Executive compensation

Nonqualified deferred compensation

IBM Excess 401(k) Plus Plan

General Description

  • Effective January 1, 2008, the IBM Executive Deferred Compensation Plan (EDCP) was amended and renamed the IBM Excess 401(k) Plus Plan. IBM employees, including the named executive officers, who are eligible to participate in the IBM 401(k) Plus Plan and whose eligible pay is expected to exceed the Internal Revenue Code compensation limit for the applicable plan year are eligible to participate in the Excess 401(k) Plus Plan. The purpose of the Excess 401(k) Plus Plan is to provide benefits that would be provided under the qualified IBM 401(k) Plus Plan if the compensation limits did not apply. The Excess 401(k) Plus Plan provides employees with the opportunity to save for retirement on a tax-deferred basis.
  • The 2013 Nonqualified Deferred Compensation Table shows the employee deferrals (executive contributions), Company match (registrant contributions), automatic contributions (registrant contributions) and investment gain or loss (aggregate earnings) for each named executive officer during 2013.
  • The table also shows the total balance that each named executive officer has accumulated over all the years he or she has participated in the plan.
  • Account balances in the Excess 401(k) Plus Plan are comprised of cash amounts that were deferred by the participant or contributed by the Company (Basic Account), and all deferred shares, comprised of shares that were deferred by the participant (Deferred IBM Shares). Generally, amounts deferred and vested prior to January 1, 2005 are not subject to Code Section 409A, while amounts deferred and vested on and after January 1, 2005 are subject to Code Section 409A.
  • The Excess 401(k) Plus Plan balance is not paid to, and cannot be accessed by, the participants until after a separation from service from IBM.
  • The Excess 401(k) Plus Plan allows the clawback of Company matching and automatic contributions made to a participant's account after March 31, 2010, if a participant engages in activity that is detrimental to the Company (including but not limited to competitive business activity, disclosure of confidential Company information and solicitation of Company clients or employees).

Purpose of the Excess 401(k) Plus Plan

  • U.S. tax laws limit the amount of pay that employees can defer for retirement into qualified 401(k) plans.
  • IBM established the nonqualified plan to give participants the ability to save for retirement with additional tax-deferred funds, as permitted under the current Department of Labor and Internal Revenue Service regulations and other guidance.

Compensation Eligible for Deferral under Excess 401(k) Plus Plan

  • An eligible employee may elect to defer between 1% and 80% of salary and between 1% and 80% of eligible performance pay, including annual incentive program payments.
  • In both cases, the Internal Revenue Code requires the deferral elections to be made before the calendar year in which the compensation is earned.

Deferred IBM Shares

  • Prior to January 1, 2008, under the EDCP, an executive could have elected to defer receipt of shares of IBM stock that otherwise would be paid as a result of the vesting of certain restricted stock unit awards granted on or before December 31, 2007 under the Company's Long-Term Performance Plan (LTPP).
  • In addition, an executive could have also elected to defer receipt of shares of IBM stock that otherwise would be paid on or before February 1, 2008 as a result of the vesting of Performance Share Unit (PSU) awards under the Company's LTPP.
  • Deferral elections must have been made in advance of the vesting of the eligible awards and in accordance with IRS rules.
  • Effective January 1, 2008, deferrals of receipt of IBM stock are no longer allowed under the Excess 401(k) Plus Plan. Executives who made elections prior to January 1, 2008 to defer receipt of IBM stock granted on or before December 31, 2007 were able to defer the receipt of such stock into the Excess 401(k) Plus Plan when the awards vest.
  • None of the named executive officers made a previous election that resulted in deferral of stock in 2013.
  • Dividend equivalents on Deferred IBM Shares are paid in cash at the same rate and on the same date as the dividends paid to IBM stockholders.

Excess 401(k) Plus Plan Funding

  • The Excess 401(k) Plus Plan is unfunded and maintained as a book reserve (notional) account.
  • No funds are set aside in a trust or otherwise; participants in the plan are general unsecured creditors of the Company for payment of their Excess 401(k) Plus Plan accounts.

