SCHEDULE 14A INFORMATION
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International Business Machines
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<PAGE>
IBM Notice of 1998 Annual Meeting and Proxy Statement
[IBM LOGO]
Dear Stockholders,
You are cordially invited to attend the Annual Meeting of Stockholders on
Tuesday, April 28, at 10 a.m., in the Arie Crown Theatre at Lakeside Center,
Chicago, Illinois.
We are very pleased that Mr. Minoru Makihara, president of Mitsubishi
Corporation, who was elected to the Board in July 1997, is a nominee for the
first time.
Dr. Harold Brown will retire from the Board in April and is not a nominee for
election this year. Dr. Brown has served on our Board for over 22 years. We are
very grateful to him for his many contributions during these years, and we will
miss his participation on the Board.
This year, stockholders of record can vote their shares by using the Internet or
the telephone. Instructions for using these convenient new services are set
forth on the enclosed proxy card. Of course, you also may vote your shares by
marking your votes on the enclosed proxy card, signing and dating it, and
mailing it in the enclosed envelope. 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 Vote by Using the Internet,
the Telephone, or by Signing, Dating, and Returning
the Enclosed Proxy Card
1
<PAGE>
International Business Machines Corporation
Armonk, New York 10504
March 13, 1998
Notice of Meeting
The Annual Meeting of Stockholders of International Business Machines
Corporation will be held on Tuesday, April 28, 1998, at 10 a.m., in the Arie
Crown Theatre at Lakeside Center, 2301 South Lake Shore Drive, Chicago, Illinois
60616. 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 9, 1998, are entitled to vote at the meeting. Stockholders are reminded
that shares cannot be voted unless the signed Proxy Card is returned, shares are
voted over the Internet or by telephone, 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 13, 1998, to stockholders entitled to vote. The IBM
1997 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.
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IBM Notice of 1998 Annual Meeting and Proxy Statement
Table of Contents
Page
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 Section 16(a) Beneficial Ownership Reporting Compliance 11
o Ownership of Securities 11
- Common Stock and Total Stock-Based Holdings of Management 12
Report on Executive Compensation 14
o Summary Compensation Table 18
o Performance Graph 24
2. Ratification of Appointment of Auditors 25
3. Stockholder Proposal 26
Other Business 28
Proxies and Voting at the Meeting 28
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IBM Notice of 1998 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, 53, 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 the Newspaper Association of
[PHOTO OMITTED] America from 1991 to 1996, president, then publisher, of
USA TODAY from 1983 to 1991, and also executive vice
president/marketing for Gannett Company, Inc.
(USA TODAY parent company) from 1985 to 1991. She is a
director of The Hearst Corporation, The Coca-Cola
Company, the Advertising Council and a trustee of the
University of Notre Dame. Ms. Black became an IBM
director in 1995.
JUERGEN DORMANN, 58, 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
[PHOTO OMITTED] joined Hoechst in 1963 and was elected finance and
accounting director in 1987 and to his present position
in 1994. He is a member of the supervisory board of
Allianz Lebensversicherungs AG. Mr. Dormann became an
IBM director in 1996.
LOUIS V. GERSTNER, JR., 56, is chairman of the Board and
chief executive officer of IBM and chairman of IBM's
Executive Committee. From 1989 until joining IBM in
1993, he was 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
[PHOTO OMITTED] 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. Mr. Gerstner co-chairs
Achieve, an organization created by United States
governors and business leaders to establish high
academic standards in our nation's schools. He is 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.
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IBM Notice of 1998 Annual Meeting and Proxy Statement
NANNERL O. KEOHANE, 57, is president and professor of
political science at Duke University. She is chairperson
of IBM's Directors and Corporate Governance Committee
and a member of IBM's Executive Committee. She was
formerly president of Wellesley College, and a former
[PHOTO OMITTED] faculty member at Swarthmore College and Stanford
University. She is a member of The Council on Foreign
Relations, the American Philosophical Society and the
American Academy of Arts and Sciences. Dr. Keohane is a
trustee of the Colonial Williamsburg Foundation and has
served as vice president of the American Political
Science Association. Dr. Keohane became an IBM director
in 1986.
CHARLES F. KNIGHT, 62, is chairman and chief executive
officer of Emerson Electric Co., an electronics company.
He is chairman of IBM's Executive Compensation and
Management Resources Committee and a member of IBM's
Executive Committee. He joined Emerson Electric in 1972
[PHOTO OMITTED] 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.
MINORU MAKIHARA, 68, is president of Mitsubishi
Corporation. Mr. Makihara joined Mitsubishi in 1956 and
[PHOTO OMITTED] was elected president of Mitsubishi International
Corporation in 1987, chairman of Mitsubishi
International Corporation in 1990, and to his present
position in 1992. Mr. Makihara became an IBM director in
1997.
LUCIO A. NOTO, 59, is chairman and chief executive
officer of Mobil Corporation, an oil, gas and
petrochemical company. 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
[PHOTO OMITTED] in 1993, and to his present position in 1994. He also
serves as chairman of Mobil's executive committee. Mr.
Noto is a director of Philip Morris Companies Inc. He is
a member of The Council on Foreign Relations, The
Business Council, the Trilateral Commission, The
Business Roundtable, the American Petroleum Institute
and a member of the Board of Trustees of the Urban
Institute. Mr. Noto became an IBM director in 1995.
