outstanding 2020 RSU awards are not included because the required service of at least one year since the award date of grant has not been completed.
|
—
Amounts shown include the payout of the 2021 PSU awards calculated using the actual performance achieved for the 2021-2023 performance period and the 2023 fiscal year-end closing price of $163.55 or IBM common stock; and —
Outstanding 2022 and 2023 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 2020, 2021 and 2022 RSU awards and 2022 Stock Options, if the required retirement criteria is met, at the fiscal year-end closing price of $163.55 for IBM common stock because the one-year service requirement from grant has been completed; and —
Outstanding 2023 RSU awards and Stock Options 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 release, exercise, 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. |
Cash Retention Award for Mr. Whitehurst
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. In connection with the acquisition of Red Hat, Inc., Mr. Whitehurst was granted a Cash Retention Award (“Retention Award”) which is payable over 3 years on the first, second and third anniversariesaddition, PSU payouts to executive officers are subject to clawback as described in Section 4 of the closing date of the acquisition, if established performance milestones are achieved for the applicable year.2023 Compensation Discussion and Analysis. If Mr. Whitehurst’s employment is terminated without cause, or due to death or disability, during the period in which the Retention Award is earned, he is eligible to receive the next installment payment that would be paid had he remained employed through the vesting date.
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 20202023 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 a six-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 20202023 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
|
| – | Amounts not paid during the delay would be paid (with interest) in July 2021.
|
—
The payment would be delayed six months following termination; and —
Amounts not paid during the delay would be paid (with interest) in July 2024. •
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 20202023 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 the 12-month period prior to the detrimental activity through the date of termination.
| | | 70 | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Potential Payments Upon Termination Narrative |
•
| participant engages in activity that is detrimental to IBM, the Excess 401(k) Plus Plan allows the clawback of such IBM contributions made during the 12-month period prior to the detrimental activity through the date of termination.
|
The 20202023 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. •
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
|
| – | Fluctuations in the market price of IBM stock for Deferred IBM Shares.
|
—
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 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 —
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.
2024 Notice of Annual Meeting & Proxy Statement | 2023 Potential Payments Upon Termination Narrative 63
2023 Potential Payments Upon Termination Table | | | | | | | | | | | | | | 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) | | | | $ | 3,510,000 | | | | | $ | 5,642,724 | | | | | $ | 30,709,784 | | | | | | N/A | | | | | $ | 7,928,063(7) | | | | | $ | 0 | | | | | | | | For Cause | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | N/A | | | | | | 7,556,063 (7) | | | | | | 0 | | | | | J.J. Kavanaugh | | | Termination(1) | | | | | 1,730,430 | | | | | | 3,693,418 | | | | | | 9,546,250 | | | | | $ | 10,503 | | | | | | 7,473,182 (8) | | | | | | 24,369(8) | | | | | | | | For Cause | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 7,379,226 (8) | | | | | | 24,369(8) | | | | | R.D. Thomas | | | Termination(1) | | | | | 1,552,500 | | | | | | 718,141 | | | | | | 3,512,563 | | | | | | N/A | | | | | | 1,250,762(9) | | | | | | 0 | | | | | | | | For Cause | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | N/A | | | | | | 1,127,569 (9) | | | | | | 0 | | | | | G. Cohn | | | Termination(1) | | | | | 1,848,600 | | | | | | 743,790 | | | | | | 2,608,950 | | | | | | N/A | | | | | | 308,578(10) | | | | | | 0 | | | | | | | | For Cause | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | N/A | | | | | | 148,210 (10) | | | | | | 0 | | | | | M.H. Browdy | | | Termination(1) | | | | | 1,516,800 | | | | | | 2,051,903 | | | | | | 5,455,701 | | | | | | N/A | | | | | | 2,500,562(11) | | | | | | 0 | | | | | | | | For Cause | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | N/A | | | | | | 2,376,228 (11) | | | | | | 0 | | |
(1)
Termination generally includes the following separation scenarios: resignation, retirement, and Life InsuranceGeneral Description
Benefits under IBM’s retiree medical and life insurance programs are triggered by ainvoluntary 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’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 dateofficer following termination 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 serviceemployment 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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| – | 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
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| 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. |
Mr. Krishna, Mrs. Rometty and Dr. Kelly would have been eligiblethe same as the actual payment made in April 2024.
(3)
While unvested 2022 Stock Options are included if required requirement criteria are met and assuming exercise at $163.55, unvested 2023 Stock Options are not included because the required service of at least one year since the award date of grant had not been completed. (4)
Assumes IBM released each named executive officer’s PSU award, granted in 2021 according to its policy, for this benefitthe three-year performance period ending December 31, 2023. 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 a separation from service on the last business dayend of the fiscalperformance period. While outstanding 2020, 2021 and 2022 RSU awards are included if required retirement criteria is met, 2023 RSU awards are not included because the required service of at least one year end. Mr. Kavanaugh wouldsince the award date of grant had not have 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 this benefit following a separation from service onmore 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, because he had not metand are based on their distribution elections under the eligibility requirement noted above.plan. See the IBM Excess 401(k) Plus Plan section above for more details. Access
(7)
The amount deferred prior to Group Health Care CoverageEligible employees may purchase retiree health care coverage under an IBM-sponsored retiree medical option.January 1, 2005 is payable in a lump sum in February 2024. 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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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 retireamount deferred on or after January 1, 2016 will2005 is payable in a lump sum immediately 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 2023 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 2024 ($516,466) and the amount of the Basic Account deferred on or after January 1, 2005 payable in a lump sum in February 2024 ($6,956,716). 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. See column (c) in 2023 Nonqualified Deferred Compensation Table. (9)
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 2023 Nonqualified Deferred Compensation Table. (10)
Payable in 10 annual installments starting in February 2024. 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 2023 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 2023 Nonqualified Deferred Compensation Table. Pay Ratio The ratio of the CEO’s annual total compensation to that of the median employee’s annual total compensation is 312:1. This ratio is based on annual total compensation of $20,398,426 for the CEO (as reported in the Summary Compensation Table) and $65,463 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; all foreign currencies were converted to U.S. dollars. 642024 Notice of Annual Meeting & Proxy Statement | 2023 Potential Payments Upon Termination Narrative
Pay Versus Performance Year
(a) | | | Summary
Compensation
Total for the
Principal
Executive
Officer
(“PEO”) | | | Compensation
Actually Paid
to the PEO | | | Summary
Compensation
Total for the
Principal
Executive
Officer
(“PEO”) | | | Compensation
Actually Paid
to the PEO | | | Average
Summary
Compensation
Table Total
for Non-PEO
Named
Executive
Officers
(“Non-PEO
NEOs”) | | | Average
Compensation
Actually Paid
to Non-PEO
NEOs | | | Value of Initial Fixed $100
Investment Based on: | | | | | | Total
Shareholder
Return | | | Peer Group
Total
Shareholder
Return | | | Net
Income
(in $M) | | | Revenue
(in $M) | | | | (b) | (1) | | (c) | (1)(7) | | (b) | (2) | | (c) | (2) (7) | | (d) | (3) | | (e) | (3) (7) | | (f) | | | (g) | (4) | | (h) | (5) | | (i) | (6) | | 2023 | | | | $ | 20,398,426 | | | | | $ | 32,769,352 | | | | | | N/A | | | | | | N/A | | | | | $ | 9,916,713 | | | | | $ | 14,444,039 | | | | | $ | 156 | | | | | $ | 167 | | | | | $ | 7,502 | | | | | $ | 61,860 | | | | 2022 | | | | | 16,580,075 | | | | | | 23,935,007 | | | | | | N/A | | | | | | N/A | | | | | | 8,318,193 | | | | | | 10,496,901 | | | | | | 128 | | | | | | 115 | | | | | | 1,639 | | | | | | 60,530 | | | | 2021 | | | | | 17,550,959 | | | | | | 23,798,901 | | | | | | N/A | | | | | | N/A | | | | | | 8,706,301 | | | | | | 9,116,435 | | | | | | 115 | | | | | | 179 | | | | | | 5,743 | | | | | | 57,350 | | | | 2020 | | | | | 17,009,682 | | | | | | 13,997,217 | | | | | $ | 21,062,593 | | | | | $ | 15,778,831 | | | | | | 12,913,982 | | | | | | 10,795,062 | | | | | | 99 | | | | | | 132 | | | | | | 5,590 | | | | | | 55,179 | | |
(1)
Mr. Krishna was the PEO for all four years in the table. For 2023, amounts deducted from the PEO’s Summary Compensation Table (“SCT”) total to calculate Compensation Actually Paid (“CAP”) to the PEO include ($14,823,369) for the date of grant fair value of stock awards and stock options, as well as ($23,183) for Change in Pension Value in 2023. Amounts added to (or subtracted from) the PEO’s SCT total for 2023 also include: $19,555,003 for the fair value of stock awards and stock options that were granted in 2023 and which remained outstanding at the end of 2023; $2,859,266 for the change in fair value of stock awards and stock options that were granted in prior years and which remained outstanding at the end of 2023; and $4,803,209 for the change in fair value of stock awards and stock options that were granted in prior years and vested in 2023. (2)
Ms. Rometty was the PEO from April 5, 2020 (when she became Executive Chairman) through her retirement from IBM on December 31, 2020. (3)
The Non-PEO NEOs were, for 2023, Mr. Kavanaugh, Mr. Thomas, Mr. Cohn, and Ms. Browdy; for 2021 and 2022, Mr. Kavanaugh, Mr. Cohn, Mr. Rosamilia and Ms. Browdy; and for 2020, Mr. Kavanaugh, Ms. Browdy, Mr. James Whitehurst, and Dr. John Kelly. Amounts subtracted from the average SCT totals for the Non-PEO NEOs (“Average Non-PEO SCT”) to calculate Average CAP to the Non-PEO NEOs (“Average Non-PEO CAP”) for 2023 include ($7,003,082) for the average value at the date of grant of stock awards and stock options granted in 2023 as well as ($4,609) for the average Change in Pension and Retention Plan Values in 2023. Amounts added to (or subtracted from) the Average Non-PEO SCT to calculate Average Non-PEO CAP for 2023 also include: $8,878,110 for the average fair value of stock awards and stock options that were granted in 2023 and which remained outstanding at the end of 2023; $1,670,606 for the average change in fair value of stock awards that were granted in prior years and which remained outstanding at the end of 2023; and $625,723 for the average change in fair value of stock awards that were granted in prior years and vested during 2023. (4)
Peer Group Total Shareholder return is calculated based on IBM’s Proxy Peer Group that was disclosed in the Compensation, Discussion & Analysis section of IBM’s Proxy Statement for each respective year shown in the table, weighted based on the Peer Group’s Market Capitalization as of December 31, 2019. Due to Broadcom’s acquisition of VMware in November 2023, Total Shareholder Return for VMware is as of November 2023. As disclosed in IBM’s 2022 Proxy Statement, the Company updated its Peer Group in 2022 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 2022 Peer Group with the size and scope of IBM following the separation of Kyndryl on November 3, 2021. If IBM used the 2021 Peer Group in 2022, the cumulative Total Shareholder Return from 12/31/2019 to 12/31/2022 would have been $129 (compared to $115 for the option2022 Peer Group) and if the 2021 Peer Group was used in 2023, the cumulative Total Shareholder Return from 12/31/2019 to purchase life insurance at preferred rates, paid solely at their expense. Arrangements12/31/2023 would have been $182 (compared to $167 for Dr. Kelly - Consulting Agreement
the 2023 Peer Group).For one year after Dr. Kelly’s retirement, he may be asked,
(5)
Net Income in 2021 and 2020 includes the Managed Infrastructure business, which separated from time to time,IBM on November 3, 2021 as Kyndryl. Net Income from Continuing Operations, which would have excluded the Managed Infrastructure business, would have been $4,712 million and $3,932 million for 2021 and 2020, respectively. Net Income in 2022 included a one-time, non-cash pension settlement charge of approximately $4.4 billion, net of tax. (6)
Revenue metric reflects Revenue from Continuing Operations to provide servicesfor consistent comparison before and after the separation of the Managed Infrastructure business as Kyndryl on November 3, 2021. (7)
The fair value of stock awards and stock options included in CAP to the CompanyPEO and Average Non-PEO CAP are calculated at the required measurement dates, consistent with the approach used to value the awards at the grant date as described in IBM’s Annual Report. Any changes to stock award fair values from the grant date (for current year grants) and from prior year-end (for prior year grants) are based on IBM’s stock price at the respective measurement dates (less the present value of foregone dividends), and the performance metric scoring projections (if applicable) at the respective measurement dates. Changes to stock option fair values are based on IBM’s stock price at the respective measurement dates, in addition to an independent contractor. The feeupdated expected option term, volatility of the company’s stock over the updated expected option term, expected dividend yield, and risk-free rate assumptions. For each of 2022 and 2023, the year-end stock option fair value increased meaningfully from the fair value on the grant date, primarily driven by an increase in IBM’s stock price, and, for such services would be $7,800 for each day he provides four or more hours of services and $3,900 per day for each day that he provides less than four hours of services.2022, an increase in the risk-free interest rate to approximately 4% at year-end from approximately 2% on the grant date. 2024 Notice of Annual Meeting & Proxy Statement | Pay Versus Performance 65
Relationship between Compensation Actually Paid disclosed in the Pay Versus Performance table, and other table elements Both CAP to Mr. Krishna and cumulative total shareholder return increased over the prior year in each of 2023, 2022 and 2021. As there were no changes to Mr. Krishna’s base salary, target annual incentive, or target equity grant planned value since Mr. Krishna became CEO in April 2020 through 2022, the increase in PEO CAP was largely the result of the increase in IBM’s stock price over that same time period. In addition to IBM’s stock price increase from 2022 to 2023, the PEO CAP increase in 2023 also resulted from the increase in Mr. Krishna’s 2023 target equity grant, which was in line with the median of the 2023 benchmark group. The average Non-PEO NEO CAP increase in each of 2022 and 2023 is also largely the result of IBM’s increased stock price in each of those years. The average non-PEO CAP decreased in 2021, primarily because of the change in Non-PEO NEOs compared to 2020. The increase in IBM’s stock price that largely contributed to the increased PEO CAP also drove the increase in IBM’s Total Shareholder Return (“TSR”) in 2023, 2022 and 2021. While the TSR increased over the four-year period, the average non-PEO NEO CAP decreased in 2021 for the reasons noted above. IBM’s Revenue from Continuing Operations increased in 2023, 2022 and 2021 and was directionally aligned with PEO CAP for the reported period. Net Income also increased in 2023 and 2021, directionally in line with the PEO CAP. Net Income in 2022, which included a one-time non-cash pension settlement charge of $4.4 billion (net of tax), decreased in 2022. Without this charge, 2022 Net Income would have increased from 2021 to 2022 as well. Tabular List of IBM’s most important metrics that link Compensation Actually Paid to the PEO and other NEOs We consider the list below to be IBM’s most important metrics that link CAP to our Named Executive Officers to IBM’s performance, as they are the key metrics that determine the payout of IBM’s Annual Incentive Program and Performance Stock Units. | | | Revenue | | | | | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Potential Payments Upon Termination Narrative | | 71 |
2020 POTENTIAL PAYMENTS UPON TERMINATION TABLE
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | LTPP | | | | | | Nonqualified Deferred Compensation Excess 401(k)(6) | | | | | Name | | Termination Scenario | |
| Annual Incentive
Program($) |
(2) | |
| Stock
Options($) |
(3) | |
| Stock
Awards($) |
(4) | |
| Retention
Plan($) |
(5) | |
| Basic
Account
($) |
| |
| Deferred IBM
Shares
($) |
| |
| Other
Retention
($) |
| A. Krishna | | Termination(1) | | | $2,181,000 | | | | $0 | | | $ | 1,996,960 | | | | N/A | | | $ | 5,176,894 | (7) | | | $ 0 | (7) | | | | | For Cause | | | | | 0 | | | | 0 | | | | 0 | | | | N/A | | | | 4,975,199 | (7) | | | 0 | (7) | | | | | V.M. Rometty | | Termination(1) | | | 4,250,000 | | | | 0 | | | | 10,754,810 | | | | 94,681 | | | | 1,850,908 | (8) | | | 351,256 | (8) | | | | | For Cause | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1,787,758 | (8) | | | 351,256 | (8) | | | | | J.J. Kavanaugh | | Termination(1) | | | 1,176,300 | | | | 0 | | | | 1,906,327 | | | | 0 | | | | 5,070,060 | (9) | | | 18,756 | (9) | | | | | For Cause | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 4,935,820 | (9) | | | 18,756 | (9) | | | | | J.M. Whitehurst | | Termination(1) | | | 1,041,250 | | | | 0 | | | | 0 | | | | N/A | | | | 62,174 | (8) | | | 0 | | | | 2,000,000 | (12) | For Cause | | | | | 0 | | | | 0 | | | | 0 | | | | N/A | | | | 56,841 | (8) | | | 0 | | | | 0 | (12) | J.E. Kelly III | | Termination(1) | | | 820,400 | | | | 0 | | | | 4,670,148 | | | | 583,528 | | | | 5,879,793 | (10) | | | 407,851 | (10) | | | | | For Cause | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 5,869,503 | (10) | | | 407,851 | (10) | | | | | M.H. Browdy | | Termination(1) | | | 1,109,520 | | | | 0 | | | | 1,379,771 | | | | N/A | | | | 1,501,713 | (11) | | | 0 | | | | | | For Cause | | | | | 0 | | | | 0 | | | | 0 | | | | N/A | | | | 1,410,075 | (11) | | | 0 | | | | | |
(1)Operating Cash Flow | 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).
