The Top Brass at Big Blue Do Pretty Okay in 2009

Published: March 15, 2010

by Timothy Prickett Morgan

If you have found yourself wondering why IBM's top brass seem to do everything in their power to prop up the company's stock, the answer has always been the same since the 1980s: because that's how they make a fortune personally.

Nothing illustrates this more--and perhaps frustrates the i community more--than the company's annual proxy statement, which outlines how the top executives at Big Blue are compensated. As is the case in just about every public company I have ever heard of, executive compensation is tied to the performance of the company, more or less. But the actual compensation for executives comes mostly in the form of stock, and that means only a truly self-less (and idiotic) executive would do what is best for the company in the long run (if that could be determined objectively) instead of what is good for the company's stock in the relative short term.

You can see IBM's latest proxy statement here, and in it you will discover that Sam Palmisano, who is president, chief executive officer, and chairman of IBM, had a $1.8 million salary in 2009, the same as he had in 2007 and 2008. Including various kinds of stock-based compensation (performance bonuses and the like), Palmisano's total compensation came to $24.3 million last year, down a little bit from the $24.5 million in 2008 and up from the $23.8 million in 2007. The value of Palmisano's outstanding equity awards as the year ended came to another $60.8 million. Big Sam knows where his bread is buttered, and let me tell you, it ain't in Armonk, New York, or Rochester, Minnesota. It is down on Wall Street.

The compensation of IBM's top four executives has the same basic shape, but there's less cash and stock involved. Mark Loughridge, IBM's chief financial officer, had a $720,000 salary in 2009, which has been rising modestly for three years, and a total compensation of $6.46 million; he has just over $17 million in outstanding equity awards. Steve Mills, the general manager of Software Group, had a $695,834 salary last year, but his total compensation fell a bit, to $5.75 million; Mills is sitting on $14.7 million in outstanding stock equity. Mike Daniels, who runs Global Technology Services, had a $655,000 salary and $5.46 million in total compensation; Daniels has $14.1 million in outstanding equity. And Ginni Rometty, general manager of IBM's Sales and Distribution business, had a $630,000 salary and $5.18 million in total compensation; Rometty has just over $14 million on outstanding stock. That is the value of unsecured shares or rights to shares at the end of the year. If the stock goes up, they get even more rich.

The only way to lose is for IBM to take a different attitude and somehow jeopardize that stock price. Board members, who are paid in IBM stock, are not going to rock the boat. Particularly when they really don't have to do much to help run Big Blue. (Being on the IBM board means being paid in stock, too.) Which is why IBM--and any other public company with such a compensation scheme, for that matter--will never change, even as executives change, until we, as the citizens who make the laws however indirectly, change what we expect from corporations.

It must be so comforting to feel as safe and as right as the top brass at Big Blue no doubt do. So comforting that the kind of change I am hinting at doesn't even seem necessary. And if they thought about it, would send them running to the battlements. I pay my employees what I pay myself--sometimes I get less, when necessary. I, being a fool I suppose, have dreamed of more employees, not fewer, of new markets, not monopolies. Imagine an IBM like that. . . .

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