SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant[ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
International Business Machines Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its charter)
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(Name of Person(s) Filing Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1)
or 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
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Act Rule 14a-6(i)(3)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
(1) Title of each class of securities to which transaction applies
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applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee Paid:
$125.00
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[ ] Fee paid previously with preliminary materials.
<PAGE>
IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
Dear Stockholders,
You are cordially invited to attend the Annual Meeting of Stockholders on
Tuesday, April 30, at 10 a.m., in the Atlanta Civic Center, Atlanta, Georgia.
We are very pleased that Ms. Cathleen Black, president of Hearst Magazines, who
was elected to the Board in July 1995, and Mr. Juergen Dormann, chairman of the
management board of Hoechst AG, who was elected to the Board in January 1996,
are nominees for the first time.
Mr. Jerome B. York left the Board in September 1995 upon his resignation from
IBM. Mr. Fritz Gerber will retire from the Board in April, and is not a nominee
for election this year. We are very grateful to Mr. Gerber for his many
contributions during his tenure on the Board and will miss his participation.
Please sign, date, and return the enclosed Proxy Card in the envelope provided
as soon as possible so that your shares can be voted at the meeting in
accordance with your instructions. If you plan to attend the meeting, please
mark the box where indicated on the Proxy Card. If you will need
special assistance at the meeting because of a disability, please contact the
Office of the Secretary, Armonk, N.Y. 10504.
Very truly yours,
/s/ Louis V.Gerstner, Jr.
Louis V.Gerstner, Jr.
Chairman of the Board
YOUR VOTE IS IMPORTANT
Please Sign, Date, and Return Your Proxy Card
<PAGE>
IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
Table of Contents Page
Notice of 1996 Annual Meeting of Stockholders 3
1. Election of Directors for a Term of One Year 5
General Information:
o Board of Directors 8
o Committees of the Board 8
o Other Relationships 10
o Directors' Compensation 10
o Common Stock and Total Stock-based Holdings 11
Report on Executive Compensation 13
o Summary Compensation Table 17
o Performance Graph 23
2. Ratification of Appointment of Auditors 24
3. Stockholder Proposal 25
Other Business 27
Proxies and Voting at the Meeting 27
2
<PAGE>
International Business Machines Corporation
Armonk, New York 10504
March 18, 1996
Notice of Meeting
The Annual Meeting of Stockholders of International Business Machines
Corporation will be held on Tuesday, April 30, 1996, at 10 a.m., in the Atlanta
Civic Center, 395 Piedmont Avenue, N.E., Atlanta, Georgia. The items of business
are:
1. Election of directors for a term of one year.
2. Ratification of the appointment of auditors.
3. Such other matters, including one stockholder proposal, as may properly
come before the meeting.
These items are more fully described in the following pages, which are hereby
made a part of this Notice. Only stockholders of record at the close of business
on March 11, 1996, are entitled to vote at the meeting. Stockholders are
reminded that shares cannot be voted unless the signed Proxy Card is returned or
other arrangements are made to have the shares represented at the meeting.
/s/ John E. Hickey
John E. Hickey
Vice President and Secretary
This Proxy Statement and the accompanying form of Proxy Card are being mailed
beginning on or about March 18, 1996, to stockholders entitled to vote. The IBM
1995 Annual Report, which includes financial statements, is being mailed with
this Proxy Statement. Kindly notify First Chicago Trust Company of New York,
Mail Suite 4688, P.O. Box 2530, Jersey City, N.J. 07303-2530, telephone
201-324-0405, if you did not receive a report, and a copy will be sent to you.
3
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IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
1. Election of Directors for a Term of One Year
The Board proposes the election of the following directors
of the Company for a term of one year. Following is
information about each nominee, including biographical data
for at least the last five years. Should one or more of
these nominees become unavailable to accept nomination or
election as a director, the individuals named as Proxies on
the enclosed Proxy Card will vote the shares that they
represent for the election of such other persons as the
Board may recommend, unless the Board reduces the number of
directors.
CATHLEEN BLACK, 51, is president of Hearst Magazines, a
division of The Hearst Corporation, a diversified
communications company. She is a member of IBM's Directors
and Corporate Governance Committee. Prior to joining Hearst
Magazines, she was president and chief executive officer of
[PHOTO] Newspaper Association of America from 1991 to 1996,
executive vice president/marketing for Gannett Company, Inc.
from 1985 to 1991, and president, then publisher, of USA
TODAY from 1983 to 1985. She is a director of The Coca-Cola
Company, the Advertising Council and the United Way of
America and a trustee of the University of Notre Dame. Ms.
Black became an IBM director in 1995.
HAROLD BROWN, 68, is a counselor, Center for Strategic and
International Studies, Washington, D.C., and a general
partner in Warburg, Pincus & Company, a venture banking and
[PHOTO] money management firm. He is chairman of IBM's Directors and
Corporate Governance Committee and a member of IBM's
Executive Committee. He is a former U.S. Secretary of the
Air Force. He is a director of Alumax Inc., Cummins Engine
Company, Inc., Philip Morris Companies Inc., and Mattel,
Inc.; a member of the National Academy of Sciences and the
National Academy of Engineering; and a trustee and president
emeritus of the California Institute of Technology. Dr.
Brown was an IBM director from 1972 to 1977. After serving
as U.S. Secretary of Defense, he became an IBM director
again in 1981.
JUERGEN DORMANN, 56, is chairman of the management board of
Hoechst AG, a chemicals and pharmaceuticals company. He is a
member of IBM's Audit Committee. Mr. Dormann joined Hoechst
[PHOTO] in 1963 and was elected finance and accounting director in
1987 and to his present position in 1994. He is a director
of Wacker Chemie GmbH, Allianz Lebensversicherungs AG and
Rheinische Hypothekenbank AG. Mr. Dormann became an IBM
director in 1996.
5
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IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
LOUIS V. GERSTNER, JR., 54, is chairman of the Board and
chief executive officer of IBM and chairman of IBM's
Executive Committee. From 1989 until joining IBM, he was
[PHOTO] chairman of the board and chief executive officer of RJR
Nabisco Holdings Corp., an international consumer products
company. From 1985 to 1989, Mr. Gerstner was president of
American Express Company, and from 1983 to 1989, he was
chairman and chief executive officer of American Express
Travel Related Services Co., Inc. He is a member of the
board of directors of Bristol-Myers Squibb Company and The
New York Times Company. Mr. Gerstner is vice chairman of the
board of the New American School Development Corp., a
director of The Council on Foreign Relations and a member of
the Smithsonian Board of Regents. Mr. Gerstner became an IBM
director in 1993.
NANNERL O. KEOHANE, 55, is president and professor of
political science at Duke University. She is a member of
IBM's Directors and Corporate Governance Committee. She was
[PHOTO] formerly president of Wellesley College, and a former
faculty member at Swarthmore College and Stanford
University. She is a member of The Council on Foreign
Relations and the American Academy of Arts and Sciences, and
a trustee of the Colonial Williamsburg Foundation. Dr.
Keohane is a member of the MIT Corporation and has served as
vice president of the American Political Science
Association. Dr. Keohane became an IBM director in 1986.
CHARLES F. KNIGHT, 60, is chairman, chief executive officer
and president of Emerson Electric Co., an electronics
company. He is chairman of IBM's Executive Compensation and
[PHOTO] Management Resources Committee and a member of IBM's
Executive Committee. He joined Emerson Electric in 1972 as
vice chairman and was elected chief executive officer in
1973, chairman in 1974 and president in 1995. Prior to
joining Emerson, he was president of Lester B. Knight &
Associates, Inc., a consulting engineering firm. He is a
director of SBC Communications Inc., Anheuser Busch
Companies, Inc., and The British Petroleum Company p.l.c.
Mr. Knight became an IBM director in 1993.
LUCIO A. NOTO, 57, is chairman and chief executive officer
of Mobil Corporation, an oil, gas and petrochemical company.