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IBM Notice of 1998 Annual Meeting and Proxy Statement
JOHN B. SLAUGHTER, 64, 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 director of the National Science Foundation. He
is a director of the Atlantic Richfield Company, Avery
[PHOTO OMITTED] Dennison Corporation, Solutia, Inc., 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, 64, is chairman and chief executive
officer of the Ford Motor Company, an automotive
manufacturer. He is a 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
[PHOTO OMITTED] 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 is a director of
the New York Stock Exchange and Imperial Chemical
Industries PLC. Mr. Trotman became an IBM director in
1994.
LODEWIJK C. VAN WACHEM, 66, is chairman of the
supervisory board of Royal Dutch Petroleum Company, an
oil, gas and petrochemical company. He is chairman of
IBM's Audit Committee and a member of IBM's Executive
[PHOTO OMITTED] 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 ABB Asea Brown Boveri Ltd., ATCO
Ltd., and Zurich Versicherungs-Gesellschaft; and a
member of the supervisory boards of Akzo Nobel N.V.,
Bavarian Motor Works A.G., Bayer A.G. and Philips
Electronics N.V. Mr. van Wachem became an IBM director
in 1992.
CHARLES M. VEST, 56, is president and professor of
mechanical engineering at the Massachusetts Institute of
Technology. He is a member of IBM's Executive
Compensation and Management Resources Committee. Dr.
Vest was formerly the provost and vice president for
[PHOTO OMITTED] 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
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IBM Notice of 1998 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 9 meetings during 1997. Overall attendance at Board
and committee meetings was 94 percent. Attendance was over 75 percent for each
director, with the exception of Mr. Makihara, who joined the Board in July.
Following the Annual Meeting, the Board will consist of 11 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* N.O. Keohane* C.F. Knight*
N.O. Keohane J. Dormann C. Black A. Trotman
C.F. Knight L.A. Noto H. Brown** C.M. Vest
L.C. van Wachem J.B. Slaughter
* Chair
** Retiring April 28, 1998
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 met
once in 1997.
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IBM Notice of 1998 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 three meetings in 1997.
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 workforce
diversity, 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 1997.
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 14). The committee has responsibility for reviewing the
Company's management resources programs and for recommending qualified
candidates to the Board for election as officers.
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
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IBM Notice of 1998 Annual Meeting and Proxy Statement
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 1997.
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 1997, none of these transactions was
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, 1997, through June 30, 1998,
at a total cost of $576,192. The primary carrier is Federal Insurance Company.
Directors' Compensation
Directors who are not employees of the Company receive an annual retainer of
$60,000 and each committee chair receives 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 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.
Under the IBM Non-Employee Directors Stock Option Plan, each outside director
receives an annual grant of options to purchase 2,000 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.
The Directors and Corporate Governance Committee of the Board periodically
reviews IBM's director compensation practices and compares them against the
practices of the largest U.S. companies in terms of market capitalization. In
performing this review, the Committee focuses on ensuring that the Company's
outside directors have a proprietary stake in the Company and that the interests
of the directors continue to be closely aligned with the interests of the
Company's stockholders. The
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IBM Notice of 1998 Annual Meeting and Proxy Statement
Committee believes that the Company's total director compensation package
continues to be competitive with the compensation offered by other companies and
is fair and appropriate in light of the responsibilities and obligations of the
Company's outside directors.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company believes that during 1997 all reports for the Company's executive
officers and directors that were required to be filed under Section 16 of the
Securities Exchange Act of 1934 were timely filed.
Ownership of Securities
The following table reflects shares of IBM common stock beneficially owned by
the named persons, and the directors and executive officers as a group, as of
December 31, 1997.
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.
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IBM Notice of 1998 Annual Meeting and Proxy Statement
Common Stock and Total Stock-Based Holdings of Management
The following table sets forth the beneficial ownership of shares of the
Company's common stock, as well as all other IBM stock-based holdings as of
December 31, 1997, by IBM's current directors and nominees, the executive
officers named in the Summary Compensation Table on page 18, and the directors
and officers as a group, as of December 31, 1997. 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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Voting Power Investment Power Total Acquirable
-------------------------------------- Stock-based within 60
Name Sole Shared Sole Shared Stock (1) holdings (2) days (3)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
C. Black 2,000 162 4,172 162 4,334 4,510 500
H. Brown 0 1,200 17,476 1,200 18,676 24,871 1,500
J. Dormann 2,000 0 2,963 0 2,963 2,963 500
L.V. Gerstner, Jr. 244,726 456 231,334 456 388,172 434,418 1,278,854
N.O.Keohane 0 1,005 8,383 1,005 9,388 11,032 1,500
C.F. Knight 4,906 0 9,565 0 9,565 10,490 1,500
M. Makihara 500 0 744 0 744 744 0
L.A. Noto 2,750 1,257 5,386 1,257 6,643 6,892 1,500
L.R. Ricciardi 0 15,000 0 15,000 55,000 55,882 86,051
J.B. Slaughter 100 0 7,007 0 7,007 8,979 1,500
R.M. Stephenson 87,011 0 71,655 0 129,609 130,897 45,014
J.M. Thompson 53,358 0 39,728 0 107,256 107,554 74,999
A. Trotman 2,000 2,000 4,639 2,000 6,639 6,973 1,500
L.C. van Wachem 2,000 0 4,042 0 4,042 5,554 1,500
C.M. Vest 200 0 1,805 0 1,805 2,212 1,500
D.M. Welsh 11,743 0 7,635 0 39,229 44,505 146,164
- ---------------------------------------------------------------------------------------------------------
Directors and executive
officers as a group (4) 601,317 21,790 526,333 21,790 1,138,439* 1,214,248 2,467,016*
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* The total of these two columns represents less than 1% of the outstanding
shares. No individual's beneficial holdings totaled more than 1/5 of 1% of the
outstanding shares. These holdings do not include 2,716,938 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 restricted stock units.
