DEF 14A 1 tm2122634-2_def14a.htm DEF 14A tm2122634-2_def14a - none - 31.7657638s
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.    )
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Check the appropriate box:

Preliminary Proxy Statement

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Definitive Proxy Statement

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Soliciting Material under §240.14a-12
International Business Machines Corporation
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Armonk, New York
March 7, 2022
Dear Fellow Stockholders:
On behalf of the IBM Board of Directors, you are cordially invited to attend the Annual Meeting of Stockholders on Tuesday, April 26, 2022.
GROWING IBM
In the past year, we made a series of decisive moves to support IBM’s hybrid cloud and AI strategy. We spun off Kyndryl. We launched IBM Consulting. We closed 15 acquisitions. We delivered new digital capabilities and innovations. We broadened our ecosystem and accelerated changes in our go-to-market model. And we continued to instill a more client-centric corporate culture.
These changes are taking hold and our strategy is strongly resonating among clients. IBM is now a nimbler, more focused and more technologically capable company that can better help clients predict, automate, secure, and modernize their business. For these reasons, we are well positioned to deliver growth this year and greater value to you, our stockholders.
EXPANDING ENGAGEMENT WITH OUR STOCKHOLDERS
Stockholder engagement is a core IBM value. The feedback we receive during our year-round engagement is integral to the Board’s decision-making process and informs important practices and policies in our corporate governance, executive compensation and ESG programs.
Following last year’s negative Say on Pay vote, we expanded our investor outreach program to fully take into account your feedback and concerns about our pay programs and practices. I once again participated in these outreach efforts, along with our independent lead director and members of our senior management. You will see the feedback we incorporated into our executive compensation program and practices from this outreach reflected in this Proxy Statement on pages 5 and 34. We are committed to listening to our investors and ensuring their interests remain a priority.
LEADING IN ENVIRONMENTAL AND SOCIAL RESPONSIBILITY
Corporate social responsibility has been a hallmark of IBM’s culture for more than a century. Today we continue to pursue the highest standards of corporate social responsibility. This is reflected in how we empower employees, work with clients and our ecosystem of partners, and run our company.
We are proud of our long history of environmental leadership and in 2021 we set a new goal of net zero greenhouse emissions by 2030. In 2021, we also launched the IBM Environmental Intelligence Suite to help clients leverage data and AI to measure, monitor, and predict environmental outcomes, assess climate risk, and simplify ESG reporting. And more recently, we acquired Envizi, a leading data and analytics software provider for environmental performance, that builds on IBM’s AI-powered software.
Talent is everywhere; training opportunities are not. To help address this issue, we have committed to providing 30 million people with new skills by 2030. This will expand access to digital skills and employment opportunities so that more people —  regardless of their background — can participate in and take advantage of the digital economy.
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This past year, we published our Diversity & Inclusion Report, which allows us to be more transparent about the progress we continue to make. We also added a diversity modifier to our executive compensation program metrics to continue to reinforce senior management’s focus on improving the diverse representation of our workforce, as you will see on pages 36 and 37.
NEW INDEPENDENT LEAD DIRECTOR
Finally, this year, Mike Eskew is retiring from the Board. He served as IBM’s inaugural independent Lead Director, Chair of the Audit Committee and provided strong leadership and valuable insights as a Director. The Board and I would like to thank him for his many contributions in service of IBM and its stockholders and wish him well in retirement.
To succeed Mike, the independent members of your Board of Directors selected Alex Gorsky as independent Lead Director. Given Alex’s global business, technology, leadership, and board experience, we are confident he will excel in this role.
As we approach the Annual Meeting of Stockholders, I am incredibly proud of the progress IBMers have achieved to advance our business and help our clients thrive.
On behalf of the Board of Directors, thank you for your continued investment and support of IBM.
Very truly yours,
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Arvind Krishna
Chairman of the Board
 

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Armonk, New York
March 7, 2022
A Message from our Lead Director:
2021 was a pivotal year for our Company and its stakeholders. I am honored to be writing for the first time as IBM’s independent Lead Director and I am pleased to report that the Board continues to ensure effective oversight of your Company.

New Independent Board Leadership. As you will see in this Proxy Statement, Mike Eskew will retire from the Board and will not stand for re-election at the Annual Meeting of Stockholders. As your first independent Lead Director, Mike served with distinction and integrity, leaving a legacy of thoughtful, engaging, and independent leadership. On behalf of the Board, we are incredibly grateful to Mike for his contributions to and leadership of your Board.
As your new independent Lead Director, I am responsible for helping to ensure that the Board exercises prudent judgment, independent from the management team of the Company. I commit to you that I will faithfully execute my responsibilities to ensure independent and effective oversight.

Building a Diverse Board. We are continuously focused on ensuring that the Board is comprised of a diverse mix of skills, backgrounds and perspectives. 2021 was no different. Since the last Annual Meeting, the Board welcomed Alfred W. Zollar. As you will read, Al has deep technology and business experience, including as a director of Red Hat, that will serve as an asset to stockholders and your Board in the years to come.
In the last three years, we have continued to add strong technical skills, including cybersecurity, artificial intelligence, and hybrid cloud, as well gender and ethnic diversity to your Board.

Strategic Oversight. Your Board believes that engaged oversight of Company strategy is essential to the Company’s creation of long-term sustainable value. Throughout 2021, we were actively engaged as IBM continued to accelerate its hybrid cloud and AI strategy. This includes the completed separation of the managed infrastructure services business, investment in the development of new technologies, and the acquisition of strategic businesses. In 2022, we remain focused on the growth of IBM as a leading hybrid cloud and AI company.

Say on Pay and Enhanced Stockholder Engagement. Engagement with you, IBM’s owners, is an essential part of the Board’s decision-making process. We are committed to an open dialogue to ensure that your voices are heard. In 2021, we expanded the reach of our engagement program to ensure that we captured your input following our negative Say on Pay vote at the 2021 Annual Meeting. We offered engagement to investors representing 55% of the shares that voted at the 2021 Annual Meeting, meeting with more than 35% of the shares that voted. The independent Lead Director, together with the Chairman and CEO and other senior management, met with more than 26% of the shares that voted. What we heard is that while investors are strongly supportive of the overall design of our compensation program, they were concerned with the one-time retention award to IBM’s former president.
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We heard you and you will see your feedback reflected in this year’s compensation disclosure at page 34. Notably, no one-time award was granted to a named executive officer in 2021.

Commitment to Sustainability and an Ethical Business Culture. We also heard from stockholders that you value IBM’s legacy of corporate responsibility, trust and transparency. The Board agrees and is actively engaged in overseeing the Company’s ESG efforts and providing disclosure of our progress. You will find on page 37 of this Proxy Statement the results of the diversity modifier the Board added to our executive compensation program to reinforce senior management’s focus on improving the diversity of the Company’s workforce. In 2022, we will also continue our decades long practice of disclosing the Company’s progress against its environmental goals, including net zero greenhouse gas emissions by 2030. You can read more in the dedicated “Environmental and Social Responsibility” section of this Proxy Statement.
Your Board believes that an ongoing commitment to good corporate governance enhances stockholder value, particularly over the long term.
We appreciate your investment in IBM and hope that you vote at our Annual Meeting on April 26, 2022.
Very truly yours,
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Alex Gorsky
Lead Director
 

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Table of Contents
   
1
Proxy Summary
2
5
IBM Board of Directors
7
1. Election of Directors for a Term of One Year
10
Governance and the Board
16
16
18
19
23
24
24
25
Environmental and Social Responsibility
27
2021 Executive Compensation
31
31
32
48
51
52
55
57
60
64
Report of the Audit Committee of the Board of Directors
68
69
2. Ratification of Appointment of Independent Registered Public Accounting Firm
70
3. Management Proposal on Advisory Vote on Executive Compensation (Say on Pay)
71
4. Stockholder Proposal on Stockholder Special Meeting Right
72
5. Stockholder Proposal to Have an Independent Board Chairman
74
6. Stockholder Proposal Requesting a Public Report on the Use of Concealment Clauses
77
80
83
ESG HIGHLIGHTS
At IBM, trust and corporate responsibility are integral to
our business — and our ESG efforts are reflected throughout this Proxy Statement. Key topics include:
2
5
9
22
27
27
28
29
30
 

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2022 Notice of Annual Meeting
and Proxy Statement
Items of Business:
The Annual Meeting of Stockholders of International Business Machines Corporation will be held on Tuesday, April 26, 2022 at 10 a.m. Eastern Time in a virtual format. The items of business are:
1.
Election of directors proposed by IBM’s Board of Directors for a term of one year, as set forth in this Proxy Statement.
2.
Ratification of the appointment of PricewaterhouseCoopers LLP as IBM’s independent registered public accounting firm.
3.
Advisory vote on executive compensation.
4.
Three stockholder proposals, if properly presented at the meeting.
These items are more fully described in the following pages, which are a part of this Notice.
Stockholders of record can vote their shares by using the Internet or the telephone. Instructions for using these convenient services are set forth on the proxy card or the notice of Internet availability of proxy materials. If you received your materials by mail, you also may vote your shares by marking your votes on the enclosed proxy card, signing and dating it, and mailing it in the enclosed envelope. If you will need special assistance at the meeting because of a disability, please contact the Office of the Secretary, International Business Machines Corporation, 1 New Orchard Road, Armonk, NY 10504.
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Frank Sedlarcik
Vice President and Secretary
Date:
April 26, 2022
Time:
10 a.m. Eastern Time
Virtual
Meeting Site:
www.virtualshareholdermeeting.com/​
IBM2022
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Your vote is important.
Please vote by following the instructions on
your proxy card or voting instruction form.
To express our appreciation for your
participation, IBM will make a $1 charitable donation to Opportunity@Work on behalf of
every stockholder account that votes this year.
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Opportunity@Work aims to rewire the U.S. labor market so workers Skilled Through Alternative Routes (STARs) can work, learn and earn to their full potential.
The proxy materials, including this Proxy Statement, the IBM 2021 Annual Report, which includes the consolidated financial statements, and the proxy card, or the notice of Internet availability of proxy materials, as applicable, are being distributed beginning on or about March 7, 2022 to all stockholders entitled to vote.
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be held on April 26, 2022: the Proxy Statement and the Annual Report to Stockholders are available at www.ibm.com/investor/material/.
Websites throughout this Proxy Statement are provided for reference only. Websites referred to herein are not incorporated by reference into this Proxy Statement.
2022 Notice of Annual Meeting & Proxy Statement 1
 

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Proxy Summary
Voting MattersStockholders will be asked to vote on the following matters at the Annual Meeting:
Items of Business
Board’s recommendation
Where to find details
1.
Election of 12 Directors
FOR all nominees
P. 10-15
2.
Ratification of PricewaterhouseCoopers LLP as our Independent Registered Public Accounting Firm
FOR
P. 70
3.
Advisory Vote on Executive Compensation
FOR
P. 71
4.
Stockholder Proposal on Stockholder Special Meeting Right
AGAINST
P. 72-73
5.
Stockholder Proposal to Have an Independent Board Chairman
AGAINST
P. 74-76
6.
Stockholder Proposal Requesting Public Report on the Use of Concealment Clauses
AGAINST
P. 77-79
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What’s new?
We continue to enhance our governance, compensation, and sustainability practices and disclosures. Among many other items, since last year, IBM has:

Continued our commitment to active Board refreshment, adding technical experience and diversity with the addition of Alfred W. Zollar in 2021

Provided enhanced Board diversity disclosure

Introduced Stock Options to ensure a portion of equity granted to executives does not generate value unless IBM’s stock price increases

Disclosed the 2021 diversity modifier results in the 2021 Annual Incentive Program section

Beat, by five years, our ambitious goals to reduce carbon emissions and procure electricity from renewable sources

Announced a new goal to skill 30 million people of all ages with new skills for the jobs of tomorrow by 2030, committing to collaborate with universities and government agencies that focus on underserved youth, women and military veterans
Governance Highlights
Effective Board leadership, independent oversight and strong corporate governance

Independent Lead Director with robust and well-defined responsibilities

Executive session led by independent Lead Director at each Board meeting

Proactive Board and Committee refreshment with focus on diversity and the optimal mix of skills and experience