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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 2021. For Mr. Whitehurst, the amount reported in column (g) of the 2020 Summary Compensation Table is larger than the amount in this column, because this column only includes Mr. Whitehurst’s AIP payment.
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(3) | Assumes each named executive officer exercised all vested, in-the-money options at $125.88 (the fiscal year-end closing price of IBM common stock on the NYSE).
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(4) | Assumes IBM released each named executive officer’s PSU award, granted in 2018 according to its policy, for the three-year performance period ending December 31, 2020. PSU awards are adjusted for performance and released in shares of IBM common stock (with any fractional shares rounded to the nearest whole share) in February in the year following the end of the performance period. While outstanding 2017, 2018 and 2019 RSU awards are included if required retirement criteria is met, 2020 RSU awards are not included because the required service of at least one year since the award date of grant has not been completed.
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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) | The amount deferred prior to January 1, 2005 is payable in a lump sum in February 2021. The amount deferred on or after January 1, 2005 is payable in a lump sum immediately following separation. Deferred shares are paid as shares of IBM stock. For Cause, the termination payment from the Basic Account is reduced to reflect forfeiture of Match and Automatic Contribution made during the last 12 months under plan terms. See column (c) in 2020 Nonqualified Deferred Compensation Table.
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(8) | Approximate annual amount payable for 10 years starting in February 2021. Deferred IBM Shares are paid as shares of IBM common stock. For Cause, the termination payment from the Basic Account is reduced to reflect forfeiture of Match and Automatic Contribution made during the last 12 months under plan terms. See column (c) in 2020 Nonqualified Deferred Compensation Table.
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(9) | Sum of the approximate annual amount of Basic Account deferred prior to January 1, 2005 payable for 2 years starting in February 2021 ($396,668) and the amount of the Basic Account deferred on or after January 1, 2005 payable in a lump sum in February 2021 ($4,673,392). Deferred shares are paid as shares of IBM common stock. For Cause, the termination payment from the Basic Account is reduced to reflect forfeiture of Match and Automatic Contribution made during the last 12 months under plan terms; the forfeiture causes a decrease in the payout of amounts that were deferred on or after January 1, 2005. See column (c) in 2020 Nonqualified Deferred Compensation Table.
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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 2021 ($4,825,026) and the approximate annual amount of the Basic Account deferred on or after January 1, 2005 payable for 10 years starting in February 2021 ($1,054,767). Deferred IBM Shares are paid as shares of IBM common stock. For Cause, the termination payment from the Basic Account is reduced to reflect forfeiture of Match and Automatic Contribution made during the last 12 months under plan terms; the forfeiture causes a decrease in the payout of amounts that were deferred on or after January 1, 2005. See column (c) in 2020 Nonqualified Deferred Compensation Table.
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(11) | Payable in a lump sum in February 2021. For Cause, the termination payment from the Basic Account is reduced to reflect forfeiture of Match and Automatic Contribution made during the last 12 months under plan terms. See column (c) in 2020 Nonqualified Deferred Compensation Table.
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(12) | If Mr. Whitehurst is terminated by IBM without cause, he is eligible to receive his next $2 million cash retention award that is scheduled to be paid after July 9, 2021 (2nd anniversary of the close of the Red Hat acquisition).
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| | | 72 | | 2021 Notice of Annual Meeting & Proxy Statement | 2020 Potential Payments Upon Termination NarrativeOperating EPS | | | | | | | | | Free Cash Flow | | | | | |
662024 Notice of Annual Meeting & Proxy Statement | Pay Versus Performance
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. | The Audit Committee has an established charter outlining the practices it follows. The charter is available on IBM’s website at http://www.ibm.com/investor/att/pdf/auditcomcharter.pdf.
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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.
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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 on Form 10-K for the fiscal year ended December 31, 2020, for filing with the Securities and Exchange Commission.
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M.L. Eskew
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 at http://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, 2023, for filing with the Securities and Exchange Commission. P.R. Voser(chair)
D.N. Farr
M.J. Howard
F.W. McNabb III
P.R. Voser
Set forth below are the fees for services provided to IBM by its independent registered public accounting firm, PricewaterhouseCoopers LLP (PwC) for the fiscal periods indicated. | | | | | | | | | (Dollars in millions) | | 2020 | | | 2019 | | | | | Audit Fees | | $ | 52.6 | | | $ | 54.7 | | | | | Audit Related Fees | | | 43.1 | | | | 30.8 | | | | | Tax Fees | | | 2.5 | | | | 2.1 | | | | | All Other Fees | | | 0.6 | | | | 0.4 | | | | | Total | | $ | 98.8 | | | $ | 88.0 | |
| | (Dollars in millions) | | | 2023 | | | 2022 | | | | Audit Fees | | | | $ | 49.9 | | | | | $ | 48.9 | | | | | Audit Related Fees | | | | | 22.5 | | | | | | 21.3 | | | | | Tax Fees | | | | | 0.9 | | | | | | 0.8 | | | | | All Other Fees | | | | | 0.8 | | | | | | 0.6 | | | | | Total | | | | $ | 74.1 | | | | | $ | 71.6 | | |
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 2020,2023 and 2022, these services included approximately $26$16 million, respectively, for independent assessments for service organization control reports and approximately $12 million associated with the spin-off of IBM’s managed infrastructure services business. For 2019, these services included approximately $22 million for independent assessments for service organization control reports.
Tax Fees: comprise fees for tax compliance, tax planning and tax advice. Corporate tax services encompass a variety of permissible services, including technical tax advice related to U.S. international tax matters; assistance with foreign income and withholding tax matters; assistance with sales tax, value-added tax and equivalent tax-related matters in local jurisdictions; preparation of reports to comply with local tax authority transfer pricing documentation requirements; and assistance with tax audits.
All Other Fees: comprise fees primarily in connection with technical accounting and other software licenses, training services, certain benchmarking work, and other permissible advisory services, including general information services.
| | | 2021 Notice of Annual Meeting & Proxy Statement | Report of the Audit Committee of the Board of Directors | | 73 |
2024 Notice of Annual Meeting & Proxy Statement | Report of the Audit Committee of the Board of Directors 67
2. Ratification of Appointment of Independent Registered Public Accounting Firm IBM’s Audit Committee is directly responsible for the appointment, compensation (including advance approval of audit and non-audit fees), retention and oversight of the independent registered public accounting firm that audits IBM’s consolidated financial statements and its internal controls over financial reporting. In accordance with its charter, the Audit Committee has selected the firm of PricewaterhouseCoopers LLP (PwC), an independent registered public accounting firm, to be IBM’s auditors for the year 2021.2024. 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 2020.2023. 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 (PCAOB); reports; •
Appropriateness of PwC’s fees for audit and non-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;
•
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; •
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.
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THE IBM BOARD OF DIRECTORS AND THE AUDIT COMMITTEE RECOMMEND A VOTE FOR THIS PROPOSAL. |
| | | 74 | | 2021 Notice of Annual Meeting & Proxy Statement | 2. Ratification of Appointment of Independent Registered Public Accounting Firm |
682024 Notice of Annual Meeting & Proxy Statement | Ratification of Appointment of Independent Registered Public Accounting Firm
3. Management Proposal on Advisory Vote on Executive Compensation (Say
(Say on Pay) IBM is asking that you APPROVE the compensation of the named executive officers as disclosed in this Proxy Statement.In a challenging 2020 environment,
IBM delivered $73.6B$61.9 billion in revenue and $10.8B in Free Cash Flow*, with over 100%$13.9 billion cash realization. Hybrid Cloud revenue grew to over $25 billion, representing 34% of total IBM revenue with growth of 20% year-to-yearfrom operations. Revenue increased for the third consecutive year, growing 3% at constant currency excluding divestitures*(1). Our continued shift to higher-valueThe Company’s portfolio mix reinforces our high value business model, with approximately 75% of revenue coming from our higher growth businesses of Software and improved services productivity delivered a 1 point increase in gross profit margins, and allowed the Company to reduce debt byConsulting. Overall, about $11.5B since the July 2019 peak.In October 2020, IBM announced to investors the planned spin-off50% of IBM’s managed infrastructure services business, which will immediately berevenue is recurring, with 67% of that recurring revenue coming from Software. The Company also returned $6 billion to stockholders through dividends, and ended the market leader at twice the size of its nearest competitor. The pending spin-off will enable IBM to focus on delivering sustainable revenue growth as a hybrid cloudyear with $13.5 billion in cash and AI Company.
marketable securities (up over $4.6 billion year-to-year). These results reflect the significant actions we have taken to strategically position IBM for high-value, sustainable growth in the years ahead.growth. In 2020,2023, we once again engaged in a robust program to gather investor feedback. IBM’s Chairman and CEO, Executive Chairman, and independent Lead Director, participated in this engagement along with members of IBM’s senior management in this engagement. The Companymanagement. IBM once again offered to engage with investors representing more than 50%57% of the shares that voted on Say on Pay at the 2020its 2023 Annual Meeting. Through our discussions with investors and our formal Say on Pay vote results, investors reaffirmed their support for the Company’s compensation policies and programs, which focus on long-term financial performance that drives stockholder value. 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 the Company’sIBM’s portfolio to accelerate our leadership in cloud, Artificial Intelligence (AI) blockchain, security, and other emerging areas that are positioning IBM for sustained growth going forward. In addition, the Company’s performance metrics for the 2021 Annual Incentive Program and the 2021-2023 Performance Share Unit program have been revamped to reinforce the strategic focus on sustainable revenue growth as a hybrid cloud and AI Company.
company. IBM’s named executive officers are identified in the 20202023 Summary Compensation Table, and pages 32-7232-66 describe the compensation of these officers. 65%In 2024, approximately 78% of target pay for the Chairman and CEO, and 63%75% of target pay for the other Named Executive Officers,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 20202023 performance, the Board approved an annual incentive payment of $2.181$3.51 million for Mr. Krishna, which was 85%117% of target and in line with the Company annual incentive score. ThisIn making this award, is based onthe Committee also considered Mr. Krishna’s overall performance against his objectives, which included strong free cash flow generation, sustainable revenue generation (at constant currency), and the continued optimization of the Company’s portfolio, with an increased mix of higher growth software and consulting revenue. In addition, the Committee considered Mr. Krishna’s personal leadership in transforming IBM’s portfolio for sustainable revenue growth as a hybrid cloudAI and AI Company in 2021 and beyond through the announced spin-off of the Company’s managed infrastructure services business; achieving record results in IBM’s diverse leadership representation; industry-leading innovation and research in quantum computing, and AI; and recorddriving IBM’s high performance culture, as well as continued best in class employee engagement in a challenging environment.engagement. 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)
Non-GAAP financial metric. See Appendix A for information on how we calculate this performance metric. * | 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 RECOMMENDS
A VOTE FOR THIS PROPOSAL. | |
Note:The Company is providing this advisory vote as required pursuant to Section 14A of the Securities Exchange Act (15 U.S.C. 78n-1). The stockholder vote will not be binding on the Company or the Board, and it will not be construed as overruling any decision by the Company or the Board or creating or implying any change to, or additional, fiduciary duties for the Company or the Board.
| | | 2021 Notice of Annual Meeting & Proxy Statement | 3. Management Proposal on Advisory Vote on Executive Compensation (Say on Pay) | | 75 |
2024 Notice of Annual Meeting & Proxy Statement | Advisory Vote on Executive Compensation (Say on Pay)69
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 twofive proposals for the reasons stated after each proposal.
4. Stockholder Proposal to Have an Independent Board ChairmanManagement has been advised that Kenneth Steiner, 14 Stoner Avenue, 2M, Great Neck, NY 11021, the owner of at least 500 shares of IBM stock, intends to submit the following proposal at the meeting:
Proposal 4 – Independent Board Chairman
Shareholders request that our Board of Directors adoptRequesting a policy, and amend our governing documents as necessary to require that the Chairman of the Board of Directors to be an independent member of the Board whenever possible including the next Chairman of the Board transition.
If the Board determines that a Chairman who was independent when selected is no longer independent, the Board shall select a new Chairman who satisfies the requirements of the policy within a reasonable amount of time. This policy is not intended to violate any employment contract but recognizes that the Board has broad power to renegotiate an employment contract.