[PHOTO] He is a member of IBM's Audit Committee. Mr. Noto joined
Mobil in 1962 and was elected to Mobil's board in 1988. He
was elected chief financial officer in 1989, president and
chief operating officer in 1993, and to his present position
in 1994. He also serves as chairman of Mobil's executive
committee. Mr. Noto is a member of The Council on Foreign
Relations. He became an IBM director in 1995.
6
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IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
JOHN B. SLAUGHTER, 62, is president of Occidental College.
He is a member of IBM's Audit Committee. He is a former
chancellor of the University of Maryland and a former
[PHOTO] director of the National Science Foundation. He is a
director of the Atlantic Richfield Company, Avery Dennison
Corporation, Monsanto Company, and Northrop Grumman
Corporation. He is a member of the National Academy of
Engineering, a member of the American Academy of Arts and
Sciences, a fellow of the American Association for the
Advancement of Science, a fellow of the Institute of
Electrical and Electronics Engineers, and a member of the
Hall of Fame of the American Society for Engineering
Education. Dr. Slaughter became an IBM director in 1988.
ALEX TROTMAN, 62, is chairman and chief executive officer of
the Ford Motor Company, an automotive manufacturer. He is a
[PHOTO] member of IBM's Executive Compensation and Management
Resources Committee. Mr. Trotman joined Ford of Britain in
1955 and was elected president of Ford Asia-Pacific in 1983
and chairman of Ford of Europe in 1988. He became president
and chief operating officer of Ford Automotive Group and a
director in 1993. He was subsequently elected to his present
position in 1993. Mr. Trotman became an IBM director in
1994.
LODEWIJK C. VAN WACHEM, 64, is chairman of the supervisory
board of Royal Dutch Petroleum Company, an oil, gas and
petrochemical company. He is chairman of IBM's Audit
[PHOTO] Committee and a member of IBM's Executive Committee. In
1992, Mr. van Wachem retired as president of Royal Dutch
Petroleum, a post he had held since 1982. He is a director
of ATCO Ltd., ABB Asea Brown Boveri Ltd., and Zurich
Versicherungs-Gesellschaft; and a member of the supervisory
boards of AKZO N.V., Philips Electronics N.V., and Bavarian
Motor Works A.G. Mr. van Wachem became an IBM director in
1992.
CHARLES M. VEST, 54, is president and professor of
mechanical engineering at the Massachusetts Institute of
[PHOTO] Technology. He is a member of IBM's Executive Compensation
and Management Resources Committee. Dr. Vest was formerly
the provost and vice president for Academic Affairs of the
University of Michigan. He is a director of E. I. du Pont de
Nemours and Company, a fellow of the American Association
for the Advancement of Science, a member of the National
Academy of Engineering and the Corporation of Woods Hole
Oceanographic Institution, and a trustee of Wellesley
College. Dr. Vest became an IBM director in 1994.
7
<PAGE>
IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
General Information
Board of Directors
The Board of Directors is responsible for supervision of the overall affairs of
the Company. To assist it in carrying out its duties, the Board has delegated
certain authority to several committees. Consistent with the Company's
long-standing practice, the majority of the Board, 11 of the 12 current
directors, are outside directors who are neither officers nor employees of IBM
or its subsidiaries. In the opinion of the Board, each of the outside directors
is independent of management and free of any relationship with the Company that
would interfere with his or her exercise of independent judgment in performing
the duties of a director.
In addition, the Audit Committee, the Directors and Corporate Governance
Committee, and the Executive Compensation and Management Resources Committee are
composed entirely of outside directors. The committees of the Board, as well as
the full Board, have access to outside consultants and experts as needed in
connection with their deliberations.
The Board of Directors held 11 meetings during 1995. Overall attendance at Board
and committee meetings was 93 percent. Attendance was at least 78 percent for
each director. Following the Annual Meeting, the Board will consist of eleven
directors. In the interim between Annual Meetings, the Board has the authority
under the By-laws to increase or decrease the size of the Board and fill
vacancies.
Committees of the Board
The Executive Committee, the Audit Committee, the Directors and Corporate
Governance Committee, and the Executive Compensation and Management Resources
Committee are the standing committees of the Board of Directors.
Executive
Directors Compensation and
and Corporate Management
Executive Audit Governance Resources
- -----------------------------------------------------------------
L.V. Gerstner, Jr.* L.C. van Wachem* H. Brown* C.F. Knight*
H. Brown J. Dormann C. Black A. Trotman
C.F. Knight L.A. Noto F. Gerber** C.M. Vest
L.C. van Wachem J.B. Slaughter N.O. Keohane
*Chairman
**Retiring April 30, 1996
Executive Committee
The Executive Committee is empowered to act for the full Board in intervals
between Board meetings, with the exception of certain matters that by law may
not be delegated. The committee meets as necessary, and all actions by the
committee are reported at the next Board of Directors meeting. The committee did
not meet in 1995.
8
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IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
Audit Committee
The Audit Committee is responsible for reviewing reports of the Company's
financial results, audits, internal controls, and adherence to its Business
Conduct Guidelines in compliance with federal procurement laws and regulations.
The committee recommends to the Board of Directors the selection of the
Company's outside auditors and reviews their procedures for ensuring their
independence with respect to the services performed for the Company.
The Audit Committee is composed of outside directors who are not officers or
employees of IBM or its subsidiaries. In the opinion of the Board, these
directors are independent of management and free of any relationship that
would interfere with their exercise of independent judgment as members of this
committee. The committee held four meetings in 1995.
Directors and Corporate Governance Committee
The Directors and Corporate Governance Committee is responsible for recommending
qualified candidates to the Board for election as directors of the Company,
including the slate of directors that the Board proposes for election by
stockholders at the Annual Meeting.
The committee advises and makes recommendations to the Board on all matters
concerning directorship practices, including retirement policies and
compensation for non-employee directors, and recommendations concerning the
functions and duties of the committees of the Board.
The committee reviews and considers the Company's position and practices
on significant issues of corporate public responsibility, such as equal
employment opportunity, protection of the environment, and philanthropic
contributions, and it reviews and considers stockholder proposals dealing with
issues of public or social interest. Members of this committee are outside
directors who are not officers or employees of IBM or its subsidiaries. In the
opinion of the Board, these directors are independent of management and free of
any relationship that would interfere with their exercise of independent
judgment as members of this committee. The committee held three meetings in
1995.
Stockholders wishing to recommend director candidates for consideration by
the committee may do so by writing to the Secretary of the Corporation, giving
the recommended candidate's name, biographical data, and qualifications.
Executive Compensation and Management Resources Committee
The Executive Compensation and Management Resources Committee has responsibility
for administering and approving all elements of compensation for elected
corporate officers and certain other senior management positions. It also
approves, by direct action or through delegation, participation in and all
awards, grants, and related actions under the provisions of the IBM Stock Option
Plans and the Long-Term Performance Plans, reviews changes in the IBM Retirement
Plan primarily affecting IBM corporate officers, and manages the operation and
administration of the IBM Extended Tax Deferred Savings Plan and the IBM
Supplemental Executive Retirement Plan. The committee reports to stockholders on
executive compensation items as required by the Securities and Exchange
Commission (page 13). The committee has responsibility for reviewing the
Company's management resources programs and for recommending qualified
candidates to the Board for election as officers.
9
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IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
Members of this committee are outside directors who are not officers or
employees of IBM or its subsidiaries and are not eligible to participate in any
of the plans or programs that the committee administers. In the opinion of the
Board, these directors are independent of management and free of any
relationship that would interfere with their exercise of independent judgment as
members of this committee. The committee held five meetings in 1995.
Other Relationships
The Company and its subsidiaries purchase services, supplies, and equipment in
the normal course of business from many suppliers and similarly sell and lease
IBM products and services to many customers. In some instances, these
transactions occur between IBM and other companies for whom members of IBM's
Board serve as executive officers. In 1995, none of these transactions were
individually significant or reportable.