Annual review of the Board leadership structure

Confidential voting
Stockholder rights and accountability

Annual election of all directors

Majority voting for directors in uncontested elections

Stockholder special meeting right

Proxy access

No stockholder rights plan

No supermajority voting provisions

Robust year-round stockholder engagement process

Signatory of Commonsense Principles 2.0

Endorser of Investor Stewardship Group Principles

Signatory to the Business Roundtable Statement on the Purpose of a Corporation

Stockholder right to remove directors
22022 Notice of Annual Meeting & Proxy Statement   |   Proxy Summary
 

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IBM Board of Directors (PAGE 7)
Director Nominees
IBM’s Board is composed of a diverse, experienced group of global thought, business, and academic leaders.
Director
Age
Primary Occupation
Director
Since
Committee
Memberships
Audit
Committee
Financial
Expert
Thomas Buberl
48
Chief Executive Officer, AXA S.A.
2020
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David N. Farr
67
Retired Chairman and Chief Executive Officer, Emerson Electric Co.
2012
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Alex Gorsky
61
Executive Chairman and Retired Chief Executive Officer, Johnson & Johnson
2014
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Michelle J. Howard
61
Retired Admiral, United States Navy
2019
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Arvind Krishna
59
Chairman and Chief Executive Officer, IBM
2020
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Andrew N. Liveris
67
Retired Chairman and Chief Executive Officer, The Dow Chemical Company
2010
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F. William McNabb III
64
Retired Chairman and Chief Executive Officer, The Vanguard Group, Inc.
2019
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Martha E. Pollack
63
President, Cornell University
2019
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Joseph R. Swedish
70
Retired Chairman, President and Chief Executive Officer, Anthem, Inc.
2017
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Peter R. Voser
63
Retired Chief Executive Officer, Royal Dutch Shell plc, and Chairman, ABB Ltd.
2015
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Frederick H. Waddell
68
Retired Chairman and Chief Executive Officer, Northern Trust Corporation
2017
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Alfred W. Zollar
67
Executive Advisor, Siris Capital Group, LLC
2021
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Number of meetings held in 2021
11
8
7
0
Audit:
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Directors and Corporate Governance:
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Executive Compensation and Management Resources:
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Executive:
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Audit Committee Financial Expert:
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2022 Notice of Annual Meeting & Proxy Statement   |   Proxy Summary3
 

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Optimal Mix of Skills and Experience of Director Nominees
IBM’s directors collaboratively contribute significant experience in the areas most relevant to overseeing the Company’s business and strategy.
The skills and experience of our board include, but is not limited to:

Industry leaders with deep executive and oversight experience;

Global operational experience to oversee a business of IBM’s scale, scope, and complexity;

Technology, cybersecurity and digital transformation experience;

Key insight into IBM’s regulatory environment; and

Diversity of backgrounds and experiences
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Active Board Refreshment
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42022 Notice of Annual Meeting & Proxy Statement   |   Proxy Summary
 

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Integrated Approach to Stockholder Engagement
Robust Engagement and Dialogue
IBM customizes its engagements by aligning discussion topics with stockholders’ areas of interest. After last year’s negative Say on Pay vote, IBM expanded its off-season engagement efforts to ensure stockholders were afforded an opportunity to provide feedback on IBM’s executive compensation program, as well as any other topics of concern to stockholders. Such stockholder feedback is integral to the Board’s decision-making process and informs the Company’s policies, practices and disclosures.
Off-Season Engagement
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Offered engagement to stockholders owning 55% of shares that voted at 2021 Annual Meeting
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Met with stockholders owning 37% of shares that voted at the 2021 Annual Meeting
IBM’s independent Lead Director, as well as IBM’s senior management, met with stockholders owning over 26% of shares that voted at the 2021 Annual Meeting.
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Outcomes of Stockholder Engagement
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EXECUTIVE
COMPENSATION

Reconfirmed with stockholders the unique circumstances around the one-time equity award for James Whitehurst in March 2020, and reiterated that no one-time awards were granted to named executive officers in 2021

Continued our Annual Incentive Program and Performance Share Unit metrics that were established in 2021

Updated our Compensation Peer Group to increase the weighting of peers in the technology industry, reflect IBM’s increased orientation as a hybrid cloud and AI company, and align with the size and scope of IBM following the separation of our managed infrastructure business

Introduced stock options in 2022 as part of the overall equity pay mix for executives, which ensures a portion of equity does not generate value unless IBM’s stock price increases over the price when granted

Disclosed the 2021 diversity modifier results in the “2021 Annual Incentive Program” section of this Proxy Statement
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BOARD AND
GOVERNANCE

Continued focus on Board diversity with 2 women directors and 3 ethnically diverse directors added in the last 3 years

Active Board refreshment with more than 60% of the Board new in the last 5 years

Enhanced Board diversity disclosure
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ESG REPORTING AND
THE ENVIRONMENT

Provided stakeholders with comparable ESG data by reporting under the Sustainability Accounting Standards Board (SASB) framework

Committed to publish EEO-1 data this year after the completion of the Company’s spin-off of its managed infrastructure services business

Published our Diversity & Inclusion Report, assessing the effectiveness of IBM’s diversity, equity and inclusion programs

Set goal to reach net zero greenhouse gas emissions by 2030 and updated our goals regarding renewable electricity and greenhouse gas emissions to reflect our strong progress in these areas
2022 Notice of Annual Meeting & Proxy Statement   |   Proxy Summary5
 

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Business Highlights
In 2021, IBM accelerated revenue growth through the year at constant currency and completed substantial actions to focus on hybrid cloud and AI capabilities. IBM generated $12.8 billion of cash from operations* in 2021 with capital strategically allocated to business investment, stockholder returns and debt reduction.
2021 Performance Highlights
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* Cash from operations is presented on a consolidated basis, which includes activity from discontinued operations related to the separation of Kyndryl.
Compensation Highlights
Our compensation strategy supports IBM’s high value business model
What We Do
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Tie a significant portion of pay to Company performance
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Mitigate risk taking by emphasizing long-term equity incentives, placing caps on potential payments, and maintaining robust clawback provisions
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Require significant share ownership by the Chairman and CEO, Vice Chairman and Senior Vice Presidents
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Utilize noncompetition and nonsolicitation agreements for senior executives
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Remove impact of share repurchase on executive incentives
What We Don’t Do
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No individual severance or change-in-control agreements for executive officers
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No excise tax gross-ups for executive officers
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No dividend equivalents on unearned RSUs/PSUs
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No hedging/pledging of IBM stock
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No stock option repricing, exchanges or stock options granted below market value
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No guaranteed incentive payouts for executive officers
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No accelerated vesting of equity awards for executive officers
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No above-market returns on deferred compensation plans
62022 Notice of Annual Meeting & Proxy Statement   |   Proxy Summary
 

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IBM Board of Directors
Overview
IBM’s Board of Directors is responsible for supervision of the overall affairs of IBM. Following the Annual Meeting in 2022, the Board will consist of 12 directors. In between annual meetings, the Board has the authority under the by-laws to increase or decrease the size of the Board and to fill vacancies.
Director Selection Process
The Directors and Corporate Governance Committee is responsible for leading the search for qualified individuals for election as directors to ensure the Board has the optimal mix of skills, expertise, experience, and diversity of backgrounds. The Committee recommends candidates to the full Board for election.
The Board believes that the following core attributes are key to ensuring the continued vitality of the Board and excellence in the execution of its duties:
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The Committee and the Board identify candidates through a variety of means, including:

recommendations from members of the Committee and the full Board

information the Committee requests from the Secretary of IBM

suggestions from IBM management

a third-party search firm, from time to time
2022 Notice of Annual Meeting & Proxy Statement   |   IBM Board of Directors7
 

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Director Skills and Qualifications
The IBM Board is composed of a diverse group of members, all leaders in their respective fields. All current directors have leadership experience at major domestic and international organizations with operations inside and outside the United States, at academic or research institutions, or in government. Directors also have deep industry expertise as leaders of organizations within some of the Company’s most important client industries and constituencies.
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The Directors and Corporate Governance Committee and the Board believe that the above-mentioned attributes, along with the leadership skills and other experiences of the Board members described below, provide IBM with the perspectives and judgment necessary to guide IBM’s strategies and oversee their execution.
82022 Notice of Annual Meeting & Proxy Statement   |   IBM Board of Directors
 

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IBM BOARD OF DIRECTORS — EXPERIENCE AND SKILLS OF DIRECTOR NOMINEES
Director
Thomas
Buberl
David N.
Farr
Alex
Gorsky
Michelle
J. Howard
Arvind
Krishna
Andrew N.
Liveris
F. William
McNabb III
Martha E.
Pollack
Joseph R.
Swedish
Peter R.
Voser
Frederick H.
Waddell
Alfred W.
Zollar
Client Industry Expertise
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Organizational Leadership
and Management
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Global Operations
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CFO
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Specific Risk Oversight/
Risk Management Exposure
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Technology, Cybersecurity
or Digital
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Academia
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Government/Regulatory,
Business Associations
or Public Policy
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Public Board
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Gender Identity
Male
Male
Male
Female
Male
Male
Male
Female
Male
Male
Male
Male
Race and/or Ethnicity
White/
Caucasian
White/
Caucasian
White/
Caucasian
Black/African American
Asian/Pacific Islander
White/
Caucasian
White/
Caucasian
White/
Caucasian
White/
Caucasian
White/
Caucasian
White/
Caucasian
Black/African American
Born Outside the U.S.
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The following client industries provide a snapshot into the many key and diverse industries in which our directors have relevant experience. Many of our directors have experience in multiple client industries.
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Healthcare
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Manufacturing
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Energy
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Information Technology
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Government
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Research & Development
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Financial Services & Insurance
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Chemicals
2022 Notice of Annual Meeting & Proxy Statement   |   IBM Board of Directors9
 

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1. Election of Directors for a Term of One Year
The Board proposes the election of the following director nominees for a term of one year. Below is information about each nominee, including biographical data for at least the past five years. If one or more of these nominees become unavailable to accept a nomination or election as a director, the individuals named as proxies on the proxy card will vote the shares that they represent for the election of such other persons as the Board may recommend, unless the Board reduces the number of directors.
Michael Eskew is not a nominee for election, and his term on the Board will end in April. We are very grateful to him for his many valuable contributions and will miss his participation.
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Thomas Buberl
Chief Executive Officer, AXA S.A., a multinational insurance firm
Director since: 2020
Age: 48
Committee:
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Directors and Corporate Governance
Qualifications

Global business experience as chief executive officer of AXA S.A.

Affiliation with leading business and public policy associations (member of the Climate Finance Leadership Initiative and former chair of Pan-European Insurance Forum)

Acknowledged leader in digital transformation

Outside board experience as a member of the supervisory board of Bertelsmann Verwaltungsgesellschaft
Relevant experience
Mr. Buberl, 48, joined Winterthur in 2005, which became a subsidiary of AXA in 2006. In 2008, he joined Zurich Insurance
Group as chief executive officer for Switzerland. Mr. Buberl returned to AXA in 2012 as chief executive officer for AXA Konzern AG (Germany) and he became a member of AXA’s executive committee. In 2015, Mr. Buberl became the chief executive officer of AXA’s health business and a member of AXA’s group management committee. Mr. Buberl was additionally appointed chief executive officer of AXA’s global business line for life and savings and deputy chief executive officer of AXA in early 2016. He was named chief executive officer and joined the board of directors of AXA in September 2016. He is a member of the supervisory board of Bertelsmann, a member of the Climate Finance Leadership Initiative and the former chair of the Pan-European Insurance Forum. Additionally, during the past five years, he was a director of AXA Equitable Holdings, Inc., a former subsidiary of AXA S.A.
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David N. Farr
Retired Chairman and Chief Executive Officer, Emerson Electric Co., a diversified manufacturing and technology company
Director since: 2012
Age: 67
Committee:
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Audit
Qualifications

Global business and technology experience as chairman and chief executive officer of Emerson Electric Co.