This proposal topic won impressive 40%-support at the 2019 IBM annual meeting even though it was not a fair election. IBM management put is handPublic Report on the scale and spent shareholder money on advertisements to oppose this proposal topic. For a fair election shareholders would have had to take money from their own pockets to match the money IBM took from shareholders to advertise for the management position.
Support for proposals to appoint an independent Board chair received 17% higher support at U.S. companies in 2020. Since management performance setbacks often result in higher support for this proposal topic, the mere submission of this proposal may be an incentive for the Chairman of the Board to perform better leading up to the 2021 annual meeting.
It is also important to have an independent board chairman to help make up for the 2020 devaluation of shareholder meetings with the widespread use of online shareholder meetings using the pandemic as a steppingstone. Online meetings are so easy for management that management will never want to return to in-person shareholder meetings.
With tightly controlled online shareholder meetings everything is optional. For instance company status reporting is optional. Also answers to questions are optional even if management misleadingly asks for questions to be typed on a computer screen.
Goodyear management even hit the mute button right in the middle of a formal shareholder proposal presentation at its 2020 shareholder meeting to bar constructive criticism.
Plus AT&T management would not even allow the proponents of shareholder proposals to read their proposals by telephone at the 2020 AT&T online annual meeting during the pandemic.
Please see: AT&T investors denied a dial-in as annual meeting goes online
https://whbl.com/2020/04/17/att-investors-denied-a-dial-in-as-annual-meeting-goes-online/1007928/
Online shareholder meetings also give management a blank check to make false statements. For instance management at scores of 2020 online annual meetings falsely stated that there were no more shareholder questions. Shareholders were powerless to point out that their questions were not answered.
Please see: Scwartz-Ziv, Miriam, How Shifting from In-Person to Virtual Shareholder Meetings Affects Shareholders’ Voice (August 16, 2020)
Available at SSRN: https://ssrn.com/abstract=367998 or http://dx.doi.org/10.2139/ssrn.3674998
Please vote yes:
Independent Board Chairman- Proposal 4
Lobbying Activities | | | 76 | | 2021 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals |
| YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
| The Board’s flexibility to determine the appropriate Board leadership structure is essential.
One of the most important tasks undertaken by a board is to select the leadership of the board and the company. In order to execute this critical function most effectively and in the best interests of the stockholders, a board must maintain the flexibility to determine the appropriate leadership in light of the circumstances at a given time. Because one size does not fit all situations, your Board has altered its structure at various times in response to the particular circumstances at that time. For example, last year, your Board split the Chairman and CEO roles to ensure a seamless and successful leadership transition from Ginni Rometty, your prior CEO, to Arvind Krishna, your current CEO. This transition was the result of a world-class, multi-year succession process during which the Board considered several candidates, and the splitting of the Chairman and CEO roles was a crucial factor in the plan for a smooth succession.
The Directors and Corporate Governance Committee and the Board continuously evaluate the appropriate leadership structure for IBM. In connection with the retirement of Ginni Rometty, the Board determined that the optimal leadership structure was to once again combine the roles of CEO and Chairman. The Board’s review considered the strength of IBM’s independent Board and corporate governance practices and determined that the existing board leadership structure of having a management director serve as Chairman, alongside a robust and independent Lead Director, best serves the needs of the Company and the stockholders at this time. Among other factors, the Board considered and evaluated:
• the importance of consistent, unified leadership to execute and oversee the Company’s strategy;
• the strength of Mr. Krishna’s vision for the Company and the quality of his leadership;
• the strong and highly independent composition of the Board;
• the views and feedback heard from our investors through our ongoing engagement program throughout the years expressing support for IBM’s leadership structure; and
• the meaningful and robust responsibilities of the independent Lead Director, as discussed above.
The Board strongly believes that this current structure strikes the right balance of allowing our Chairman to promote a clear, unified vision for the Company’s strategy and to provide the leadership critical for effectively and efficiently implementing the actions needed to ensure strong performance over the long term, while ensuring robust, independent oversight by the Board and Lead Director.
The Company’s Lead Director role is robust and ensures effective independent oversight at all times. After a rigorous review by the Directors and Corporate Governance Committee and the Board, the Lead Director is elected by the independent members of the Board on an annual basis. The Lead Director has the following robust and meaningful responsibilities serving to ensure a strong, independent, and active Board by enhancing the contributions of IBM’s independent directors. In particular, the Lead Director:
• presides at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors, which are held at every meeting of the Board;
• serves as liaison between the Chairman and the independent directors;
• approves information sent to the Board;
• in collaboration with the Chairman, creates and approves meeting agendas for the Board;
• approves meeting schedules to assure that there is sufficient time for discussion of all agenda items;
• has authority to call meetings of the independent directors; and
• if requested by major stockholders, ensures that he or she is available, as necessary after discussions with the Chairman, for consultation and direct communication.
In addition to these core responsibilities, the Lead Director engages in other regular activities including:
• one-on-one debriefs with the Chairman after each meeting;
• spending time with senior management outside of Board meetings to ensure a deep understanding of the business and strategy of the Company; and
• attending certain other committee meetings in addition to the committee that he chairs.
IBM’s strong, independent Board and commitment to good corporate governance adds further support to the Board leadership structure.
Continued enhancement of the Lead Director position is just one example of IBM’s ongoing commitment to strong corporate governance. Independent directors comprise roughly 90% of the Board and 100% of the Audit, Directors and Corporate Governance, and Executive Compensation and Management Resources Committees. After each regularly scheduled Board meeting, both the full Board and the independent directors of the Board meet in executive session, with the independent directors’ session chaired by the Lead Director.
In contrast to the exemplary performance and quality of the IBM Board over the years, the proponent provides no evidence demonstrating that the proposal would result in enhanced oversight, let alone increased value for IBM stockholders. Additionally, this proposal has been rejected by a majority of shareholder votes each time it has been voted on by IBM stockholders, most recently last year. In light of this total lack of empirical support, IBM’s strong and independent Board, the Lead Director’s robust responsibilities and, most importantly, the support of our structure by our stockholders, this stockholder proposal is both inappropriate and unnecessary.
We believe that stockholders benefit when the Board can select the best candidates to run IBM at a given time. THEREFORE, THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
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| | | 2021 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals | | 77 |
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: meeting, which is co-sponsored by Reynders McVeigh Capital Management: Proposal 4 — Transparency in Lobbying Whereas, full disclosure of IBM’s lobbying activities and expenditures is needed to assess whether IBM’s lobbying is consistent with IBM’s expressed goals and stockholder interests. Resolved, IBM stockholders request the preparation of a report, updated annually, disclosing: 1.
Company policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications. 2.
Payments by IBM used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of the payment and the recipient. 3.
Description of management’s decision-making process and the Board’s oversight for making payments described above. For purposes of this proposal, a “grassroots lobbying communication” is a communication directed to the general public that (a) refers to specific legislation or regulation, (b) reflects a view on the legislation or regulation and (c) encourages the recipient of the communication to take action with respect to the legislation or regulation. “Indirect lobbying” is lobbying engaged in by a trade association or other organization of which IBM is a member. Both “direct and indirect lobbying” and “grassroots lobbying communications” include efforts at the local, state and federal levels. The report shall be presented to the Audit Committee and posted on IBM’s website. Supporting Statement IBM spent $67 million from 2010-2022 on federal lobbying. This does not include state lobbying, where IBM lobbied in at least 27 states in 2022 and spent over $935,000 on lobbying in California from 2010-2022. IBM also lobbies abroad, spending between €1,750,000-1,999,999 on lobbying in Europe for 2021. IBM deserves credit for refraining from making political contributions. But companies can give unlimited amounts to third party groups that spend millions on lobbying and undisclosed grassroots activity. These groups may be spending “at least double what’s publicly reported.”1 Unlike many of its peers, IBM fails to disclose its payments to trade associations and social welfare organizations, or the amounts used for lobbying, to stockholders. IBM belongs to the Business Roundtable and US Chamber Commerce, which together have spent over $2.2 billion on federal lobbying since 1998. IBM’s lack of disclosure presents reputational risk when its lobbying contradicts company public positions. For example, IBM believes in addressing climate change, yet the Business Roundtable lobbied against the Inflation Reduction Act2 and the Chamber reportedly has been a “central actor” in dissuading climate legislation over a two-decade period.3 IBM has attracted scrutiny for avoiding federal income taxes,4 as the Business Roundtable has lobbied against a new minimum corporate tax.5 – And while IBM does not belong to the controversial American Legislative Exchange Council, which is attacking “woke” investing,6 it is represented by its trade association, with the Chamber sitting on its Private Enterprise Advisory Council. Reputational damage stemming from these misalignments could harm stockholder value. Last year, this proposal exceeded 48% support at IBM. Thus, I urge IBM to expand its lobbying disclosure. 1
https://theintercept.com/2019/08/06/business-group-spending-on-lobbying-in-washington-is-at-least-double-whats-publicly-reported/. 2
https://www.theguardian.com/environment/2022/aug/19/top-us-business-lobby-group-climate-action-business-roundtable. 3
https://www.washingtonpost.com/politics/2023/08/02/climate-group-pushes-big-tech-exit-nations-largest-business-lobby/. 4
https://www.axios.com/2019/12/16/fortune-500-companies-corporate-income-tax. 5
https://www.washingtonpost.com/business/2023/08/14/biden-corporate-tax/. 6
https://www.wbur.org/hereandnow/2023/03/22/esg-investing-fossil-fuels. 702024 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals
| | | | | YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL. | | | | This proposal does not properly consider IBM’s well-known disclosures, policies and practices in this area, or the consistent independent third-party recognition of IBM as a leader in lobbying and political spending disclosure. Last year, IBM stockholders rejected an identical proposal. Accordingly, the Board recommends against this Proposal since it is unnecessary and therefore not in the best interests of the Company and its stockholders. | | | | Independent Third Parties Consistently Recognize IBM as a Leader in Lobbying and Political Spending Disclosure | | | | IBM consistently receives high ratings from independent analysts of corporate practices on lobbying and political spending, including the Center for Political Accountability and Transparency International UK. In fact, the Center for Political Accountability’s 2023 Report on Corporate Political Disclosure and Accountability gave IBM a score of 98.6 out of 100, naming IBM as one of only 20 companies that fully prohibit the use of corporate assets to influence elections and as one of only 38 companies that prohibit both trade associations and non-profits from using Company contributions for election-related purposes. | | | | IBM Already Provides the Disclosure Requested by This Proposal | | | | This proposal requests disclosure of IBM’s policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications. It also requests disclosure of IBM’s lobbying activities and expenditures, including payments made by IBM for lobbying activities. IBM already provides the disclosure requested on the Company’s public policy website (https://www.ibm.com/policy/philosophy-and-governance-new/). | | | | Based on stockholder feedback, IBM has further enhanced its disclosure by identifying those trade organizations that are directly engaged in U.S. lobbying through annual payments of $50,000 or higher. Moreover, on IBM’s public policy website the Company provides direct links to where it regularly 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 (including expenditures for “indirect lobbying” via trade associations, as required by law), as well as with the European Union Transparency Register detailing its lobbying activities and expenditures with European Union institutions. In addition to this, IBM files reports with state and municipal governments, where required. | | | | Finally, this proposal requests a description of management’s decision-making process and the Board’s oversight of lobbying activities and expenditures. The Company provides this information on IBM’s public policy website. IBM has established clear oversight over such activities and expenditures through numerous written corporate policies, instructions, and guidelines, all of which are available on IBM’s public policy website. | | | | To be clear, IBM’s public policy advocacy spans a range of issues relevant to our business, clients, stockholders, employees, communities and other stakeholders. We engage leaders worldwide to promote ideas that can help spur growth and innovation with new technologies, or address societal changes, such as building a skilled and diverse workforce. IBM has always been committed to meaningful management, oversight, and accurate reporting with respect to our public policy engagement, including with respect to trade associations, and we consistently seek to provide our stockholders with relevant data regarding our public policy engagement. | | | | IBM Does Not Make Political Contributions of Any Kind | | | | 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 political action committees, campaign funds, or trade or industry associations. | | | | IBM’s Lobbying Activities Support Growth and Innovation in the Digital Economy and Comply with All Applicable Laws | | | | All IBM lobbying activities, including by third parties on behalf of IBM, require the prior approval of the IBM Office of Government and Regulatory Affairs — a globally integrated function providing public policy and government relations expertise in support of IBM’s business operations worldwide — and must comply with applicable law and IBM’s Business Conduct Guidelines. IBM also complies fully with U.S. state and local lobbying disclosure laws, which vary by jurisdiction, but which do, in most cases, require lobbyists to register and disclose their lobbying activities. | | | | IBM Prohibits Trade Associations from Using IBM Funds to Engage in Political Expenditures | | | | IBM joins trade and industry associations that add value to IBM, its stockholders and employees. 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. On these occasions, IBM regularly shares its dissenting views within its trade associations and, when helpful to the policy debate, in public fora. 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. | |
2024 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals 71
| | The Board and Management Exercise Strong Oversight of Public Policy Efforts | | | | As part of the Board’s oversight function, the Company’s management periodically reports to its Board about IBM’s policies and practices in connection with governmental relations, public policy and related expenditures. IBM’s senior management, under the leadership of IBM Government and Regulatory Affairs, closely monitors and coordinates all public policy advocacy efforts, as well as lobbying activities. | | | | Conclusion | | | | For the reasons described above, the Board believes the adoption of this proposal is unnecessary and therefore not in the best interests of the Company and its stockholders. | | | | THEREFORE, THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL. | |