For non-employee directors, this column includes shares earned and accrued
under the Directors Deferred Compensation and Equity Award
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IBM Notice of 1998 Annual Meeting and Proxy Statement
Plan. They have no voting power over such shares and investment power only
with regard to such shares acquired as a result of deferring fees paid to
them.
(2) This column shows the total IBM stock-based holdings, including the
securities shown in the "Stock" column and 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. For non-employee
directors, this column also includes the Promised Fee Shares payable in
cash that were credited to the non-employee directors in connection with
the elimination of pension payments to such directors.
(3) Shares that can be purchased under an IBM stock option plan.
(4) None of the directors or executive officers own any IBM preferred stock.
13
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IBM Notice of 1998 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 it 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 executives
are critical to establishing IBM's 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 manner that furthers the Company's business
strategies and aligns their interests with those of the stockholders. To support
this philosophy, the following principles provide a framework for the
compensation program:
- - offer competitive total compensation value that will attract the best
talent to IBM; motivate individuals to perform at their highest levels;
reward outstanding achievement; and retain those individuals with the
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 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
limits deductibility of compensation in excess of $1 million paid to the
Company's chief executive officer and to each of the other four highest-paid
executive officers unless this compensation qualifies as "performance-based." In
1995, the Committee adopted, and the stockholders approved, terms under which
annual incentive compensation and Long-Term Performance Incentive awards should
qualify as performance-based. 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 payment of a sufficient
amount of the salary to bring it below the Section 162(m) limit. Additionally,
based on the applicable tax regulations, any taxable compensation derived from
the exercise of stock options under the IBM 1997 Long-Term Performance Plan, the
IBM 1994 Long-Term Performance Plan and any prior Plans should qualify as
performance-based. The Committee is not precluded, however, from making
compensation payments under different terms even if they would not qualify for
tax deductibility under Section 162(m).
The Committee makes annual incentive awards based on its assessment of the
Company's performance as measured against predetermined financial targets,
taking into account various quantitative and qualitative factors. The primary
quantitative factors reviewed by the Committee include such financial measures
as net income, cash flow, earnings-per-share, and market capitalization of the
Company. Among the qualitative factors evaluated by the Committee are the
Company's perfor-
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IBM Notice of 1998 Annual Meeting and Proxy Statement
mance relative to other leading multinational corporations, progress toward
achievement of the Company's short-term and long-term business goals and the
global business and economic environment. In addition, every executive 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 executive, and to IBM as
a whole.
IBM's compensation program for executive officers is targeted to provide highly
competitive total compensation levels (including both annual and long-term
incentives) for highly competitive performance. Compensation is benchmarked
against data developed by independent consultants using surveys of both the
information technology industry and the largest U.S. market-capitalized
companies and is set to reflect the 75th percentile of the compensation
practices of comparator companies. These companies have executive positions
similar to those at IBM in magnitude, complexity and scope of responsibility,
and they are representative of the various markets in which IBM competes for
executive talent. This is a broader and more diverse set of companies than those
included in the S&P Computers (Hardware) Index used for the Performance Graph on
page 24.
Stock ownership guidelines have been established for members of 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 the sum of their base salary
and annual incentive target depending on the individual's scope of
responsibilities and the Company's strategic imperatives.
Components of Executive Compensation
The compensation program for executive officers consists of the following
components:
ANNUAL CASH COMPENSATION: includes base salary and any cash incentive or bonus
award earned for the year's performance. Both salary and the annual target
incentive opportunity are established for each executive officer based on job
responsibilities, level of experience, overall business performance and
individual contribution to the business, as well as analyses of competitive
industry practice. Actual annual incentive awards for 1997 are based on an
assessment of these factors and various other quantitative and qualitative
performance factors. Financial measures include net income and cash flow (with
most of the weighting on net income) and directly align executive pay with
Company profitability. The Committee approved the financial targets early in the
year and certified attainment at the end of the performance period. Qualitative
measures include achievements in areas such as strategy, product and technology
leadership, implementation of key business programs and customer satisfaction.
Final incentive amounts for the named executive officers are reported in the
Summary Compensation Table. Effective January 1, 1998, the Committee amended the
Extended Tax Deferred Savings Plan (ETDSP) to permit participants to defer up to
15% of pay, in order to maintain parallel deferral limits between the ETDSP and
the qualified all-employee Tax Deferred Savings Plan.
LONG-TERM INCENTIVE COMPENSATION: includes stock options, Long-Term Performance
Incentive awards and restricted stock or restricted stock unit awards. The
objectives for these awards are to closely align executive interests with the
longer-term interests of stockholders by encouraging equity participation 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 stock-
15
<PAGE>
IBM Notice of 1998 Annual Meeting and Proxy Statement
holder value or the attainment of cumulative financial targets over three-year
periods. These long-term grants represent a significant portion of the total
compensation value provided to executive officers. Award sizes are based both
upon individual performance, level of responsibility and potential to make
significant contributions to the Company, as well as upon award levels at other
companies included in the competitive surveys. In addition, long-term incentives
granted in prior years are taken into consideration.