The Company has renewed its directors and officers indemnification insurance
coverage. This insurance covers directors and officers individually where
exposures exist other than those for which the Company is able to provide direct
indemnification. These policies run from June 30, 1995, through June 30, 1996,
at a total cost of $703,800. The primary carrier is Federal Insurance Company.
Directors' Compensation
In January, the Board of Directors approved a number of changes to its director
compensation programs. At that time, the Board decided to eliminate all pension
benefits for outside directors and to increase the amount of the retainer paid
in stock to each director, from 50 percent to 60 percent. These changes were
recommended by the Directors and Corporate Governance Committee and were
designed to more closely tie the interests of the Company's outside directors
with the interests of its stockholders and to increase each director's
proprietary stake in the Company. The Board also decided to increase the annual
retainer paid to outside directors from $50,000 to $60,000. In recommending this
increase to the Board, the Directors and Corporate Governance Committee reviewed
the director compensation practices of the largest U.S. companies in terms of
market capitalization and concluded that this increase was appropriate to
maintain the continued competitiveness of the total compensation package offered
to the Company's outside directors.
Directors who are not employees of the Company now receive an annual retainer of
$60,000 and each committee chairman will continue to receive an additional
annual retainer of $5,000. Sixty percent of the annual retainer fees is paid in
Promised Fee Shares of IBM common stock under the Directors Deferred
Compensation and Equity Award Plan (the "DCEAP"). Under the DCEAP, outside
directors may defer all or part of their remaining cash compensation to selected
later years, to be paid either with interest at a rate equal to the rate on
26-week U.S. Treasury bills updated each January and July, or in Promised Fee
Shares, with dividends used to buy additional Promised Fee Shares. Promised Fee
Shares are valued based on the market price of IBM common stock and are payable
in the form of IBM shares or cash. All amounts under the DCEAP are to be paid
only upon retirement or other completion of service as a director. Employee
directors receive no additional compensation for service on the Board of
Directors or its committees.
10
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IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
In order to compensate directors for the value of the retirement benefits they
had accrued prior to elimination of the retirement plan, the Board credited each
director's account under the DCEAP with a number of Promised Fee Shares equal to
the value of such accrued benefits. These shares are payable only to those
directors who have served at least five years at the time they retire or
otherwise complete their service as a director, subject to the discretion of the
Board. The number of shares received by each director is set out in the table on
page 12 of this proxy statement.
Under the IBM Non-Employee Directors Stock Option Plan, each outside director
receives an annual grant of options to purchase 1,000 shares of IBM common
stock. The exercise price of the options is the fair market value of IBM common
stock on the date of grant and each option has a term of ten years and becomes
exercisable in four equal installments commencing on the first anniversary of
the date of grant and continuing for the three successive anniversaries
thereafter. In the event of the retirement (as defined in the plan) or death of
an outside director, all options granted to such director shall become
immediately exercisable. Outside directors are provided group life insurance of
up to $50,000 and travel accident insurance in the amount of $300,000. Directors
are also eligible to participate in the Company's Matching Grants Program on the
same basis as the Company's employees.
Common Stock and Total Stock-based Holdings
The following table reflects shares of IBM common stock, as well as all other
IBM stock-based holdings, which are beneficially owned by IBM's directors and
nominees, the executive officers named in the Summary Compensation Table on page
17, and the directors and executive officers as a group, as of January 31, 1996.
The Table indicates whether voting power and investment power in IBM common
stock are solely exercisable by the person named or shared with others. Voting
power includes the power to direct the voting of the shares held, and investment
power includes the power to direct the disposition of shares held. Also shown
are shares over which the named person could have acquired such powers within 60
days. Since some shares may appear under both the voting and investment power
columns, and since other types of holdings are listed only in the Stock or Total
column, the individual columns will not add across to the Total column.
The Table indicates the alignment of these individuals' personal financial
interests with the interests of the Company's stockholders because the value of
their holdings will increase or decrease in line with the price of IBM stock.
11
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IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
<TABLE><CAPTION>
Acquirable Total
Voting Power Investment Power within 60 Stock-based
------------------------------
Name Sole Shared Sole Shared Stock(1) days(2) holdings(3)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
C. Black 1,000 81 1,237 81 1,318 - 1,404
H. Brown 0 600 7,705 600 8,305 - 11,310
J. Dormann 1,000 0 1,000 0 1,000 - 1,000
F. Gerber 1,000 0 1,814 0 1,814 - 2,950
L.V. Gerstner, Jr. 60,408 456 60,408 456 132,560 330,130 473,733
N.O. Keohane 0 494 3,308 494 3,802 - 4,583
C.F. Knight 2,063 0 3,452 0 3,452 - 3,904
N.C. Lautenbach 19,577 0 9,870 9,707 36,586 161,422 198,330
L.A. Noto 858 608 1,325 608 1,933 - 2,055
J.B. Slaughter 50 0 2,777 0 2,777 - 3,741
G.R. Thoman 2,662 0 2,662 0 19,001 60,767 81,061
J.M. Thompson 5,465 0 324 5,141 22,139 172,574 194,713
P.A. Toole 24,159 120 11,784 12,495 26,288 175,344 201,949
A. Trotman 1,000 0 1,467 0 1,467 - 1,630
L.C. van Wachem 1,000 0 1,465 0 1,465 - 2,204
C.M. Vest 100 0 385 0 385 - 584
Directors and executive
officers as a group(4)180,262 7,380 127,547 77,959 358,248* 1,265,198* 1,649,406
</TABLE>
* The total of these two columns represents less than 1% of the outstanding
shares. No individual's beneficial holdings totaled more than 1/10 of 1% of
the outstanding shares. These holdings do not include 1,487,947 shares held
by the IBM Retirement Plan Trust Fund, over which the members of the Board
have the right to acquire shared investment power by withdrawing authority
now delegated to the Retirement Plans Committee, a management committee.
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.
(1) For executive officers, this column includes shares shown in the "Voting
Power" and "Investment Power" columns as well as shares of restricted stock
held by the executive. For non-employee directors, this column includes
shares earned and accrued under the Directors Deferred Compensation and
Equity Award Plan. They have no voting power over such shares and
investment power only with regard to Promised Fee Shares that are acquired
as a result of deferring fees paid to them. Fractional shares attributable
to participation in this plan are not shown.
(2) Shares that can be purchased under an IBM stock option plan.
(3) This column shows the total IBM stock-based holdings, including the
securities shown in the "Stock" column and the "Acquirable within 60 days"
column, as well as other IBM stock-based interests, including, as
appropriate, employee contributions into the IBM Stock Fund under the IBM
Extended Tax Deferred Savings Plan ("ETDSP") and all Company matching
contributions under the ETDSP. This column also includes the following
Promised Fee Shares that were credited to the following non-employee
directors in connection with the elimination of pension payments to such
directors: C. Black - 86 shares; H. Brown - 3,005 shares; F. Gerber - 1,136
shares; N.O. Keohane - 781 shares; C.F. Knight - 452 shares; L.A. Noto -
122 shares; J.B. Slaughter - 964 shares; A. Trotman - 163 shares; L.C. van
Wachem - 739 shares; and C.M. Vest - 199 shares. These Promised Fee Shares
are payable in cash upon retirement or other completion of service as a
director.
(4) None of the directors or executive officers own any IBM preferred stock.
12
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IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
Report on Executive Compensation
The Executive Compensation and Management Resources Committee (the "Committee")
is responsible for administering the Company's executive compensation policies
and practices and approves all elements of compensation for elected corporate
officers and certain other senior management positions. In carrying out its
duties, the Committee has direct access to independent compensation consultants
and outside survey data. The Committee reports regularly to the Board of
Directors on its activities and obtains ratification by the non-employee members
of the Board of all items of compensation for the two highest-paid executives.