5. Stockholder Proposal Requesting a Public Report on Congruency in China Business Operations and ESG Activities Management has been advised that National Center for Public Policy Research, 2005 Massachusetts Ave. NW, Washington, DC 20036, the owner of at least 13 shares of IBM stock, intends to submit the following proposal at the meeting: Congruency Proposal Resolved: Shareholders request that the Board of Directors commission and publish a third-party review within the next year (at reasonable cost, omitting proprietary information) of whether the Company’s activities and expenditures related to doing business in China align with its ESG commitments, including its Human Rights Statement of Principles. The Board of Directors should report on how it addresses the risks presented by any misaligned activities and expenditures and the Company’s plans, if any, to mitigate these risks, such as detailing its plans to shift these activities and expenditures to less repressive and hostile regimes. Supporting Statement: IBM’s 2022 ESG report touts its environmental and ethical impacts.1 It advertises the Company’s goals of reducing pollution and reaching net-zero greenhouse gas emissions by 2030, as well as policies and practices that it says prioritize qualities such as ethics and accountability.2 The ESG report also highlights the Company’s commitment to human rights and its Human Rights Statement of Principles.3 But nothing about doing business in China, which is controlled by the dictatorial and oppressive Chinese Communist Party (CCP), does anything to further these ideals. China is the world’s largest emitter of greenhouse gases, emitting more greenhouse gases than the entire U.S. and the developed world combined.4 Exceeding more than 27 percent of the world’s total global emissions, China’s emissions have more than tripled over the last three decades.5 Furthermore, China has an abhorrent human rights record. Its abuses against the Uyghurs and other ethnic minorities in Xinjiang has sparked outrage, as evidence of forced labor programs, forced sterilizations, and torture at the hands of the CCP are undeniable.6 A report by the Office of the United Nations High Commissioner for Human Rights into Xinjiang concluded that “serious human rights violations” against the Uyghur and “other predominantly Muslim communities” have been committed by the country.7 U.S. Customs and Border Protection, the agency responsible for enforcing the U.S.’s Uyghur Forced Labor Prevention Act (UFLPA), has detained nearly $2 billion in goods under the UFLPA since June 2022.8 The largest amount of goods seized under the UFLPA comes from the electronics industry, with 2,529 shipments detained. Nearly half of all shipments detained (44 percent) have been denied.9 IBM nonetheless conducts significant business in China. According to reports, IBM facilitates the Chinese regime’s mass surveillance program.10 It also conducts business in China despite China leading the world in greenhouse gas emissions and committing genocide against ethnic minorities — actions counter to everything that IBM’s ESG report says the company stands for. Therefore, it is critical that the Board commission and publish a third-party review that includes experts who are fully aware of the dangers that China poses to the U.S. and its allies around the world, including its military-civil fusion strategy11 and environmental and human rights abuses, to ensure that IBM’s actions as a company live up to its words. 1
https://www.ibm.com/impact/files/reports-policies/2022/IBM_2022_ESG_Report_and_Addendum.pdf 2
Id. 3
https://www.ibm.com/ibm/responsibility/ibm_humanrightsprinciples.html 4
https://www.cnbc.com/2021/11/01/india-targets-2070-for-net-zero-emissions-china-makes-no-new-commitments.html; https://www.cnbc.com/2021/05/06/chinas-greenhouse-gas-emissions-exceed-us-developed-world-report.html; https://rhg.com/research/chinas-emissions-surpass-developed-countries/ 5
https://rhg.com/research/chinas-emissions-surpass-developed-countries/ 6
https://www.state.gov/forced-labor-in-chinas-xinjiang-region/; https://www.bbc.com/news/world-asia-china-59595952; https://www.state.gov/wp-content/uploads/2022/07/Forced-Labor-The-Hidden-Cost-of-Chinas-Belt-and-Road-Initiative.pdf 7
https://www.ohchr.org/sites/default/files/documents/countries/2022-08-31/22-08-31-final-assesment.pdf 8
https://www.cbp.gov/newsroom/stats/trade/uyghur-forced-labor-prevention-act-statistics 9
https://www.cbp.gov/newsroom/stats/trade/uyghur-forced-labor-prevention-act-statistics 10
https://www.top10vpn.com/research/huawei-china-surveillance-state/; https://theintercept.com/2019/07/11/china-surveillance-google-ibm-semptian/ 11
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| | | | | YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL. | | | | This Board believes adoption of this proposal is unnecessary and would not provide additional useful information to the Company’s stockholders. This proposal was overwhelmingly rejected by IBM stockholders in 2023 with more than 90% of stockholders voting AGAINST. | | | | IBM adheres to the law across all of the countries where we do business, including government controls on the export and use of certain technologies. Further, IBM complies with all laws related to human rights and forced labor, including the US Uyghur Forced Labor Prevention Act and similar rules proposed by the European Commission. | | | | Globally, IBM practices the highest level of social, environmental and ethical responsibility in our global supply chains and we expect the same level of due diligence from our suppliers. The company was a founding member of the Responsible Business Alliance (RBA), a nonprofit industry group that helps its members continuously develop and execute the highest level of ethical standards in global supply chains. | | | | IBM requires our first-tier suppliers of hardware, software, and services to adhere to the RBA Code of Conduct, which contains provisions on labor, health and safety, environmental requirements, ethics, and management systems. We apply the same requirement across IBM’s own operations. And our suppliers must establish goals, disclose results, cascade IBM’s requirements to their next-tier suppliers, and more. | | | | In addition to the above, IBM has robust processes in place to ensure that our technology is not used in ways that would conflict with our values, our commitment to uphold basic human rights and freedoms, and our long-standing focus on responsible stewardship of powerful innovations. These robust processes are underpinned by our longstanding values relating to ethics and responsible business practices as well as our Principles for Trust and Transparency and include: •
Annual employee certification to the IBM Business Conduct Guidelines; •
IBM’s AI Ethics Board, which supports a centralized governance, review, and decision-making process for IBM ethics policies, practices, communications, research, products and services; and •
Technology ethics training programs provided to IBM business partners. | | | | In conclusion, we see no conflict between IBM’s business activities in China, which accounts for only a small fraction of IBM’s total global revenue, and our commitments to corporate responsibility. | | | | Conclusion | | | | For the reasons described above, the Board believes the adoption of this proposal is unnecessary and not in the best interests of the Company and its stockholders. | | | | THEREFORE, THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL. | |
6. Stockholder Proposal Requesting a Right to Act by Written Consent Management has been advised that Kenneth Steiner, 14 Stoner Ave., Great Neck, NY 11021, the owner of at least 100 shares of IBM stock, intends to submit the following proposal at the meeting: Proposal 6 — Shareholder Right to Act by Written Consent Shareholders request that our board of directors undertake such steps as may be necessary to permit written consent by shareholders entitled to cast 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 includes shareholder ability to initiate any appropriate topic for written consent. Technically 25% of all IBM now requiresshares outstanding can call for a special shareholder meeting but unfortunately this translates into 40% of the shares that cast ballots at the annual meeting because many IBM shareholders do not vote. It would be hopeless to expect that the shares that do not have time to vote would have the time for the bureaucratic requirements to call for a special shareholder meeting – a higher level than the 10% of shares outstanding permitted by many states of incorporation. Dozens of Fortune 500 companies provide for both shareholder rights – to act by written consent and to call a special meeting.Our higher 40% 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 40% threshold has bureaucratic pitfalls that trigger minor shareholder errors that could mean that 60% of shares would need to ask for a special meeting in order to be sure of obtaining the threshold of 40% of requests without errors.
This proposal topic won 42% support-support at ourthe 2020 IBM annual meeting in spitemeeting. 2024 Notice of misleading management opposition to it. ThisAnnual Meeting & Proxy Statement | Stockholder Proposals 73
The 42%-support was not exactly a fair electionall the more impressive because it takes much more IBM shareholder conviction of the misleading IBM management statement nextmerits of a proposal to support a shareholder proposal, and thereby reject the 2020 proposal. IBM management said written consent could enable shareholdersBoard of Director’s position, than to initiate written consent without giving notice to all shareholders. Tosimply go along with the contrary writtenBoard’s position. Written consent can be adopted withalso have the safeguard that all shareholders are to be given notice.In 2020 IBM management said it preferred a special shareholder meeting to written consent. With the widespread use of online shareholder meetings in 2020 shareholders no longer have the right to discuss concerns with other shareholders and with the directors at a special shareholder meeting which can now be a stilted formalities online meeting.
Shareholders are also severely restricted in making their views known at an online special shareholder meeting because all their questions and comments can be arbitrarily screened out. For instance Goodyear management became a leader in this shareholder disenfranchisement by hitting the mute button right in the middle of a formal shareholder presentation at its 2020 online shareholder meeting.
Taking action by written consent in place of a meeting is a means shareholders can use to raise important matters outside the normal annual meeting cycle like the election of a new director.This For instance Mr. Andrew Liveris, who chaired the IBM governance committee, was rejected by 22% of shares in 2023 when a 5% rejection is importantoften the norm for well-performing directors. A shareholder right to consider after our Lead Director, Michael Eskew, receiveact by written consent could give IBM directors more of an incentive to improve their performance.
The IBM Board of course said it preferred a special shareholder meeting to written consent. With the highest negative voteswidespread use of any director in 2019online shareholder meetings the IBM Board could take control and 2020 – 92 million negative votes. With long-tenureallow only one shareholder to speak at an online special meeting. It is also appropriate that the corporate governance of 15-years Mr. Eskew can hardlyIBM be considered impendent. Shirley Jackson, who received the second highest negative votes in 2019 is no longer on the Board.improved with this proposal given that IBM stock has fallenbeen in decline for more than a decade from $210 sinceits $200 price in 2013. Please vote yes:
Shareholder Right to Act by Written Consent – — Proposal 56 | | | | 78 | | 2021 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals |
| YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL. | | | Your Board of Directors believes that action by written consent without prior notice to all stockholders is not in the best interest of stockholders and recommends a vote AGAINST this proposal. | | | | This proposal has been repeatedly rejected by IBM shareholders.stockholders, most recently in 2021. This year’s version of the proposal once again inaccurately describes the number of shares required to call a special meeting of the shareholdersstockholders of IBM. IBM’s corporate governance provisions call for a threshold of 25% of shareholdersstockholders to call a special meeting, not 40% of shares that cast ballots at the annual meeting. The Company’s by-laws plainly state that “Special meetings of the stockholders, unless otherwise provided by law, may be called at any time by the Chairman of the Board or by the Board, and shall be called by the Board upon written request delivered to the Secretary of the Corporation by the holder(s) with the power to vote and dispose of at least 25% of the outstanding shares of the Corporation” (emphasis(emphasis added). The Board recommends a vote against this proposal. | | | | IBM has long demonstrated its commitment to sound principles of corporate governance, working to ensure that its practices protect and further the interests of its stockholders. In addition to stockholders’ right to call a special meeting, IBM has: •
a proxy access by-law provision; •
annual election of directors by majority vote; •
the right to remove directors without cause; •
no supermajority provisions in our charter documents; •
annually-enhanced proxy disclosure that gives stockholders extensive insight into the Board’s oversight of management; and •
best-in-class, year-round engagement with our stockholders. | | | | IBM’s current practices also guarantee that notice and an opportunity to be heard precede stockholder votes, enabling meaningful discourse to occur before important decisions are made affecting your Company. In contrast, this proposal would enable the owners of a bare majority of shares to act by voting in favor of their own proposed action, without a meeting and without ever providing notice to other stockholders or IBM. The Board of Directors believes that the adoption of this proposal would not be in the best interests of its stockholders. | | | | Currently, any matter that IBM or its stockholders wishes to present for a stockholder vote must be noticed in advance and presented at a meeting of stockholders. This transparency and fairness allows all stockholders to consider, discuss, and vote on pending stockholder actions. In contrast, the written consent proposal at issue would permit a small group of stockholders (including those who accumulate a short-term voting position through the borrowing of shares) with no fiduciary duties to other stockholders to initiate action with no prior notice either to other stockholders or to the Company, thus preventing all stockholders from having an opportunity to deliberate in an open and transparent manner, and to consider arguments for and against any action, including IBM’s position. Permitting stockholder action by written consent could also lead to substantial confusion and disruption for stockholders, with potentially multiple, even conflicting, written consents being solicited by multiple stockholder groups. TheFor these reasons, the Board does not believe that such a written consent right is an appropriate corporate governance model for a widely-held public company like IBM. | |
742024 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals
| | In sum, the Board concludes that adoption of this proposal is unnecessary for the following reasons: •
IBM’s long demonstrated history of commitment to high standards of corporate governance and accountability; •
The belief that holding meetings with proper notice whereby all stockholders may deliberate and discuss the proposed actions, receive and consider the Company’s position, and then vote their shares is the most transparent and fair way for stockholders to take action; •
The safeguards around the ability to act by a special or annual meeting both promote and protect stockholders’ interests; and •
As described in this Proxy Statement, the Company has an established process by which stockholders may communicate directly with IBM’s Board or non-management directors throughout the year on any topics of interest to stockholders. | | | | Conclusion | | | | 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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6.7. Stockholder Proposal Requesting the Company Publish Annually a Public Report Assessing its Diversity, Equity and Inclusion Efforts
on Climate Lobbying
Management has been advised that Nia Impact Capital, 1212 Preservation Parkway, Suite 200, Oakland,James McRitchie, 9295 Yorkship Court, Elk Grove, CA 94612,95758, the owner of at least 11,50815 shares of IBM stock, intends to submit the following proposal at the meeting:Resolved:
Proposal 7 — Report Climate Lobbying Alignment Resolved: Shareholders request the Board of International Business Machines Corporation (“IBM” or “Company”) publish annually analyze and report to shareholders (at reasonable cost, omitting proprietary information) on whether and how IBM is aligning its lobbying and policy influence activities and positions, both direct and indirect (through trade associations, coalitions, alliances, and other organizations) with its target of net-zero emissions 2030, including the activities and positions analyzed, the criteria used to assess alignment, and involvement of stakeholders, if any, in the analytical process. In evaluating the degree of alignment between the Company’s emissions goals and its lobbying, IBM should consider not only its policy positions and those of organizations of which it is a report assessing IBM’s diversity, equitymember but also the actual lobbying activities, such as legislative comment submissions. The proponent believes this request is consistent with investor expectations described in the Global Standard on Responsible Climate Lobbying,1 a valuable resource for implementation. Supporting Statement: The United Nations Framework Convention on Climate Change asserts that greenhouse gas emissions must decline 45 percent from 2010 by 2030 to limit global warming to 1.5 degrees Celsius. If that goal is not met, even more rapid reductions, at greater cost, will be required to compensate for the slow start on the path to global net- zero emissions.2 IBM has publicly committed to achieving net-zero emissions by 2030, supports the Paris Agreement’s goals, and inclusionbelieves that all society sectors must participate in climate change solutions.3 However, IBM does not describe its direct and indirect federal or state lobbying efforts at reasonable expense and excluding proprietary information. The report should include:the Board’s process for addressing the effectiveness of its diversity, equity and inclusion programs, and
the Board’s assessment of program effectiveness, as reflectedto engage in any goals, metrics, and trends related to its promotion, recruitment and retention of protected classes of employees.
Whereas:
Investors seek quantitative, comparable data to understand the effectiveness of IBM’s diversity, equity and inclusion efforts.
Numerous studies have pointed to the corporate benefits of a diverse workforce. These include:
Companiesclimate-related policy issues. Corporate lobbying inconsistent with the strongest racialParis Agreement and ethnic diversity are 35% more likelycompanies’ net zero targets presents increasingly material risks to have financial returns abovecompanies and their industry medians.shareholders.
| • | | Companies in the top quartile for gender diversity are 21% more likely to outperform on profitability and 27% more likely to have superior value creation.1 |
| • | | The 20 most diverse S&P 500 companies had an average annual five-year stock return that was 5.8% higher than the 20 least-diverse companies.2 |
Yet, significant barriers exist
IBM has disclosed that it spent over $25 million since 2018 on federal lobbying. This does not include certain undisclosed state lobbying expenditures. IBM provides direct links on its public policy website to where it files quarterly lobbying activity and expenditure reports. Enhancing this by reporting how the company’s lobbying activities align with its net-zero targets would fill critical disclosure gaps for diverse employees advancing within their careers. Women entershareholders. Even with the workforce in almost equal numbers as men (48%). However, the only comprise 22%recent passage of the executive suite. Similarly, people of color comprise 33% of entry level workers, yet only 13% of the c-suite.3IBM’s 2019 Corporate Responsibility Report states, “IBM is an innovation company that solves the hardest problems in business and society. This work requires a highly skilled, truly diverse workforce and an inclusive culture that enables people from all backgrounds to thrive.” It also states, “We are committed to continuously and sustainably improving diversity within our global leadership team and at all levels in our organization.” In addition, IBM sells Emb(race) and “Be Equal” merchandise from its website, calling on customers to “proudly promote equality.”
