IBM Stockholder Proposal on Executive Compensation

Resolved: The Stockholders request that the Board of Directors adopt a policy that the

Compensation of senior executives will be determined in the future without regard to any

“Pension income” from a defined benefit pension plan that the accounting rules may require

IBM to treat as an addition to its reported income and earnings per share.

Statement of Support

IBM uses criteria to compensate the performance of its senior executives, such as reported net

Income and earnings per share, that may include “pension income” from defined benefit pension plans.
Compensation decisions should not be influenced by such “pension income,”
in my judgment, because such “income” does not reflect the results of operations,
money that is actually available for use by the company, or the actual performance of the executives involved.

IBM has disclosed that there was no addition to pre-tax income from “periodic pension income” in  2004.
However, this does not change my point that “pension income” does not justify boosts in executive compensation.

IBM’s annual report for 2003 reported “periodic pension income” from various defined benefit

Pension plans of about $803 million or 7% of its pre-tax income. This compares with $1.2

Billion or nearly 16% of its pre-tax income in 2002, $1.5 billion or 13% of its pre-tax income

In 2001, and $1.3 billion, or 11% of its pre-tax income in 2000.

In all, “pension income” accounted for more than $4.8 billion of IBM’s pre-tax income for that

Four year period. However, as the managing director of Standard & Poors observed in Investors Business Daily,
“it’s not the company’s money. It stays in the pension fund.” (Oct. 25, 2002)

Despite this fact, the 2003 and 2004 proxy statements report that IBM’s top senior executives

Were given more than $100 million of performance-based compensation based, in part,

On either net income or earnings-per-share. From 2000 through 2003, this compensation included
more than $46 million in annual bonus awards, $27 million in restricted stock and $31 million in payouts
under the Long Term Incentive Plan.

By using reported net income and earnings per share as compensation criteria, and failing to

Subtract pension income from the reported numbers; I believe IBM compensated its top

Executives as if they actually contributed to the production of $4.8 billion in “pension income”

Through their efforts in managing operations.
However, in fact, their management of operations did not contribute to the production of that income.

This, in my view, was a clear violation of the principle of “pay for performance.”

Moreover, instead of generating $4.8 billion in cash from pension plans,
IBM has had to pay $4 billion into the U.S. Pension plan to assure that it is “fully funded.”

My proposal increased and won more than 43% of the votes cast for and against it at the 2006 annual meeting.
Pension income should no longer be used in a way that boosts executive pay. 

Please vote in support of this Resolution.

Sincerely

William W. McGreevy