Executive compensation

Potential payments upon termination

Introduction

IBM does not have any plans, programs, or agreements under which payments to any of the named executive officers are triggered by a change of control of the Company, a change in the named executive officer's responsibilities or a constructive termination of the named executive officer.

The only payments or benefits that would be provided by the Company to a named executive officer following a termination of employment would be provided under the terms of the Company's existing compensation and benefit programs (as described below). The 2013 Potential Payments Upon Termination Table that follows this narrative reports such payments and benefits for each named executive officer assuming termination on the last business day of the fiscal year end.

As explained below, certain of these payments and benefits are enhanced by or dependent upon the named executive officer's attainment of certain age and service criteria at termination. Additionally, certain payments or benefits are not available following a termination for cause and/or may be subject to forfeiture and clawback if the named executive officer engages in certain 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).

This 2013 Potential Payments Upon Termination Narrative and the 2013 Potential Payments Upon Termination Table do not reflect payments that would be provided to each named executive officer under the IBM 401(k) Plus Plan or the IBM Individual Separation Allowance Plan following termination of employment on the last business day of the fiscal year end because these plans are generally available to all U.S. regular employees similarly situated in age, years of service and date of hire and do not discriminate in favor of executive officers.

Qualified Plan amounts and Nonqualified Plan amounts are not reflected in the 2013 Potential Payments Upon Termination Table. Previously, these amounts were available under one plan, the IBM Personal Pension Plan, which was generally available to all U.S. regular employees similarly situated in years of service and dates of hire and did not discriminate in favor of executive officers. For amounts payable under the Qualified and Nonqualified Plans, see the 2013 Pension Benefits Table. The 2013 Potential Payments Upon Termination Table also does not quantify the value of retiree medical and life insurance benefits, if any, that would be provided to each named executive officer following such termination of employment because these benefits are generally available to all U.S. regular employees similarly situated in age, years of service and date of hire and do not discriminate in favor of executive officers; however, the named executive officers' eligibility for such benefits is described below. The 2013 Potential Payments Upon Termination Table does not contain a total column because the Retention Plan payment is paid as an annuity, not a lump sum. Therefore, a total column would not provide any meaningful disclosure.

Annual Incentive Program (AIP)

  • The AIP may provide a lump sum, cash payment in March of the year following resignation, retirement or involuntary termination without cause. An AIP payment may not be paid if an executive engages in activity that is detrimental to the Company.
  • This payment is not triggered by termination; the existence and amount of any AIP payment is determined under the terms of the AIP applicable to all executives employed through December 31 of the previous year.
  • AIP payments to executive officers are subject to clawback as described in Section 2 of the 2013 Compensation Discussion and Analysis.
  • For purposes of the 2013 Potential Payments Upon Termination Table below, it is assumed that the AIP payment made to each named executive officer following termination of employment on the last business day of the fiscal year end would have been the same as the actual payment made in March 2014.

IBM Long-Term Performance Plans (LTPP)