However, IBM has not released meaningful information that allows investors to determine the effectiveness of its workplace diversity programs. Stakeholders may become concerned that IBM’s statements are corporate puffery, language described byInflation Reduction Act, critical gaps remain between the United States Federal Trade CommissionStates’ Nationally Determined Contributions and necessary climate action. Companies like IBM have an essential role in enabling policymakers to close these gaps, given the increasingly material risks they face with delays in emissions reductions.
Of particular concern are trade associations that say they speak for business but too often present forceful obstacles to addressing climate change. IBM is a member of trade associations, such as marketing exaggerations intendedthe Business Roundtable, engaging with largely negative climate policy positions. Although IBM states that it will share its dissenting views with trade associations in public when it helps the policy debate, stockholders have yet to “puff up” products and not able to be relied upon by consumers and investors.Investor desire for informationsee such disclosure on this issue is significant. Asclimate policy. Shareholders discount hypocritical companies.
Add Value: Vote For Proposal 7 1
https://climate-lobbying.com 2
https://unfccc.int/news/updated-ndc-synthesis-report-worrying-trends-confirmed 3
https://www.ibm.com/about/environment/energy-climate 2024 Notice of October 2020, $1.9 trillion in represented assets released an InvestorAnnual Meeting & Proxy Statement on the importance of increased corporate transparency on workplace equity data. It stated:It is essential that investors have access to the most up-to-date and accurate information related to its diverse workplace policies, practices and outcomes.4
1 | McKinsey & Company, “Delivering through Diversity”, January 2018
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| (https://www.mckinsey.com/~/media/mckinsey/business%20functions/organization/our%20insights/delivering%20through%20diversity/delivering-through-diversity_full-report.ashx)
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2 | Holger, Dieter, “The business case for more diversity” Wall Street Journal, October 26, 2019
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| (https://www.wsj.com/articles/the-business-case-for-more-diversity-11572091200)
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3 | McKinsey & Company, “Women in the Workplace 2018”, (https://womenintheworkplace.com)
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4 | https://www.asyousow.org/our-work/gender-workplace-equity-disclosure-statement
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| Stockholder Proposals 75
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| YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FORAGAINST THIS PROPOSAL. | | Your
| The Board of Directors has already adopted a policy that implements this proposal.At IBM, we have long held that in order to solve the hardest problems in businessreviewed and society, we require a highly skilled, truly diverse workforce and an inclusive culture that enables people from all backgrounds to thrive. In 1899, IBM’s predecessor hired its first women and black employees, and in 1935 we established “equal pay for equal work.” Less than 20 years later, IBM Chairman Thomas J. Watson wrote Policy Letter No. 4, history’s first corporate equal opportunity policy, more than a decade before the U.S. Civil Rights Act. We’ve expanded our nondiscrimination policy to include sexual orientation (1984), gender identity and expression (2002), and genetics (2005). IBM continues that legacy with programs and policies that set high standards and foster a culture of inclusion in which all IBMers can thrive at work because of who they are, not in spite of who they are. To that end, our Chairman and CEO, Arvind Krishna, wrote an open letter to Congress in 2020, highlighting IBM’s historic commitment to diversity and inclusion and committing to work with Congress in pursuit of justice and racial equity.
The Proposal requests a report, published annually, assessing IBM’s diversity, equity and inclusion efforts, including “the Board’s process for assessing the effectiveness of its diversity, equity and inclusion programs, and the Board’s assessment of program effectiveness, as reflected in any goals, metrics, and trends related to its promotion, recruitment and retention of protected classes of employees.”
IBM’s Board of Directors discussedconsidered this proposal and determined that it alignsis unnecessary given IBM’s history on environmental matters, current disclosures and policies.
| | | | IBM Has a Long History of Actively Addressing Environmental Matters | | | | For the past three decades, IBM has been actively addressing environmental concerns. When it comes to climate change, IBM has demonstrable leadership and results. In 1994, IBM began to voluntarily disclose carbon dioxide emissions associated with IBM’s goalsconsumption of energy and has done so every year since. In 2000, IBM established its first carbon dioxide emissions goal and is now working on its fifth successive goal, with factual achievement every step of the way. In 2001, IBM made its first purchase of renewable electricity and has continued ever since. In 2007, IBM published a diverseformal position on climate change calling for meaningful action on a global basis to stabilize the atmospheric concentration of greenhouse gases. In 2015, IBM stood by this statement when it supported the Paris Agreement and inclusive workforce which are regularly reviewed by the Board. Accordingly,reaffirmed its support in December your Board adopted the following policy:International Business Machines Corporation (“IBM”) shall publish annually a report assessing IBM’s diversity, equity and inclusion efforts, at reasonable expense and excluding proprietary information. The report shall include:
• The Board’s process for assessing the effectiveness of IBM’s diversity, equity and inclusion programs, and
• The Board’s assessment of program effectiveness, as reflected in any goals, metrics, and trends related to its promotion, recruitment and retention of protected classes of employees.
2017. In 2019, IBM has long been at the forefront inonce again demonstrated its commitment to diversitycombating climate change by becoming a Founding Member of the Climate Leadership Council and inclusion,supporting its bipartisan plan for a carbon tax with 100% of the net proceeds returned to citizens as a carbon dividend. Furthermore, IBM has been recognized with numerous awards for its climate leadership. Most recently, for example, IBM was named to Forbes Top 100 Net Zero Leaders 2023 and USA Today America’s Climate Leaders 2023. | | | | IBM Already Publicly Discloses its Climate Policy and Positions | | | | IBM’s public policy advocacy spans a range of issues relevant to our business, clients, stockholders, employees, communities and other stakeholders. We engage policymakers and leaders globally to promote ideas that can help spur growth and innovation with new technologies or address societal challenges, such as building a skilled and diverse workforce. We do this by developing innovative policy ideas that are aligned with national agendas, through building trusted relationships with government leaders, and through partnerships with academia and civil society. With regards to environmental matters, IBM is committed to addressing climate change through the company’s energy conservation and climate protection programs. IBM’s climate change policy and positions are already publicly available at our website and in our annual Impact Report: (https://www.ibm.com/about/environment/energy-climate). | | | | As an example of our public disclosure of our climate change policy and positions, IBM publicly endorsed the plan outlined by the Climate Leadership Council that would put a tax on carbon dioxide emissions, with the proceeds of that tax — a “carbon dividend” — to be returned to citizens. We did this because we are convinced this represents the most realistic and appropriate opportunity to get a majority of people to agree on a public policy towards carbon emissions that is mindful of both the environment and the economy. This plan would put in place strong economic incentives for energy companies to reduce carbon emissions and for energy consumers to reduce their own energy consumption. More information on this topic is available at our website (https://www.ibm.com/policy/climate-change/). | | | | IBM Already Provides Robust Disclosure on its Lobbying Activities and it is Recognized for its Transparency by Independent Third Parties | | | | IBM already discloses robust information with regards to its lobbying activities. In fact, IBM consistently receives high ratings from independent analysts of corporate practices on lobbying and political spending, including the Center for Political Accountability and Transparency International UK. In its latest report, the Center for Political Accountability’s 2023 Report on Corporate Political Disclosure and Accountability gave IBM a score of 98.6 out of 100, naming IBM as one of only 20 companies that fully intendprohibit the use of corporate assets to remaininfluence elections and as one of only 38 companies that prohibit both trade associations and non-profits from using Company contributions for election-related purposes. | | | | The additional, prescriptive annual report requested by the proponent focused on a single issue is unnecessary given the extent of IBM’s existing lobbying disclosures: (https://www.ibm.com/policy/philosophy-and-governance-new/). For example, IBM’s disclosures already identify those trade organizations that IBM is a member of and are directly engaged in that role. U.S. lobbying through annual payments of $50,000 or higher. Moreover, the website also provides direct links to where IBM regularly files periodic reports with the Secretary of the U.S. Senate and the Clerk of the U.S. House of Representatives. These reports detail IBM’s U.S. federal lobbying activities (including environmental) and expenditures (including expenditures for “indirect lobbying” via trade associations, as required by law). The reports further display the European Union Transparency Register, which details IBM’s lobbying activities and expenditures with European Union institutions. Furthermore, IBM files reports with state and municipal governments where required. | | | | Conclusion | | | | For the reasons described above, the Board believes the adoption of this proposal is unnecessary and therefore not in the best interests of the Company and its stockholders. | | | | THEREFORE, THE BOARD RECOMMENDS A VOTE FORAGAINST THIS PROPOSAL. | |
762024 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals
8. Stockholder Proposal Requesting the Adoption of Greenhouse Gas Emissions Targets Management has been advised that Green Century Capital Management, Inc., on behalf of the Green Century Equity Fund, 114 State St. Suite 200, Boston, Massachusetts 02109, the owner of at least 150 shares of IBM stock, intends to submit the following proposal at the meeting: Target to Reduce Full Operational and Value Chain Greenhouse Gas Emissions Whereas: Climate change is creating systemic risks to the economy, and immediate, sharp emissions reduction is required of all market sectors and industries.1 Publicly traded corporations both contribute emissions that augment climate change and are subject to multiple risks created by climate change. Lack of comprehensive efforts to curtail emissions threatens investor value, particularly for diversified holders, for whom climate change poses an undiversifiable and unhedgeable risk.2 In response to this systemic risk, more than 6,000 companies, representing a broad range of industries, have set or committed to set science-based greenhouse gas reduction targets covering their Scopes 1-3 emissions aligned with a 1.5 degrees Celsius scenario with the Science Based Targets initiative (SBTi). SBTi provides third-party validation of corporate targets. IBM has declined to set comparably comprehensive targets or seek third-party validation for its existing targets, raising concerns about the credibility of its commitments. Rather, it has adopted a 2030 net zero target narrowly focused on its operational emissions and a single category of Scope 3 emissions. Of the emissions IBM discloses for 2022, its target covers only half of its carbon footprint. Meanwhile, Company peers Accenture, Microsoft, Hewlett Packard Enterprise, Salesforce, and SAP have set or committed to set near-term science-based 1.5 degree Celsius-aligned targets with SBTi inclusive of their full Scopes 1-3 emissions. Additionally, Accenture, Hewlett Packard Enterprise, and Microsoft, have committed to set ambitious long-term 1.5 degree Celsius-aligned net-zero by 2050 targets, vetted by SBTi. IBM’s opposition to setting an emissions reduction target verified by a third party creates business and reputational risks. For example, the Company markets and sells end-to-end sustainability solutions including cloud-based software, Envizi ESG Suite, which helps customers calculate and report Scope 3 emissions, and it notes in a Wall Street Journal ad that, “Companies need tools that can help them do detailed carbon accounting…”3 However, in its recent CDP climate report, IBM chooses not to disclose a number of Scope 3 emissions categories indicating that there is no reliable data for reporting the emissions, controverting its stated capabilities of providing detailed carbon accounting. Further, IBM describes Envizi as valuable for customers reporting greenhouse gas emissions data to CDP, or who have committed to the SBTi. Regrettably, IBM disparages SBTi in its 2022 CDP climate report as “a self-appointed arbiter for judging a company’s goals,” undermining the value of its own services. Resolved: Shareholders request that IBM adopt independently verified short-, medium- and long-term science-based greenhouse gas emissions reduction targets, inclusive of emissions from its full value chain, in order to achieve net zero emissions by 2050 in line with the Paris Agreement’s goal of limiting global temperature rise to 1.5 degrees Celsius. | | | | | YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL. | | 2021 Notice | This proposal is unnecessarily prescriptive and does not properly consider IBM’s well-known disclosures, policies and practices in this area. Accordingly, the Board recommends AGAINST this proposal since it is unnecessary and not in the best interest of Annual Meeting & Proxy Statement | Stockholder Proposalsthe Company and its stockholders. | | | | 81IBM Has a Long History of Actively Addressing Environmental Matters | | | | For the past three decades, IBM has been actively addressing environmental concerns. When it comes to climate change, IBM has demonstrable leadership and results. In 1994, IBM began to voluntarily disclose carbon dioxide emissions associated with IBM’s consumption of energy and has done so every year since. In 2000, IBM established its first carbon dioxide emissions goal and is now working on its fifth successive goal, with factual achievement every step of the way. In 2001, IBM made its first purchase of renewable electricity and has continued ever since. In 2007, IBM published a formal position on climate change calling for meaningful action on a global basis to stabilize the atmospheric concentration of greenhouse gases. In 2015, IBM stood by this statement when it supported the Paris Agreement and reaffirmed its support in 2017. In 2019, IBM once again demonstrated its | |
1
https://report.ipcc.ch/ar6wg3/pdf/IPCC_AR6_WGIII_FinalDraft_FullReport.pdf 2
https://www.unepfi.org/fileadmin/documents/universal_ownership_full.pdf. Pg4. 3
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| | commitment to combating climate change by becoming a Founding Member of the Climate Leadership Council and supporting its bipartisan plan for a carbon tax with 100% of the net proceeds returned to citizens as a carbon dividend. Furthermore, IBM has been recognized with numerous awards for its climate leadership. Most recently, for example, IBM was named to Forbes Top 100 Net Zero Leaders 2023 and USA Today America’s Climate Leaders 2023. | | | | IBM’s Climate Change Goals Are Transparent, Authentic and Factually Based on Science | | | | Since its first carbon dioxide emissions reduction goal in 2000, IBM’s climate goals have always been transparent, authentic, and, most importantly, based on science. Currently, IBM has 11 voluntary goals pertaining to climate change, including goals for greenhouse gas (GHG) emissions reduction and net zero. These goals are aligned with the scientific recommendations of the United Nations Intergovernmental Panel on Climate Change (IPCC). We establish near-term targets to promote action and accountability and to promote our long-term objectives. | | | | We believe that demonstrable and factual results are what matter most and, for this reason, we avoid opaque representations of achievement. For example, one of IBM’s goals is to reduce the company’s operational GHG emissions by 65% by 2025 against base year 2010, adjusted for acquisitions and divestitures. As reported in our 2022 Impact Report, as of year-end 2022, IBM had already achieved a 63.3% reduction. This achievement was, and will continue to be, evaluated by an independent third party that reviewed GHG emissions and associated data from the activities under IBM’s operational control. It is also worth noting that the 63.3% reduction exceeds the annual rate of reduction recommended by the United Nations IPCC, which in its “Special Report: 1.5 C°” indicated that anthropogenic carbon dioxide emissions must decrease 45% between 2010 and 2030 to limit Earth’s warming to 1.5 degrees Celsius above pre-industrial levels. This translates to an annual rate of reduction of 2.25%, while IBM’s goal achieves a rate of reduction of 4.3% per year. Further, we do not include the purchase of nature-based carbon offsets to comprise any emissions reduction. | | | | IBM’s Climate Change Goals Already Include Our Value Chain | | | | Scope 3 GHG emissions are the direct emissions of numerous other entities with whom a company interacts. These entities include, for example, all suppliers around the world across all tiers (from the origin of a raw material to a finished product to its disposition), all of a company’s customers, and all of a company’s employees as those employees commute to a workplace. These entities are collectively referred to as a company’s “value chain.” Under a voluntary accounting standard named the Greenhouse Gas Protocol, the direct emissions of all the entities described above are also allocated and assigned to the company in question as that company’s indirect, estimated Scope 3 emissions. As such, these estimated emissions are typically counted multiple times. | | | | Determining Scope 3 emissions in a factual manner across a company’s value chain can be extremely challenging due to a lack of access to primary source data across multiple entities. That is why the majority are estimates of considerable uncertainty. Nevertheless, estimates can help inform where emissions occur in a macro sense across a broad market economy. For this reason, IBM reports in Scope 3 categories where it has relevant data to make estimates, and we offer software and solutions to help interested clients as well. | | | | IBM believes real reductions of emissions are directly and demonstrably achieved when the organization generating the emission takes action to do so. That is why we are committed to achieve net-zero operational GHG emissions by 2030 that includes our Scope 1 and Scope 2 emissions, as well as Scope 3 emissions associated with IBM’s electricity consumption (which we control) at co-location data centers. IBM does not, however, include in its operational goals estimates of its global suppliers’ and global clients’ emissions (Scope 3) that it does not control. Rather than commit to purchase carbon offsets or credits every year to offset these emissions, IBM believes it is much more impactful to invest in emerging solutions for climate change like the IBM Research Division’s work to accelerate the discovery of new materials for carbon removal; IBM’s Environment Intelligence Suite software for the complex modeling of potential climate impacts; IBM’s Envizi software for energy and greenhouse gas emissions management; and IBM’s philanthropic Sustainability Accelerator program. | | | | At the same time, we remain closely engaged with our suppliers and clients. Since 2010, IBM has required all of its first-tier suppliers to implement an environmental management system, measure and set goals to reduce their GHG emissions, and publicly disclose their results. Building upon these requirements, in April 2021, IBM enhanced its supplier engagement by establishing a new goal requiring key suppliers in emissions-intensive business sectors to set a goal to reduce their Scope 1 and Scope 2 emissions that is aligned with scientific recommendations from the IPCC to limit Earth’s warming to 1.5°C above pre-industrial levels. We also convene an annual Sustainability Leadership Symposium with our suppliers, during which they share innovations and best practices. In addition, we continue to design products and solutions with the environment in mind, as we have done since 1991. For example, IBM servers such as the z16 have been exemplars of energy efficiency, yet we sustain a goal to continually reduce the power consumption per unit of work delivered by our future servers from one generation to the next. We further invest in research and develop solutions with demonstrable environmental benefits to help our clients transform their operations for environmental sustainability. | | | | Conclusion | | | | There is no one size fits all approach for addressing climate change. For the reasons described above, the Board believes the adoption of this prescriptive proposal is unnecessary and therefore not in the best interests of the Company and its stockholders. | | | | THEREFORE, THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL. | |
782024 Notice of Annual Meeting & Proxy Statement | Stockholder Proposals
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”)(record owner) is a stockholder whose ownership of IBM common 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. | | I want to attend the 2021 Annual Meeting. What procedures must I follow? |
2.
