Corporate Governance

The Director Compensation Project: International Business Machines Corporation

By Ali Kaiser

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2010's Fortune 500 and using information found in their 2010 proxy statements.  In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence.  While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.  

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards.  Directors are not independent if they received over $120,000 in direct compensation, other than director's fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii).  This is a looser restriction than the equivalent NASDAQ Rule, 5605(a)(2), which includes all compensation.  Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from International Business Machines Corporation's (NYSE: IBM) 2010 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:   

Note:  Amounts marked as "Other Compensation" in the proxy statement include the following: for Ms. Black: $40,623 of dividend equivalent payments on PFS; for Dr. Brody: $15,000 contributed by the Company under the matching grants program; for Mr. Chenault: $26,189 of dividend equivalent payments on PFS; for Mr. Eskew: $16,234 of dividend equivalent payments on PFS and $18,761 contributed by the Company under the matching grants program; for Dr. Jackson: $13,939 of dividend equivalent payments on PFS and $15,000 contributed by the Company under the matching grants program; for Mr. Owens: $12,754 of dividend equivalent payments on PFS; for Ms. Spero: $17,769 of dividend equivalent payments on PFS and $10,000 contributed by the Company under the matching grants program; for Mr. Taurel: $23,821 of dividend equivalent payments on PFS and $10,000 contributed by the Company under the matching grants program; and for Mr. Zambrano: $18,699 of dividend equivalent payments on PFS.

* Mr. McNerney joined the Board in October 2009.  

Director Compensation.  The IBM Board held ten meetings during 2009 with attendance at each meeting over 93%.  During fiscal year 2009, non-management directors received $250,000 as an annual retainer, 60% of which is required to be deferred and paid in Promised Fee Shares (PFS).  Each PFS is equivalent to one share of IBM's common stock.  In 2009, all of the directors elected to defer 100% of their annual retainer in PFS.  The IBM Board Corporate Governance Guidelines creates the expectation that all non-management directors have stock holdings in the company equal to five times the annual retainer of each director within five years of election to the Board.  

Director Tenure.  Dr. Jackson has served as president of Rensselaer Polytechnic Institute, a theoretical physicist at AT&T Bell Laboratories, former chairman of the U.S. Nuclear Regulatory Commission, and has also served on the boards at FedEx Corporation, Marathon Oil Corporation, Medtronic, Inc., Public Service Enterprise Group Incorporated, and NYSE Euronext.  Mr. Zambrano is noted for his experience as a business leader in Latin America where he serves as the chief executive officer of CEMEZ, one of the world's largest cement manufacturers.   Although Mr. Zambrano attended less than 75% of the Board meetings, the Board believes his experience in Latin America continues to benefit IBM.  

Executive Compensation.  Samuel J. Palmisano, who serves as IBM's President and Chief Executive Officer, earned $24,313,795 during the fiscal year. As part of his compensation, Mr. Palmisano receives personal financial planning, personal travel on the company aircraft, personal use of company cars, personal security, and family attendance at company events.  Mark Loughridge, who serves as IBM's Senior Vice President and Chief Financial Officer, earned $6,461,973 during the fiscal year.  Mr. Loughridge's compensation also includes personal financial planning, personal travel on the company aircraft, and family attendance at company events.  

Full post as published by The Race to the Bottom on December 06, 2010 (boomark / email).