Company Match on Participant Contributions

  • The Company credits matching contributions to the Basic Account of each eligible participant who defers salary or performance pay (including annual incentive program payments) under the Excess 401(k) Plus Plan.
  • The matching contributions equal the percentage of the sum of (i) the amount the participant elects to defer under the Excess 401(k) Plus Plan, and (ii) the participant's eligible compensation after reaching the Internal Revenue Code compensation limits. The maximum matching contribution percentage for a participant is the participant's maximum matching contribution percentage under the IBM 401(k) Plus Plan. Participants hired before January 1, 2005, including Mrs. Rometty, Mr. Loughridge, Mr. Kelly and Mr. Mills, are eligible for up to 6% matching contributions; participants hired on or after January 1, 2005 and who complete one year of service, including Mr. Weber, are eligible for up to 5% matching contributions. For purposes of calculating the matching contributions under the IBM 401(k) Plus Plan, the participant's eligible compensation excludes the amounts the participant elects to defer under the Excess 401(k) Plus Plan.
  • Effective January 1, 2013, matching contributions are made once annually at the end of the year. In order to receive such matching contributions each year, a participant must be employed on December 15 of the plan year. However, if a participant separates from service (including going on long-term disability) prior to December 15, and the participant has:
        At least 30 years of service;
        At least age 55 with 15 years of service;
        At least age 62 with 5 years of service; or
        At least age 65 with 1 year of service;
        then the participant will be eligible to receive such matching contributions as soon as practicable following separation from service. If a participant dies prior to December 15 of a plan year he or she will not be treated as having "retired" even if he or she was eligible to retire at the time of death.
  • The Company does not provide any matching contributions for Deferred IBM Shares.

Company Automatic Contributions

  • Effective January 1, 2008, the Company credits automatic contributions to the Basic Account of each eligible participant.
  • The automatic contributions equal a percentage of the sum of (i) the amount the participant elects to defer under the Excess 401(k) Plus Plan, and (ii) the participant's eligible compensation after reaching the Internal Revenue Code compensation limits. The automatic contribution percentage for a participant is the participant's automatic contribution percentage under the IBM 401(k) Plus Plan. The percentage is 2% or 4% if the participant was hired before January 1, 2005 (depending on the participant's pension plan eligibility on December 31, 2007), or 1% if the participant was hired on or after January 1, 2005 and completes one year of service. For purposes of calculating the automatic contributions under the IBM 401(k) Plus Plan, the participant's eligible compensation excludes the amount the participant elects to defer under the Excess 401(k) Plus Plan. The automatic contribution percentage is 4% for Mrs. Rometty, Mr. Loughridge and Mr. Mills; 2% for Mr. Kelly; and 1% for Mr. Weber.
  • Effective January 1, 2013, automatic contributions are made once annually at the end of the year. In order to receive such automatic contributions each year, a participant must be employed on December 15 of the plan year. However, if a participant separates from service (including going on long-term disability) prior to December 15, and the participant has:
        At least 30 years of service;
        At least age 55 with 15 years of service;
        At least age 62 with 5 years of service; or
        At least age 65 with 1 year of service;
        then the participant will be eligible to receive such automatic contributions as soon as practicable following separation from service. If a participant dies prior to December 15 of a plan year he or she will not be treated as having "retired" even if he or she was eligible to retire at the time of death.

Company Transition Credits

  • Effective for the period of January 1, 2008 through June 30, 2009, the Company credited transition credits to an eligible participant's Basic Account for those employees who were receiving transition credits in their Personal Pension Account under the Qualified Plan as of December 31, 2007. According to the terms of the IBM 401(k) Plus Plan, Mr. Kelly was eligible to receive transition credits.