- - Stock Options typically are 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 at least four years, and generally 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 made in 1997 covering
the period 1997-99, 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 awards, as shown in the Table on
page 20. The stock units are valued based upon the market price of the
Company's common stock. For LTPI awards made in 1995 covering the
three-year period through 1997, the financial goals were
earnings-per-share and cash flow weighted 80/20. 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 18.
- - Restricted Stock Unit awards are designed to provide long-term retention
incentives 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 generally five years.
Compensation for the Chairman and Chief Executive Officer
The Committee believes that IBM continues to enhance its position as a leading
global information technology firm and that it continues to meet the challenges
of an increasingly competitive environment. During 1997, IBM revenue grew 8%
year-to-year at constant currency (3% as reported), continuing to hit record
levels as achieved in 1996. Continued momentum in global services (28% growth in
revenue year-to-year) has enabled IBM to maintain its position as the world's
largest information technology services provider. Earnings-per-share improved
12% year-to-year to $6.18 per share. This consistent performance is reflected in
the firm's overall market capitalization, which grew $23 billion in 1997 and now
exceeds $100 billion. The Committee believes that this performance is strong,
particularly in light of continued volatility in global business markets. This
is reflected in Mr. Gerstner's annual incentive award of $4,500,000 for 1997,
which is reported in the Bonus column of the Summary Compensation Table on page
18. He also earned a payout from the 1995-97 LTPI based on the Company's
cumulative financial results over the three-year period. In addition, as part of
its annual review of long-term incentive compensation, on March 13, 1997, the
Committee recommended, and the Board approved, an award to Mr. Gerstner of
options covering 200,000 shares of IBM common stock and an LTPI award of 20,798
performance stock units.
16
<PAGE>
IBM Notice of 1998 Annual Meeting and Proxy Statement
Now in his fifth year as chairman and chief executive officer of IBM, Mr.
Gerstner continues to demonstrate highly effective leadership. Since assuming
his role in April of 1993, Mr. Gerstner has led IBM to industry strength --
continuing to deepen and expand client relationships as well as the focus on
core competencies. As a result, during his tenure, stockholders have experienced
a 343% increase in total stockholder return.
In view of Mr. Gerstner's continued superior performance and to ensure that his
skills and experience remain available to the Company after he retires, the
Committee amended Mr. Gerstner's employment agreement to provide him with a
10-year consulting agreement upon retirement. Mr. Gerstner agreed to remain as
chairman and chief executive officer until he reaches age 60 in March of 2002
and to adhere to Company rules prohibiting competition, solicitation of
employees and other activities detrimental to the Company during the 10-year
consulting period. The consulting agreement also contains other terms more fully
described in the section entitled, "Employment Agreements and Change-in-Control
Arrangements."
Further, on September 29, 1997, the Committee recommended, and the Board
approved, the grant to Mr. Gerstner of a special stock option covering 2,000,000
shares of IBM common stock. This award will vest in five equal installments over
five years. The Board made the award in order to provide a significant
additional incentive to Mr. Gerstner to remain at IBM, to recognize his
outstanding performance and leadership and to ensure that he receives
competitive total pay for performance in line with other top-performing chief
executive officers. In determining the form and amount of the grant, the Board
took into consideration the chairman's central role in contributing to the
Company's performance, as reflected in total stockholder return; his commanding
leadership of a complex global business in an intensely competitive, dynamic
industry; and extensive analyses of stock option awards and total compensation
paid to other chief executive officers demonstrating comparable performance
levels and leadership, using data prepared by independent consultants.
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
17
<PAGE>
IBM Notice of 1998 Annual Meeting and Proxy Statement
Summary Compensation Table
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
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(#)(3) Payouts Compensation
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
L.V. Gerstner, Jr. 1997 $1,500,000 $4,500,000 $ 0 $ 0 2,200,000 $2,094,018 $102,600(4)
Chairman 1996 1,500,000 3,270,000 0 0 600,000 2,072,567 128,250
and CEO 1995 2,000,000 2,775,000 0 7,044,375 200,000 1,274,663 138,000
J.M. Thompson 1997 575,000 825,000 0 2,057,500 100,000 1,875,240 29,190(4)
Senior VP 1996 556,250 603,000 0 0 100,000 621,770 166,133
1995 493,334 725,000 0 1,363,125 80,000 318,689 112,048
R.M. Stephenson 1997 532,501 800,000 0 2,057,500 100,000 1,203,279 26,265(4)
Senior VP 1996 472,500 543,000 0 1,073,750 70,000 414,513 29,925
1995 436,667 525,000 21,904 0 46,200 191,233 61,609
L.R. Ricciardi 1997 470,000 800,000 0 2,057,500 90,000 1,562,700 568,768(5)
Senior VP, 1996 470,000 503,000 0 1,073,750 70,000 0 140,444(5)
General Counsel 1995 295,530 575,000 0 0 100,000 0 10,778(5)
and CFO
D.M. Welsh 1997 437,500 825,000 0 0 80,000 1,203,279 25,425(4)
Senior VP 1996 393,751 410,000 0 0 48,000 310,965 24,113
1995 356,250 410,000 0 908,750 46,200 191,233 20,455
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The 1995 annual compensation amount for Mr. Ricciardi reflects less than a
full year, since his employment date was May 15, 1995.
(2) At the end of 1997, Mr. Gerstner held 62,056 performance stock units,
142,990 restricted stock units and 13,392 shares of restricted stock
having a combined value of $22,839,877; Mr. Thompson held 36,000
performance stock units, 53,898 restricted stock units and 13,630 shares
of restricted stock having a combined value of $10,824,888; Mr. Stephenson
held 29,700 performance stock units, 42,598 restricted stock units and
15,356 shares of restricted stock having a combined value of $9,165,102;
Mr. Ricciardi held 30,000 performance stock units and 40,000 restricted
stock units having a combined value of $7,319,200; and Mr. Welsh held
25,500 performance stock units, 21,950 restricted stock units and 4,108
shares of restricted stock having a combined value of $5,390,904.
Restricted stock and restricted stock units earn dividends and dividend
equivalents at the same rate as dividends paid to shareholders; otherwise,
restricted stock/unit awards have no value to the recipient until the
restrictions are released. No dividend equivalents are paid on outstanding
performance stock units.
(3) The number of securities underlying options granted reflect the
two-for-one stock split declared by the Board on January 28, 1997.
(4) Represents the Company's contributions to the IBM Tax Deferred Savings
Plan ("TDSP") and the Extended Tax Deferred Savings Plan ("ETDSP").
(5) Includes (a) payments given in replacement for various benefits and rights
from his former employer that were forfeited and (b) expenses relating to
Mr. Ricciardi joining IBM. Also includes $24,390 in 1997, $31,850 in 1996
and $8,866 in 1995 for the company's contributions to the TDSP and ETDSP.
18
<PAGE>
IBM Notice of 1998 Annual Meeting and Proxy Statement
Stock Option/SAR Grants in Last Fiscal Year (1)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Individual Grants
------------------------------------------------------
Potential Realizable Value at
Number % of Total Assumed Annual Rates of
of Securities Options/SARs Stock Price Appreciation for
Underlying Granted to Exercise Ten-Year Option Term (5)
Options/SARs Employees in Price Expiration ------------------------------------
Name Granted (2) Fiscal Year per Share Date 0% 5% 10%
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
L.V. Gerstner, Jr. 200,000(3) 1.00% $72.13 3/12/07 $0 $9,071,000 $22,989,000
2,000,000(4) 10.02% 103.56 9/28/07 0 130,260,000 330,100,000
J.M. Thompson 100,000 0.50% 72.13 3/12/07 0 4,535,500 11,494,500
R.M. Stephenson 100,000 0.50% 72.13 3/12/07 0 4,535,500 11,494,500
L.R. Ricciardi 90,000 0.45% 72.13 3/12/07 0 4,081,950 10,345,050
D.M. Welsh 80,000 0.40% 72.13 3/12/07 0 3,628,400 9,195,600
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Increase in market value of IBM common stock for all 5% (to $169/share) 10% (to $269/share)
stockholders at assumed annual rates of stock price ------------------ -------------------
appreciation (as used in the table above) from $103.56
per share, over the ten-year period, based on 958.1 $62.4 billion $158.1 billion
million shares outstanding on December 31, 1997.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) No Stock Appreciation Rights (SARs) were granted to the named executive
officers during 1997.
(2) Included in the total aggregate exercise price for the grants made to each
of Messrs. Thompson, Stephenson, Ricciardi and Welsh is approximately
$100,000 of Incentive Stock Options, which become exercisable along with
the balance of their grants in four equal installments commencing on the
first anniversary date. Upon retirement, all options continue to become
exercisable in accordance with their terms.
(3) The grant becomes exercisable in four equal installments commencing on the
first anniversary date. Included in the total aggregate exercise price for
this grant is approximately $100,000 of Incentive Stock Options, which
become exercisable on the first anniversary date. Upon retirement, all
options continue to become exercisable in accordance with their terms. Mr.
Gerstner's grant also becomes exercisable on a termination without cause,
including upon a "change-in-control," as defined in his employment
agreement.
(4) This grant becomes exercisable in five equal installments commencing on
the first anniversary date. Upon retirement, all options continue to
become exercisable in accordance with their terms. Mr. Gerstner's grant
also becomes exercisable on a termination without cause, including upon a
"change-in-control," as defined in his employment agreement.
(5) 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
$103.56 per share price with a 5% annual growth rate results in a stock
price of $168.69 per share and a 10% rate results in a price of $268.61
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
Underlying Unexercised Value of Unexercised In-the-Money
Shares Options/SARs at Fiscal Year-End Options/SARs at Fiscal Year-End
Acquired on Value -------------------------------------------------------------------
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
L.V. Gerstner, Jr. 101,340 $6,705,008 1,229,524 3,010,342 $ 95,616,343 $ 48,120,404
J.M. Thompson 185,110 6,570,148 0 245,002 0 11,358,632
R.M. Stephenson 114,710 3,087,909 0 190,900 0 8,164,831
L.R. Ricciardi 0 0 68,552 191,448 3,640,360 7,881,040
D.M. Welsh 39,000 2,455,225 109,150 157,900 7,880,689 7,086,206
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
IBM Notice of 1998 Annual Meeting and Proxy Statement
Long-Term Incentive Plans-Awards in Last Fiscal Year
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Performance or Estimated Future Payouts under
Number of Other Period Non-Stock Price-Based Plans (1)
Shares, Units Until Maturation -----------------------------------------------
Name or Other Rights or Payout Threshold (2) Target (#) Maximum (#)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
L.V. Gerstner, Jr. 20,798 1/97-12/99 5,200 20,798 31,197
J.M. Thompson 12,000 1/97-12/99 3,000 12,000 18,000
R.M. Stephenson 12,000 1/97-12/99 3,000 12,000 18,000
L.R. Ricciardi 10,000 1/97-12/99 2,500 10,000 15,000
D.M. Welsh 10,000 1/97-12/99 2,500 10,000 15,000
- ------------------------------------------------------------------------------------------------------------
</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 1/1/97 and
ending 12/31/99. 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 equal to the average closing price of one share of IBM common
stock for the month of January 2000. 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 12/31/2001.