I want to attend the 2024 Annual Meeting. What procedures must I follow? The Annual Meeting will be conducted virtually. All stockholders will be able to attend the Annual Meeting via webcast by entering the 16-digit control number included on the Notice of Internet Availability of Proxy Materials, on your proxy card, or on the instructions that accompanied your proxy materials at www.virtualshareholdermeeting.com/IBM2021 (“AnnualIBM2024 (Annual Meeting Website”)Website). If you do not have a control number, you will be able to register as a guest; however, you will not be able to vote 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? |
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? |
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 Rulesrules of Conductconduct will provide information on regarding the rules and procedures for participating in the Annual Meeting.5. | | What is the “record date” for the Annual Meeting? |
February 26, 2021.
6. | | Which IBM shares will be entitled to vote at the Annual Meeting? |
5.
What is the “record date” for the Annual Meeting? March 1, 2024. 6.
Which IBM shares will be entitled to vote at the Annual Meeting? IBM’s common stock ($0.20 par value capital stock) is the only class of security entitled to vote at the Annual Meeting. Each 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? |
7.
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? |
8.
May I vote my shares in person at the Annual Meeting? Yes. However, we encourage you to vote by proxy card, the Internet or by telephone even if you plan to attend the meeting. To vote during the Annual Meeting, log into the Annual Meeting Website with your 16-digit control number (found on your Notice of Internet Availability of Proxy Materials, your proxy card, or your instructions that accompanied your proxy materials).9. | | Can I vote my shares without attending the Annual Meeting? |
9.
Can I vote my shares without attending the Annual Meeting? Yes. Whether or not you attend the meeting, we encourage you to vote your shares promptly.
For record owners: Your shares cannot be voted unless a signed proxy card is returned, shares are voted using the Internet or the telephone, or other specific arrangements are made to have your shares represented at the meeting. You are encouraged to specify your choices by checking the appropriate boxes on the proxy card. Shares will be voted following your written instructions. However, it is not necessary to check any boxes if you wish to vote in accordance with the Board of Directors’ recommendations; in that case, merely sign, date, and return the proxy card in the enclosed envelope, or if you received noticeNotice of Internet availabilityAvailability of proxy materials,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 11:59 p.m. EDTET on April 25, 2021,28, 2024, 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 11:59 p.m. EDTET on April 25, 2021,28, 2024, 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: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 | | | 82 | | 2021 Notice of Annual Meeting & Proxy Statement | Frequently Asked Questions |
intermediary, following the specific instructions that have been provided to you by your bank, broker or other intermediary. 10. | | May I change or revoke my proxy? |
2024 Notice of Annual Meeting & Proxy Statement | Frequently Asked Questions 79
10.
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? |
11.
How can I contact IBM’s transfer agent? Contact our transfer agent either by writing Computershare Trust Company, N.A., P.O. Box 505005, Louisville, KY 40233-5005,43078, Providence, RI 02940-3078, or by telephoning 888-IBM-6700 (outside the United States, Canada, and Puerto Rico 781-575-2727).12. | | Other than the items in the proxy statement, what other items of business will be addressed at the Annual Meeting? |
12.
Other than the items in the proxy statement, what other items of business will be addressed at the Annual Meeting? Management knows of no other matters that may be properly presented at the meeting. If other proper matters are introduced at the meeting, the individuals named as proxies on the proxy card are also authorized to vote upon those matters utilizing their own discretion.13. | | During the question period at the Annual Meeting, what topics will be discussed? |
13.
During the question period at the Annual Meeting, what topics will be discussed? This part of the meeting is for stockholders to ask questions to the Chairman about Company matters. It is not the appropriate forum to raise personal grievances.14. | | How can I ask questions during the Annual Meeting? |
14.
How can I ask questions during the Annual Meeting? Stockholders of record may submit questions either before (by going towww.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: 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? |
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? |
16.
I understand that a “quorum” of stockholders is required in order for IBM to transact business at the Annual Meeting. What constitutes a quorum? A majority of all “outstanding” shares of common stock having voting power, in person or represented by proxy and entitled to vote, constitutes a quorum for the transaction of business at the meeting. 17. | | How many shares of IBM stock are “outstanding”? |
17.
How many shares of IBM stock are “outstanding”? As of February 10, 2021,9, 2024, there were 893,594,090916,744,848 shares of common stock outstanding and entitled to be voted.18. | | What is the voting requirement for electing IBM’s directors? |
18.
What is the voting requirement for electing IBM’s directors? To be elected in an uncontested election, each director must receive a majority of the votes cast. In a contested election, a nominee receiving a plurality of the votes cast at such election shall be elected.19. | | What is “broker discretionary voting”? |
19.
What is “broker discretionary voting”? This refers to the NYSE rule allowing brokers to vote their customers’ shares on certain “routine” matters in the Proxy Statement at the brokers’ discretion when they have not received timely voting instructions from their customers. The NYSE rules on broker discretionary voting prohibit banks, brokers, and other intermediaries from voting uninstructed shares on certain matters, including the election of directors. Therefore, if you hold your stock in street name and you do not instruct your bank, broker or other intermediary how to vote in the election of directors, no votes will be cast on your behalf. It is important that you cast your vote.20. | | Are abstentions and broker non-votes counted as votes cast? |
20.
Are abstentions and broker non-votes counted as votes cast? No. Under the laws of New York State, IBM’s state of incorporation, “votes cast” at a meeting of stockholders by the holders of shares entitled to vote are determinative of the outcome of the matter subject to vote. Abstentions and broker non-votes will not be considered “votes cast” based on current New York State law requirements and IBM’s certificate of incorporation and by-laws.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? |
21.
Assuming there is a proper quorum of shares represented at the Annual Meeting, how many shares are required to approve the proposals being voted upon in this proxy statement? The table below reflects the vote required in accordance with the laws of New York State: | | Proposal | | | Vote
Required | | | | | | | | | 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 | |
* | Advisory and non-binding
|
22. | | Where can I find the voting results of the Annual Meeting? |
*
Advisory and non-binding 22.
Where can I find the voting results of the Annual Meeting? IBM intends to publish the final voting results on its website and will disclose the final voting results on a Form 8-K shortly after the Annual Meeting.23. | | Will my votes be confidential? |
23.
Will my votes be confidential? Yes. All stockholder meeting proxies, ballots, and tabulations that identify individual stockholders are kept confidential and
| | | 2021 Notice of Annual Meeting & Proxy Statement | Frequently Asked Questions | | 83 |
are not available for examination. In addition, the identity or the vote of any stockholder is not disclosed except as required by law. 24. | | I received my proxy materials in hard copy. How may I arrange to receive them electronically? |
802024 Notice of Annual Meeting & Proxy Statement | Frequently Asked Questions
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 2022 proxy material? |
25.
How do I submit a proposal for inclusion in IBM’s 2025 proxy materials? Stockholder proposals may be submitted for IBM’s 20222025 proxy materialmaterials after the 20212024 Annual Meeting and must be received at our corporate headquarters no later than November 8, 2021.11, 2024. 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 2022 Annual Meeting? |
26.
How do I submit an item of business for the 2025 Annual Meeting? Stockholders who intend to present an item of business at the 20222025 Annual Meeting of Stockholders (other than a proposal submitted for inclusion in IBM’s Proxy Statement), including nominations for election to the Board of Directors pursuant to the Company’s proxy access by-law provision, must provide notice of such business to IBM’s Secretary no earlier than October 9, 202112, 2024 and no later than November 8, 2021,11, 2024, as set forth more fully in, and in compliance with, IBM’s by-laws.27. | | I did not receive a copy of the Annual Report. How can I get one? |
In addition, to comply with universal proxy rules, stockholders who intend to solicit proxies in support of director nominees other than the Company’s nominees must also provide the additional information required by Rule 14a-19 under the Securities Exchange Act of 1934 by no later than March 1, 2025. 27.
I did not receive a copy of the Annual Report. How can I get one? Stockholders of record who did not receive an IBM Annual Report or who previously elected not to receive one for a specific account may request that IBM mail its Annual Report to that account by writing to our transfer agent, Computershare Trust Company, N.A. (address and phone number in Question 11 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.28. | | 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? |
29.
If I am a holder in street name, how may I obtain a separate set of proxy materials? If you hold shares in street name, your bank, broker or other intermediary may be delivering only one copy of our Proxy Statement and the IBM Annual Report to multiple stockholders of the same household who share the same address, and may continue to do so, unless your bank, broker or other intermediary has received contrary instructions from one or more of the affected stockholders in the household. If you are such a beneficial holder, contact your bank, broker or other intermediary directly in order to receive a separate set of our proxy materials.30. | | Members of our household own IBM shares through a number of different brokerage firms. Will we continue to receive multiple sets of materials? |
30.
Members of our household own IBM shares through a number of different brokerage firms. Will we continue to receive multiple sets of materials? Yes. If you and others sharing a single address hold IBM shares through multiple brokers, you will continue to receive at least one set of proxy materials from each broker.31. | | I received a notice of internet availability of proxy materials. What does this mean? |
31.
I received a Notice of Internet Availability of Proxy Materials. What does this mean? Consistent with common practice and in accordance with SEC rules, IBM is distributing proxy materials to some stockholders over the Internet by sending a Notice of Internet Availability of Proxy Materials that explains how to access our proxy materials and vote online. If you received a notice and would like a printed copy of the proxy materials (including the Annual Report, Proxy Statement and a proxy card in the case of record owners, or a voting instruction form in the case of stockholders holding shares in street name), please follow the instructions included in your notice.32. | | I previously consented to receive electronic delivery of my proxy materials. Can you send me a hard copy of these proxy materials? |
32.
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 11 above).
For holders in street name: You must contact your bank, broker or other intermediary to receive copies of these materials.33. | | Who is making this proxy solicitation and approximately how much will these solicitation activities cost? |
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 Innisfree M&A Incorporated, to assist in soliciting proxies for a fee of approximately $50,000, plus reasonable out-of-pocket expenses.