Affiliation with leading business and public policy associations (former director of the U.S.-China Business Council)

Outside board experience as former director of Delphi Corporation
Relevant experience
Mr. Farr, 67, joined Emerson in 1981 and subsequently held various executive positions. He was named senior executive vice president and chief operating officer in 1999, chief executive officer in 2000 and chairman and chief executive officer in 2004. Mr. Farr was named chairman, president and chief executive officer in 2005 and chairman and chief executive officer in 2010, positions he held until his retirement in 2021. He is the former chairman of the National Association of Manufacturers and is a former director of the U.S.-China Business Council.
102022 Notice of Annual Meeting & Proxy Statement   |   Election of Directors
 

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Alex Gorsky
Executive Chairman and Retired Chief Executive Officer, Johnson & Johnson, a global healthcare products company
Director since: 2014
Age: 61
Committees:
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Executive Compensation and Management Resources
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Executive
Qualifications

Global business and technology experience as executive chairman and chief executive officer of Johnson & Johnson

Affiliation with leading business and public policy associations (former Chair of the Business Roundtable’s Corporate Governance Committee and former member of the Business Council Executive Committee)

Leader in diversity & inclusion and veterans issues

Experience as a university trustee
Relevant experience
Mr. Gorsky, 61, is executive chairman of Johnson & Johnson, and one of just seven leaders to have served in the dual role of chairman and chief executive officer since the company was listed on the New York Stock Exchange in 1944. He joined Johnson & Johnson in 1988 as a sales representative with Janssen Pharmaceutica.
In 2003, he was named company group chairman of the Johnson & Johnson pharmaceutical business in Europe, the Middle East and Africa. Mr. Gorsky left Johnson & Johnson in 2004 to join the Novartis Pharmaceuticals Corporation, where he served as head of the company’s pharmaceutical business in North America. Mr. Gorsky returned to Johnson & Johnson in 2008 as company group chairman for Ethicon. In early 2009, he was appointed worldwide chairman of the Surgical Care Group and member of the executive committee. In September 2009, he was appointed worldwide chairman of the Medical Devices and Diagnostics Group, and became vice chairman of the executive committee in January 2011. He was named chief executive officer and joined the board of directors in April 2012, and was named chairman of the board of directors in December 2012. Mr. Gorsky remained chief executive officer until he transitioned to his current role as executive chairman at the end of 2021. He currently sits on the boards of Apple and NewYork-Presbyterian Hospital, and the Travis Manion Foundation, and serves on the Wharton School of the University of Pennsylvania Board of Advisors.
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Michelle Howard
Retired Admiral, United States Navy
Director since: 2019
Age: 61
Committee:
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Audit
Qualifications

Leadership and policy experience as the U.S. Navy’s first woman four-star admiral

Operational experience as commander of U.S. Naval Forces in Europe and Africa

Global operations and technology experience as Vice Chief of Naval Operations, with focus on cybersecurity and information technology in the digital age

Leadership and teaching positions in government and academia
Relevant experience
Admiral Michelle J. Howard, 61, is a retired United States Navy officer. Admiral Howard began serving in the United States Navy in 1982, after graduating from the U.S. Naval Academy. During her 35 years of service, she led sailors and marines as, at various times, the Commander of a ship, an Expeditionary Strike Group, a Task Force, and a Naval theater. In 1999, she became the first African American woman to command a ship in the United States Navy. In 2014, she was the first woman to become a four-star admiral in the U.S. Navy and the first
woman and African American to be appointed to the position of Vice Chief of Naval Operations, the second-highest ranking uniformed officer in the branch. Responsible for the Navy’s day-to-day operations, she focused on cyber culture and information security in the digital age, as well as gender integration, in addition to oversight of a multi-billion dollar budget and the establishment of an auditing framework. In 2016, Admiral Howard was appointed by the President to serve as commander of U.S. Naval Forces in Europe and Africa and the Allied Joint Forces Command in Naples, Italy, making her the first woman four-star admiral to command operational forces. She retired from the Navy in 2017. Admiral Howard’s distinguished career in national defense has included both at-sea and ashore posts, placing her in key leadership positions within the areas of engineering, operations, and strategic planning and policy. Admiral Howard is a graduate of the U.S. Naval Academy and the U.S. Army Command and General Staff College. She was the J.B. and Maurice C. Shapiro Professor of International Affairs at the Elliott School of International Affairs at George Washington University from 2018 to 2020, where she taught in the areas of cybersecurity and international policy. In 2022, she was appointed by the President to the Board of Vistors of the U.S. Naval Academy.
2022 Notice of Annual Meeting & Proxy Statement   |   Election of Directors 11
 

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Arvind Krishna
Chairman and Chief Executive Officer, IBM
Director since: 2020
Age: 59
Committee:
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Executive (Chair)
Qualifications

Global business and organizational leadership experience as chairman and chief executive officer of IBM

Research experience as Director of IBM Research and a computer scientist with expertise in key IBM technologies such as artificial intelligence, cloud and quantum computing

Technology experience as general manager of IBM’s Systems and Technology group and Senior Vice President for IBM’s Cloud and Cognitive Software
Relevant experience
Arvind Krishna, 59, became the chief executive officer of IBM, and a member of the Board of Directors in April 2020. He was elected chairman of the Board of Directors in December 2020. Mr. Krishna joined IBM in 1990. Mr. Krishna led the IBM Cloud and Cognitive Software business unit from 2017 to April 2020 and was a principal architect of the acquisition of Red Hat, the largest acquisition in the Company’s history. Mr. Krishna also served as the director of IBM’s Research division from 2015 to 2020. Previously, he was general manager of IBM’s Systems and Technology Group, IBM’s development and manufacturing organization. Prior to that, he built and led many of IBM’s data-related businesses. He has an undergraduate degree from the Indian Institute of Technology, Kanpur, and a PhD. in electrical engineering from the University of Illinois at Urbana-Champaign.
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Andrew N. Liveris
Retired Chairman and Chief Executive Officer, The Dow Chemical Company, a materials, polymer, chemicals, and biological sciences enterprise
Director since: 2010
Age: 67
Committees:
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Directors and Corporate Governance (Chair)
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Executive
Qualifications

Global business and technology experience as the chairman, president and chief executive officer of The Dow Chemical Company and executive chairman of DowDuPont Inc.

U.S. and international government service (member of the President’s Task Force on Apprenticeship Expansion, former chairman of the President’s American Manufacturing Committee, member of the Australian government’s Industry Growth Centres Advisory Committee and a former member of Thailand’s Board of Investment)

Affiliation with leading business and public policy associations (former executive committee member, former chairman of The Business Council, and former vice chairman of the Executive Committee of the Business Roundtable)

Experience as a university trustee
Relevant experience
Mr. Liveris, 67, joined Dow in 1976 and subsequently held various executive positions, including vice president of specialty
chemicals from 1998 to 2000, business group president for performance chemicals from 2000 to 2003, and president and chief operating officer from 2003 to 2004. Mr. Liveris was named president and chief executive officer of Dow in 2004 and chairman in 2006. In 2016, he transitioned the president role and continued as chairman and chief executive officer of Dow until late 2017, when he transitioned to the position of executive chairman of DowDuPont, a position he held until his retirement in July 2018. Mr. Liveris is a director of Worley, Saudi Aramco, NOVONIX Limited and chairman of the board of Lucid Motors. Additionally, Mr. Liveris has served as a member of the President’s Export Council and as chairman of the President’s American Manufacturing Committee. Mr. Liveris is a former Executive Committee member of The Business Council, the former chairman of The Business Council and the former vice chairman of the Executive Committee of the Business Roundtable. Mr. Liveris is also a trustee of the Minderoo Foundation of Australia, and The King Abdullah University of Science and Technology (KAUST), and is a former trustee of the California Institute of Technology and the United States Council for International Business.
122022 Notice of Annual Meeting & Proxy Statement   |   Election of Directors
 

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Frederick William McNabb, III
Retired Chairman and Chief Executive Officer, The Vanguard Group, Inc., one of the world’s largest investment management companies
Director since: 2019
Age: 64
Committee:
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Audit
Qualifications

Global business and technology experience as chairman and chief executive officer of The Vanguard Group, Inc.

Outside board experience as a director of UnitedHealth Group

Member of several advisory boards at academic institutions
Relevant experience
Mr. McNabb, 64, served as chairman of The Vanguard Group, Inc. from 2008 until his retirement in 2018 and served as chief executive officer from 2008 to 2017. He joined Vanguard in 1986. In 2010, he became chairman of the board of directors and the board of trustees of the Vanguard group of investment companies.
Earlier in his career, Mr. McNabb led each of Vanguard’s client facing business divisions. Mr. McNabb served as the vice-chairman of the Investment Company Institute’s Board of Governors and served as its chairman from 2013 to 2016. He is a director of UnitedHealth Group and serves as the chair of its audit committee. He is also a director of Axiom. Mr. McNabb is chairman of the board of the Zoological Society of Philadelphia and chairman of Ernst & Young’s Independent Audit Quality Committee. Mr. McNabb also serves on the Wharton Leadership Advisory Board, the Dartmouth Athletic Advisory Board, the Advisory Board of the Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia University and is also a board member of CECP: The CEO Force for Good.
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Martha E. Pollack
President, Cornell University, a leading research university that creates new technologies and achieves fundamental breakthroughs in understanding and improving lives around the world
Director since: 2019
Age: 63
Committee:
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Executive Compensation and Management Resources
Qualifications

Organizational leadership, management and risk oversight, and management experience as president of Cornell University

Research experience as a computer scientist with expertise in artificial intelligence as a professor of computer science, information science, and linguistics

U.S. Government service as a former member of the advisory committee for the National Science Foundation’s Computer and Information Science and Engineering Division

Healthcare experience as a former member of the Board of Directors of the University of Michigan Hospitals and Health Center, and as a member (ex officio) of the board of overseers of Weill Cornell Medicine

Technology experience as a fellow of the Association for Computing Machinery, a former president of the Association for the Advancement of Artificial Intelligence, a former board member of the Computing Research Association, and a former member of the technical staff in the Artificial Intelligence Center at SRI International
Relevant experience
Dr. Pollack, 63, is the president of Cornell University and a professor of computer science, information science and linguistics. She took office in 2017. From 2000 to 2017, Dr. Pollack held various positions at the University of Michigan with increasing responsibility, including dean of the School of Information, vice provost for academic and budgetary affairs, and finally, provost and executive vice president for academic affairs. Dr. Pollack is a fellow of the American Association for the Advancement of Science, the Association for Computing Machinery and the Association for the Advancement of Artificial Intelligence. Dr. Pollack has served as editor-in-chief of the Journal of Artificial Intelligence Research, a former president of the Association for the Advancement of Artificial Intelligence, a former member of the technical staff in the Artificial Intelligence Center at SRI International, a former member of the advisory committee for the National Science Foundation’s Computer and Information Science and Engineering Division, and a former member of the board of directors of the Computing Research Association. Dr. Pollack also served on the Steering Committee of the Jacobs Technion-Cornell Institute, the academic partnership between Cornell and Technion-Israel Institute of Technology at Cornell Tech.
2022 Notice of Annual Meeting & Proxy Statement   |   Election of Directors 13
 

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Joseph R. Swedish
Retired Chairman, President and Chief Executive Officer, Anthem, Inc., a leading health benefits provider
Director since: 2017
Age: 70
Committee:
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Executive Compensation and Management Resources
Qualifications

Global business and technology experience as executive chairman, president, and chief executive officer of Anthem, Inc.

