2016 Director compensation narrative

Annual Retainer: In 2016, non-management directors received an annual retainer of $300,000. Chairs of the Directors and Corporate Governance Committee and the Executive Compensation and Management Resources Committee received an additional annual retainer of $20,000 and the chair of the Audit Committee received an additional annual retainer of $25,000. The retainer for the Presiding Director position is a total of $50,000, inclusive of any committee chair retainer received. For 2016, Mr. Eskew, the Presiding Director and the chair of the Audit Committee, received $25,000 for the Presiding Director role and $25,000 for the Audit Committee chair role.

Under the IBM Deferred Compensation and Equity Award Plan (DCEAP), 60% of the total annual retainer is required to be deferred and paid in Promised Fee Shares (PFS). Each PFS is equal in value to one share of IBM’s common stock. When a cash dividend is paid on IBM’s common stock, each director’s PFS account is credited with additional PFS reflecting a dividend equivalent payment. With respect to the payment of the remaining 40% of the annual retainer, directors may elect one or any combination of the following: (a) deferral into PFS, (b) deferral into an interest-bearing cash account, and/or (c) receipt of cash payments on a quarterly basis during service as a Board member. IBM does not pay above-market or preferential earnings on compensation deferred by directors. Under the IBM Board Corporate Governance Guidelines, within five years of initial election to the Board, non-management directors are expected to have stock-based holdings in IBM equal in value to five times the annual retainer initially payable to such director. Stock-based holdings mean (i) IBM shares owned personally or by members of the immediate family sharing the same household, and (ii) DCEAP PFS.

Payout under the DCEAP: Upon a director’s retirement or other completion of service as a director (a) all amounts deferred as PFS are payable, at the director’s choice, in either cash and/or shares of IBM’s common stock, and (b) amounts deferred into the interest-bearing cash account are payable in cash. Payouts may be made in either (a) a lump sum payment as soon as practicable after the date on which the director ceases to be a member of the Board, (b) a lump sum payment paid in February of the calendar year immediately following the calendar year in which the director ceases to be a member of the Board, or (c) between two and ten annual installments, each paid beginning in February following the calendar year in which the director ceases to be a member of the Board. If a director elects to receive PFS in cash, the payout of PFS is valued using the closing price of IBM common stock on the NYSE as follows: for payouts made in an immediate lump sum, IBM stock will be valued on the date on which the director ceases to be a member of the Board and for lump sum payments made in February of the calendar year immediately following the calendar year of separation or for installment payouts, IBM common stock will be valued on the last business day of the January preceding such February payment.

IBM’s Matching Grants Program: Non-management directors are eligible to participate in IBM’s Matching Grants Program on the same basis as IBM’s employees based in the United States. Under this program, IBM will provide specified matches in cash or equipment in connection with a director’s eligible contributions to approved educational institutions, medical facilities and cultural or environmental institutions. IBM matches eligible contributions in cash on a 1-to-1 basis and in equipment on a 2-to-1 basis. Each director is eligible for a Company match on total gifts up to $10,000 per calendar year. Amounts shown in the 2016 Director Compensation Table for matching grants may be in excess of $10,000 because such amounts include Company contributions on gifts that were made by directors in previous years.

2016 Director compensation table

Fees Earned or Paid in Cash (column (b)): Amounts shown in this column reflect the annual retainer paid to each director as described above. A director receives a pro-rated amount of the annual retainer for service on the Board and, if applicable, as Presiding Director or a committee chair, based on the portion of the year the director served.

All Other Compensation (column (c)): Amounts shown in this column represent:

Name
(a)
Fees Earned or
Paid in Cash ($)
(b)
All Other
Compensation ($)(1)
(c)
Total ($)
(d)
A.J.P. Belda(2) $96,667 $2,090,250 $2,186,917
W.R. Brody(3) 96,667 1,785,498 1,882,165
K.I. Chenault 300,000 145,961 445,961
M.L. Eskew 350,000 123,580 473,580
D.N. Farr 300,000 33,369 333,369
M. Fields(4) 250,000 2,849 252,849
A. Gorsky 300,000 18,397 318,397
S.A. Jackson 320,000 115,716 435,716
A.N. Liveris 300,000 67,667 367,667
W.J. McNerney, Jr. 300,000 66,719 366,719
H.S. Olayan 300,000 4,268 304,268
J.W. Owens 300,000 86,831 386,831
J.E. Spero 300,000 140,837 440,837
S. Taurel 320,000 145,805 465,805
P. Voser 300,000 15,515 315,515

(1) Amounts in this column include the following: for Mr. Belda: $2,090,210 of earned compensation and dividend reinvestments which had been previously deferred under the DCEAP since his election to the Board in 2008 and paid to him after his term on Board ended in 2016, which amount includes $37,882 of dividend equivalent payments earned in 2016 on PFS, and does not include the retainer earned in 2016; for Dr. Brody: $1,785,458 of earned compensation and dividend reinvestments which had been previously deferred under the DCEAP since his election to the Board in 2007 and paid to him after his term on Board ended in 2016, which amount includes $43,417 of dividend equivalent payments earned in 2016 on PFS, and does not include the retainer earned in 2016; for Mr. Chenault: $145,842 of dividend equivalent payments on PFS; for Mr. Eskew: $123,462 of dividend equivalent payments on PFS; for Mr. Farr: $23,250 of dividend equivalent payments on PFS and $10,000 contributed by IBM under the Matching Grants Program; for Mr. Gorsky: $18,279 of dividend equivalent payments on PFS; for Dr. Jackson: $110,598 of dividend equivalent payments on PFS; for Mr. Liveris: $57,548 of dividend equivalent payments on PFS and $10,000 contributed by IBM under the Matching Grants Program; for Mr. McNerney: $61,600 of dividend equivalent payments on PFS; for Mr. Owens: $86,712 of dividend equivalent payments on PFS; for Ms. Spero: $120,718 of dividend equivalent payments on PFS and $20,000 contributed by IBM under the Matching Grants Program; for Mr. Taurel: $143,186 of dividend equivalent payments on PFS; for Mr. Voser: $15,396 of dividend equivalent payments on PFS.

(2) After Mr. Belda’s term on the Board ended in April 2016, Mr. Belda was paid the amount shown in column (b) plus the amount shown for him as earned compensation and dividend reinvestments in footnote (1) above.

(3) After Dr. Brody’s term on the Board ended in April 2016, Dr. Brody was paid the amount shown in column (b) plus the amount shown for him as earned compensation and dividend reinvestments in footnote (1) above. The amount in column (b) does not include the value of 4,209 shares, for which Dr. Brody previously elected to defer payment.

(4) Mr. Fields joined the Board in March 2016.

(This information reflects the 2017 Proxy Statement.)

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