(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.
20
<PAGE>
IBM Notice of 1998 Annual Meeting and Proxy Statement
Retirement Plans
Retirement benefits are provided to the executive officers of the Company,
including the named executive officers, under a funded, tax-qualified defined
benefit pension plan known as the IBM Retirement Plan and an unfunded,
non-qualified defined benefit pension plan known as the Supplemental Executive
Retirement Plan (collectively, the "Plans").
The following table sets out the estimated annual pension benefit payable under
the Plans for a participant at age 65, for various levels of average annual
compensation (as defined below) and years of service, as supplemented in the
case of Mr. Gerstner by a separate arrangement.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Five Year Years of Service
Average ----------------------------------------------------------------------------------
Compensation 5 15 20 25 30 35
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 200,000 $ 17,340 $ 52,020 $ 69,360 $ 82,360 $ 95,360 $ 102,860
400,000 42,840 128,520 171,360 197,360 223,360 238,360
600,000 68,340 205,020 273,360 312,360 351,360 373,860
800,000 93,840 281,520 375,360 427,360 479,360 509,360
1,000,000 119,340 358,020 477,360 542,360 607,360 644,860
1,500,000 183,090 549,270 732,360 829,860 927,360 983,610
2,000,000 246,840 740,520 987,360 1,117,360 1,247,360 1,322,360
- ---------------------------------------------------------------------------------------------------
</TABLE>
For purposes of the Plans, average annual compensation is equal to the average
annual salary and bonus over the final 5 years of employment or the highest
consecutive five calendar years of compensation, whichever is greater. The
annual salary and bonus for the current year for the named executive officers is
indicated in the Annual Compensation column of the Summary Compensation Table.
The years of service for each of the named executive officers under the Plans,
as of December 31, 1997, are: Mr. Gerstner, 4 years; Mr. Thompson, 31 years; Mr.
Stephenson, 35 years; Mr. Ricciardi, 2 years; and Mr. Welsh, 31 years. No
additional benefits are payable under the Plans for years of service in excess
of 35 years.
Benefits under the Plans are computed on the basis of a single life annuity and
are payable, subject to reduction, in any annuity form permitted under the IBM
Retirement Plan. Benefits are paid from the trust under the IBM Retirement Plan,
to the extent permitted by law, and are not subject to reduction for Social
Security benefits or other offset amounts.
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.
Other Deferred Compensation Plans
The IBM Tax Deferred Savings Plan (the "TDSP") allows all eligible employees to
defer up to 15% 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 a selection of investment funds, including
an IBM Stock Fund, as directed by the employees. Corporate officers have
participated in the
21
<PAGE>
IBM Notice of 1998 Annual Meeting and Proxy Statement
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 1998 an
annual investment of more than $10,000 or an eligible compensation base of more
than $160,000 for any one employee.
IBM established the Extended Tax Deferred Savings Plan (the "ETDSP") in 1995.
The ETDSP allows any U.S. executive, including officers, 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 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. Effective January 1, 1996, the employment agreement was amended to
provide that 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.
In addition, the agreement provides Mr. Gerstner with an annual pension at age
60 from IBM of approximately $1,140,000.
Effective November 17, 1997, his agreement was further amended. In consideration
for his commitment to remain as chairman and chief executive officer of IBM
until he reaches age 60 in March of 2002, and in order to ensure that Mr.
Gerstner's skills and experience remain available to the Company, the amendment
provides that Mr. Gerstner will become a consultant to the Company for a period
of 10 years following his retirement. During this period, he will receive a
daily consulting fee based on his daily salary rate at the time of his
retirement plus reasonable expense reimbursement, and he will adhere to Company
rules prohibiting competition, solicitation of employees and other activities
detrimental to the Company. In addition, he will continue to have use of Company
facilities and services, such as office, cars, aircraft, and financial planning.
He will also be treated as a retired employee of IBM for purposes of retiree
medical benefit coverage for him and his spouse and the vesting and payout terms
of awards pursuant to the Long-Term Performance Plan. He receives these benefits
only if he remains until age 60, leaves earlier with the consent of the Board,
becomes disabled or is terminated without cause. If he leaves the Company before
age 60 with the consent of the Board, he will receive the benefits to which the
March 1993 agreement otherwise entitled him for a termination without cause.
This amendment also provides that his base salary prior to the January 1, 1996,
amendment (and any increases in his base salary) will be deemed to be his base
salary for purposes
22
<PAGE>
IBM Notice of 1998 Annual Meeting and Proxy Statement
of the guaranteed payments he would receive pursuant to the agreement in the
event of a termination without cause. It is not possible to predict the value of
the consulting agreement or the other benefits described above. The foregoing
description has been provided on the assumption that such value may exceed
$100,000.
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 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.
23
<PAGE>
IBM Notice of 1998 Annual Meeting and Proxy Statement
Performance Graph
Comparison of Five-Year Cumulative Total Return for
IBM, S&P 500 Stock Index, and S&P Computers (Hardware) Index (excluding IBM)
The following table was also depicted as a line graph in the printed material.