Earnings Measures

  • A participant's contributions to the Basic Account are adjusted for earnings and losses based on investment choices selected by the participant.
  • As previously mentioned, IBM does not pay guaranteed, above-market or preferential earnings on deferred compensation.
  • The available investment choices are the same as the primary investment choices available under the IBM 401(k) Plus Plan, which are as follows (with 2013 annual rates of return indicated for each):
        Target Date 2005 Fund (4.39%)
        Target Date 2010 Fund (6.54%)
        Target Date 2015 Fund (9.16%)
        Target Date 2020 Fund (12.34%)
        Target Date 2025 Fund (15.70%)
        Target Date 2030 Fund (18.15%)
        Target Date 2035 Fund (18.76%)
        Target Date 2040 Fund (18.76%)
        Target Date 2045 Fund (18.76%)
        Target Date 2050 Fund (18.76%)
        Income Plus Life Strategy Fund (3.12%)
        Conservative Life Strategy Fund (7.47%)
        Moderate Life Strategy Fund (11.41%)
        Aggressive Life Strategy Fund (18.76%)
        Interest Income Fund (2.88%)
        Inflation Protected Bond Fund (-8.68%)
        Total Bond Market Fund (-2.19%)
        High Yield & Emerging Markets Bond Fund (-3.02%)
        Total Stock Market Index Fund (33.51%)
        Total International Stock Market Index Fund (15.64%)
        Real Estate Investment Trust Index Fund (2.27%)
        International Real Estate Index Fund (2.97%)
        Long-Term Corporate Bond Fund (-6.44%)
        Large Company Index Fund (32.37%)
        Large-Cap Value Index Fund (32.50%)
        Large-Cap Growth Index Fund (33.46%)
        Small/Mid-Cap Stock Index Fund (38.47%)
        Small-Cap Value Index Fund (34.65%)
        Small-Cap Growth Index Fund (43.72%)
        European Stock Index Fund (24.85%)
        Pacific Stock Index Fund (17.58%)
        Emerging Markets Stock Index Fund (-4.99%)
        IBM Stock Fund (-0.20% including dividend equivalent reinvestment)
  • A participant may change the investment selections for new payroll deferrals as frequently as each semi-monthly pay cycle.
  • Investment selections for existing account balances may be changed daily, subject to excessive trading restrictions.
  • Any changes (whether to new deferrals or existing balances) may be made through an internet site or telephone call center maintained by the plan's third-party record keeper.
  • Effective January 1, 2008, the Company match under the Excess 401(k) Plus Plan is notionally invested in the investment options in the same manner participant contributions are notionally invested.
  • Because Deferred IBM Shares are credited, maintained and ultimately distributed only as shares of the Company's common stock, they may not be transferred to any other investment choice at any time.
  • On a quarterly basis, dividend equivalents are credited to a participant's account with respect to all or a portion of such account that is deemed to be invested in the IBM Stock Fund at the same rate as dividends to IBM stockholders.
  • Aggregate earnings on Deferred IBM Shares during the last fiscal year, as reported in column (d) of the 2013 Nonqualified Deferred Compensation Table, are calculated as the change in the price of the Company's common stock between December 31, 2012 and December 31, 2013 for all Deferred IBM Shares that were contributed prior to 2013.

Payouts, Withdrawals and Other Distributions

  • No payouts, withdrawals or other distributions from the Basic Account are permitted prior to a separation from service from the Company.
  • At termination, the balance in an eligible executive's Basic Account that was deferred prior to January 1, 2005 is paid to the executive in an immediate lump sum unless: (a) the balance exceeds $25,000 and (b) the executive satisfies the following age and service criteria:
        −At least age 55 with 15 years of service;
        −At least age 62 with 5 years of service;
        −At least age 65 with 1 year of service;
        −Any age with at least 30 years of service, provided that, as of June 30, 1999, the executive had at least 25 years of service or was at least age 40 with 10 years of service; or
        −Commencing benefits under the IBM Long-Term Disability Plan.
  • As of December 31, 2013, the eligible named executive officers had satisfied the age and service criteria.
  • If the participant has satisfied the age, service and account balance criteria at termination, but has not made a valid advance election of another form of distribution, the amount of the participant's Basic Account that was deferred prior to January 1, 2005 is paid in a lump sum in February of the year following separation.
  • If the participant has satisfied the age, service and account balance criteria at termination and has made a valid advance election, the amount of the participant's Basic Account that was deferred prior to January 1, 2005 is paid as elected by the participant from among the following choices:
        1. Lump sum upon termination;
        2. Lump sum in February of the year following termination; or
        3. Annual installments (beginning February 1 of the year following termination) for a number of years (between two and ten) elected by the participant.
  • The participant's Basic Account with respect to amounts deferred on or after January 1, 2005 may be distributed in the following forms as elected by the participant:
        1. Lump sum upon separation;
        2. Lump sum in February of the year following separation; or
        3. Annual installments (beginning February 1 of the year following separation) for a number of years (between two and ten) elected by the participant.