Affiliation with leading business and public policy associations (former member of the Business Roundtable and graduate member of The Business Council)

Outside board and technology experience as a director of CDW Corporation

Experience as the chairman of a university oversight board
Relevant experience
Mr. Swedish, 70, joined Anthem in 2013 as chief executive officer and was named chairman of Anthem’s board in 2015. He was the chairman, chief executive officer and president until late 2017 when he retired and became the executive chairman, a position he held until his retirement in May 2018.
Prior to joining Anthem, he was the division president of Hospital Corporation of America from 1993 to 1998, president and chief executive officer of Centura Health from 1999 to 2004 and then served as president and chief executive officer of Trinity Health Corporation from 2004 to 2013. Mr. Swedish became a director of Mesoblast Limited in 2018 and was named its chairman in March 2019. He is also a director of Centrexion Therapeutics and CDW Corporation. He also served as a director of the Blue Cross Blue Shield Association, the National Institute for Health Care Management, the Central Indiana Corporate Partnership, Inc. and as a member of the Business Roundtable. Mr. Swedish is currently a member and past chairman of the Board of Visitors of Duke University’s Fuqua School of Business and was the past chairman of America’s Health Insurance Plans. He is a graduate member of The Business Council and a past member of the Duke Margolis External Advisory Board. Mr. Swedish also serves as Co-Founder and Partner at Concord Health Partners, a private equity firm focused on strategic investing in healthcare portfolio companies.
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Peter R. Voser
Retired Chief Executive Officer, Royal Dutch Shell plc, a global group of energy and petrochemical companies; Chairman, ABB Ltd., a global group of power and automation companies
Director since: 2015
Age: 63
Committees:
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Audit (Chair)
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Executive
Qualifications

Global business and technology experience as chairman of ABB Ltd. and chief executive officer of Royal Dutch Shell plc

Affiliation with leading business and public policy associations (former member of the European Round Table of Industrialists and a former member of The Business Council)

Outside board experience as a director of Temasek
Relevant experience
Mr. Voser, 63, joined Shell in 1982 and held a variety of finance and business roles including chief financial officer of Oil Products. In 2002, he joined the Asea Brown Boveri (ABB)
Group of Companies as chief financial officer and a member of the ABB Group executive committee. Mr. Voser returned to Shell in 2004, becoming a managing director of The Shell Transport and Trading Company, p.l.c. and chief financial officer of the Royal Dutch/Shell Group. He was appointed chief executive officer of Royal Dutch Shell plc in 2009 and held that position until his retirement in late 2013. Mr. Voser was named chairman of ABB Ltd. in 2015 and was the interim chief executive officer from April 2019 until February 2020. He is a director of Temasek, as well as Group Chairman of the Board of PSA International Pte Ltd, Singapore, a Temasek subsidiary. Mr. Voser is also active in a number of international and bilateral organizations. Additionally, from 2011 until 2019, he was a director of Roche Holding Limited.
142022 Notice of Annual Meeting & Proxy Statement   |   Election of Directors
 

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Frederick H. Waddell
Retired Chairman and Chief Executive Officer, Northern Trust Corporation, a financial services company
Director since: 2017
Age: 68
Committees:
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Executive Compensation and Management Resources (Chair)
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Executive
Qualifications

Global business and technology experience as chairman and chief executive officer of Northern Trust Corporation

Outside board experience as a director of AbbVie Inc.

Experience as a university trustee
Relevant experience
Mr. Waddell, 68, joined Northern Trust Corporation in 1975 and served as the chairman of the board from November 2009
until his retirement in January 2019. He previously served as chief executive officer from 2008 through 2017, as president from 2006 through 2011 and again from October to December 2016, and as chief operating officer from 2006 to 2008. Additionally, Mr. Waddell is a member of the Board of Trustees of the Art Institute of Chicago, the Chicago Symphony Orchestra, and Northwestern University and a director of AbbVie Inc.
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Alfred W. Zollar
Executive Advisor, Siris Capital Group LLC, a private equity firm
Director since: 2021
Age: 67
Committee:
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Directors and Corporate Governance
Qualifications

Global business and leadership experience as an executive partner and executive advisor at Siris Capital Group

Deep technology experience with more than 40 years in systems and software, including as director of Red Hat

Outside board experience as a director of Nasdaq, Bank of New York Mellon, and Public Service Enterprise Group
Relevant experience
Mr. Zollar, 67, has served as an executive advisor at Siris Capital Group, a private equity group specializing in technology
and telecom investments, since March 2021; previously, Mr. Zollar was an executive partner from 2014 through March 2021. While at Siris Capital Group, Mr. Zollar has worked closely with cloud-based technology providers, leading providers of enterprise security solutions and other technology and software-as-a-service companies. He served as a director of Red Hat from 2018 until 2019 and is currently a director of Nasdaq Inc., Bank of New York Mellon Corp, and Public Service Enterprise Group. Mr. Zollar retired from IBM in 2011 following a 34-year career during which he held a variety of senior management positions in IBM’s systems and software groups.
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THE BOARD RECOMMENDS YOU VOTE FOR EACH OF THE NOMINEES INTRODUCED ABOVE.
2022 Notice of Annual Meeting & Proxy Statement   |   Election of Directors 15
 

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Governance and the Board
Committees of the Board
Members of the Audit Committee, Directors and Corporate Governance Committee, and the Executive Compensation and Management Resources Committee are non-management directors who, in the opinion of the Board, satisfy the independence criteria established by the Board, and the standards of the Securities and Exchange Commission (SEC) and the New York Stock Exchange (NYSE).
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Director
Audit
Directors and
Corporate Governance
Executive Compensation
and Management Resources
Executive
Thomas Buberl
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David N. Farr
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Alex Gorsky
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Michelle J. Howard
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Arvind Krishna
Chair
Andrew N. Liveris
Chair
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F. William McNabb III
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Martha E. Pollack
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Joseph R. Swedish
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Peter R. Voser
Chair
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Frederick H. Waddell
Chair
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Alfred W. Zollar
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Board Committee Refreshment
On at least an annual basis, the Directors and Corporate Governance Committee reviews committee assignments and discusses whether rotation of committee members and committee chairs is appropriate to introduce fresh perspectives and to broaden and diversify the views and experiences represented on the Board’s committees. In 2021, Mr. Zollar joined the Directors and Corporate Governance Committee. In 2022, the Board rotated several committee positions. Admiral Howard rotated from the Directors and Corporate Governance Committee to the Audit Committee, Mr. Liveris rotated from the Executive Compensation and Management Resources Committee and became the chair of the Directors and Corporate Governance Committee, Mr. Waddell rotated from the chair of the Directors and Corporate Governance Committee and became the chair of the Executive Compensation and Management Resources Committee, and Mr. Voser became the chair of the Audit Committee. In addition, Mr. Gorsky became Lead Director.
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The Executive Committee is empowered to act for the full Board in intervals between Board meetings, with the exception of certain matters that by law may not be delegated. The Committee meets as necessary, and all actions by the Committee are reported at the next Board of Directors meeting. The Committee did not meet in 2021.
Members:
Arvind Krishna (Chair)
Alex Gorsky
Andrew N. Liveris
Peter R. Voser
Frederick H. Waddell
Number of meetings in 2021: 0
162022 Notice of Annual Meeting & Proxy Statement   |   Governance and the Board
 

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Audit Committee [MISSING IMAGE: tm2122634d1-icon_auditpn.gif]
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Members:
Peter R. Voser
(Chair)
David N. Farr
Michelle J. Howard
F. William McNabb III
Audit Committee
Financial Experts:
David N. Farr
Michelle J. Howard
F. William McNabb III
Peter R. Voser
Number of meetings in 2021: 11
Key Responsibilities:
The Audit Committee is responsible for reviewing reports of IBM’s financial results, audit results, internal controls, and adherence to IBM’s Business Conduct Guidelines in compliance with applicable laws and regulations, including federal procurement requirements. Concurrent with that responsibility, set out more fully in the Charter, the Audit Committee performs many other functions, including:

selecting the independent registered public accounting firm and reviewing its selection with the Board;

annually preapproving the proposed services to be provided by the accounting firm during the year;

receiving and discussing reports relating to key controls and processes, including cybersecurity.

reviewing the procedures of the independent registered public accounting firm for ensuring its independence with respect to the services performed for IBM; and

meeting with management prior to each quarterly earnings release.
The Audit Committee chair, pursuant to authority delegated by the Audit Committee, may approve engagements with the independent registered public accounting firm that are outside the scope of the services and fees approved by the Committee, which are later presented to the Committee.
The Board has determined that each member of the Committee qualifies as an Audit Committee Financial Expert as defined by the rules of the SEC.
Charter: http://www.ibm.com/investor/att/pdf/auditcomcharter.pdf
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Members:
Andrew N. Liveris
(Chair)
Thomas Buberl
Alfred W. Zollar
Number of meetings in
2021: 8
Key Responsibilities:
The Directors and Corporate Governance Committee is devoted primarily to the continuing review and articulation of the governance structure and practices of the Board. Concurrent with that responsibility, set out more fully in the Charter, the Directors and Corporate Governance Committee performs many other functions, including:

recommending qualified candidates to the Board for election as directors of IBM, including the slate of directors that the Board proposes for annual election by stockholders at the Annual Meeting, and planning for future Board and Committee refreshment actions;

advising and making recommendations to the Board on all matters concerning directorship practices, and on the function and duties of the committees of the Board;

making recommendations to the Board on compensation for non-management directors;

reviewing and considering IBM’s position and practices on significant public policy issues, such as protection of the environment, corporate social responsibility, sustainability, and philanthropic contributions; and

reviewing and considering stockholder proposals, including those dealing with issues of public and social interest.
As discussed above, the Committee is responsible for recommending qualified candidates to the Board for election as directors of IBM. The Committee recommends candidates based on their business or professional experience, the diversity of their background (including gender and ethnic diversity), and their talents and perspectives.
Charter: https://www.ibm.com/investor/att/pdf/IBM-Directors-and-Corporate-Governance-Committee-Charter.pdf
2022 Notice of Annual Meeting & Proxy Statement   |   Committees of the Board 17
 

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Members:
Federick H. Waddell
(Chair)
Alex Gorsky
Martha E. Pollack
Joseph R. Swedish
Number of meetings in 2021: 7
Key Responsibilities:
The Executive Compensation and Management Resources Committee has responsibility for defining and articulating IBM’s overall executive compensation philosophy, and administering and approving all elements of compensation for elected corporate officers. Concurrent with that responsibility, set out more fully in the Charter, the Executive Compensation and Management Resources Committee performs many other functions, including:

reviewing and approving the corporate goals and objectives relevant to the Chairman and CEO’s compensation, evaluating performance in light of those goals and objectives and, together with the other independent directors, determining and approving the Chairman and CEO’s compensation based on this evaluation;

reviewing IBM’s human capital management, diversity and inclusion and other management resources programs, including overseeing, along with the full Board, the succession-planning process of the CEO and other senior management positions;

approving, by direct action or through delegation, participation in and all awards, grants, and related actions under IBM’s various equity plans;

managing the operation and administration of the IBM Supplemental Executive Retention Plan;

reviewing the compensation structure for IBM’s officers and providing oversight of management’s decisions regarding performance and compensation of other employees; and

monitoring compliance with stock ownership guidelines.
The Committee reports to stockholders as required by the SEC (see 2021 Report of the Executive Compensation and Management Resources Committee of the Board of Directors in this Proxy Statement).
Members of the Committee are not eligible to participate in any of the plans or programs that the Committee administers.
Charter: https://www.ibm.com/investor/att/pdf/Executive_Compensation_and_Management_
Resources_Committee_Charter.pdf
Compensation Committee Interlocks and Insider Participation: None
Messrs. Gorsky, Liveris, and Swedish and Dr. Pollack each served as members of the Executive Compensation and Management Resources Committee in 2021. All members of the Committee were independent directors, and no member was an employee or former employee of IBM. During 2021, none of our executive officers served on the compensation committee or board of directors of another entity whose executive officer served on our Executive Compensation and Management Resources Committee or Board. Therefore, there is no relationship that requires disclosure as a Compensation Committee interlock.
Certain Transactions and Relationships
Under IBM’s written related person transactions policy, information about transactions involving related persons is assessed by the independent directors on IBM’s Board. Related persons include IBM directors and executive officers, as well as immediate family members of directors and officers, and beneficial owners of more than five percent of IBM’s common stock. If the determination is made that a related person has a material interest in any IBM transaction, then IBM’s independent directors would review, approve or ratify it, and the transaction would be required to be disclosed in accordance with the SEC rules. If the related person at issue is a director of IBM, or a family member of a director, then that director would not participate in those discussions. In general, IBM is of the view that the following transactions with related persons are not significant to investors because they take place under IBM’s standard policies and procedures: the sale or purchase of products or services in the ordinary course of business and on an arm’s-length basis; the employment by IBM where the compensation and other terms of employment are determined on a basis consistent with IBM’s human resources policies; and any grants or contributions made by IBM under one of its grant programs and in accordance with IBM’s corporate contributions guidelines.
From time to time, IBM may have employees who are related to our executive officers or directors. Mr. Eskew’s son is a former employee of IBM. He was an executive of IBM (not an executive officer) until January 2021. In addition, a daughter of Mr. R.F. Del Bene (Vice President and Controller) is also employed by IBM in a non-executive position. None of the above-referenced family member employees were or are executive officers of IBM. Each employee mentioned above received compensation in 2021 between $120,000 and $277,000. The compensation and other terms of employment of each of the family member employees
noted above are determined on a basis consistent with IBM’s human resources policies.
182022 Notice of Annual Meeting & Proxy Statement   |   Certain Transactions and Relationships
 

