Proxy released 3/9/2015
Big bonus at IBM: The board approved annual incentive at 90% of her $4 million target for CEO Virginia Rometty, for a total of $3.6 million. Last year Rometty recommended forgoing her annual bonus. For 2014, as noted in the proxy statement, “Financial results were lower than target.” Notably, the company’s revenue declined, net income and free cash flow also declined.
The proxy discloses that the overall funding for the annual incentive plan was to be based 60% on operating net income, 20% on revenue growth, and 20% on free cash flow, but does not state the actual targets and whether they were achieved. However, it notes that: “the Compensation Committee approved an upward adjustment to the score in light of strong results in client satisfaction and workforce development in support of the Company’s transformation.”
The repositioning and investment in research by the board and management may well be wise choices resulting in a significant transformation. If so, CEO Virginia Rometty will be handsomely rewarded with the increased value of her options and performance share units. An annual incentive, however, is designed — in the words of the proxy statement — to ‘motivate strong short-term business performance.’ IBM shareholders may balk at this bonus. These decision may pay off in the long run, in which case that is when the rewards should be paid.
No matter how IBM shareholders fare this year, Rometty will do fine. Her base salary for 2015 has been increased to $1.6 million, and her target annual incentive has been increased from $4 million to $5 million. Presumably this bonus could also be given despite failure to meet financial goals.
Proxy released 2/19/2015
Pay is down, but issues remain: The pay package for CEO Paal Kibsgaard, is down from last year, with significantly lower stock awards, as well as lower option grant and annual incentive pay for a decline in total disclosed pay of over $4 million. However, the summary compensation table reports a change in pension value of $1,765,398. As noted in the footnotes this represents a change in actuarial value, not a current payment. The footnotes indicate the Kibsgaard received $134,904 in unfunded credits to the Schlumberger Supplementary Benefit Plan. The current value of 47-year-old Kibsgaard’s non-qualified deferred compensation, in the five separate plans in which he participates, is over $.4.4 million. These tax-advantaged retirement savings allow for vast wealth accumulation for the company employee who is least likely to face retirement insecurity.
We also note that the company’s Performance Share Units allow for accelerated vesting in the case of a merger or consolidation, a practice many shareholders object to because it creates incentives for business transactions that may not benefit shareholders.
Finally, while not a compensation issue, it is interesting to note that while many companies adopt the governance practice of separating the positions of chairman and CEO, Schlumberger will be re-combining them after the impending retirement of the current board chair.
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The second report in the series, The 100 Most Overpaid CEOs: Are Fund Managers Asleep at the Wheel? highlights the forces behind disproportionate pay and the fund managers who continue to approve these pay packages.
Discover which mutual funds and pension funds are most likely to vote in approval of excessive executive compensation in this 2016 edition of The Top 100 Most Overpaid CEOs.
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Unless otherwise noted, all posts are written by Rosanna Landis Weaver, author of The 100 Most Overpaid CEOs and Program Manager of As You Sow’s Executive Compensation initiative. Follow Rosanna on Twitter at @LandisWeaver.