    However, if the participant has elected annual installments and the total balance of the participant's Basic Account upon a separation from service from IBM is less than 50% of the applicable Internal Revenue Code compensation limit (in 2013, 50% of this limit was $127,500), the amounts deferred on or after January 1, 2005 are distributed in a lump sum on the date installments would have otherwise begun.
  • Distribution elections may be changed in advance of separation, in accordance with Internal Revenue Code rules.
  • Distribution elections apply to both the Basic Account and the Deferred Shares Account. Further, within the Basic Account and the Deferred Shares Account, different distribution elections are permitted to be made for the amounts that were deferred before January 1, 2005 and the amounts that were deferred on or after January 1, 2005.
  • At December 31, 2013, the named executive officers had the following distribution elections on file:
    • Mrs. Rometty-10 annual installments for all amounts
    • Mr. Loughridge-immediate lump sum for all amounts
    • Mr. Kelly-lump sum in February of the year following separation for pre-2005 amounts, and 10 annual installments for all post- 2004 amounts
    • Mr. Weber-immediate lump sum for all amounts
    • Mr. Mills-10 annual installments for all amounts
  • The balance in a participant's Basic Account continues to experience investment gains and losses until it has been completely distributed.
  • Deferred IBM Shares are distributed only in the form of shares of the Company's common stock.
  • These distribution rules are subject to Section 409A of the Internal Revenue Code, including, for example, the rule that a "specified employee" may not receive a distribution of post-2004 deferrals until at least six months following a separation from service from IBM. All named executive officers were "specified employees" under Section 409A at the end of the last fiscal year.

2013 Nonqualified Deferred Compensation Table

Name
(a)
Plan
 
Executive Contributions in last FY (1)
($)
(b)
Registrant Contributions
in last FY (2)
($)
(c)
Aggregate Earnings in last FY (3)
($)
(d)
Aggregate Withdrawals/ Distributions
($)
(e)
Aggregate Balance at last FYE (4)
($)
(f)
V.M. Rometty Basic Account $2,062,500 Match $309,600 $90,072 $0 $8,868,041
      Automatic 206,400      
  Deferred IBM Shares 0   0 (111,058) 0 5,233,953
  Total $2,062,500   $516,000 $(20,986) $0 $14,101,994
M. Loughridge Basic Account $103,374 Match $103,374 $(94,983) $0 $4,439,843
      Automatic 68,916      
  Deferred IBM Shares 0   0 (150,743) 0 7,104,214
  Total $103,374   $172,290 $(245,726) $0 $11,544,057
J.E. Kelly III Basic Account $731,160 Match $75,372 $547,781 $0 $8,223,430
      Automatic 25,124      
  Deferred IBM Shares 0   0 (12,895) 0 607,727
  Total $731,160   $100,496 $534,886 $0 $8,831,157
R.C. Weber Basic Account $64,528 Match $64,528 $33,905 $0 $2,100,935
      Automatic 12,906      
  Deferred IBM Shares 0   0 (99,090) 0 4,669,930
  Total $64,528   $77,434 $(65,185) $0 $6,770,865
S.A. Mills Basic Account $289,572 Match $86,902 $363,512 $0 $11,203,847
      Automatic 57,934      
  Deferred IBM Shares 0   0 0 0 0
  Total $289,572   $144,836 $363,512 $0 $11,203,847
(1) A portion of the amount reported in this column (b) for each named executive officer's Basic Account is included within the amount reported as salary for that officer in column (c) of the 2013 Summary Compensation Table. These amounts are: $105,000 for Mrs. Rometty; $31,200 for Mr. Loughridge; $22,200 for Mr. Kelly; $19,750 for Mr. Weber and $92,100 for Mr. Mills.

(2) For each of the named executive officers, the entire amount reported in this column (c) is included within the amount reported in column (i) of the 2013 Summary Compensation Table. The amounts reported as Company contributions to defined contribution plans in footnote 8 to the 2013 Summary Compensation Table are larger because the amounts reported in that footnote also include the Company's contributions to the IBM 401(k) Plus Plan.

(3) None of the amounts reported in this column (d) are reported in column (h) of the 2013 Summary Compensation Table because the Company does not pay guaranteed, above-market or preferential earnings on deferred compensation.

(4) Amounts reported in this column (f) for each named executive officer include amounts previously reported in the Company's Summary Compensation Table in previous years when earned if that officer's compensation was required to be disclosed in a previous year. Amounts previously reported in such years include previously earned, but deferred, salary and incentive and Company matching and automatic contributions. This total reflects the cumulative value of each named executive officer's deferrals, match and automatic contributions and investment experience, including an $8 quarterly administrative fee.