The Committee is comprised of three outside directors who are not eligible to
participate in any of the plans or programs that it administers.
Compensation Philosophy and Practices
The Board believes that leadership and motivation of the Company's employees are
critical to achieving the objective of continuing IBM's return to preeminence
both in the marketplace and as an investment for stockholders. The Committee is
responsible to the Board for ensuring that the individuals in executive
positions are highly qualified and that they are compensated in a way that
furthers the Company's business strategies and which aligns their interests with
those of the stockholders. To support this philosophy, the following principles
provide a framework for the compensation program:
- - offer compensation opportunities that attract the best talent to IBM;
motivate individuals to perform at their highest levels; reward outstanding
achievement; and retain those with leadership abilities and skills
necessary for building long-term stockholder value.
- - maintain a significant portion of executives' total compensation at risk,
tied to both the annual and long-term financial performance of the Company
as well as to the creation of incremental stockholder value.
- - encourage executives to manage from the perspective of owners with an
equity stake in the Company.
Beginning in 1994, Section 162(m) of the U.S. Internal Revenue Code of 1986 (the
"Code") limits deductibility of compensation in excess of $1 million paid to the
Company's chief executive officer and to any of the Company's four highest-paid
executive officers unless this compensation qualifies as "performance-based." As
described in IBM's 1995 Proxy Statement, the Committee has taken actions so that
both annual cash incentives and Long-Term Performance Incentive awards for
performance periods beginning in 1995 and thereafter should qualify as
"performance-based" compensation under Section 162(m). The Committee also
amended IBM's Extended Tax Deferred Savings Plan to permit an executive officer
who is subject to Section 162(m) and whose salary is above $1 million, to defer
a sufficient amount of the salary to bring it below the Section 162(m) limit.
Additionally, based on the regulations, any taxable compensation derived from
the exercise of stock options under the IBM 1994 Long-Term Performance Plan and
prior plans should be exempt from this limit. The Committee is not precluded,
however, from making compensation payments under different terms even if they
would not qualify for tax deductibility.
13
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IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
While performance against financial objectives is the primary measurement for
executive officers' annual incentive compensation, other factors also can affect
pay. Every executive, as well as every employee, is expected to uphold and
comply with IBM's Business Conduct Guidelines, which require the individual to
maintain the Company's discrimination-free workplace and high standards of
environmental protection. Upholding the Business Conduct Guidelines contributes
to the success of the individual employee, and to IBM as a whole.
IBM's compensation program for executive officers is targeted to provide a total
compensation level (including both annual and long-term incentives) at
approximately the 75th percentile of survey companies. For executive officers
recently recruited by IBM, annual compensation rates and long-term incentive
awards reflect amounts necessary to attract them to the Company. Compensation is
benchmarked by independent consultants using surveys of both the information
technology industry and the largest U.S. market-capitalized companies. These
firms have executive positions similar to those at IBM in magnitude, complexity
and scope of responsibility, and they are representative of companies with whom
IBM competes for executive talent. This is a broader and more diverse set of
companies than those included in the S&P Computer Systems Index used for the
Performance Graph on page 23.
Stock ownership guidelines have been established for senior management to
increase their equity stake in the Company and more closely link their interests
with those of the stockholders. These guidelines provide that within a five-year
period senior executives should attain an investment position in IBM stock or
stock units of two to four times their base salary depending on the individual's
responsibilities.
Components of Executive Compensation
The compensation program for executive officers consists of the following
components:
ANNUAL CASH COMPENSATION: this includes base salary and annual cash incentive
(bonus). Both salary and the annual target incentive opportunity are established
for each executive officer based on job responsibilities, level of experience,
overall performance and contribution to the business, as well as information
obtained from external surveys. The annual target incentive is tied to specific
performance measures. Incentive award payments for 1995 were based on financial
targets of pre-tax earnings and cash flow (excluding the impact of the
acquisition of Lotus) with most of the weighting on earnings, thereby
establishing a direct link between executive pay and Company profitability. The
Committee approved financial targets early in the year and certified attainment
at the end of the performance period. The Committee used judgment based on
individual accomplishments in areas such as strategy development, leadership of
special projects, implementation of key business programs and customer
satisfaction to determine the final payment amounts. Actual incentive payouts
may be above or below the executive's target incentive opportunity. Since the
Company's financial performance for 1995 exceeded the objectives set by the
Committee, above-target incentive payouts were made to each of the executive
officers named in the Summary Compensation Table.
14
<PAGE>
IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
LONG-TERM INCENTIVE COMPENSATION: included are stock options, Long-Term
Performance Incentive awards and restricted stock unit awards. The objectives
for these awards are to closely align executive interests with the longer term
interests of stockholders and to retain the skills that are critical to the
future success of the business. Stock options and long-term performance
incentive opportunities depend on the creation of incremental stockholder value
or the attainment of cumulative financial targets over several years. These
long-term grants represent a significant portion of the total compensation
opportunity provided to executive officers. Award sizes are based on individual
performance, level of responsibility, the executive's potential to make
significant contributions to the Company, and award levels at companies included
in the surveys. Long-term incentives granted in prior years are also taken into
consideration.
- - Stock Options are typically granted annually to executives and other
selected employees whose contributions and skills are critical to the
long-term success of the Company. Options are granted with an exercise
price equal to the market price of the Company's common stock on the date
of grant, vest over a period of up to four years, and expire after ten
years. These options only have value to the recipients if the price of the
Company's stock appreciates after the options are granted.
- - Long-Term Performance Incentive (LTPI) awards provide senior management
with an incentive linked to both multiple year corporate financial
performance and stockholder value. Awards are intended to be made annually
in the form of performance stock units. For awards covering the period
1995-97, the stock units can be earned based on achieving cumulative
financial goals of earnings-per-share and cash flow (with most of the
weighting on earnings-per-share). Depending on the level of performance
against the three-year goals, payout of the stock units can range between
0% to 150% of the target award (the awards made in 1995 are shown in the
Table on page 19). The stock units are valued based upon the market price
of the Company's common stock. For LTPI awards made in 1993 covering the
three-year period through 1995, the financial goals were earnings-per-share
and cash flow, equally weighted. Based on the Company's performance for
this period, the maximum number of stock units was earned by the
participants. Payouts for the named executives are reported in the Summary
Compensation Table on page 17.
- - Restricted Stock Unit awards are designed to provide long-term retention
for certain key members of senior management. These awards are highly
selective, limited to a very small group of executives, and equity-based so
as to tie them directly to stockholder return. The restriction period is
normally five years.
15
<PAGE>
IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
Compensation for the Chairman and Chief Executive Officer
On March 26, 1993, IBM entered into an employment agreement with Mr. Louis V.
Gerstner, Jr., to become chairman and chief executive officer of the Company. In
1995, Mr. Gerstner's base salary, annual cash incentive opportunity and
Long-Term Performance Incentive (LTPI) award covering the period 1995-97 were
governed by this employment agreement. Based on the above-target achievement of
the Company's financial objectives for 1995 (discussed above under Annual Cash
Compensation), and their assessment of specific business accomplishments during
the year, the Committee approved an annual incentive payment of $2,775,000 for
Mr. Gerstner. He also earned a payout from the 1993-95 LTPI based on the
Company's cumulative financial results over the three-year period (discussed
above under Long-Term Performance Incentive) valued at $1,274,663. One-half of
this amount was paid in cash and the balance was delivered in restricted shares
of IBM common stock. In 1995, the Committee granted Mr. Gerstner a stock option
covering 100,000 shares of IBM common stock as part of the Company's on-going
stock option program and awarded him 65,000 restricted stock units which do not
vest until the end of five years. In approving these awards, the Committee
considered several factors: analyses prepared by an independent consultant of
both option grants and restricted stock awards made to chief executive officers
at other major companies in the survey group; the continued challenge of
providing global leadership for a large, complex business such as IBM in a very
dynamic and competitive industry; and Mr. Gerstner's contributions to the
continued improvement of the Company's business results.
Effective for 1996, Mr. Gerstner's Employment Agreement was amended to reduce
his base salary and increase his target opportunities for the annual cash
incentive and Long-Term Performance Incentive. This amendment was made to
further align the Chairman's compensation with the performance of the Company.
The terms of Mr. Gerstner's employment agreement are described in the section
entitled, "Employment Agreements and Change-in-Control Arrangements" on page 22.
Charles F. Knight (chairman)
Alex Trotman
Charles M. Vest
16
<PAGE>
IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
<TABLE><CAPTION>
Summary Compensation Table
Long-Term Compensation(2)
-------------------------
Annual Compensation(1) Awards Payouts
---------------------------------------------------------------------
Other Restricted Securities
Name and Annual Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Awards Options(#) Payouts Compensation
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
L.V. Gerstner, Jr. 1995 $2,000,000 $2,775,000 $ 0 $7,044,375 100,000 $1,274,663 $ 138,000(3)
Chairman and CEO 1994 2,000,000 2,600,000 0 0 225,000 0 7,755,055
1993 1,500,000 1,125,000 160,130 0 500,000 0 4,924,596
N.C. Lautenbach 1995 515,000 725,000 0 1,363,125 40,000 382,370 32,700(3)
Senior VP 1994 490,000 575,000 0 0 60,000 0 2,250
1993 490,000 300,000 0 0 40,000 0 2,698
J.M. Thompson 1995 493,334 725,000 0 1,363,125 40,000 318,689 112,048(4)
Senior VP 1994 458,000 550,000 0 0 60,000 0 110,820
1993 448,000 315,000 0 0 35,000 0 110,887
G.R. Thoman 1995 500,000 625,000 0 1,363,125 35,000 254,913 24,000(3)
Senior VP and CFO 1994 500,000 300,000 0 0 50,000 0 2,248
1993 6,944 6,133 0 0 50,000 0 2,688,665(5)
P.A. Toole 1995 472,500 615,000 0 0 35,000 382,370 29,925(3)
Senior VP 1994 458,334 525,000 0 0 60,000 0 2,233
1993 450,000 363,000 0 0 42,000 0 2,698
</TABLE>
(1) The 1993 annual compensation for Messrs. L.V. Gerstner, Jr., and G.R.
Thoman reflects less than a full year.
(2) At the end of 1995, Mr. Gerstner held 25,661 performance stock units and
65,000 restricted stock units having a combined value of $8,318,147; Mr.
Lautenbach held 11,688 performance stock units and 9,707 shares of
restricted stock having a combined value of $1,962,991; Mr. Thompson held
11,173 performance stock units and 5,141 shares of restricted stock having
a combined value of $1,496,810; Mr. Thoman held 9,658 performance stock
units having a value of $886,122; and Mr. Toole held 10,688 performance
stock units and 12,375 shares of restricted stock having a combined value
of $2,116,030. Restricted stock and restricted stock units earn dividends
and dividend equivalents at the same rate as dividends paid to
shareholders. No dividend equivalents are paid on outstanding performance
stock units. The value of 15,000 restricted stock units awarded to each of
Messrs. Lautenbach, Thompson and Thoman in January, 1996, is not included
in the combined values of this footnote, but is displayed in the Restricted
Stock Awards column in the table above. Except for dividend and dividend
equivalents paid, restricted stock/unit awards have no value to the
recipient until the restrictions are released.
(3) Represents the Company's contributions to the IBM Tax Deferred Savings Plan
and the Extended Tax Deferred Savings Plan.
(4) Payments to equalize cost-of-living and housing differences, and for
certain other expenses, related to assignment outside of home country.
(5) A one-time payment given in replacement for various benefits and rights
from his former employer that were forfeited upon Mr. Thoman joining IBM.
17
<PAGE>
IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
Stock Option/SAR Grants in Last Fiscal Year (1)
<TABLE><CAPTION>
---------------------------------------------------
Individual Grants
---------------------------------------------------
Number % of Total Potential Realizable Value at
of Securities Options/SARs Assumed Annual Rates of
Underlying Granted to Exercise Stock Price Appreciation for
Options/SARs Employees in Price Expiration Ten-Year Option Term(3)
Name Granted(2) Fiscal Year per Share Date 0% 5% 10%
<S> <C> <C> <C> <C> <C> <C> <C>
L.V. Gerstner, Jr. 100,000 1.55% $ 74.63 2/27/05 $ 0 $ 4,693,000 $11,894,000
N.C. Lautenbach 40,000 .62% 74.63 2/27/05 0 1,877,200 4,757,600
J.M. Thompson 40,000 .62% 74.63 2/27/05 0 1,877,200 4,757,600
G.R. Thoman 35,000 .54% 74.63 2/27/05 0 1,642,550 4,162,900
P.A. Toole 35,000 .54% 74.63 2/27/05 0 1,642,550 4,162,900
Increase in market value of IBM common stock for 5% (to $121/share) 10% (to $193/share)
all stockholders at assumed annual rates of stock ------------------ -------------------
price appreciation (as used in the table above)
from $74.63 per share, over the ten-year period, $ 25.7 billion $ 65.2 billion
based on 547.8 million shares outstanding on
December 31, 1995.
</TABLE>
(1) No Stock Appreciation Rights (SARs) were granted to the named executive
officers during 1995.
(2) Included in the total aggregate exercise price for the grants made to each
of Messrs. Gerstner, Lautenbach, Thoman and Toole is approximately $100,000
of Incentive Stock Options, which become exercisable in two equal
installments on the first and second anniversary dates. The balance of
their grants, as well as the grant made to Mr. Thompson, become exercisable
in four equal annual installments commencing on the first anniversary date.
All options become exercisable upon retirement. Mr. Gerstner's grant also
becomes exercisable on a termination without cause, including upon a
"change-in-control," as defined in his employment agreement.
(3) Potential Realizable Value is based on the assumed annual growth rates for
each of the grants shown over their ten-year option term. For example, a 5%
annual growth rate results in a stock price of $121.56 per share and a 10%
rate results in a price of $193.57 per share. Actual gains, if any, on
stock option exercises are dependent on the future performance of the
stock.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Options/SAR Values
<TABLE><CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Number of Securities
Shares Underlying Unexercised Value of Unexercised In-the-Money
Acquired on Value Options/SARs at Fiscal Year-End Options/SARs at Fiscal Year-End
---------------------------------------------------------------------
Name Exercise(#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
L.V. Gerstner, Jr. 2,908 $ 132,859 304,796 517,296 $12,642,130 $17,820,255
N.C. Lautenbach 0 0 144,853 113,212 1,609,547 3,271,453
J.M. Thompson 0 0 130,074 111,250 1,422,350 3,221,450
G.R. Thoman 0 0 38,780 96,220 1,345,043 2,813,157
P.A. Toole 26,471 626,135 140,605 109,712 63,556 3,232,293
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
<TABLE><CAPTION>
Long-Term Incentive Plans-Awards in Last Fiscal Year
- ---------------------------------------------------------------------------------------------------------
Performance or
Number of Other Period Estimated Future Payouts under
Shares, Units Until Maturation Non-Stock Price-Based Plans(1)
Name or Other Rights or Payout Threshold(#)(2) Target(#) Maximum(#)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
L.V. Gerstner, Jr. 6,700 1/95-12/97 1,675 6,700 10,050
N.C. Lautenbach 6,000 1/95-12/97 1,500 6,000 9,000
J.M. Thompson 6,000 1/95-12/97 1,500 6,000 9,000
G.R. Thoman 5,000 1/95-12/97 1,250 5,000 7,500
P.A. Toole 5,000 1/95-12/97 1,250 5,000 7,500
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Long-Term Performance Incentive (LTPI) awards are denominated in
Performance Stock Units (PSUs) which are equivalent in value to IBM common
stock. PSUs are earned for achieving specified cumulative business
objectives of earnings-per-share and cash flow, weighted 80/20
respectively, over a three-year performance period beginning 1/1/95 and
ending 12/31/97. Performance against each of the targets will be subject to
separate payout calculations. The target number of performance stock units
will be earned if 100% of the objectives are achieved. The threshold number
will be earned for the achievement of 70% of the objectives and the maximum
number will be earned for achieving 120% of the objectives. No payout will
be made for performance below the threshold.