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Corporate Governance
IBM’s Corporate Governance Principles
IBM’s Board of Directors has long adhered to governance principles designed to ensure the continued vitality of the Board and excellence in the execution of its duties. For more than 25 years, the Board has had in place a set of governance guidelines reflecting these principles, including the Board’s policy of requiring a majority of the Board to be comprised of independent directors, the importance of equity compensation to align the interests of directors and stockholders, and the practice of regularly scheduled executive sessions, including sessions of non-management directors without members of management. The IBM Board Corporate Governance Guidelines reflect IBM’s principles on corporate governance matters. These guidelines are available at https://www.ibm.com/investor/att/pdf/IBM-Board-Corporate-Governance-Guidelines.pdf.
IBM also has a code of ethics for directors, executive officers, and employees. The Business Conduct Guidelines are available on our website at https://www.ibm.com/investor/att/pdf/2021_Business_Conduct_Guidelines.pdf. Any amendment to, or waiver of, the Business Conduct Guidelines that applies to one of our directors or executive officers may be made only by the Board or a Board committee, and would be disclosed on IBM’s website.
The process by which stockholders and other interested parties may communicate with the Board or non-management directors of IBM is available at https://www.ibm.com/investor/governance/contact-the-board.
Independent Board
Under the IBM Board Corporate Governance Guidelines, the Directors and Corporate Governance Committee and the full Board annually review the financial and other relationships between the independent directors and IBM as part of the assessment of director independence. The Directors and Corporate Governance Committee makes recommendations to the Board about the independence of non-management directors, and the Board determines whether those directors are independent. In addition to this annual assessment, director independence is monitored by the Directors and Corporate Governance Committee and the full Board on an ongoing basis.
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The independence criteria established by the Board in accordance with NYSE requirements and used by the Directors and Corporate Governance Committee and the Board in their assessment of the independence of directors is available at https://www.ibm.com/investor/att/pdf/Independence_Standards.pdf.
Applying those standards to IBM’s non-management director nominees, including those directors not standing for election, as well as a former director who served during 2021, the Committee and the Board have determined that each of the following has met the independence standards: T. Buberl, M.L. Eskew, D.N. Farr, A. Gorsky, M.J. Howard, A.N. Liveris, F.W. McNabb III, M.E. Pollack, J.R. Swedish, S. Taurel, P.R. Voser, F.H. Waddell, and A.W. Zollar.
Mr. Eskew’s son is a former employee of IBM in a non-executive officer role. He was hired over a year before Mr. Eskew joined IBM’s Board and his compensation and other terms of employment were determined on a basis consistent with IBM’s human resources policies. Based on the foregoing, the Board has determined that this relationship does not preclude a finding of independence for Mr. Eskew.
Director Attendance
In 2021, the Board held 11 meetings and the committees collectively met 26 times. The Board and the Directors and Corporate Governance Committee recognize the importance of director attendance at Board and committee meetings. In 2021:

Overall attendance at Board and committee meetings was over 99%; and

Attendance was at least 75% for each director.
In addition, each director attended IBM’s 2021 Annual Meeting of Stockholders. IBM’s policy with regard to Board members’ attendance at annual meetings of stockholders is available at https://www.ibm.com/investor/governance/director-attendance-at-annual-meeting-of-stockholders.
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Independent Leadership Structure
The Directors and Corporate Governance Committee is responsible for the continuing review of the governance structure of the Board, and for recommending to the Board those structures and practices best suited to IBM and its stockholders. The Committee and the Board recognize that different structures may be appropriate under different circumstances.
Mr. Krishna serves as IBM’s Chairman and CEO and Mr. Gorsky serves as IBM’s independent Lead Director, a structure that the Directors and Corporate Governance Committee and the full Board believe is currently in the best interests of IBM and its stockholders. Among other factors, the Board considered and evaluated: the importance of consistent, unified leadership to execute and oversee the Company’s strategy; the strength of Mr. Krishna’s vision for the Company and the quality of his leadership; the strong and highly independent composition of the Board; the views and feedback heard from our investors through our ongoing engagement program throughout the years expressing support for IBM’s leadership structure; and the meaningful and robust responsibilities of the independent Lead Director. A strong, independent Lead Director with clearly defined duties and responsibilities further enhances the contributions of IBM’s independent directors, which have been and continue to be substantial. As part of its annual review, and with the retirement of Mr. Eskew, the Board determined that Mr. Gorsky would best serve stockholders as the Company’s independent Lead Director. Mr. Gorsky has significant global business, technology, leadership, and oversight experience as the executive chairman and former chief executive officer of Johnson & Johnson.
The Board strongly believes that its leadership structure strikes the right balance of allowing our Chairman and CEO to promote a clear, unified vision for the Company’s strategy, providing the leadership critical for effectively and efficiently implementing the actions needed to ensure strong performance over the long term, while ensuring robust, independent oversight by the Board and Lead Director.
Role of the Lead Director
Mr. Gorsky the Lead Director, has the following core responsibilities:
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preside at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors, which are held at every Board meeting;
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serve as liaison between the Chairman and the independent directors;
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approve information sent to the Board;
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approve meeting agendas for the Board;
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approve meeting schedules in collaboration with the Chairman to ensure there is sufficient time for discussion of all agenda items;
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authority to call meetings of the independent directors; and
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if requested by major stockholders, ensure that he is available, as necessary after discussions with the Chairman and Chief Executive Officer, for consultation and direct communication.
      
In addition to these core responsibilities, the Lead Director engages in other regular activities, including:
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one-on-one debriefs with the Chairman after each meeting;
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analyze CEO performance in Executive Session in conjunction with the Executive Compensation and Management Resources Committee Chair;
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review feedback from the Board and committee evaluation process, working with the Directors and Corporate Governance Committee Chair on enhancements to Board processes and practices;
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spend time with senior management outside of Board meetings to ensure a deep understanding of the business and strategy of the Company; and
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attend Directors and Corporate Governance and Audit Committee meetings in addition to the Executive Compensation and Management Resources Committee meetings.
The full Board reviews our leadership structure at least annually to ensure the allocation of responsibilities remains appropriate.
Executive Sessions
Regularly scheduled executive sessions, including sessions of independent directors without members of management, chaired by the Lead Director, are held at each Board meeting. Additionally, executive sessions of the independent directors are led by the Chairs of the Directors and Corporate Governance and Executive Compensation and Management Resources Committees, respectively, at least once per year.
202022 Notice of Annual Meeting & Proxy Statement   |   Corporate Governance
 

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Board Evaluation Process
IBM’s Board utilizes a comprehensive, multi-part process for its ongoing self-evaluation to ensure that the Board is operating effectively and that its processes reflect best practices. From time to time, this process includes a third-party review of the Board’s process and evaluation criteria. Each year, IBM’s Directors and Corporate Governance Committee oversees the evaluation process to ensure that the full Board and each committee conduct an assessment of their performance and solicit feedback for enhancement and improvement.
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Full Board Self-Evaluation
The Board conducts an annual self-evaluation to review the effectiveness of the Board and its committees, led by the Chair of the Directors and Corporate Governance Committee. In this comprehensive review, the self-evaluation focuses on:

The composition and performance of the Board, including the size, mix of skills and experience and director refreshment practices;

The quality and scope of the materials distributed in advance of meetings;

The Board’s access to Company executives and operations;

The promotion of rigorous decision making by the Board and the committees;

The effectiveness of the Board and committee evaluation processes; and

The overall functioning of the Board and its committees.
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Each Individual Committee has Self-Evaluation
Each committee also performs a self-evaluation in executive session on an annual basis. The Audit Committee’s evaluation, for example, includes individual, one-on-one interviews between IBM’s internal Chief Auditor and each member of the Committee.
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One-on-One Interviews with the Chairman of the Board
The Chairman holds individual, one-on-one interviews with each IBM director to obtain his or her candid assessment of director performance, Board dynamics and the effectiveness of the Board and its committees.
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Feedback from Chairman
The Chairman shares insights from each of these meetings with the Lead Director, the Chair of the Directors and Corporate Governance Committee, and the full Board.
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Results Discussion
The Board meets in executive session to discuss the results of the evaluation and any other issues that the directors may want to raise.
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Follow-ups
Self-evaluation items requiring follow-up and execution are monitored on an ongoing basis by the Board, each of the committees, and by IBM management. While this formal self-evaluation is conducted on an annual basis, the evaluation process is an ongoing process throughout the year. At each meeting, the Chairman actively solicits feedback from each individual director and directors continuously share their perspectives, feedback, and suggestions throughout the year.
Succession Planning
IBM has long been recognized for its leadership and talent development. One of the Board’s most important responsibilities is to ensure that IBM has the appropriate management to execute the Company’s long-term strategy. To fulfill this responsibility, the full Board meets regularly to actively review and plan the succession of the CEO and other senior management positions.
In succession planning, the Board discusses:

Succession process and timeline

Profile and candidate assessments, both internal and external, for the CEO and other senior leadership positions

Leadership pipeline and development plans for the next generation of senior leadership

Diversity, inclusion, and Company culture
The Executive Compensation and Management Resources Committee also regularly reviews succession planning and the Company’s management resources programs, overseeing a broad range of human capital management topics, including diversity and inclusion.
2022 Notice of Annual Meeting & Proxy Statement   |   Corporate Governance 21
 

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Strategy Oversight
The Board actively oversees IBM’s long-term business strategy and is actively engaged in ensuring that IBM’s culture reflects its longstanding commitment to integrity, compliance, and inclusion. The Board is continuously engaged with management on these topics. For example, each year, the Board:
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Risk Oversight
At IBM, we believe that innovation and leadership are impossible without taking risks. We also recognize that imprudent acceptance of risk or the failure to appropriately identify and mitigate risk could be destructive to stockholder value.
In addition, an overall review of risk is inherent in the Board’s consideration of IBM’s long-term strategies and in the transactions and other matters presented to the Board, including capital expenditures, acquisitions, divestitures and other portfolio actions, and operational and financial matters. The Board’s role in risk oversight of IBM is consistent with IBM’s leadership structure, with the CEO and other members of senior management having responsibility for assessing and managing IBM’s risk exposure, and the Board and its committees providing oversight in connection with those efforts.
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Cybersecurity is a critical part of risk management at IBM. To more effectively address cybersecurity threats, IBM leverages a multi-layered approach. IBM has a dedicated Chief Information Security Officer (CISO) whose team is responsible for leading enterprise-wide information security strategy, policy, standards, architecture, and processes. The CISO is a part of IBM’s Enterprise and Technology Security (ETS) organization, which works across all of the organizations within the Company to protect IBM, its brand, and its clients against cybersecurity risks.
Both the Board and the Audit Committee each receive regular updates from senior management, including the CISO and cybersecurity experts, in areas such as threat intelligence, major cyber risk areas, emerging global policies and regulations, cybersecurity technologies and best practices, and cybersecurity incidents.
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Climate change is a serious concern that warrants meaningful action on a global basis. IBM considers risks as identified by the Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD) in its risk management process. IBM senior management assesses the significance of environmental and climate-related risks. In addition, they manage these risks and provide regular updates to the Board and to the Directors and Corporate Governance Committee.
IBM has established objectives and targets for energy conservation, procurement of renewable energy, carbon dioxide (CO2) emissions reduction and other key environmental performance indicators. Performance against these objectives and targets is routinely monitored, and results are reviewed annually by the Board’s Directors and Corporate Governance Committee. Details on IBM’s performance against key environmental performance indicators can be found in our annual ESG Report available at https://www.ibm.org/responsibility/reports.
222022 Notice of Annual Meeting & Proxy Statement   |   Corporate Governance
 

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Director Compensation
Annual Retainer: In 2021, non-management directors received an annual retainer of $325,000. Chairs of each of the Directors and Corporate Governance Committee and the Executive Compensation and Management Resources Committee each received an additional annual retainer of $20,000 and the chair of the Audit Committee received an additional annual retainer of $30,000. The additional retainer for the Lead Director position is $40,000.
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 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.
Stock Ownership Guidelines: 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 eight times the equity portion of the annual retainer initially payable to such director. Stock-based holdings mean (i) IBM shares owned personally or by members of immediate family sharing the same household, and (ii) DCEAP PFS. Stock-based holdings do not include unexercised stock options.
Our stock ownership guidelines remain the strongest in our peer group.
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 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 any of (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, 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 first day after the date on which the director ceases to be a member of the Board; 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: In 2021, non-management directors were eligible to participate in IBM’s Matching Grants Program on the same basis as IBM’s employees based in the U.S. Under this program, IBM matched a director’s eligible contributions in cash on a 1-to-1 basis to approved educational institutions, medical facilities and cultural or environmental institutions. Each director was eligible for a Company match on total gifts up to $10,000 per calendar year. Amounts shown in the 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.
Director Compensation Consultant: The Committee retains Semler Brossy Consulting Group, LLC (Semler Brossy) to assess trends and developments in director compensation practices and to compare IBM’s practices against them. The Committee uses the analysis prepared by the consultant as part of its periodic review of IBM’s director compensation practices. Other than services provided to IBM’s Directors and Corporate Governance Committee and IBM’s Executive Compensation and Management Resources Committee, Semler Brossy does not perform any other work for IBM. The Committee determined that Semler Brossy is free of conflicts of interest.
2022 Notice of Annual Meeting & Proxy Statement   |   Director Compensation23
 

