The Director Compensation Project: IBM

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2010’s Fortune 500 and using information found in their most recent proxy statements.  In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. 

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards.  Directors are not independent if they received over $120,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii).  This is a looser restriction than the equivalent NASDAQ Rule, 5605(a)(2), which includes "any compensation."  Rules 303A.06 and 5605 also require that, in addition to the general independence standards, audit committee members must comport with the requirements of  Rule 10A-3 (C.F.R. §240.10A-3).  See also IM-5605-4. Audit Committee Composition.

The director compensation table from IBM’s (NYSE:IBM) 2011 proxy statement is listed below. The company has determined that all directors except Mr. Chenault are independent. Mr. Chenault, the CEO of American Express Company, is not independent because of IBM’s business relationship with American Express.

Name	Fees Earned or Paid in Cash ($)	All Other Compensation ($)	Total ($)
A.J.P. Belda	250,000	10,277	260,277
C. Black*	260,000	3,086,494	3,346,494
W.R. Brody	250,000	14,796	264,796
K.I. Chenault	250,000	36,352	286,352
M.L. Eskew	265,000	24,868	289,868
S.A. Jackson	250,000	36,835	286,835
A.N. Liveris	212,500	1,429	213,929
W.J. McNerney, Jr.	250,000	2,895	252,895
T. Nishimuro**	143,750	393,604	537,354
J.W. Owens	250,000	25,431	275,431
J.E. Spero	250,000	36,374	286,374
S. Taurel	260,000	43,755	303,755
L.H. Zambrano	250,000	27,477	277,477

*Ms. Black’s term on the board ended in December 2010

**Mr. Nishimuro’s term on the board ended in July 2010

Director Compensation.  IBM held ten board meetings during fiscal year 2010.  Directors attendended over 94% of the board and committee meetings throughout the year, with each individual director attending at least 75% of the meetings.  In 2010, the board’s non-management directors received retainers of $250,000. Under the Company’s Deferred Compensation and Equity Award Plan, 60% of the annual retainer is deferred and paid in Promise Fee Shares (PFS). Each PFS is equal in value to one share of IBM’s common stock. The chairs of the Directors and Corporate Governance Committee and the Executive Compensation and Management Resources Committee received an additional retainer of $10,000, and the chair of the Audit committee received an additional $15,000 retainer.  These additional retainers will increase to $20,000 and $25,000, respectively, in 2011. 

Director Tenure.  Mr. Chenault, who has held his position on the board since 1998, is the longest serving director. Mr. Liveris, who became a director in 2010, is the newest board member.  Several directors are also members of other boards.  Mr. Eskew, the retired chairman and CEO of United Parcel Service, Inc., remains on its board as well as the boards of Eli Lilly and Company and 3M Company.  He is also chairman of the Annie E. Casey Foundation.  Mr. Belda retired as chairman of Alcoa in 2010 and is currently a director of Citigroup Inc. and Renault S.A.  

CEO Compensation.  S.J. Palmisano, IBM’s Chief Executive Officer, earned $31,718,608 during the fiscal year.  The largest component of his compensation was stock awards, totaling $13,319,450.  Mr. Palmisano received a number of perquisites during 2010, including $311,288 worth of personal travel on Company aircraft  and $55,465 worth of personal security.  The second highest paid executive during 2010 was Mr. Loughridge, the Company’s Senior Vice President and Chief Financial Officer.  His total compensation was $7,180,657.  Stock awards were also the largest component of Mr. Loughridge’s compensation, totaling $3,567,706.