IBM shareholders to vote on boss’ $47m pay package
When IBM shareholders gather today, they’ll be asked to sign off on a US$33 million ($47m) pay package for chief executive Ginni Rometty.
It’s a hefty sum for any CEO, let alone one who’s overseen five years of falling revenue and left shareholders with a total return of less than 0.1 per cent. And the truth is, that figure might understate her actual compensation — by perhaps 50 per cent or more, because of the way IBM values her stock options.
According to proxy adviser Insti- tutional Shareholder Services, Rometty’s 2016 package may actually exceed US$50m, based on its own estimate for the value of her options at the time they were granted.
Independent calculations by Bloomberg also suggest that at current values her compensation is now worth US$65m, or almost twice as much as her reported pay.
This disparity — between what companies say they pay and what CEOs actually get — reflects the imprecise art of valuing stock options, which involves a complex, and at times opaque, numbers game.
“Their valuation is very unusual,” John Core, a professor of accounting at MIT’s Sloan School of Management, said of IBM’s valuation of Rometty’s options. “There’s certainly a measure of discretion in these models, although this seems to be on the more extreme side.”
Ed Barbini, a spokesman for IBM, said the New York-based company has used the same methodology to value option grants for more than a decade, in accordance with generally accepted accounting principles and Securities and Exchange Commission regulations.
The company, which awarded Rometty 1.5 million stock options in January 2016, valued the grant at US$12.1m. That came on top of her normal compensation, of about US$21m in salary, bonus and shares.
ISS sees Rometty’s grant as a red flag. It recommends shareholders — which include Warren Buffett’s Berkshire Hathaway, and fund giants Vanguard Group and BlackRock — vote down the pay programme.
Rival proxy adviser Glass Lewis & Co also said investors should give it a thumbs down.