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2021 Director Compensation Table
Name
Fees Earned or
Paid in Cash ($)
All Other
Compensation ($)
Total ($)
(a)
(b)
(c)
(1)
(d)
Thomas Buberl
325,000 38,901 363,901
Michael L. Eskew
395,000 539,632 934,632
David N. Farr
325,000 162,671 487,671
Alex Gorsky
345,000 219,084 564,084
Michelle J. Howard
325,000 69,668 394,668
Andrew N. Liveris
325,000 323,856 648,856
F. William McNabb III
325,000 56,698 381,698
Martha E. Pollack
325,000 80,046 405,046
Joseph R. Swedish
325,000 79,086 404,086
Sidney Taurel(2)
81,250 76,358 157,608
Peter R. Voser
325,000 205,490 530,490
Frederick H. Waddell
345,000 133,815 478,815
Alfred W. Zollar(3)
59,583 13 59,596
(1)
Amounts in this column include the following: for Mr. Buberl: $38,836 dividend equivalent payments on PFS; for Mr. Eskew: $539,557 of dividend equivalent payments on PFS; for Mr. Farr: $162,596 of dividend equivalent payments on PFS; for Mr. Gorsky: $219,008 of dividend equivalent payments on PFS; for Admiral Howard $69,593 of dividend equivalent payments on PFS; for Mr. Liveris: $323,781 of dividend equivalent payments on PFS; for Mr. McNabb, $56,622 of dividend equivalent payments on PFS; for Dr. Pollack: $79,971 of dividend equivalent payments on PFS; for Mr. Swedish: $79,011 of dividend equivalent payments on PFS; for Mr. Taurel: $71,333 of dividend equivalent payments on PFS; for Mr. Voser: $205,415 of dividend equivalent payments on PFS; and for Mr. Waddell: $123,739 of dividend equivalent payments on PFS and $10,000 contributed by the Company under IBM’s Matching Grants Program.
(2)
Mr. Taurel’s term on the Board ended April 2021.
(3)
Mr. Zollar joined the Board in October 2021.
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 prorated amount of the annual retainer for service on the Board and, if applicable, as Lead Director or a committee chair, based on the portion of the year for which the director served.
All Other Compensation (column (c)): Amounts shown in this column represent:

Dividend equivalent payments on PFS accounts under the DCEAP as described above.

Group Life Insurance premiums paid by IBM on behalf of the directors.

Value of the contributions made by IBM under IBM’s Matching Grants Program as described above.
Delinquent Section 16(a) Reports: None
IBM believes that all reports for IBM’s executive officers and directors that were required to be filed under Section 16 of the Securities Exchange Act of 1934 in 2021 were timely filed.
Insurance and Indemnification
IBM has renewed its directors and officers indemnification insurance coverage. This insurance covers directors and officers individually where exposures exist other than those for which IBM is able to provide indemnification. This coverage runs from June 30, 2021 through June 30, 2022, at a total cost of approximately $6.7 million. The primary carrier is AXA/XL Specialty Insurance Company.
242022 Notice of Annual Meeting & Proxy Statement   |   Director Compensation
 

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Ownership of Securities
Security Ownership of Certain Beneficial Owners
The following sets forth information as to any person known to IBM to be the beneficial owner of more than five percent of IBM’s common stock as of December 31, 2021.
Name and address
Number of Shares
Beneficially Owned
Percent of Class
The Vanguard Group(1)
100 Vanguard Boulevard
Malvern, PA 19355
75,553,655
8.42%
BlackRock Inc.(2)
55 East 52nd Street
New York, NY 10055
65,452,374
7.3%
State Street Corporation(3)
State Street Financial Center
One Lincoln Street
Boston, MA 02111
53,156,014
5.93%
(1)
Based on the Schedule 13G filed with the Securities and Exchange Commission on February 10, 2022 by The Vanguard Group and certain subsidiaries (Vanguard). Vanguard reported that it does not have sole voting power over any shares, and has shared voting power over 1,387,276 shares, sole dispositive power over 71,965,561 shares, and shared dispositive power over 3,588,094 shares. The Schedule 13G does not identify any shares with respect to which there is a right to acquire beneficial ownership. The Schedule 13G states that the shares were acquired and are held in the ordinary course of business and were not acquired and are not held for the purpose of or with the effect of changing or influencing the control of IBM.
(2)
Based on the Schedule 13G filed with the Securities and Exchange Commission on February 1, 2022 by BlackRock, Inc. and certain subsidiaries (BlackRock). BlackRock reported that it had sole voting power over 56,913,423 shares and sole dispositive power over all shares beneficially owned. The Schedule 13G does not identify any shares with respect to which there is a right to acquire beneficial ownership. The Schedule 13G states that the shares were acquired and are held in the ordinary course of business and were not acquired and are not held for the purpose of or with the effect of changing or influencing the control of IBM.
(3)
Based on the Schedule 13G filed with the Securities and Exchange Commission on February 14, 2022 by State Street Corporation and certain subsidiaries (State Street). State Street reported that it does not have sole voting power over any shares, has shared voting power over 42,836,552 shares, has shared dispositive power over 53,048,681 shares, and does not have sole dispositive power over any shares. The Schedule 13G does not identify any shares with respect to which there is a right to acquire beneficial ownership. The Schedule 13G states that the shares were acquired and are held in the ordinary course of business and were not acquired and are not held for the purpose of or with the effect of changing or influencing the control of IBM.
2022 Notice of Annual Meeting & Proxy Statement   |   Ownership of Securities 25
 

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Common Stock and Stock-based Holdings of Directors and Executive Officers
The following table sets forth the beneficial ownership of shares of IBM’s common stock as of December 31, 2021, by IBM’s current directors and nominees, the executive officers named in the 2021 Summary Compensation Table, and such directors and all of IBM’s executive officers as of December 31, 2021, as a group. Also shown are shares over which the named person could have acquired voting power or investment power within 60 days after December 31, 2021. Voting power includes the power to direct the voting of shares held, and investment power includes the power to direct the disposition of shares held.
IBM’s current non-management directors had beneficial ownership of a total of 210,200 shares of common stock and DCEAP shares as of December 31, 2021. In the aggregate, these shares were valued at more than $28 million as of December 31, 2021, or an average of more than $2.3 million for each of IBM’s non-management directors as of December 31, 2021.
Acquirable within 60 days
Value of
Common Stock
shares at
Fiscal Year End
Common
Stock-based
Stock Options And
Directors’
DCEAP
Name
Stock
(1)
Holdings
(2)
RSUs
(3)
Shares
(4)
($)
(5)
Michelle H. Browdy
86,068 119,804 0 N/A 11,503,849
Thomas Buberl
0 0 0 4,470 597,460
Gary Cohn
14,350 85,311 5,112 N/A 1,918,021
Michael L. Eskew
0 0 0 48,260 6,450,432
David N. Farr
7,508 (6) 7,508 0 14,799 2,981,554
Alex Gorsky
4,445 4,445 0 20,210 3,295,387
Michelle J. Howard
144 144 0 7,037 959,812
James J. Kavanaugh
94,018(7) 151,573 0 N/A 12,566,446
Arvind Krishna
118,691(8) 278,100 0 N/A 15,864,239
Andrew N. Liveris
2,655 2,655 0 29,256 4,265,224
F. William McNabb III
9,250 9,250 0 6,018 2,040,721
Martha E. Pollack
0 0 0 8,049 1,075,829
Thomas W. Rosamilia
17,831 82,549 0 N/A 2,383,291
Joseph R. Swedish
5,261(9) 5,261 0 7,965 1,767,787
Peter R. Voser
0 0 0 18,960 2,534,194
Frederick H. Waddell
3,763 3,763 0 11,923 2,096,591
Alfred W. Zollar
0 0 0 446 59,612
Directors and executive officers as a group
385,663(10) 826,554 5,112(10) 177,393(10)
(1)
This column is comprised of shares of IBM common stock beneficially owned by the named person. Unless otherwise noted, voting power and investment power in the shares are exercisable solely by the named person, and none of the shares are pledged as security by the named person. Standard brokerage accounts may include nonnegotiable provisions regarding set-offs or similar rights. This column includes 110,372 shares in which voting and investment power are shared. The directors and officers included in the table disclaim beneficial ownership of shares beneficially owned by family members who reside in their households. The shares are reported in such cases on the presumption that the individual may share voting and/or investment power because of the family relationship. The shares reported in this column do not include 14,884 shares held by the IBM Personal Pension Plan Trust Fund, over which the members of the IBM Retirement Plans Committee, a management committee presently consisting of certain executive officers of the Company, have voting power, as well as the right to acquire investment power by withdrawing authority now delegated to various investment managers.
(2)
For executive officers, this column is comprised of the shares shown in the “Common Stock” column and, as applicable, all restricted stock units including retention restricted stock units, officer contributions into the IBM Stock Fund under the IBM Excess 401(k) Plus Plan, and Company contributions into the IBM Stock Fund under the Excess 401(k) Plus Plan. Some of these restricted stock units may have been deferred under the Excess 401(k) Plus Plan in accordance with elections made prior to January 1, 2008, and they will be distributed to the executive officers after termination of employment as described in the 2021 Nonqualified Deferred Compensation Narrative.
(3)
For executive officers, this column is comprised of (i) shares that can be purchased under an IBM stock option plan within 60 days after December 31, 2021, and (ii) RSU awards that vest within 60 days after December 31, 2021. For Mr. Cohn, shares in this column are from an IBM restricted stock award which will vest within 60 days after December 31, 2021.
(4)
Promised Fee Shares earned and accrued under the IBM Deferred Compensation and Equity Award Plan (DCEAP) as of December 31, 2021, including dividend equivalents credited with respect to such shares. Upon a director’s retirement, these shares are payable in cash or stock at the director’s choice (see 2021 Director Compensation Narrative for additional information).
(5)
Values in this column are calculated by multiplying the number of shares shown in the “Common Stock” column plus the “Directors’ DCEAP Shares” column by the closing price of IBM stock on the last business day of the 2021 fiscal year ($133.66).
(6)
Includes 450 shares in which voting and investment power are shared.
(7)
Includes 15,174 shares in which voting and investment power are shared.
(8)
Includes 89,486 shares in which voting and investment power are shared.
(9)
Voting and investment power are shared.
(10)
The total of these three columns represents less than 1% of IBM’s outstanding shares, and no individual’s beneficial holdings totaled more than 1/100 of 1% of IBM’s outstanding shares.
262022 Notice of Annual Meeting & Proxy Statement   |   Ownership of Securities
 

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Environmental and Social Responsibility
Corporate social responsibility has been a hallmark of IBM’s culture for over 100 years. With oversight from the Board, we lead with purpose and integrity to empower IBMers to be a force of positive change and to use technology to accelerate discovery. The trust of our stakeholders is IBM’s license to operate.
In 2022, based on stockholder feedback on how to make our ESG information even more accessible, we will synthesize our environmental, corporate responsibility and diversity reporting into one unified ESG Report. In the meantime, we encourage stockholders to read our latest Corporate Responsibility Report which provides insight into all of our ESG initiatives, including a mapping of key ESG metrics to SASB, and is available at https://www.ibm.org/responsibility/reports.
Based on feedback from investor outreach, below we also provide some examples reflecting how we are:

Putting trust and transparency into practice as a leader advancing responsible AI