  • The named executive officers have certain outstanding equity grants under the LTPP including:
    - Stock Options;
    - Retention Restricted Stock Units (RRSUs); and/or
    - Performance Share Units (PSUs).
  • The LTPP and/or the named executive officers' equity award agreements contain the following terms:
    - Generally, unvested stock options, RSUs, RRSUs, and PSUs are cancelled upon termination; and
    - Vested stock options may be exercised only for 90 days following termination.
  • Payment of these awards is not triggered by termination of employment (because the awards would become payable under the terms of the LTPP if the named executive officer continued employment), but if he or she resigns, retires or is involuntarily terminated without cause after attaining age 55 with at least 15 years of service (and for Mr. Weber, pursuant to his offer letter, with at least five years of service regardless of age), the following terms apply:
    - Vested stock options continue to be exercisable for the remainder of their ten-year term if approved by the Board, Compensation Committee or other appropriate management; and
    - The Company prorates a portion of unvested PSU awards to continue to vest under their original vesting schedules.
  • If an executive dies, outstanding stock options, RSU awards and RRSU awards would vest immediately. In addition, in such case, outstanding PSU awards granted on or after June 8, 2011 would remain outstanding and continue to vest under their original vesting schedules.
  • If an executive becomes disabled, outstanding stock options, RSU awards and RRSU awards would continue to vest under their original vesting schedules. In addition, in such case, outstanding PSU awards granted on or after June 8, 2011 would remain outstanding and continue to vest under their original vesting schedules.
  • Beginning with PSU and RSU awards granted in 2009, in cases other than death or disability, certain executives may be eligible for continued vesting of these awards after separation.
    -To ensure that the interests of the members of the Performance Team are aligned with the Company's long-term interests as these leaders approach retirement, these executives, including the named executive officers, may be eligible to receive payouts of their full unvested PSU and RSU awards upon termination if the following criteria are met:
  • The executive is on the Performance Team at the time of departure;
  • For RSU awards, at least one year has passed since the award grant date; and for PSU awards, at least one year has passed in the performance period;
  • The executive has reached age 55 with 15 years of service (and for Mr. Weber, five years of service regardless of age, as noted above) at the time of departure; and
  • The payout has been approved by appropriate senior management, the Compensation Committee or the Board, in their discretion.

    -The Chairman and CEO is also eligible for the payouts described upon termination, except she must have reached age 60 with 15 years of service, and the payout must be approved by the Board, in its discretion.
    -Payouts of PSU awards after termination as described above will be made in February after the end of the three-year performance period and only if the performance goals are met. Payouts of RSU awards after termination, as described above, will be made in accordance with the original vesting schedule.
  • The 2013 Potential Payments Upon Termination Table assumes the following:
    -Amounts shown reflect the payout of the 2011 PSU awards calculated using the actual performance achieved for the 2011-2013 performance period and the 2013 fiscal year-end closing price of $187.57 for IBM common stock; and
    -Outstanding awards for the 2012 and 2013 PSU awards were not included because there is no guarantee of payment on these awards as they are subject to meeting threshold performance criteria.
  • LTPP awards are subject to forfeiture and rescission if an executive is terminated for cause or engages in activity that is detrimental to the Company prior to or within 12 months following payment. LTPP awards also contain a covenant that the recipient will not solicit Company clients for a period of one year or employees for a period of two years following termination of employment.
  • In the 2013 Potential Payments Upon Termination Table, amounts in the Stock Options column were calculated assuming that each named executive officer chose to exercise all of his or her vested, in-the-money options at an IBM common stock price of $187.57 (the closing price of IBM stock at fiscal year end).

IBM Supplemental Executive Retention Plan (Retention Plan)

  • Payments under the Retention Plan are triggered by resignation, retirement or involuntary termination without cause after attainment of eligibility criteria.
  • Eligibility criteria are described in the 2013 Retention Plan Narrative.
  • Retention Plan payments are paid as an annuity beginning on the first day of the month following termination of employment (subject to a six-month delay for "specified employees" as required under Section 409A of the Internal Revenue Code).
  • At termination, the executive chooses either a single life annuity or an actuarially equivalent joint and survivor annuity.
  • The 2013 Potential Payments Upon Termination Table reflects the annual amount payable as a single life annuity.
  • This table does not reflect the following provisions that would apply in accordance with Section 409A of the Internal Revenue Code:
        − The payment would be delayed six months following termination; and
        − Amounts not paid during the delay would be paid (with interest) in July 2014.
  • Retention Plan payments are subject to forfeiture and rescission if an executive is terminated for cause or engages in competitive business activity or discloses Company confidential information at any time prior to or following commencement of Retention Plan payments.

