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Corporate Governance

: The Race to the Bottom

The Director Compensation Project: International Business Machines Corporation

By Scott James

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This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2007’s Fortune 100 and using information disclosed in each company’s 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges have each adopted their own standards for director independence. Meeting stock exchange requirements is mandatory for most listed companies.

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 $100,000 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, 4200(a)(15), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from IBM’s (IBM-NYSE) 2008 Proxy Statement.

NAME	FEES EARNED OR PAID IN CASH ($)		ALL OTHER COMPENSATION ($)		TOTAL ($)
C. Black 205,000		21,989		226,989

W.R. Brody	83,889		154		84,043
K.I. Chenault	200,000		12,144		212,144
J. Dormann	200,000		4,804		204,804
M.L. Eskew	200,000		5,061		205,061
S.A. Jackson	200,000		3,630		203,630
M. Makihara	200,000		5,358		205,358
L.A. Noto	205,000		53,878		258,878
J.W. Owens	200,000		7,807		207,807
J.E. Spero	200,000		23,792		223,792
S. Taurel	205,000		15,312		220,312
C.M. Vest	63,334		1,124,142		1,187,476
L.H. Zambrano	200,000		6,939		206,939

Director Compensation

The majority of compensation paid to IBM directors was in the form of director’s fees, with a small portion classified as “all other compensation”. The average total compensation for the directors was $280,556. In 2007, the board of directors met ten times, with an attendance rate of seventy-five percent, with the exception of J. Dormann.

Director Tenure

The average tenure of the directors at IBM is about five and a half years years. Ms. Cathleen Black has served on the board for thirteen years, and Mr. Kenneth Chenault has served on the board for ten years. All but two of the IBM directs serve on other boards, and six of eleven directors serve on two or more boards. Ms. Shirley Jackson currently serves on five boards, in addition to IBM.

CEO Compensation

In 2007, Chairman, President, and CEO S.J. Palmisano received $25,130,728 in total compensation with only $1.8 million, or about seven percent of total compensation in direct salary. The majority of Mr. Palmisano’s compensation was in the form of stock awards and performance incentives, totaling $14,256,533, or about fifty-seven percent of total compensation. Mr. Palmisano also received $988,479 of perquisites, including $406,235, or about 1.6% of total compensation, from personal use of the company aircraft.

Full post as published by The Race to the Bottom on May 03, 2008 (boomark / email).