Protecting the environment

Embracing and enabling a diverse and inclusive workforce

Advocating for responsible public policy positions
Putting our Principles of Trust and Transparency into Practice
For more than 100 years, IBM has continuously strived for responsible innovation that puts people first and ensures the benefits are felt broadly across society. This philosophy applies to our approach to artificial intelligence (AI): we aim to create and offer trusted technology that can augment, not replace, human decision-making. Properly calibrated, AI can assist humans in making fairer choices, countering human biases, and promoting inclusivity. IBM recognized early on that clearly articulating principles around the responsible deployment of AI technologies was critical — backed by a strong commitment to putting words into practice. Our commitment is represented by our long-standing values and our Trust and Transparency Principles, as well as our continued leadership with the Vatican’s Rome Call for AI Ethics, the Notre Dame-IBM Tech Ethics Lab, and published points of view on facial recognition and mitigating bias in AI. We share technology solutions with the open-source community, including several toolkits, created by IBM Research, designed to promote trustworthy AI.
While continuing to collaborate with governments, companies, and other organizations, we have expanded the work of our internal governance frameworks and processes to further embed privacy, tech ethics, and security into our operations. Our AI Ethics Board, which is comprised of a cross-disciplinary team of senior IBM leaders, co-chaired by IBM’s Chief Privacy Officer and IBM’s AI Ethics Global Leader, and reports to the highest level of the company, works with experts throughout our business to address our most complicated questions. We regularly share our AI Ethics Board governance process with clients and others outside of IBM so that we can collectively work to advance the responsible use of technology.
IBM Trust and Transparency Principles
The Purpose of AI
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Data Insights
and Ownership
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Transparency and
Explainability
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The purpose of AI is to augment human intelligence. At IBM, we believe AI should make all of us better at our jobs, and that the benefits of the AI era should touch the many.
Data and insights belong to their creator. IBM clients’ data is their data, and their insights are their insights.
New technology, including AI systems, must be transparent and explainable. Technology companies must be clear about who trains their AI systems, what data was used in that training and, most importantly, what went into their algorithms’ recommendations.
2022 Notice of Annual Meeting & Proxy Statement   |   Environmental and Social Responsibility 27
 

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Protecting the Environment
Environmental Highlights
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Net Zero Greenhouse Gas
Emissions by 2030
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16,900 Metric Tons of Product
Waste Reused, Resold or Sent
for Recycling
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Reduced CO2 Emissions 56.6%
Against Base Year 2005, Adjusted
for Divestitures and Acquisitions
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Procured 59.3% of Electricity
from Renewable Sources
Ambitious Goal Setting
Setting and achieving ambitious goals has long been an essential part of IBM’s global environmental management system: from the 1970s and 1980s, when we first established formal goals around energy conservation and waste management, to our first CO2 reduction goals set in 2000. And, in 2021, we conducted an extensive review of all our goals and announced 21 goals for environmental sustainability, including a new goal to achieve net zero greenhouse gas emissions by 2030, as well as new and updated goals covering energy and climate change, conservation and biodiversity, pollution prevention and waste management, supply chain and value chain, and our global environmental management system.
Please see our latest environmental report for additional information on our environmental goals and IBM’s environmental performance, which is available at https://www.ibm.org/responsibility/reports-and-policies.
Enabling Our Clients and Communities
At IBM, we believe that science, technology and innovation are essential to tackling environmental issues and helping clients and communities address environmental challenges. IBM continues to develop solutions that enable clients to assess and minimize their environmental footprint.
Enabling our Clients
Enabling our Communities
Last year, we launched the IBM Environmental Intelligence Suite to help clients leverage data and AI for climate risk assessment and adaptation. Using IBM’s Environmental Intelligence Suite, clients can plan for and respond to critical weather events to ensure business continuity. We are continuing to develop our portfolio of AI-enabled solutions to help our clients analyze, manage and report on environmental goals.
We are also uniting our experts and technology with the purpose of supporting communities. We believe that together, we have the potential to make a lasting, scalable impact on communities that need the most help. That is why we launched the Call for Code Global Challenge, which invited the world’s software developers to combat climate change with open source-powered technology. The top prize this year went to Saaf Water, an accessible water quality sensor and analytics platform for people living in rural localities. Leveraging IBM’s Service Corps, we will work with Saaf Water to incubate, test and deploy their solution in communities relying on groundwater for domestic use.
282022 Notice of Annual Meeting & Proxy Statement   |   Environmental and Social Responsibility
 

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Embracing and Enabling a Diverse and Inclusive Workforce
At IBM we are passionate about creating a culture where employees of all backgrounds can thrive. IBM’s purpose is underpinned by a corporate culture that harnesses data transparency and AI to achieve growth and increase inclusion and diversity for our clients, our company and ourselves. In addition to embracing and enabling our workforce, we have committed to providing 30 million people with new skills by 2030. We are expanding access to digital skills and employment opportunities so that more people — regardless of their background — can participate in the digital economy.
The IBM Board of Directors strongly believes that much of the future success of IBM depends on the caliber of its talent and the full engagement and inclusion of IBMers in the workplace. Our commitment to equity and inclusion, talent and culture, education and diversity has been recognized by JUST Capital. IBM ranked first in our industry in JUST Capital’s 2022 America’s Most JUST companies.
For more information on IBM’s Diversity and Inclusion efforts, please see our diversity and inclusion report at https://www.ibm.org/responsibility/reports-and-policies.
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Diversity and Inclusion

9 out of 10 IBMers feel empowered to be their authentic selves at work and feel that IBM is an inclusive workplace

IBM’s industry-leading diversity hiring practices have resulted in a 20% increase in underrepresented minority hiring over the past 3 years and a 31% increase in executive minority hiring

We currently have 8 D&I Communities with over 300 Business Resource Groups globally, spanning 47 countries with over 32,000 IBMers actively participating in programs, events, and other D&I initiatives

Same-sex partner benefits have been extended in 50 countries and 6,000 IBMers are certified LGBT+ Allies

IBM has had an equal pay policy since 1935; we have conducted statistical pay equity analysis for decades, and in 2021 this included all countries where we have employees
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Community Impact Through Skilling

IBM has pledged to skill 30 million people by 2030, preparing them for in-demand jobs

Learners participating in our skilling programs earn digital badges and certifications widely recognized by the labor market

We are collaborating with over 23 historically black colleges and universities (HBCUs) on IBM quantum centers to advance STEM-based opportunities for traditionally underrepresented communities

900,000 college students at 10,000 universities are enrolled in specialized academic courses through our global university programs

IBM experts are matched with learners in programs like STEM for Girls and IBM SkillsBuild providing practical career advice and strategies for professional development and advancement; IBM employees volunteered over 870,000 hours in 2021
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Talent and Culture

IBM offers a compelling value proposition to employees: IBMers develop innovative technologies including Cloud, AI, quantum computing and cybersecurity, for clients whose businesses the world relies on

In 2021, IBMers logged an average of over 70 learning hours per person, reflecting IBM’s commitment to provide access to every IBMer to the resources to build strategic skills, grow their careers, and face the future with confidence

Training and support is provided to help every IBMer be an upstander through inclusive behaviors

Hundreds of thousands of IBMers globally participate in our annual engagement survey, and our industry-leading talent practices enable more than 8 out of 10 IBMers to be highly engaged

Every IBM manager and leader has access to their team and organization engagement levels along with actionable data-driven insights
2022 Notice of Annual Meeting & Proxy Statement   |   Environmental and Social Responsibility 29
 

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Responsibly Advocating Public Policy
IBM’s Government and Regulatory Affairs team engages in worldwide policy advocacy to drive growth and innovation in the digital economy. IBM has never had a political action committee (PAC), makes no political donations, and has always been committed to meaningful management, oversight, and accurate reporting of our engagement with government officials. To be clear, these policies do not put IBM at a disadvantage — instead, they empower us to promote meaningful policies that are good for business, employees, and all our stakeholders. Over the past year, while America’s democratic institutions were tested and many of IBM’s corporate peers contemplated suspending financial contributions to certain elected officials, we faced no such quandary. Consistent with our long-held principles, IBM was able to stay focused on substantive policy issues.
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Political Contributions
In 1968, former IBM CEO Thomas Watson Jr. said a company “should not try to function as a political organization in any way.” IBM continues to live by this philosophy to this day. We have a long-standing policy not to make contributions of any kind (money, employee time, goods or services), directly or indirectly, to political parties or candidates, including through intermediary organizations, such as PACs, campaign funds, or trade or industry associations. This policy applies equally in all countries and across all levels of government, even where such contributions are permitted by law. In short, IBM engages in policy, not politics.
IBM does not have a PAC and does not engage in independent expenditures or electioneering communications as defined by law.
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Lobbying
IBM’s Government and Regulatory Affairs team is committed to advancing common sense public policies that benefit our business and communities. We seek to build trust in technology through precision regulation, a modernized digital infrastructure, promoting justice and equality for all citizens, and leveraging science and technology for good. All IBM lobbying activities, including by third parties on behalf of IBM, require the prior approval of the IBM Office of Government and Regulatory Affairs and must comply with applicable law and IBM’s Business Conduct Guidelines.
IBM files periodic reports with the Secretary of the U.S. Senate and the Clerk of the U.S. House of Representatives detailing its U.S. federal lobbying activities and expenditures, with U.S. state and municipal governments, where required, and with the European Union Transparency Register.
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Trade Associations
IBM joins trade and industry associations that add value to IBM, its stockholders and employees. These groups have many members from a wide variety of industries, and cover broad sets of public policy and industry issues. Although IBM works to make our voice heard, there may be occasions where our views on an issue differ from those of a particular association. We perform comprehensive due diligence on all of our trade associations to confirm they are reputable and have no history of malfeasance. Company policy prohibits them from using any IBM funds to engage in political expenditures, and we implement robust procedures to ensure they comply.
The IBM Board of Directors, as part of its oversight function, periodically receives reports from senior management relating to IBM’s policies and practices regarding governmental relations, public policy, and any associated expenditures.
IBM’s senior management, under the leadership of IBM Government and Regulatory Affairs, closely monitors and coordinates all public policy advocacy efforts, as well as any lobbying activities.
IBM is proud to report that the Center for Political Accountability’s 2021 Report on Corporate Political Disclosure and Accountability gave IBM a score of 98.6 out of 100, naming IBM a trendsetter in Political Disclosure and Accountability and recognizing IBM as one of only 32 companies that prohibit trade associations and non-profits from using Company contributions for election-related purposes
302022 Notice of Annual Meeting & Proxy Statement   |   Environmental and Social Responsibility
 

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2021 Executive Compensation
Message to Stockholders
Report of the Executive Compensation and
Management Resources Committee of the Board of Directors
Set out below is the Compensation Discussion and Analysis, which is a discussion of IBM’s executive compensation programs and policies written from the perspective of how we and management view and use such programs and policies.
Given the Committee’s role in providing oversight to the design of those programs and policies, and in making specific compensation decisions for senior executives using those programs and policies, the Committee participated in the preparation of the Compensation Discussion and Analysis, reviewing successive drafts of the document and discussing those with management. The Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
At the 2021 annual meeting, 51% of our shares voted did not support our Say on Pay proposal, which was substantially below the support received in prior years. Following the 2021 vote, we increased our investor outreach efforts to ensure we fully understood our investors’ feedback and concerns. We offered engagement to investors representing 55% of the shares that voted at the 2021 annual meeting, and ultimately met with investors representing more than 35% of voted shares — including 6 of our 10 largest investors. We greatly appreciate the feedback that our investors provided.
Through these discussions, we learned that investors generally remained supportive of our pay programs, and appreciated the changes in our incentive plan metrics to reinforce IBM’s growth strategy following the plan to separate Kyndryl that was announced at the end of 2020. However, many investors did express concern over the one-time equity award provided to James Whitehurst in March 2020, in connection with Mr. Whitehurst signing an IBM non-compete agreement. These discussions confirmed for us that this unique grant was the basis for the failed vote.
In these meetings, we openly discussed the one-time award for Mr. Whitehurst, and heard specific concerns about whether the award was necessary to secure a non-compete agreeement. We sought to clarify that we considered the circumstances to be extraordinary in this situation, as this is the first time a senior leader from a large acquisition has become an IBM Officer prior to signing an IBM non-compete agreement. Since Mr. Whitehurst’s prevailing non-compete agreement as the CEO of Red Hat when it was acquired in July 2019 was more limited to the scope of the Red Hat business, we considered the IBM non-compete agreement important to protect IBM’s intellectual property and stockholders’ interests. That said, we fully understand the concerns around the one-time award that were expressed and appreciated the feedback. We explained to our investors that we do not anticipate a need to provide one-time awards to our named executive officers going forward. For example, no named executive officers received a one-time retention award in 2021. We also reconfirmed that our ongoing compensation programs, including our annual incentive program and long-term incentives, are designed to be effective to motivate, retain, and align IBM’s named executive officers with stockholders.
The full summary of what we heard from investors, and the actions the Compensation Committee took as a result, can be found in the Compensation Discussion and Analysis summary following this report. We continue to evaluate the effectiveness of our executive compensation programs and practices, and a critical component of that evaluation process is feedback from engaging with our stockholders.
We appreciate all of the feedback and support, and we join with management in welcoming readers to examine our pay practices and in affirming the commitment of these pay practices to the long-term interests of stockholders.
Frederick H. Waddell (chair)
Alex Gorsky
Joseph R. Swedish
Martha E. Pollack
2022 Notice of Annual Meeting & Proxy Statement   |   2021 Executive Compensation 31
 