[GRAPHIC OMITTED]
1992 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
IBM Common Stock 100 116 153 192 322 448
S & P Computers (Hardware)
Index (excluding IBM) 100 102 133 205 248 376
S & P 500 Stock Index 100 110 111 153 189 252
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 Computers (Hardware) Index
(excluding IBM), shown above, is such an index. Prior to June 1996, the S&P
Computers (Hardware) Index had been known as the S&P Computer Systems Index.
The graph assumes $100 invested on December 31, 1992, 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.
24
<PAGE>
IBM Notice of 1998 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 1998 and recommends
to stockholders that they vote for ratification of that appointment.
Price Waterhouse LLP served in this capacity for the year 1997. 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.
25
<PAGE>
IBM Notice of 1998 Annual Meeting and Proxy Statement
3. Stockholder Proposal
Stockholder proposals may be submitted for inclusion in IBM's 1999 proxy
material after the 1998 Annual Meeting but must be received no later than 5 p.m.
EST on November 18, 1998. Proposals must be in writing and sent via registered,
certified, or express mail to: Office of the Secretary, International Business
Machines Corporation, New 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 interest 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.
26
<PAGE>
IBM Notice of 1998 Annual Meeting and Proxy Statement
Stockholder Proposal on Executive Compensation
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 100 shares, intends to submit the following proposal at the meeting:
RESOLVED: "That the stockholders recommend that the Board take the necessary
step that IBM specifically identify by name and corporate title in all future
proxy statements those executive officers, not otherwise so identified, who are
contractually entitled to receive in excess of $250,000 annually as a base
salary, together with whatever other additional compensation bonuses and other
cash payments were due them."
REASONS: "In support of such proposed Resolution it is clear that the
shareholders have a right to comprehensively evaluate the management in the
manner in which the Corporation is being operated and its resources utilized."
"At present only a few of the most senior executive officers are so identified,
and not the many other senior executive officers who should contribute to the
ultimate success of the Corporation." "Through such additional identification
the shareholders will then be provided an opportunity to better evaluate the
soundness and efficacy of the overall management."
"Last year the owners of 26,720,299 shares, representing approximately 8.3% of
shares voting, voted FOR this proposal."
"If you AGREE, please mark your proxy FOR this proposal."
- --------------------------------------------------------------------------------
The IBM Board of Directors recommends a vote AGAINST this proposal.
The Proposal is not currently relevant to the Company since it calls for
disclosure of contractual employment obligations which are already fully
disclosed in this Proxy Statement. In this connection, Mr. Gerstner, the
Chairman and Chief Executive Officer of the Company, is the only executive
officer with an employment contract who is entitled to receive a salary and
other amounts on account of his employment with the Company. Mr. Gerstner's
employment contract, as well as other details of his compensation arrangements,
is already described on pages 16 and 17 of this Proxy Statement in full
compliance with the regulations of the Securities and Exchange Commission.
Moreover, under these same regulations, the Company already provides detailed
information about the overall compensation arrangements of its four other
highest paid executive officers. The Executive Compensation and Management
Resources Committee of the Board, which is comprised solely of non-employee
directors, reviews and approves the compensation of all executive officers of
the Company. Since implementation of the Proposal would add nothing to the
Company's current disclosures, and since the Proposal attempts to impose future
obligations beyond what is required by the law, as well as beyond what other
companies disclose, the Board believes the Proposal is unnecessary and should be
rejected. The Board believes that the existing disclosure adequately and fairly
describes the compensation structure for IBM's executive officers as well as
furnishes an informed basis for IBM stockholders to evaluate the Company's use
of compensation to motivate and retain its key personnel. The Board therefore
recommends a vote AGAINST this Proposal.
27
<PAGE>
IBM Notice of 1998 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 $.50 par value capital stock of the Company (its common stock) is its only
class of security entitled to vote at the April 28, 1998, meeting. Each
stockholder of record at the close of business on March 9, 1998 (the "Record
Date"), is entitled to one vote for each share held. On February 10, 1998, there
were 961,361,074 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, shares are voted
using the Internet or the telephone, 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 of record 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.
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.
Alternatively, in lieu of returning signed proxy cards, IBM stockholders of
record can vote their shares over the Internet, or by calling a specially
designated telephone number. These new Internet and telephone voting procedures
are designed to authenticate stockholders' identities, to allow stockholders to
provide their voting instructions, and to confirm that their instructions have
been recorded properly. IBM has been advised by competent counsel that the
procedures which 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 enclosed proxy
card. 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 such revocation to the
Secretary of the Company.
28
<PAGE>
IBM Notice of 1998 Annual Meeting and Proxy Statement
The Proxy Card covers the number of shares to be voted, including any shares
held for participants in the IBM Investor Services Program and Employees Stock
Purchase Plans. For those stockholders who are participants in the IBM Stock
Fund investment alternative under the IBM Tax Deferred Savings Plan (the
"TDSP"), the enclosed proxy card also serves as a voting instruction to the
Trustee of the TDSP for IBM shares held in the IBM Stock Fund as of March 9,
1998 (the "Record Date"), provided that instructions are furnished over the
Internet or by telephone by April 22, 1998, or that the card is signed,
returned, and received by April 22, 1998. If instructions are not received over
the Internet or by telephone by April 22, 1998, or if the signed proxy card is
not returned and received by such date, the IBM shares in the IBM Stock Fund
under the TDSP will be voted by the Trustee in proportion to the shares for
which the Trustee timely receives voting instructions.