IBM Excess 401(k) Plus Plan

  • As described in the 2013 Nonqualified Deferred Compensation Narrative, payment of the named executive officers' Excess 401(k) Plus Plan accounts (Basic Accounts and any Deferred IBM Shares) is triggered by resignation, retirement or involuntary termination.
  • Under the terms of the LTPP, Deferred IBM Shares are subject to rescission if the named executive officer participates in activity that is detrimental to the Company within 12 months following the release date.
  • 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.
  • The 2013 Potential Payments Upon Termination Table indicates the estimated amount and the time and form of payment, determined by either the executive's distribution election in effect (if any) or the plan's default distribution provision.
  • Estimated payments were calculated using the aggregate account balance as of the last business day of the fiscal year end, without assumptions for the following between such date and the distribution date(s):
        − Investment gains and losses on the Basic Account (including dividend equivalent reinvestment for the IBM Stock Fund); and
        − Fluctuations in the market price of IBM stock for Deferred IBM Shares.
  • The tables do not reflect:
        − That payment of amounts deferred after December 31, 2004 (and the associated earnings) are subject to a six-month delay for "specified employees" as required under Section 409A of the Internal Revenue Code; or
        − Any other restriction on such payments imposed by the requirements of Section 409A of the Internal Revenue Code.

Retiree Medical and Life Insurance
General Description

Benefits under IBM's retiree medical and life insurance programs are triggered by a named executive officer's retirement, as described below. IBM maintains the Retiree Benefits Plan, the Future Health Account, Access to Group Health Care Coverage and the Retiree Group Life Insurance Plan. Eligibility for a particular program is dependent upon date of hire, age and years of service at termination. Future coverage under such programs remains subject to IBM's right to amend or terminate the plans at any time.

IBM Retiree Benefits Plan

  • Medical, dental and vision insurance coverage, partially subsidized by the Company, is provided to former employees and their eligible dependents.
  • This coverage is available to all U.S. regular employees who, as of June 30, 1999, were within five years of satisfying either of the following criteria (and who satisfy at least one of these):
        − 30 years of service with the Company; or
        − Age 55 with at least 15 years of service with the Company.
  • Mr. Mills would have been eligible for this benefit following a separation from service on the last business day of the fiscal year end.

IBM Future Health Account (FHA)

  • Amounts credited by the Company to a hypothetical account may be used to offset the cost of eligible medical, dental and vision insurance coverage for former employees and their eligible dependents.
  • Generally, all regular full-time or part-time U.S. IBM employees who meet the following criteria are eligible to use amounts from the account for these purposes:
        − Hired before January 1, 2004;
        − Not within five years of earliest retirement eligibility under the prior IBM Retirement Plan on June 30, 1999; and
        − At termination they have attained 30 years of service (regardless of age) and were eligible for an opening balance on July 1, 1999, or have attained at least age 55 with 15 years of service. An employee was eligible for an opening balance on July 1, 1999 if the employee was at least age 40 and completed at least one year of service on June 30, 1999.
  • Mrs. Rometty, Mr. Loughridge and Mr. Kelly would have been eligible for this benefit following a separation from service on the last business day of the fiscal year end.

Access to Group Health Care Coverage

  • Eligible employees may purchase retiree health care coverage under an IBM-sponsored retiree medical option. The cost of this coverage is paid solely by the employee, but the coverage is priced at IBM retiree group rates.
  • Generally, all regular full-time or part-time U.S. IBM employees who meet the following criteria are eligible to purchase such coverage:
        − Hired on or after January 1, 2004, and meet the following age and service requirements at separation from service:
            At least age 55, with at least five years of service; and either
            The employee's age and years of service equal 65 or
            Withdrawal-eligible for the Future Health Account and the funds in the account have been fully depleted.

        − Hired prior to January 1, 2004 but are not eligible for either the IBM Retiree Benefits Plan or the Future Health Account, and at separation of service the employee is at least age 55 or later, and the employee's age and years of service equal at least 65.
  • Mr. Weber would have been eligible for this benefit following a separation from service on the last business day of the fiscal year end.

IBM Retiree Group Life Insurance

  • IBM Group Life Insurance provides $25,000 of coverage before age 65, which reduces to $5,000 at age 65.
  • This coverage is available to all U.S. regular employees hired prior to January 1, 2004 who terminate employment and are eligible for the IBM Retiree Benefits Plan or IBM Future Health Account.
  • Mrs. Rometty, Mr. Loughridge, Mr. Kelly and Mr. Mills would have been eligible for this benefit following a separation from service on the last business day of the fiscal year end. Mr. Weber would not have been eligible for this benefit.
  • Effective January 1, 2015, IBM will no longer provide this Group Life Insurance to active eligible employees. Eligible employees who retire prior to the effective date of the change will receive such insurance as described above.