After the performance period, one-half of the earned performance stock
units will be paid in cash. The cash value for each performance stock unit
will be based on the fair market value of one share of IBM common stock as
of 12/31/97. The balance of the performance stock units will be paid in an
equivalent number of stock units which will be restricted for a two-year
period ending 12/31/99.
(2) The amounts in this column represent the threshold number that can be
earned if 70% attainment of both business objectives is achieved. In the
event that only one objective is achieved (at the 70% level), then the
number of performance stock units earned would be 80% of the threshold
number based on earnings-per-share achievement or 20% based on cash flow
achievement.
19
<PAGE>
IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
Retirement Plan
For Messrs. Lautenbach and Toole, retirement benefits payable annually under the
IBM Retirement Plan will be determined by the average of the three consecutive
highest-paid years of compensation (as defined) multiplied by total service
through year-end 1994 times 1.43%, minus 1.43% of estimated Social Security
benefits multiplied by total service through year-end 1994, plus 1.35% of
compensation thereafter. In no event will more than 30 years of total service
(or total service as of December 31, 1993, if greater than 30 years) be taken
into account in calculating the benefit under the above formula. This formula
will remain in effect for accruals through December 31, 2000.
Effective January 1, 1995, IBM amended the IBM Retirement Plan to introduce an
alternative benefit formula if such formula yields a greater benefit than the
Plan formula described above. However, the pre-existing Plan formula will yield
a greater benefit for most employees until the year 2000. The new formula, which
will be phased in over a five-year period, provides for the crediting of
age-weighted percentage points annually up to a maximum of 500 points. The total
points at retirement are multiplied by average annual compensation over the
final five years of compensation (or the highest consecutive five years of
compensation if this yields a greater benefit). The result, with minor
adjustments, is divided by a benefit conversion factor based on the
participant's age at retirement to determine the annual annuity benefit.
IBM also introduced the IBM Supplemental Executive Retirement Plan (the "SERP"),
effective January 1, 1995, to attract and retain executives whose skills and
talents are important to IBM's operations by providing retirement income that
supplements benefits under the IBM Retirement Plan. The SERP benefit is
calculated in annuity form as the sum of:
(1) 1.70% times average annual compensation over the final five years of
employment or the highest consecutive five calendar years of compensation,
whichever is greater, up to $185,000 times years of service up to 20 years,
plus
(2) 2.55% of such compensation in excess of $185,000 times years of service up
to 20 years, plus
(3) 1.30% of such compensation times years of service between 20 and 30 years,
plus
(4) 0.75% of such compensation times years of service between 30 and 35 years
with no accruals past 35 years of service,
provided that average annual compensation shall be at least $150,000 and
that the SERP benefit will be reduced by the benefit payable under the IBM
Retirement Plan. The SERP benefit will phase in until 100% accrual is
attained for executives retiring on or after December 31, 1997. SERP
benefits are forfeited if an individual is no longer an executive at
retirement or fails to comply with the Plan's non-compete provisions.
The elements of compensation upon which both the IBM Retirement Plan and
the SERP benefits are based include salary and bonus. In addition, the IBM
Retirement Plan includes amounts credited because of recurring cash and
stock awards. The projected IBM plan benefits set forth below assume no
change in rate of compensation.
20
<PAGE>
IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
Mr. Gerstner's annual pension from the Company under his employment agreement
has been set at approximately $1,140,000 at age 60, when his employment
agreement expires.
In connection with his employment by the Company in 1993, Mr. Thoman was given
credit for 16 years and 3 months of combined service at American Express Company
and RJR Nabisco to be used in the calculation of his IBM pension. Further, he
was promised that his IBM retirement pension would be added to his American
Express pension and that this would yield a combined minimum life annuity of
$450,000 annually provided he remains employed by the Company until July 1,
1999. At age 60 (in 2004), his combined annual annuity benefit including his
benefit from the IBM Retirement Plan and the IBM Supplemental Executive
Retirement Plan is currently estimated at $533,000. The IBM annuity will be
prorated if he leaves the Company without cause before July 1, 1999, and
forfeited if he leaves the Company to accept employment with an IBM competitor
except for a small portion which he would retain provided he met the IBM
Retirement Plan minimum vesting requirement of 5 years of actual IBM service.
Prior to any reduction for survivorship options and assuming there is
no forfeiture of benefits, the estimated annual retirement benefit at age 60 for
Mr. Lautenbach would be $656,000 and for Mr. Toole would be $567,000. Employees
outside the United States are covered by different retirement plans, varying
from country to country. Mr. Thompson is covered by the retirement plan of IBM
Canada, and his estimated annual single life retirement benefit payable in U.S.
dollars at age 60, assuming the currency exchange rate in effect as of December
31, 1995, would be $355,000.
Other Deferred Compensation Plans
The IBM Tax Deferred Savings Plan (the "TDSP") allows all eligible employees to
defer up to 12% of their income on a tax favored basis into a tax exempt trust
pursuant to Internal Revenue Service guidelines. IBM matches these deferrals at
the rate of 50% for the first 6% of compensation deferred. The employee accounts
are invested by the plan trustee in up to eight investment funds, including an
IBM Stock Fund, as directed by the employees. Corporate officers have
participated in the TDSP since its inception in 1983 on the same basis as all
other employees except that they could not participate in the IBM Stock Fund
investment option. Commencing February 1, 1995, officers are now permitted to
invest in the TDSP's IBM Stock Fund consistent with the Company's increased
emphasis on stock ownership. Internal Revenue Service limits on the TDSP
preclude in 1996 an annual investment of more than $9,500 or an eligible
compensation base of more than $150,000 for any one employee.
IBM has established the Extended Tax Deferred Savings Plan (the "ETDSP"),
effective January 1, 1995, which allows any executive, including officers, whose
rate of compensation is at least $150,000 annually or who is a member of the
Senior Management Group, to defer additional monies and receive a Company match
on the same basis as the TDSP except that the Company match for the ETDSP is
credited only in units of IBM common stock which are not transferable to other
investment alternatives during employment. In addition, participants can defer
all or a portion of their annual incentive until retirement under the ETDSP. In
the event that the salary of a Company officer who is subject to the limits of
Section 162 (m) of
21
<PAGE>
IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
the Code exceeds $1,000,000, such officer may defer up to 100 percent of his or
her salary. The ETDSP is not funded and participants are general creditors of
the Company. All investments in the ETDSP earn income based on the results of
the actual TDSP funds' performance but the income is paid out of Company funds
rather than the actual returns on a dedicated investment portfolio.
Employment Agreements and Change-in-Control Arrangements
The Company entered into an employment agreement with Mr. Gerstner as of March
26, 1993, whereby he serves as the chairman and chief executive officer of the
Company. The agreement provided Mr. Gerstner with: an annual salary of at least
$2,000,000; an annual incentive target award opportunity of at least $1,500,000
with a minimum 1993 award of $1,125,000; a long-term performance incentive with
a target opportunity of at least $500,000; and an annual pension at age 60 from
IBM of approximately $1,140,000.