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 13, 1998
29
<PAGE>
BACK COVER
[Recycled
LOGO] Printed on recycled paper and recyclable
- --------------------------------------------------------------------------------
[LOGO IBM]
Dear IBM Stockholder:
Your vote is important. Attached is your 1998 IBM Proxy Card. Please read both
sides of the card and mark, sign, date and return it. In the alternative, you
can now take advantage of new electronic ways to vote your proxy, either through
the Internet or by the telephone. If you vote through the Internet or by the
telephone, there is no need to mail your proxy card. Your vote authorizes the
named proxies in the same manner as if you signed, dated and returned the card.
You are invited to attend the Annual Meeting of Stockholders on Tuesday, April
28, 1998, at 10 a.m. in the Arie Crown Theatre at Lakeside Center, 2301 South
Lake Shore Drive, Chicago, Illinois. If you plan to attend the Annual Meeting,
you should either mark the box provided on the attached Proxy Card or signify
your intention to attend when you access the Internet or telephone voting
system. An admission ticket is attached for your convenience.
As part of IBM's ongoing efforts to reduce expenses, we are asking our
stockholders to permit IBM to send only one copy of stockholder publications to
their household. If you are receiving multiple copies of stockholder reports at
your address and wish to eliminate them for the account shown on the attached
Proxy Card, please either mark the box provided on the card or follow the
instructions provided if you vote your shares through the Internet or by the
telephone. You will continue to receive your proxy mailings for shares held in
this account.
We urge you to vote your shares. Thank you very much for your cooperation and
continued loyalty as an IBM Stockholder.
/s/ John E. Hickey
John E. Hickey
Vice President and Secretary
- --------------------------------------------------------------------------------
Proxy Identifying No. 9926
|X| Please mark your votes as in this example
Proxy Card
IBM's Directors recommend a vote FOR proposals 1 and 2 and AGAINST stockholder
proposal 3. SHARES WILL BE SO VOTED UNLESS OTHERWISE INDICATED.
- --------------------------------------------------------------------------------
IBM's Directors recommend a vote FOR proposals 1 and 2.
- --------------------------------------------------------------------------------
1. Election of Directors (see reverse)
FOR |_| WITHHELD |_|
FOR, except vote WITHHELD from the following nominee(s):
2. Ratification of appointment of auditors (page 25)
FOR |_| AGAINST |_| ABSTAIN |_|
- --------------------------------------------------------------------------------
IBM's Directors recommend a vote AGAINST proposal 3.
- --------------------------------------------------------------------------------
3. Stockholder proposal on executive compensation (page 27)
FOR |_| AGAINST |_| ABSTAIN |_|
----------------------------------------------------------
Will Attend Annual Meeting |_|
----------------------------------------------------------
Discontinue Mailing Publications to this Account |_|
----------------------------------------------------------
SIGNATURE(S)______________________________ DATE____________________
PLEASE SIGN AND DATE HERE, DETACH AND RETURN IN ENCLOSED ENVELOPE OR VOTE BY
USING THE INTERNET OR TELEPHONE.
[LOGO IBM]
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
ELECTRONIC VOTING INSTRUCTIONS
To vote through the Internet: log on at http://www.ibm.com/investor/vote
To vote by telephone: call 1-800-OK2-VOTE. Stockholders residing outside the
United States, Canada and Puerto Rico should call 201-324-0377.
If you vote through the Internet or by the telephone, use the control number in
the box on the left, just below the perforation. Enter the control number and
pound signs (#) exactly as they appear.
ADMISSION TICKET
This is your admission ticket for the Annual Meeting of Stockholders to be held
on Tuesday, April 28, 1998 at 10 a.m. in the Arie Crown Theatre at Lakeside
Center, 2301 South Lake Shore Drive, Chicago, Illinois. Please detach and
present this ticket for admission at the annual meeting.
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 IBM]
<PAGE>
PROXY CARD
[LOGO IBM]
International Business Machines Proxy Solicited by the Board of Directors
Corporation for the Annual Meeting of Stockholders
Armonk, New York 10504 April 28, 1998
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 Arie Crown Theatre at Lakeside
Center, Chicago, Illinois, at 10 a.m. on Tuesday, April 28, 1998, 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 1998 Annual Meeting and Proxy Statement dated March 13, 1998.
This proxy card will also be used to provide voting instructions to the Trustee
for any shares of common stock of International Business Machines Corporation
held in the IBM Stock Fund investment alternative under the IBM Tax Deferred
Savings Plan on the record date, as set forth in the Notice of 1998 Annual
Meeting and Proxy Statement dated March 13, 1998.
Election of Directors, Nominees:
1. C. Black, 2. J. Dormann, 3. L.V. Gerstner, Jr., 4. N.O. Keohane, 5. C.F.
Knight, 6. M. Makihara., 7. L.A. Noto, 8. J.B. Slaughter, 9. A. Trotman, 10.
L.C. van Wachem, 11. C.M. Vest
(Shares cannot be voted unless this Proxy Card is: 1. signed and returned or 2.
shares are voted over the Internet or by telephone or 3. other specific
arrangements are made to have the shares represented at the meeting.)
PLEASE DETACH AND PRESENT THIS TICKET FOR ADMISSION TO THE ANNUAL MEETING
