Executive compensation

2015 Retention plan narrative

Introduction and purpose

During the mid-1990s, an additional form of retention compensation was created for certain IBM leaders. The plan, formally called the “IBM Supplemental Executive Retention Plan” (Retention Plan), began in 1995 during a particularly trying time in IBM’s history when it faced challenges that many thought put its very existence at risk. Some key leaders were recruited away from IBM during this time. In this environment, IBM created this new plan to help retain for full careers the caliber of senior leaders needed to turn IBM around, preserve its long-term viability and position it for growth in the future.

Because its original purpose had been met, the Retention Plan was closed to new participants in 2004. Future accruals under the Retention Plan stopped on December 31, 2007, and will not be replaced by any other plan.

Payments accrue based on age and service and are typically payable only after age 60, as a way to encourage senior leaders to continue working for IBM past the age when many others at IBM choose to retire.

Even though the Retention Plan provides for the payment of specified benefits after retirement, given the nature of this program as a retention vehicle, the Retention Plan is discussed in its own section instead of in the Pension Benefits section. As a consequence, the amounts reflected below are separately presented in the 2015 Retention Plan Table and are not included in the 2015 Pension Benefits Table.

The 2015 Retention Plan Table shows each eligible named executive officer’s number of years of credited service, present value of accumulated benefit and payments during the last fiscal year under the Retention Plan. Mr. Schroeter is not eligible for a Retention Plan benefit because he did not meet all of the eligibility criteria. Specifically, he did not continuously remain on the U.S. payroll, as he worked for IBM Australia from April 1, 2005 through June 30, 2011.

Description of retention plan

Material terms and conditions: 1995 retention plan

1995 retention plan benefit expressed as an annual single life annuity

Material terms and conditions: 1999 retention plan

Compensation elements included in calculations

The definitions of eligible final average pay and eligible compensation for purposes of the Retention Plan have the same meanings as under the Pension Credit Formula in the IBM Personal Pension Plan.

Funding

Policy regarding extra years of credited service

Available forms of payment

Annual retention plan benefit

The annual Retention Plan benefit that was earned as of December 31, 2007 and that is payable as a single life annuity beginning at the earliest unreduced retirement age (as defined in the next subsection) for each eligible named executive officer is detailed in the table below.

Name Annual Retention Plan Benefit at Earliest Unreduced Retirement Age
V.M. Rometty $101,908
M.D. Rhodin 126,894
B.A. van Kralingen 46,001
J.E. Kelly III 587,933

Present value of accumulated benefit

2015 Retention plan table

Name
(a)
Plan Name
(b)
Number of Years Credited Service(1)
(#)
(c)
Present Value of Accumulated Benefit(2)
($)
(d)
Payments During Last Fiscal Year
($)
(e)
V.M. Rometty Retention Plan 26 $1,572,314 $0
M.D. Rhodin Retention Plan 24 1,655,299 0
B.A. van Kralingen Retention Plan 4 566,904 0
J.E. Kelly III Retention Plan 27 8,940,712 0

(1) Reflects years of credited service as of December 31, 2007, which was the date accruals under the Retention Plan stopped. Each of the eligible named executive officers has eight additional years of service with IBM after that date.

(2) While the accruals under the Retention Plan stopped on December 31, 2007, the value of the Retention Plan benefit for the eligible named executive officers will continue to change based on their ages, the assumptions used to calculate the present value of the accumulated benefit, and the benefit that would be provided under the IBM Personal Pension Plan.

Assumptions to determine present value for each eligible named executive officer, as of December 31, 2015:

Assumptions to determine present value as of December 31, 2014: