IBM Announces Significant Changes in Senior Executive Compensation Policies

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ARMONK, N.Y. - 24 Feb 2004: IBM today announced a series of changes that further align the equity-based compensation of its senior executives with the interests of shareholders.

The changes were approved today by the Compensation Committee of the IBM board of directors.

One change will ensure that the company's senior executives benefit from outright, annual grants of stock options only after shareholders realize at least 10 percent growth in their investments.

In addition, IBM senior executives will be able to acquire market-priced stock options only if they first invest their own money.

The new policies, which apply to Chairman and Chief Executive Officer Samuel J. Palmisano and the top 300 IBM executives worldwide, will begin in 2004.

IBM said it believes it is the first major company, inside or outside the information technology industry, to set such requirements for equity-based executive compensation.

Details of the changes are as follows:

While IBM senior executives already have minimum company stock ownership requirements, this unique, "buy first" policy further encourages executive ownership of the company -- long an important practice at IBM -- while ensuring they experience the same ups and downs of ownership as shareholders.

"IBM has a longstanding record of progressive, responsible corporate governance. The actions approved today by the Compensation Committee further strengthen the personal responsibility and accountability the company expects of its senior executives, and are consistent with IBM's core values," Mr. Palmisano said. "These innovative programs continue to balance our shareholders' interests with executive rewards, by requiring that IBM executives assume the same risks as our shareholders. The changes also ensure that IBM's leaders are compensated only when the performance we deliver first rewards our shareholders."

Senior executive compensation at IBM is based on company, business unit and individual performance. Equity in the company, such as stock options, is generally granted annually to most executives as part of their compensation and as a retention tool. Options are also granted annually to high-performing employees as a retention tool; that program will not be affected by these changes.

Option recipients must wait four years before earning the right to exercise 100 percent of an option grant. Options expire after 10 years.

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