In the event of termination without cause, or due to a "change-in-control" of
the Company, as defined in the agreement, Mr. Gerstner would receive 36 months
salary, prorated incentive payments, the right to exercise all stock options,
and other specified benefits. The employment agreement was amended to provide
that, effective January 1, 1996, Mr. Gerstner's annual salary is at least
$1,500,000, his annual incentive target award opportunity is at least
$2,000,000, and his annual long-term performance incentive target award
opportunity is at least $1,500,000. Otherwise the agreement is unchanged. The
Company has no other change-in-control arrangements with any of its executive
officers. There are no employment agreements with the named executive officers,
other than Mr. Gerstner, that provide for their continuing service.
22
<PAGE>
IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
<TABLE><CAPTION>
Performance Graph
Comparison of Five-Year Cumulative Total Return for
IBM, S&P 500 Stock Index, and S&P Computer Systems Index (excluding IBM)
1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
International Business
Machines Corp. $100 $82 $49 $57 $76 $95
S&P 500 $100 $130 $140 $155 $157 $215
S&P Computer Systems
Index (Excl. IBM) $100 $106 $103 $93 $116 $157
</TABLE>
The above graph compares the five-year cumulative total return for IBM common
stock with the comparable cumulative return of two indexes. Since IBM is a
company within the Standard & Poor's ("S&P") 500 Stock Index, the Securities and
Exchange Commission's proxy rules require the use of that Index. Under those
rules, the second index used for comparison may be a published industry or
line-of-business index. In IBM's case, the S&P Computer Systems Index (excluding
IBM), shown above, is such an index.
The graph assumes $100 invested on December 31, 1990, in IBM common stock and
$100 invested at that same time in each of the S&P indexes. The comparison
assumes that all dividends are reinvested.
23
<PAGE>
IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
2. Ratification of Appointment of Auditors
The Board of Directors has appointed the firm of Price Waterhouse LLP,
independent accountants, to be IBM's auditors for the year 1996 and recommends
to stockholders that they vote for ratification of that appointment.
Price Waterhouse LLP served in this capacity for the year 1995. Its
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.
The appointment of auditors is approved annually by the Board and subsequently
submitted to the stockholders for ratification. The decision of the Board is
based on the recommendation of the Audit Committee, which reviews and approves
in advance the audit scope, the types of nonaudit services, and the estimated
fees for the coming year. The committee also reviews and approves proposed
nonaudit services to ensure that they will not impair the independence of the
accountants.
Before making its recommendation to the Board for appointment of Price
Waterhouse LLP, the Audit Committee carefully considered that firm's
qualifications as auditors for the Company. This included a review of its
performance in prior years, as well as its reputation for integrity and
competence in the fields of accounting and auditing. The committee has expressed
its satisfaction with Price Waterhouse LLP in all of these respects. The
committee's review included inquiry concerning any litigation involving Price
Waterhouse LLP and any proceedings by the Securities and Exchange Commission
against the firm. In this respect, the committee has concluded that the ability
of Price Waterhouse LLP to perform services for the Company is in no way
adversely affected by any such investigation or litigation.
The IBM Board of Directors recommends a vote FOR this proposal.
24
<PAGE>
IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
3. Stockholder Proposal
Stockholder proposals may be submitted for inclusion in IBM's 1997 proxy
material after the 1996 Annual Meeting but received no later than 5 p.m. EST on
November 18, 1996. Proposals must be in writing and sent via registered,
certified, or express mail to: Office of the Secretary, International Business
Machines Corporation, One Old Orchard Road, Armonk, N.Y. 10504. Facsimile or
other forms of electronic submissions will not be accepted.
Management carefully considers all proposals and suggestions from stockholders.
When adoption is clearly in the best interests of the Company and stockholders,
and can be accomplished without stockholder approval, the proposal is
implemented without inclusion in the proxy material.
Examples of stockholder proposals and suggestions that have been adopted over
the years include stockholder ratification of the appointment of auditors,
improved procedures involving dividend checks and stockholder publications,
and changes or additions to the proxy material concerning such matters as
abstentions from voting, appointment of alternative proxy, inclusion of a
table of contents, proponent disclosure, and secrecy of stockholder voting.
Management opposes the following proposal for the reasons stated after the
proposal.
Stockholder Proposal on Affirmation of IBM's Political Non-Partisanship
Management has been advised that Mrs. Evelyn Y. Davis, Watergate Office
Building, 2600 Virginia Avenue, N.W., Suite 215, Washington, D.C. 20037, the
owner of 50 shares, intends to submit the following proposal at the meeting:
Resolved: "That the stockholders of IBM assembled in Annual Meeting in person
and by proxy, hereby recommend that the Corporation affirm its political
non-partisanship. To this end the following practices are to be avoided:
"(a) The handing of contribution cards of a single political party to an
employee by a supervisor.
"(b) Requesting an employee to send a political contribution to an individual in
the Corporation for a subsequent delivery as part of a group of
contributions to a political party or fund raising committee.
"(c) Requesting an employee to issue personal checks blank as to payee for
subsequent forwarding to a political party, committee or candidate.
"(d) Using supervisory meetings to announce that contribution cards of one party
are available and that anyone desiring cards of a different party will be
supplied one on request to his supervisor.
"(e) Placing a preponderance of contribution cards of one party at mail station
locations."
25
<PAGE>
IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
REASONS: "The Corporation must deal with a great number of governmental units,
commissions and agencies. It should maintain scrupulous political neutrality to
avoid embarrassing entanglements detrimental to its business. Above all, it must
avoid the appearance of coercion in encouraging its employees to make political
contributions against their personal inclinations. The Troy Onio [sic] News has
condemned partisan solicitation for political purposes by managers in a local
company (not IBM)."
"Last year the owners of 25,960,870 shares, representing
approximately 7.2% of shares voting, voted FOR this proposal."
"If you AGREE, please mark your proxy FOR this resolution."
- --------------------------------------------------------------------------------
The IBM Board of Directors recommends a vote AGAINST this proposal.
IBM, like all corporations, is subject to laws and regulations that limit
corporate involvement in political election campaigns. IBM is committed to full
compliance with those laws and regulations.
In addition, it is IBM's long-standing policy to prohibit IBM employees from
making contributions of Company resources such as money, goods, or services to
political candidates or parties. This policy is designed to allow employees, as
individual citizens, to participate in the political process as they see fit,
regardless of party affiliation or political persuasion, while maintaining the
non-partisanship of the institution as a whole. In the Board's opinion, IBM's
policies, together with federal and state laws and regulations regarding
corporate involvement in political campaigns, strike an appropriate balance
between allowing IBM employees to exercise lawfully their individual
constitutional rights to participate in the political process while maintaining
the Company's political neutrality. Therefore, the Board recommends a vote
against this proposal.
In November of 1992, IBM was notified by the Federal Election Commission that
the Commission was investigating solicitations by the then chairman of the board
of IBM of campaign contributions that were made by certain senior IBM executives
for a fund-raising luncheon in connection with the 1992 presidential election.
The notice stated that the Federal Election Commission was investigating whether
IBM resources or personnel were improperly utilized in the fund-raising effort
in violation of federal election laws and regulations governing the activities
of federal contractors. IBM has responded to the Federal Election Commission and
provided information relating to the solicitations. Although the Commission's
proceedings are continuing, IBM does not believe that its resources or personnel
were utilized in a manner that violated any applicable law.
26
<PAGE>
IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
OTHER BUSINESS
Management knows of no other matters that may properly be, or are likely to be,
brought before the meeting. If other proper matters are introduced, the
individuals named as Proxies on the enclosed Proxy Card will vote shares it
represents.
Proxies and Voting at the Meeting
The $1.25 par value capital stock of the Company (its common stock) is its only
class of security entitled to vote at the April 30, 1996, meeting. Each
stockholder of record at the close of business on March 11, 1996, is entitled to
one vote for each share held. The Proxy Card covers the number of shares to be
voted, including any shares held for participants in the IBM Dividend
Reinvestment Plan and Employees Stock Purchase Plans. On February 9, 1996, there
were 544,739,550 common shares outstanding and entitled to be voted.
Directors are elected by a plurality of votes cast. A majority of the votes cast
is required to ratify the appointment of auditors and to recommend that the
Board consider adoption of a stockholder proposal. Under the law of New York,
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, broker non-votes, and withheld votes will
not be considered "votes cast" based on current state law requirements and IBM's
Certificate of Incorporation and By-laws.
All stockholder meeting proxies, ballots, and tabulations that identify
individual stockholders are kept secret, and no such document shall be available
for examination, nor shall the identity or the vote of any stockholder be
disclosed except as may be necessary to meet legal requirements under the laws
of New York, IBM's state of incorporation. Votes are counted by employees of
First Chicago Trust Company of New York, IBM's independent transfer agent and
registrar, and certified by the Inspectors of Election who are employees of
Corporation Trust Company.
Shares cannot be voted unless a signed Proxy Card is returned or other specific
arrangements are made to have shares represented at the meeting. Any stockholder
giving a proxy may revoke it at any time before it is voted. If a stockholder
wishes to give a proxy to someone other than the individuals named as Proxies on
the Proxy Card, he or she may cross out the names appearing on the enclosed
Proxy Card, insert the name of some other person, sign, and give the Proxy Card
to that person for use at the meeting.
27
<PAGE>
IBM NOTICE OF 1996 ANNUAL MEETING AND PROXY STATEMENT
Stockholders are encouraged to specify their choices by marking the appropriate
boxes on the enclosed Proxy Card. Shares will be voted in accordance with such
instructions. However, it is not necessary to mark any boxes if you wish to vote
in accordance with the Board of Directors' recommendations; merely sign, date,
and return the Proxy Card in the enclosed envelope.
Solicitation of proxies is being made by the Company through the mail, in
person, and by telecommunications. The cost thereof will be borne by the
Company. In addition, management has retained Morrow & Co., Inc., to assist in
soliciting proxies for a fee of approximately $35,000, plus reasonable
out-of-pocket expenses.
/s/ John E. Hickey
John E. Hickey
Vice President and Secretary
March 18, 1996
28
<PAGE>
<TABLE>
[LOGO]
<S> <C>
Dear IBM Stockholder:, PROXY IDENTIFYING NO. 9926
[X] Please mark your votes as in this example
Your vote is important. Attached is your 1996 IBM PROXY CARD IBM's Directors recommend a vote
Proxy Card. Please read both sides of the card, FOR proposals 1 and 2 and AGAINST
and mark, sign, and date it. Detach and return it stockholder proposal 3. SHARES WILL
promptly using the enclosed envelope. We urge BE SO VOTED UNLESS OTHERWISE
you to vote your shares. INDICATED.
-------------------------------------------------------
You are invited to attend the Annual Meeting of IBM'S Directors recommend a vote FOR proposals 1 and 2.
-------------------------------------------------------
Stockholders on Tuesday, April 30, 1996, at 1. Election of Directors FOR [ ] WITHHELD [ ]
10 a.m. in the Atlanta Civic Center, (see reverse)
For, except vote WITHHELD from the following
395 Piedmont Ave., N.E., Atlanta, Georgia. If nominee(s):
you plan to attend the Annual Meeting, you
---------------------------------------------
should mark the box provided on the attached 2. Ratification of appointment of auditors
Proxy Card. An admission ticket is attached (page 24) FOR [ ] AGAINST [ ] ABSTAIN [ ]
for your convenience.
------------------------------------------------------
IBM's Directors recommend a vote AGAINST proposal 3.
------------------------------------------------------
As part of IBM's ongoing efforts to reduce expenses, 3. Stockholder Proposal on affirmation of IBM's political
we are asking our stockholders to permit IBM to non-partisanship
send only one copy of stockholder publications to (page 25) FOR [ ] AGAINST [ ] ABSTAIN [ ]
their household. It you are receiving multiple
copies of stockholder reports at your address and
wish to eliminate them for the account shown on the Will Attend Annual Meeting [ ]
attached Proxy Card, please mark the box provided on Discontinue Mailing Publications to this Account [ ]
the card. You will continue to receive your proxy
mailings for shares held in this account. Signature(s) Date
-------------------------------- ----------
PLEASE SIGN AND DATE HERE, DETACH AND RETURN IN ENCLOSED
Thank you very much for your cooperation and ENVELOPE.
continued loyalty as an IBM Stockholder. ---------------------------------------------------------
/s/John E. Hickey ADMISSION TICKET TO THE 1996 ANNUAL MEETING OF
John E. Hickey IBM STOCKHOLDERS
Vice President and Secretary
This is your admission ticket for the Annual Meeting of
Stockholders to be held on Tuesday, April 30, 1996, at
10 a.m. in the Atlanta Civic Center, 395 Piedmont Ave.,
N.E., Atlanta, Georgia.
Stockholders must have a ticket for admission to the
meeting. This ticket is issued to the stockholder whose
name appears on it and is non-transferable.
[LOGO]
</TABLE>
<PAGE>
<TABLE>
PROXY CARD
<S> <C>
[LOGO] International Business Machines Proxy Solicited by the Board of Directors
Corporation for the Annual Meeting of Stockholders
Armonk, New York 10504 April 30, 1996
Louis V. Gerstner, Jr., Lawrence R. Ricciardi, and John E. Hickey, or any of them individually and each
of them with the power of substitution, are hereby appointed Proxies of the undersigned to vote
all common stock of International Business Machines Corporation owned on the record date
by the undersigned at the Annual Meeting of Stockholders to be held in the Atlanta Civic Center,
Atlanta, Georgia, at 10 a.m. on Tuesday, April 30, 1996, or any adjournment thereof, upon such
business as may properly come before the meeting, including the items on the reverse side
of this form as set forth in the Notice of 1996 Annual Meeting and Proxy Statement dated
March 18, 1996.
Election of Directors, Nominees:
C. Black, H. Brown, J. Dormann, L.V. Gerstner, Jr., N.O. Keohane, C.F. Knight, L.A. Noto,
J.B. Slaughter, A. Trotman, L.C. van Wachem, C.M. Vest
(Shares cannot be voted unless this Proxy Card is signed and returned, or other specific
arrangements are made to have the shares represented at the meeting.)
</TABLE>
PLEASE DETACH AND PRESENT THIS TICKET FOR ADMISSION TO THE ANNUAL MEETING
<PAGE>
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Attention: Mr. Robert F. Bartelmes
Branch Chief, Division of Corporation Finance
Re: International Business Machines Corporation (CIK # 51143)
Electronic Filing of Definitive 1996 Proxy Materials
Dear Mr. Bartelmes:
The filing fee for International Business Machines Corporation ("IBM"), in
the amount of One Hundred Twenty-Five Dollars ($125.00), was wire-transferred to
the account of the Securities and Exchange Commission ("SEC"), at Mellon Bank,
SEC Account No. 910-8739, ABA No. 043000261, in Pittsburgh, Pennsylvania, on
Friday, March 1, 1996 and was confirmed telephonically by SEC Filer Support on
March 4, 1996 as received for our account. The Federal Reference Number for
such wire transfer is 2353.
In accordance with Rule 14a-6 of Regulation 14A of the Securities and
Exchange Commission under the Securities Exchange Act of 1934 as amended, we
file the following:
One copy of the definitive Proxy Statement for the IBM 1996 Annual
Meeting of Stockholders in electronic format.
The definitive copy contains:
(a) Letter to stockholders from Mr. Louis V. Gerstner, Jr.,
Chairman of the Board
(b) Notice of 1996 Annual Meeting and Proxy Statement
(c) Form of Proxy Card
These materials will be mailed to IBM stockholders beginning on the day, or
the day after, notice has been received by IBM that the filing of such materials
under EDGAR has been accepted by the SEC.
If you require additional information, please contact the undersigned or
Peter M. Action, Esq., Associate General Counsel, preferably by collect
telephone call at 914/765-4805.
Sincerely,
John E. Hickey
Vice President and Secretary
