The Director Compensation Project: International Business Machines Corporation

This post is part of an ongoing series that examines the way stock exchange independence rules relate to director compensation.  We are for the most part including companies from 2011’s Fortune 500 and using information found in their 2011 proxy statements.

Nasdaq and the NYSE have similar rules with respect to director independence.  NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors.  A director does not qualify as “independent” if he or she has a “material relationship with the company.”  NYSE Rule 303A.02(a).  In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years.  NYSE Rule 303A.06 imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 (C.F.R. §240.10A-3).

Independent directors are compensated for their service on the board.  The amount of compensation can be seen from examining the director compensation table from the International Business Machines (NYSE: IBM) 2011 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Alain Belda	250,000	0	0	17,078	267,078
William Brody	250,000	0	0	22,418	272,418
Kenneth Chenault	250,000	0	0	47,884	297,884
Michael Eskew	275,000	0	0	34,681	309,681
Shirley Jackson	250,000	0	0	30,734	280,374
Andrew Liveris	250,000	0	0	5,456	256,456
W. James McNerny, Jr.	250,000	0	0	28,357	278,357
James Owens	250,000	0	0	48,404	298,404
Joan Spero	250,000	0	0	43,596	293,596
Sidney Taurel	270,000	0	0	55,081	325,081
Lorenzo Zambrano	270,000	0	0	37,533	307,533

Director Compensation.  In 2011, non-management directors received a retainer of $250,000 to attend ten meetings of the board of directors.  Attendance at those meetings was greater than 75%.  Under the company’s Deferred Compensation and Equity Award Plan, at least 60% of the annual retainer was required to be paid in Promised Fee Shares (“PFS”), which are the equivalent of one unit of common stock.  When the company issued a dividend, the amount of the dividend was credited to the directors’ PFS accounts and disclosed under the “All Other Compensation” column above.  Mr. Eskew received an additional $25,000 in cash for chairing the Audit Committee.  Messrs. Zambrano and Taurel each received an additional $20,000 in cash for chairing the Directors and Corporate Governance Committee and the Executive Compensation and Management Resources Committee, respectively.  

Director Tenure.  Mr. Chenault is the longest tenured director, holding his position since 1998. Due to IBM’s commercial relationship with American Express, Mr. Chenault does not qualify as an independent director.  Virginia Rometty and David Farr both are the newest members of the board after joining in 2012; hence, they are not listed on the compensation chart above.  Many of the directors sit on other boards.  For instance, Samuel Palmisano, the former Chief Executive Officer and current Chairman of the Board, also sits on the board of Exxon Mobil.  Mr. Owens sits on the boards of Alcoa, Inc. and Morgan Stanley.

Executive Compensation.  Mr. Palmisano was paid $31,798,918 for his roles as Chairman, President, and CEO.  Company aircraft usage of $489,327 is included in this figure.  After departing from his role as CEO on January 1, 2012, Mr. Palmisano also became entitled to an exit package valued at roughly $113,697,548 in stock options, deferred compensation, performance share units, and 401K contributions.  Michael Daniels, the Senior VP and Group Executive of Services, was paid $8,686,835 in 2011.  Ms. Rometty, the newly appointed CEO, will be compensated $1,500,000 in base salary with a target bonus of $3,500,000 in 2012.  Additionally, she will receive $10,000,000 worth of Performance Share Units as a long-term incentive.  In 2011, Ms. Rometty received $8,342,270 in total compensation as Senior Vice President & Group Executive of Sales, Marketing, and Strategy.