Arrangements for Mr. Loughridge

Consulting Arrangement

  • For a period of three months after Mr. Loughridge's retirement, he may be asked, from time to time, to provide services to the Company as an independent contractor. The fee for such services would be $7,000 per day for each day he provides four or more hours of services and $3,500 per day for each day that he provides less than four hours.

2013 Potential Payments Upon Termination Table

  LTPP   Excess 401(k) (6)
Name Termination Scenario Annual Incentive Program (2)
($)
Stock Options (3)
($)
PSUs (4)
($)
Retention Plan (5)
($)
Basic Account
($)
Deferred IBM Shares
($)
V.M. Rometty Termination(1) $0 $6,712,121 $6,313,606 $0 $886,804(7) $523,395(7)
  For cause 0 0 0 0 886,804(7) 523,395(7)
M. Loughridge Termination(1) 0 0 5,050,885 255,498 4,439,843(8) 7,104,214(8)
  For cause 0 0 0 0 4,439,843(8) 7,104,214(8)
J.E. Kelly III Termination(1) 0 5,916,167 4,167,055 259,790 4,071,086(9) 607,727(9)
  For cause 0 0 0 0 4,071,086(9) 607,727(9)
R.C. Weber Termination(1) 0 0 3,662,117 N/A 2,100,935(10) 4,669,930(10)
  For cause 0 0 0 N/A 2,100,935(10) 4,669,930(10)
S.A. Mills Termination(1) 0 0 4,419,524 284,718 1,120,385(11) 0
  For cause 0 0 0 0 1,120,385(11) 0
Note: Mr. Loughridge retired on December 31, 2013.
(1) Termination includes the following separation scenarios: resignation, retirement and involuntary termination not for cause (in all cases, assuming the executive is not entering into competitive or other activity detrimental to IBM).

(2) Assumes that the AIP payment made to each named executive officer following termination of employment on the last business day of the fiscal year end would have been the same as the actual payment made in March 2014.

(3) Assumes each named executive officer exercised all vested, in-the-money options at $187.57 (the fiscal year-end closing price of IBM common stock on the NYSE).

(4) Assumes IBM released PSU awards, granted in 2011 according to its policy, for the three-year performance period ending December 31, 2013, for named executive officers who were at least age 55 and had at least 15 years of service (Mrs. Rometty, Mr. Loughridge, Mr. Kelly and Mr. Mills) and pursuant to his offer letter for Mr. Weber who has completed at least five years of service. PSU awards are adjusted for performance and released in shares of IBM common stock (with any fractional shares rounded to the nearest whole share) in February in the year following the end of the performance period.

(5) Reflects the Retention Plan benefit payable for eligible named executive officers as an immediate annual single life annuity. See the IBM Supplemental Executive Retention Plan section above for more details.

(6) Estimated payments were calculated using the aggregate account balance as of the last business day of the fiscal year end. See the IBM Excess 401(k) Plus Plan section above for more details.

(7) Approximate annual amount payable for 10 years starting in February 2014. Deferred IBM Shares are paid as shares of IBM common stock.

 

(8) Payable in an immediate lump sum following termination. Deferred IBM Shares are paid as shares of IBM common stock.

 

(9) Sum of the amount of Basic Account deferred prior to January 1, 2005 payable in a lump sum in February of the year following termination ($3,609,714) and the approximate annual amount of the Basic Account deferred on or after January 1, 2005 payable for 10 years starting in February 2014 ($461,372). Deferred IBM Shares are paid as shares of IBM common stock.

(10) Payable in an immediate lump sum following termination. Deferred IBM Shares are paid as shares of IBM common stock.
(11) Approximate annual amount payable for 10 years starting in February 2014.