Frank Sedlarcik
Vice President and Secretary
March 8, 2021
11, 2024 | | | 84 | | 2021 Notice of Annual Meeting & Proxy Statement | Frequently Asked Questions |
2024 Notice of Annual Meeting & Proxy Statement | Frequently Asked Questions 81
Appendix A –— Non-GAAP Financial Information and Reconciliations The rationale for management’s use of non-GAAP information in the Compensation Discussion and Analysis and Proxy Statement is as follows: Operating (non-GAAP) Earnings Per Share and Related Income Statement Items In an effort to provide better transparency into the operational results of the business, supplementally, the Companycompany separates business results into operating and non-operating categories. Operating earnings from continuing operations (“operating net income”) is a non-GAAP measure that excludes the effects of certain acquisition-related charges, intangible asset amortization, expense resulting from basis differences on equity method investments, retirement-related costs, discontinued operations and certain managed infrastructure services spin-off chargesimpacts from the Kyndryl separation and their related tax impacts. Management characterizes direct and incremental charges incurred to accomplish the managed infrastructure services spin-off as non-operating given their unique and non-recurring nature. These charges primarily relate to transaction and third party support costs, business separation and applicable employee retention fees, pension settlement charges and related tax charges. All other spending for the managed infrastructure services business operations is included in both earnings from continuing operations and in operating (non-GAAP) earnings. Due to the unique, non-recurring nature of the enactment of the U.S. Tax Cuts and Jobs Act (U.S. tax reform), the Companycompany characterizes the one-time provisional charge recorded in the fourth quarter of 2017 and adjustments to that charge as non-operating. Adjustments primarily include true-ups, accounting elections and any changes to regulations, laws, and audit adjustments etc. that affect the recorded one-time charge. Management characterizes direct and incremental charges incurred related to the Kyndryl separation as non-operating given their unique and non-recurring nature. In 2022, these charges primarily related to any net gains or losses on the Kyndryl common stock and the related cash-settled swap with a third-party financial institution, which were recorded in other (income) and expense in the Consolidated Income Statement. As of November 2, 2022, the company no longer held an ownership interest in Kyndryl. For acquisitions, operating (non-GAAP) earnings exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable retention, restructuring and related expenses, tax charges related to acquisition integration and pre-closing charges, such as financing costs. These charges are excluded as they may be inconsistent in amount and timing from period to period and are significantly impacted by the size, type and frequency of the Company’scompany’s acquisitions. Given its unique and temporary nature, management has also characterized as non-operating expense, the mark-to-market impact on the foreign exchange call option contracts to economically hedge the foreign currency exposure related to the purchase price of the company’s announced acquisition of StreamSets and webMethods from Software AG. The mark-to-market impact is recorded in other (income) and expense in the Consolidated Income Statement and reflects the fair value changes in the derivative contracts. All other spending for acquired companies is included in both earnings from continuing operations and in operating (non-GAAP) earnings. For retirement-related costs, the Companycompany characterizes certain items as operating and others as non-operating, consistent with GAAP. The Companycompany includes 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 including the one-time, non-cash, pre-tax settlement charge of $5.9 billion ($4.4 billion net of tax) in the third quarter of 2022 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 Companycompany considers these costs to be outside of the operational performance of the business. Overall, the Companycompany 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’scompany’s pension plans; improves visibility to management decisions and their impacts on operational performance; enables better comparison to peer companies; and allows the Companycompany to provide a long-term strategic view of the business going forward. In addition, these non-GAAP measures provide a perspective consistent with areas of interest the company routinely receives from investors and analysts. The Company’scompany’s reportable segment financial results reflect pre-tax operating earnings from continuing operations, consistent with the Company’scompany’s management and measurement system. In addition, these non-GAAP measures provide a perspective consistent with areas of interest the Company routinely receives from investors and analysts. Free Cash Flow/Operating Cash Flow The Companycompany uses free cash flow as a measure to evaluate its operating results, plan share repurchaseshareholder return levels and strategic investments and assess its ability and need to incur and service debt. The entire free cash flow amount is not necessarily available for discretionary expenditures. The Companycompany 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 Globalour Financing receivables are the basis for that growth. Accordingly, management considers Global Financing receivables as a profit-generating investment, not as working capital that should be minimized for efficiency. Therefore, management includes presentations ofpresents both free cash flow and net cash from operating activities that exclude 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 Companycompany refers to growth rates at constant currency or adjusts such growth rates for currency, it is done so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of its business performance. Financial results adjusted for currency are calculated by translating current
| | | 2021 Notice of Annual Meeting & Proxy Statement | Appendix A – Non-GAAP Financial Information and Reconciliations | | 85 |
period activity in local currency using the comparable prior year period’s currency conversion rate. This approach is used for 822024 Notice of Annual Meeting & Proxy Statement | Appendix A — Non-GAAP Financial Information and Reconciliations
countries where the functional currency is the local currency. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates.Revenue adjusted for divested businesses and constant currency
To provide better transparency on the recurring performance of the ongoing business, the Company provides total revenue, growth rates excluding divested businesses and at constant currency. These divested businesses are included in the Company’s Other segment.
Revenue for Red Hat, normalized for historical comparability
On July 9, 2019, the Company completed the acquisition of Red Hat, Inc. (Red Hat) and began including Red Hat’s financial results in the Company’s consolidated results. As part of the accounting for this acquisition, the Company recorded certain adjustments, including a purchase accounting deferred revenue fair value adjustment and intercompany eliminations, each of which impact IBM’s post-acquisition revenue. To help investors better understand the underlying performance of Red Hat, management presents a non-GAAP growth rate of Red Hat’s revenue performance year to year, normalized for historical comparability. The normalized (non-GAAP) growth rate of Red Hat’s revenue includes adjustments to reverse the purchase accounting deferred revenue fair value adjustment and adjustments to add back revenue which was eliminated for post-acquisition sales between Red Hat and IBM, and adjustments to reverse the Red Hat standalone pre-acquisition revenue for January 1 – July 8, 2019. The deferred revenue adjustment represents revenue that would have been recognized by Red Hat under GAAP if the acquisition had not occurred, but was not recognized by IBM due to purchase accounting. The sales between Red Hat and IBM, which were eliminated post-acquisition, are added back in this presentation to provide a comparative view of Red Hat on a pre-acquisition basis. This information is included to provide additional transparency and for comparative purposes only.
Non-GAAP Operating Margin for Red Hat
Upon close of the Red Hat acquisition, IBM adopted Red Hat’s Annual Cash Bonus Plan for Red Hat’s fiscal year 2020 (i.e, March 1, 2019 to February 29, 2020). The plan uses non-GAAP operating margin as a financial performance metric, adjusting GAAP operating margin for the impact of expenses related to share-based payment arrangements and amortization of intangible assets. Management uses this metrics as a component of internal reporting to evaluate performance of the Red Hat business and therefore believes it demonstrates how efficiently management runs the business and controls costs. As mentioned above, amortization expense related to intangible assets result primarily from business combinations which cannot be changed or influenced by management after the acquisitions. Share-based compensation expense is a non-cash expense, which may vary significantly from period to period as a result of changes which management believes is not directly or immediately related to the particular period’s operational performance. Management also believes that non-GAAP measures of profitability that exclude these expense are used by a number of financial analysts in the software industry to compare current performance to prior periods and to forecast future performance.
Return on Invested Capital (ROIC)The Company presents a computation
For the 2021-2023 performance period, ROIC equals consolidated net operating profits after tax (consolidated GAAP net income plus after-tax interest expense) excluding the settlement charge resulting from the U.S. pension risk transfer, divided by the sum of ROICthe average debt and average total stockholders’ equity over the period, excluding current period U.S. tax reform charges and goodwill associated with the Red Hat acquisition.acquisition in years 2021 and 2022. In September 2022, IBM transferred $16 billion of its defined benefit pension obligations and related plan assets to two insurers. A non-cash settlement charge of $4.4 billion net of tax related to this transfer was excluded given its unique and non-recurring nature. 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 presentsutilizes a computation of ROIC excluding goodwill associated with the Red Hat acquisition. The goodwill that was generated is primarily attributable to the assembled workforce of Red Hat and the increased synergies expected to be achieved over time from the integration of Red Hat products into the Company’s various integrated solutions. | | | 86 | | 2021 Notice of Annual Meeting & Proxy Statement | Appendix A – Non-GAAP Financial Information and Reconciliations |
Key performance metrics are used to monitor the performance of the business and are viewed as useful decision-making information for management and stockholders, including: Annual Recurring Revenue (ARR) GAAP Reconciliation
ARR is a key performance metric management uses to assess the health and growth trajectory of the Hybrid Platform & Solutions business 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 such as SaaS and PaaS (3) maintenance and support contracts, and (4) security managed services contracts. ARR should be viewed independently of revenue as this performance metric and its inputs may not represent the amount of revenue recognized in the period and therefore is not intended to represent current period revenue or revenue that will be recognized in future periods. The tables below provide reconciliations of the Company’s income statement results as reported under GAAP to its operating earnings presentation, which is a non-GAAP measure. | | | | | | | | | | | | | | | | | | | | | | | | | ($ in millions except per share amount) For the year ended December 31, 2020 | | | GAAP | | |
| Acquisition-
Related
Adjustments |
| |
| Retirement-
Related
Adjustments |
| |
| Tax
Reform Impacts |
| |
| Spin-off-
Related
Charges |
** | |
| Operating
(Non-GAAP) |
| Gross Profit | | | $35,575 | | | | $732 | | | | $— | | | | $— | | | | $1 | | | | $36,308 | | Gross Profit Margin | | | 48.3 | % | | | 1.0 | Pts | | | — | Pts | | | — | Pts | | | 0.0 | Pts | | | 49.3 | % | S,G&A | | | $23,082 | | | | $(1,137) | | | | — | | | | — | | | | (28) | | | | $21,917 | | R,D&E | | | 6,333 | | | | — | | | | — | | | | — | | | | — | | | | 6,333 | | Other (Income) & Expense | | | 861 | | | | (2) | | | | (1,123) | | | | — | | | | — | | | | (265) | | Interest Expense | | | 1,288 | | | | — | | | | — | | | | — | | | | — | | | | 1,288 | | Total Expense & Other (Income) | | | 30,937 | | | | (1,139) | | | | (1,123) | | | | — | | | | (28) | | | | 28,648 | | Pre-tax Income from Continuing Operations | | | 4,637 | | | | 1,871 | | | | 1,123 | | | | — | | | | 28 | | | | 7,660 | | Pre-tax Income Margin from Continuing Operations | | | 6.3 | % | | | 2.5 | Pts | | | 1.5 | Pts | | | — | Pts | | | 0.0 | Pts | | | 10.4 | % | Provision for Income Taxes* | | | $(864) | | | | $418 | | | | $215 | | | | $110 | | | | 7 | | | | $(114) | | Effective Tax Rate | | | (18.6) | % | | | 10.0 | Pts | | | 5.5 | Pts | | | 1.4 | Pts | | | 0.2 | Pts | | | (1.5) | % | Income from Continuing Operations | | | $5,501 | | | | $1,454 | | | | $908 | | | | $(110) | | | | 21 | | | | $7,774 | | Income Margin from Continuing Operations | | | 7.5 | % | | | 2.0 | Pts | | | 1.2 | Pts | | | (0.1) | Pts | | | 0.0 | Pts | | | 10.6 | % | Diluted Earnings Per Share: Continuing Operations | | | $6.13 | | | | $1.63 | | | | $1.01 | | | | $(0.12) | | | | 0.02 | | | | $8.67 | |
* | The tax impact on operating (non-GAAP) pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income which employs an annual effective tax rate method to the results.
|
** | Managed infrastructure services spin-off charges primarily relate to transaction and third-party support costs, business separation and applicable employee retention fees, pension settlements and related tax charges.
|
| | | | | | | | | | | | | | | | | | | | | | | | | ($ in millions except per share amount) For the year ended December 31, 2019 | | | GAAP | | |
| Acquisition-
Related
Adjustments |
| |
| Retirement-
Related
Adjustments |
| |
| Tax
Reform Impacts |
| |
| Spin-off-
Related
Charges |
** | |
| Operating
(Non-GAAP) |
| Gross Profit | | | $36,488 | | | | $547 | | | | $— | | | | $— | | | | $— | | | | $37,035 | | Gross Profit Margin | | | 47.3 | % | | | 0.7 | Pts | | | — | Pts | | | — | Pts | | | — | Pts | | | 48.0 | % | S,G&A | | | $20,604 | | | | $(1,044) | | | | $— | | | | $— | | | | $— | | | | $19,560 | | R,D&E | | | 5,989 | | | | (53) | | | | — | | | | — | | | | — | | | | 5,936 | | Other (Income) & Expense | | | (968) | | | | 152 | | | | (615) | | | | — | | | | — | | | | (1,431) | | Interest Expense | | | 1,344 | | | | (228) | | | | — | | | | — | | | | — | | | | 1,116 | | Total Expense & Other (Income) | | | 26,322 | | | | (1,173) | | | | (615) | | | | — | | | | — | | | | 24,533 | | Pre-tax Income from Continuing Operations | | | 10,166 | | | | 1,721 | | | | 615 | | | | — | | | | — | | | | 12,503 | | Pre-tax Income Margin from Continuing Operations | | | 13.2 | % | | | 2.2 | Pts | | | 0.8 | Pts | | | — | Pts | | | — | Pts | | | 16.2 | % | Provision for Income Taxes* | | | 731 | | | | 378 | | | | 103 | | | | (146) | | | | — | | | | 1,067 | | Effective Tax Rate | | | 7.2 | % | | | 2.0 | Pts | | | 0.5 | Pts | | | (1.2) | Pts | | | — | Pts | | | 8.5 | % | Income from Continuing Operations | | | 9,435 | | | | 1,343 | | | | 512 | | | | 146 | | | | — | | | | 11,436 | | Income Margin from Continuing Operations | | | 12.2 | % | | | 1.7 | Pts | | | 0.7 | Pts | | | 0.2 | Pts | | | — | Pts | | | 14.8 | % | Diluted Earnings Per Share: Continuing Operations | | | $10.57 | | | | $1.50 | | | | $0.58 | | | | $0.16 | | | | $— | | | | $12.81 | |
* | The tax impact on operating (non-GAAP) pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income which employs an annual effective tax rate method to the results.
|
** | Managed infrastructure services spin-off charges primarily relate to transaction and third-party support costs, business separation and applicable employee retention fees, pension settlements and related tax charges.
|
| | ($ in millions except per share amount)
For the year ended December 31, 2023 | | | GAAP | | | Acquisition-
Related
Adjustments | | | Retirement-
Related
Adjustments | | | Tax
Reform
Impacts | | | Kyndryl
Related
Impacts | | | Operating
(Non-GAAP) | | | | Gross Profit | | | | $ | 34,300 | | | | | $ | 631 | | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | 34,931 | | | | | Gross Profit Margin | | | | | 55.4% | | | | | | 1.0Pts | | | | | | —Pts | | | | | | —Pts | | | | | | —Pts | | | | | | 56.5% | | | | | S,G&A | | | | $ | 19,003 | | | | | $ | (1,039) | | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | 17,964 | | | | | Other (Income) & Expense* | | | | | (914) | | | | | | 10 | | | | | | 39 | | | | | | — | | | | | | — | | | | | | (866) | | | | | Total Expense & Other (Income) | | | | | 25,610 | | | | | | (1,029) | | | | | | 39 | | | | | | — | | | | | | — | | | | | | 24,620 | | | | | Pre-tax Income from Continuing Operations | | | | | 8,690 | | | | | | 1,660 | | | | | | (39) | | | | | | — | | | | | | — | | | | | | 10,311 | | | | | Pre-tax Income Margin from Continuing Operations | | | | | 14.0% | | | | | | 2.7Pts | | | | | | (0.1)Pts | | | | | | —Pts | | | | | | —Pts | | | | | | 16.7% | | | | | Provision for/(benefit from) Income Taxes** | | | | $ | 1,176 | | | | | $ | 368 | | | | | $ | (8) | | | | | $ | (95) | | | | | $ | — | | | | | $ | 1,441 | | | | | Effective Tax Rate | | | | | 13.5% | | | | | | 1.4Pts | | | | | | 0.0Pts | | | | | | (0.9)Pts | | | | | | —Pts | | | | | | 14.0% | | | | | Income from Continuing Operations | | | | $ | 7,514 | | | | | $ | 1,292 | | | | | $ | (30) | | | | | $ | 95 | | | | | $ | — | | | | | $ | 8,870 | | | | | Income Margin from Continuing Operations | | | | | 12.1% | | | | | | 2.1Pts | | | | | | 0.0Pts | | | | | | 0.2Pts | | | | | | —Pts | | | | | | 14.3% | | | | | Diluted Earnings Per Share: Continuing Operations | | | | $ | 8.15 | | | | | $ | 1.40 | | | | | $ | (0.03) | | | | | $ | 0.10 | | | | | $ | — | | | | | $ | 9.62 | | |
*
Acquisition-Related Adjustments includes a gain of $12 million on foreign exchange call option contracts related to the company’s planned acquisition of StreamSets and webMethods from Software AG. | | | 2021 Notice of Annual Meeting & Proxy Statement | Appendix A – Non-GAAP Financial Information and Reconciliations | | 87 |
**
The tax impact on operating (non-GAAP) pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income which employs an annual effective tax rate method to the results. | | | | | | | | | | | | | | | | | | | | | | | | | ($ in millions except per share amount) For the year ended December 31, 2018 | | | GAAP | | |
| Acquisition-
Related
Adjustments |
| |
| Retirement-
Related
Adjustments |
| |
| Tax
Reform Impacts |
| |
| Spin-off-
Related
Charges |
** | |
| Operating
(Non-GAAP) |
| Gross Profit | | | $36,936 | | | | $372 | | | | $— | | | | $— | | | | $— | | | | $37,307 | | Gross Profit Margin | | | 46.4 | % | | | 0.5 | Pts | | | — | Pts | | | — | Pts | | | — | Pts | | | 46.9 | % | S,G&A | | | $19,366 | | | | $(451) | | | | $— | | | | $— | | | | $— | | | | $18,915 | | R,D&E | | | 5,379 | | | | — | | | | — | | | | — | | | | — | | | | 5,379 | | Other (Income) & Expense | | | 1,152 | | | | (2) | | | | (1,572) | | | | — | | | | — | | | | (422) | | Interest Expense | | | 723 | | | | — | | | | — | | | | — | | | | — | | | | 723 | | Total Expense & Other (Income) | | | 25,594 | | | | (453) | | | | (1,572) | | | | — | | | | — | | | | 23,569 | | Pre-tax Income from Continuing Operations | | | 11,342 | | | | 824 | | | | 1,572 | | | | — | | | | — | | | | 13,739 | | Pre-tax Income Margin from Continuing Operations | | | 14.3 | % | | | 1.0 | Pts | | | 2.0 | Pts | | | — | Pts | | | — | Pts | | | 17.3 | % | Provision for Income Taxes* | | | $2,619 | | | | $176 | | | | $324 | | | | $(2,037) | | | | — | | | | $1,082 | | Effective Tax Rate | | | 23.1 | % | | | (0.1) | Pts | | | (0.3) | Pts | | | (14.8) | Pts | | | — | Pts | | | 7.9 | % | Income from Continuing Operations | | | $8,723 | | | | $649 | | | | $1,248 | | | | $2,037 | | | | — | | | | $12,657 | | Income Margin from Continuing Operations | | | 11.0 | % | | | 0.8 | Pts | | | 1.6 | Pts | | | 2.6 | Pts | | | — | Pts | | | 15.9 | % | Diluted Earnings Per Share: Continuing Operations | | | $9.51 | | | | $0.71 | | | | $1.36 | | | | $2.23 | | | | $— | | | | $13.81 | |
* | The tax impact on operating (non-GAAP) pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income which employs an annual effective tax rate method to the results.
|
** | Managed infrastructure services spin-off charges primarily relate to transaction and third-party support costs, business separation and applicable employee retention fees, pension settlements and related tax charges.
|
2024 Notice of Annual Meeting & Proxy Statement | Appendix A — Non-GAAP Financial Information and Reconciliations83
| | ($ in millions except per share amount)
For the year ended December 31, 2022 | | | GAAP | | | Acquisition-
Related
Adjustments | | | Retirement-
Related
Adjustments* | | | Tax
Reform
Impacts | | | Kyndryl
Related
Impacts | | | Operating
(Non-GAAP) | | | | Gross Profit | | | | $ | 32,687 | | | | | $ | 682 | | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | 33,370 | | | | | Gross Profit Margin | | | | | 54.0% | | | | | | 1.1Pts | | | | | | —Pts | | | | | | —Pts | | | | | | —Pts | | | | | | 55.1% | | | | | S,G&A | | | | $ | 18,609 | | | | | $ | (1,080) | | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | 17,529 | | | | | Other (Income) & Expense | | | | | 5,803 | | | | | | (3) | | | | | | (6,548) | | | | | | — | | | | | | (351) | | | | | | (1,099) | | | | | Total Expense & Other (Income) | | | | | 31,531 | | | | | | (1,083) | | | | | | (6,548) | | | | | | — | | | | | | (351) | | | | | | 23,549 | | | | | Pre-tax Income from Continuing Operations | | | | | 1,156 | | | | | | 1,765 | | | | | | 6,548 | | | | | | — | | | | | | 351 | | | | | | 9,821 | | | | | Pre-tax Income Margin from Continuing Operations | | | | | 1.9% | | | | | | 2.9Pts | | | | | | 10.8Pts | | | | | | —Pts | | | | | | 0.6Pts | | | | | | 16.2% | | | | | Provision for/(benefit from) Income Taxes** | | | | $ | (626) | | | | | $ | 436 | | | | | $ | 1,615 | | | | | $ | 70 | | | | | $ | 0 | | | | | $ | 1,495 | | | | | Effective Tax Rate | | | | | (54.2)% | | | | | | 14.2Pts | | | | | | 52.6Pts | | | | | | 0.7Pts | | | | | | 1.9Pts | | | | | | 15.2% | | | | | Income from Continuing Operations | | | | $ | 1,783 | | | | | $ | 1,329 | | | | | $ | 4,933 | | | | | $ | (70) | | | | | $ | 351 | | | | | $ | 8,326 | | | | | Income Margin from Continuing Operations | | | | | 2.9% | | | | | | 2.2Pts | | | | | | 8.1Pts | | | | | | (0.1)Pts | | | | | | 0.6Pts | | | | | | 13.8% | | | | | Diluted Earnings Per Share: Continuing Operations | | | | $ | 1.95 | | | | | $ | 1.46 | | | | | $ | 5.41 | | | | | $ | (0.08) | | | | | $ | 0.38 | | | | | $ | 9.13 | | |
*
Includes a one-time, non-cash, pre-tax pension settlement charge of $5.9 billion ($4.4 billion after tax). **
The tax impact on operating (non-GAAP) pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income which employs an annual effective tax rate method to the results. | | ($ in millions except per share amount)
For the year ended December 31, 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 | | | | | 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. 842024 Notice of Annual Meeting & Proxy Statement | Appendix A — Non-GAAP Financial Information and Reconciliations
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 measure. | | | | | | | | | | | | | ($ in billions) For the year ended December 31: | | 2020 | | | 2019 | | | 2018 | | Net cash from operating activities per GAAP | | $ | 18.2 | | | $ | 14.8 | | | $ | 15.2 | | Less: the change in Global Financing receivables | | | 4.3 | | | | 0.5 | | | | (0.3 | ) | Net cash from operating activities, excluding Global Financing receivables | | | 13.8 | | | | 14.3 | | | | 15.6 | | Capital expenditures, net | | | (3.0 | ) | | | (2.4 | ) | | | (3.7 | ) | Free Cash Flow | | | 10.8 | | | | 11.9 | | | | 11.9 | | Acquisitions | | | (0.3 | ) | | | (32.6 | ) | | | (0.1 | ) | Divestitures | | | 0.5 | | | | 1.1 | | | | — | | Share Repurchase | | | — | | | | (1.4 | ) | | | (4.4 | ) | Common stock repurchases for tax withholdings | | | (0.3 | ) | | | (0.3 | ) | | | (0.2 | ) | Dividends | | | (5.8 | ) | | | (5.7 | ) | | | (5.7 | ) | Non-Global Financing Debt | | | 0.2 | | | | 22.8 | | | | (0.5 | ) | Other (includes Global Financing receivables and Global Financing debt) | | | 0.2 | | | | 1.0 | | | | (1.6 | ) | Change in cash, cash equivalents and short-term marketable securities | | $ | 5.3 | | | $ | (3.2 | ) | | $ | (0.6 | ) | FCF as percent of Income from Continuing Operations | | | 196 | %* | | | 126 | % | | | 136 | %** |
* | 143% in 2020 excluding $2.0 billion pre-tax charge in the fourth quarter for structural actions.
|
** | 111% in 2018 excluding charges of $2.0 billion associated with the enactment of U.S. tax reform.
|
measures. | | ($ in billions)
For the year ended December 31: | | | 2023 | | | 2022* | | | 2021 | | | | Net cash from operating activities per GAAP** | | | | $ | 13.9 | | | | | $ | 10.4 | | | | | $ | 12.8 | | | | | Less: the change in Financing receivables | | | | | 1.2 | | | | | | (0.7) | | | | | | 3.9 | | | | | Net cash from operating activities, excluding Financing receivables | | | | | 12.7 | | | | | | 11.2 | | | | | | 8.9 | | | | | Capital expenditures, net | | | | | (1.5) | | | | | | (1.9) | | | | | | (2.4) | | | | | Free Cash Flow+ | | | | | 11.2 | | | | | | 9.3 | | | | | | 6.5 | | | | | Acquisitions | | | | | (5.1) | | | | | | (2.3) | | | | | | (3.3) | | | | | Divestitures | | | | | (0.0) | | | | | | 1.3 | | | | | | 0.1 | | | | | Dividends | | | | | (6.0) | | | | | | (5.9) | | | | | | (5.9) | | | | | Non-Financing Debt | | | | | 5.5 | | | | | | 1.9 | | | | | | (1.2) | | | | | Other (includes Financing receivables and Financing debt)++ | | | | | (1.0) | | | | | | (2.9) | | | | | | (3.0) | | | | | Change in cash, cash equivalents and short-term marketable securities | | | | $ | 4.6 | | | | | $ | 1.3 | | | | | $ | (6.7) | | |
*
Includes immaterial cash flows from discontinued operation. **
2021 includes cash flows of discontinued operations of $1.6 billion +
2021 includes cash impacts of approximately $1.4 billion for Kyndryl-related structural actions and separation charges. ++
2021 includes the distribution from Kyndryl of $0.9 billion. 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. | | | | | | | | | | | | | | 2020 | | | | | | | GAAP | | | @CC | | | | Reconciliation of Revenue Growth Rates: | | | | | | | | | | | IBM Z | | | 2% | | | | 1% | | | |
| | | | | 2023 | | | | | | | GAAP | | | @CC | | | | Reconciliation of Revenue Growth Rates: | | | | | | | | | | | | | | | | Software | | | | | 5% | | | | | | 5% | | | | | Hybrid Platform & Solutions | | | | | 5% | | | | | | 5% | | | | | Red Hat | | | | | 9% | | | | | | 9% | | | | | Consulting | | | | | 5% | | | | | | 6% | | |
| | | | | GAAP | | | @CC | | | | Reconciliation of Total Revenue Growth Rates: | | | | | | | | | | | | | | | | 2023 | | | | | 2.2% | | | | | | 2.9% | | | | | 2022 | | | | | 5.5% | | | | | | 11.6% | | | | | 2021 | | | | | 3.9% | | | | | | 2.7% | | |
| | | 88 | | 2021 Notice of Annual Meeting & Proxy Statement | Appendix A –2024 Notice of Annual Meeting & Proxy Statement | Appendix A — Non-GAAP Financial Information and Reconciliations85
The tables below provide reconciliations of the Red Hat revenue as reported under GAAP to normalized revenue for historical comparability, which is a non-GAAP measure.
| | | | | | | Twelve Months Ended
December 31, 2020 | | Red Hat Revenue, Normalized for Historical Comparability
| | Change Year To Year
| | Red Hat revenue GAAP growth rate(1)
| | | 288%
| | Impact from Red Hat revenue prior to acquisition(2)
| | | (239)Pts
| | Impact from purchase accounting deferred revenue and intercompany adjustments(3)
| | | (31)Pts
| | Red Hat revenue growth rate, normalized for historical comparability (non-GAAP)
| | | 18%
| | Impact from currency
| | | 0 Pts
| | Red Hat revenue growth rate, normalized for historical comparability and adjusting for currency (non-GAAP)
| | | 18%
| |
(1) | Represents GAAP revenue as reported by IBM, which is included in the Cloud & Cognitive Software segment.
|
(2) | Red Hat revenue was included in IBM’s consolidated results beginning on July 9, 2019. Revenue for January 1, 2019- July 8, 2019 represents pre-acquisition Red Hat standalone revenue and is included for comparative and computing year over year change purposes.
|
(3) | Represents the change in the fourth-quarter and full-year 2020 impact of the deferred revenue purchase accounting adjustment and adjustments to add back revenue which was eliminated for sales between Red Hat and IBM. This line represents revenue that would have been recognized by Red Hat under GAAP if the acquisition had not occurred, but was not recognized by IBM due to purchase accounting and intercompany adjustments.
|
The table below provides reconciliation of the year-to-year change in the Company’s revenue as reported under GAAP to revenue adjusted for divested businesses and currency, which is a non-GAAP measure.
| | | | | | | | | | | | Year Ended
December 31, 2020
Change Year to Year | | Revenue Adjusted for Divested Businesses and Currency | | Total IBM | | | Cloud | | Revenue as reported | | | (4.6)% | | | | 18.6% | | Excluding other divested businesses | | | 1.1Pts | | | | 1.4Pts | | Currency impact | | | (0.1)Pts | | | | (0.4)Pts | | Revenue adjusting for divested businesses and currency (non-GAAP) | | | (3.5)% | | | | 19.6% | |
The table below provides reconciliation of Return on Invested Capital (ROIC) GAAP to a non-GAAP measure.
| | | | | | | | | Reconciliation of ROIC - 2020 | | GAAP* | | | Non-GAAP* | | Return on Invested Capital (ROIC) | | | 11.7% | | | | 14.5% | |
* | ROIC based on GAAP equals net income from continuing operations plus after-tax interest expense (numerator) divided by the average sum of total debt and total stockholders’ equity (denominator). ROIC based on non-GAAP is computed excluding current period U.S. Tax reform charges and goodwill associated with the Red Hat acquisition.
|
| | | 2021 Notice of Annual Meeting & Proxy Statement | Appendix A – Non-GAAP Financial Information and Reconciliations | | 89 |
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