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2021 Compensation Discussion and Analysis
In 2021, IBM delivered $57.4B in revenue, and generated $12.8B cash from operations.(1)
Improved Revenue growth profile
Continuing Operations revenue, year-to-year growth figures at constant currency(2)
Accelerating IBM Growth Optimized Portfolio, Including Kyndryl Separation
Revenue growth accelerated in 2021, exiting the 4th quarter at 8.6% including approximately 3.5 points from incremental external sales to Kyndryl
Completed the separation of Kyndryl on November 3, 2021, and focused on Hybrid Cloud & AI strategy
2021 Revenue Mix
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Increased revenue mix to higher growth software and consulting
Software revenue +4% Year-to-Year
Annual Recurring Revenue* over $13B, +8% year-to-year exiting 4Q2021
Consulting revenue +8% Year-to-Year
Business Transformation +13%
Year-to-Year
Technology Consulting +10%
Year-to-Year
*Annual Recurring Revenue for Hybrid Platform & Solutions(2)
Hybrid Cloud Revenue Continued Red Hat Success
Hybrid Cloud Revenue grew 19% in 2021, and now
makes up 35% of IBM revenue
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Over 3,800 clients using hybrid cloud platform, up 1,000 Year-to-Year
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Strategic Capital Allocation
Completed 15 acquisitions
in 2021 for $3B
Return $6B to stockholders through
dividends in 2021
Reduced debt by $10B in 2021 and
$21B since acquiring Red Hat
(1)
Cash from operations is presented on a consolidated basis, which includes activity from discontinued operations related to the separation of Kyndryl.
(2)
Non-GAAP financial metrics. See Appendix A for information on how we calculate these performance metrics.
Note: In an effort to provide additional and useful information regarding IBM’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), this Compensation Discussion and Analysis and Proxy Statement contains certain non-GAAP financial measures, including operating earnings per share, free cash flow including discontinued operations activity related to the separation of Kyndryl, operating cash flow including discontinued operations activity related to the separation of Kyndryl, operating net income, revenue growth rates adjusted for currency, and revenue adjusted for currency. Amounts are presented on a continuing operations basis unless otherwise noted. For reconciliation and rationale for management’s use of this non-GAAP information, refer to Appendix A — “Non-GAAP Financial Information and Reconciliations.”
322022 Notice of Annual Meeting & Proxy Statement   |   2021 Compensation Discussion and Analysis
 

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Our compensation strategy, with significant pay at risk, supports the drivers of IBM’s high value business model.
For 2021, at target, 65% of Mr. Krishna’s pay remained at risk and subject to attainment of rigorous performance goals.
For 2021 performance, the Board approved an annual incentive payment of $2,940,000 for Mr. Krishna, which was 98% of target. The payout reflects a 100% Individual Contribution Factor (ICF) and the Annual Incentive Program (AIP) pool funding at 98%.
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In making this award in line with the Company’s incentive score, the Committee also considered Mr. Krishna’s overall performance against his objectives, which included optimizing the Company’s portfolio to focus on hybrid cloud and AI growth by successfully separating Kyndryl on November 3, 2021, two months prior to year end. In addition, the Committee considered his personal leadership in quantum computing, improving diversity representation including meaningful improvements in diverse executive representation, and continuing to improve employee engagement in a year where the company underwent significant change.
Payouts in both the annual and long-term programs reflect rigorous performance goals.
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Stockholder Engagement Provided Important Feedback for the Committee
IBM continually reviews and enhances its corporate governance and executive compensation programs. As part of this review, it is IBM’s longstanding practice to meet with a significant number of our largest investors during both the proxy season and the off-season, to solicit their feedback on a variety of topics.
In 2021, 51% of shares voted did not support the annual advisory vote on Executive Compensation (Say on Pay). Following the vote and in order to understand fully our investors’ feedback and concerns about our pay programs and practices, IBM launched an expanded investor outreach program, offering engagement to 55% of the shares that voted at the 2021 annual meeting, and meeting with investors representing more than 35% of voted shares, including 6 of our 10 largest investors. IBM’s independent Lead Director, together with our Chairman and CEO and other senior management, met directly with investors representing over 26% of the shares voted.
This in-depth engagement process provided valuable feedback to the Compensation Committee. Overall, our stockholders reconfirmed support for our pay programs and practices, including changes to AIP and PSU metrics introduced in 2021. However, many investors also expressed concern with the one-time equity award granted to James Whitehurst in March 2020, in connection with Mr. Whitehurst signing an IBM non-compete agreement (NCA) that fully covered the scope of IBM’s business footprint and was consistent with those signed by other IBM senior leaders. The following table summarizes the major items raised by our investors, and the Committee’s response to this feedback.
What We Heard
Compensation Committee’s Response
Support for our pay programs, including the updates to our plan metrics that reinforced our growth strategy

Continued our Annual Incentive Program (AIP) and Performance Share Unit (PSU) metrics that were established in 2021.

Updated Compensation Peer Group to increase the weighting of peers in the technology industry, reflect IBM’s increased orientation as a hybrid cloud and AI company, and align the Peer Group with the size and scope of IBM following the separation of Kyndryl.

Introduced Stock Options in 2022 as part of the overall equity pay mix for executives; ensures a portion of equity does not generate value unless IBM’s stock price increases over the price when granted.
Positive reaction to the AIP diversity modifier, as well as management’s support for the 2021 stockholder proposal calling for annual reporting on Diversity & Inclusion

IBM is committed to a diverse and inclusive workplace, and reports annually on the effectiveness of our diversity and inclusion programs.

IBM Board of Directors will continue to engage openly on all stockholder proposals and may support proposals in the future that align with IBM’s strategy and values.

Disclosure of the 2021 diversity modifier results are included in the “2021 Annual Incentive Program” section, with additional details of our diverse executive representation to be disclosed in IBM’s annual ESG Report.
Concern over the one-time grant for James Whitehurst awarded in March 2020 in connection with Mr. Whitehurst signing an IBM NCA

The circumstances of Mr. Whitehurst’s one-time award were unique and resulted in him entering into an IBM NCA to protect the company’s intellectual property and its stockholders’ interests. The Compensation Committee’s philosophy is that ongoing compensation programs, including AIP and long-term incentives, are designed to be effective to motivate, retain, and align named executive officers with stockholders. As such, one-time awards for named executive officers are not a common practice. The Committee regards the input of stockholders as important and agrees grants of this nature would only occur in extraordinary circumstances. No one-time awards were provided to any named executive officers in 2021.

In connection with Mr. Whitehurst stepping down as President in 2021, the planned 2021 annual long term incentive award was not granted.

Mr. Whitehurst has agreed to stay with IBM as a Senior Advisor until May 2022. Unvested equity awards were not accelerated, and any outstanding equity awards (including the final tranche of this one-time award) will forfeit following his separation; under the IBM NCA Mr. Whitehurst cannot provide services to a competitor, or solicit clients, for one year following his separation.
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Section 1: Executive Compensation Program Design and Results
Trust and personal responsibility in all relationships — relationships with clients, partners, communities, fellow IBMers, and investors — is a core value at IBM. As a part of maintaining this trust, we well understand the need for our investors — not only professional fund managers and institutional investor groups, but also millions of individual investors — to know how and why compensation decisions are made.
To that end, IBM’s executive compensation practices are designed specifically to meet five key objectives:

Align the interests of IBM’s leaders with those of our investors by varying compensation based on both long-term and annual business results and delivering a large portion of the total pay opportunity in IBM stock;

Balance rewards for both short-term results and the long-term strategic decisions needed to ensure sustained business performance over time;

Attract and retain the highly qualified senior leaders needed to drive a global enterprise to succeed in today’s highly competitive marketplace;

Motivate our leaders to deliver a high degree of business performance without encouraging excessive risk taking; and

Differentiate rewards to reflect individual and team performance.
The specific elements of IBM’s U.S. executive compensation programs are:
Type
Component
Key Characteristics
Current Year
Performance
Salary
Salary is a market-competitive, fixed level of compensation.
Annual Incentive Program (AIP)
At target, annual incentive provides a market-competitive total cash opportunity. Actual annual incentive payments are funded by business performance against financial metrics and distributed based on annual performance scores, with top performers typically earning the greatest payouts and the lowest performers earning no incentive payouts.
Long-Term
Incentive
Performance Share Units (PSUs)
Equity awards are typically granted annually and may consist of PSUs and RSUs, and beginning in 2022, Stock Options. Equity grants are based on competitive positioning and vary based on individual talent factors. Lower performers do not receive equity grants.
For PSUs, the number of units granted can be increased or decreased at the end of the three-year performance period based on IBM’s performance against predetermined targets.
In addition, a relative performance metric applies to all PSU awards. The final number of PSUs earned can be increased or decreased based on IBM’s Return on Invested Capital (ROIC) performance relative to S&P indices.
Restricted Stock Units (RSUs)
RSUs vest over time; typically ratably over four years.
Stock Options (Options)
Will become part of the annual equity mix in 2022. Stock Options will vest over time; typically ratably over four years. The exercise price will be at least the value of the IBM stock price on the date of grant, and will be exercisable for up to 10 years from the date of grant.
Retention
Stock-Based Grants & Cash Awards
Periodically, the Compensation Committee and/or the Chairman and CEO reviews outstanding stock-based awards for key executives. Depending on individual performance and the competitive environment for senior executive leadership talent, awards may be made in the form of Retention Restricted Stock Units (RRSUs), retention PSUs (RPSUs), or cash for certain executives. RRSU and RPSU vesting periods typically may range from two to five years. In addition to time-based vesting, RPSUs include a relative ROIC performance metric (consistent with standard PSUs) for some or all of a given award. Cash awards have a clawback if an executive leaves IBM before it is earned.
Other Compensation
Perquisites and Other Benefits
Perquisites are intended to ensure safety and productivity of executives. Perquisites include such things as annual executive physicals, transportation, financial planning, and personal security.
Post
Employment
Savings Plan
U.S. employees may participate in the IBM 401(k) Plus Plan by saving a portion of their pay in the plan, and eligible employees may also participate in a non-qualified deferred compensation savings plan, which enables participants to save a portion of their eligible pay in excess of IRS limits for 401(k) plans. The Company provides matching and automatic contributions for both of these plans.
Non-qualified Savings Plan
Pension Plans (closed)
Named Executive Officers (NEOs) may have legacy participation in closed retention and retirement plans, for which future accruals ceased as of December 31, 2007.
Supplemental Executive
Retention Plan (closed)
A full description of the Retention, Pension, and Non-Qualified Deferred Compensation plans is provided in this Proxy Statement, beginning with the 2021 Retention Plan Narrative.
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Our Incentive Compensation Design Supports our Business Strategy
Our senior executive pay is heavily weighted to IBM’s performance through the annual and long-term incentive programs. Each year, the Committee ensures that these programs are closely aligned to the Company’s financial and strategic objectives and are appropriately balanced. Targets are set at challenging levels and are consistent with IBM’s financial model shared with investors for that year. As part of IBM’s ongoing management system, targets are evaluated to ensure they do not encourage an inappropriate amount of risk taking.
AIP and PSU Design Updates Beginning in 2021
To reinforce the strategic shift of the Company’s business model announced in October 2020, when IBM announced the planned separation of the Company’s managed infrastructure services business, and to support the focus on delivering sustainable revenue growth and free cash flow as a hybrid cloud and AI company, the Committee revamped the performance metrics in our executive compensation programs as follows:
2021 Metrics and Weightings
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*
Non-GAAP financial metric. Net Cash from Operating Activities, excluding Global Financing receivables.
**
Non-GAAP Financial Metric. ROIC equals consolidated net operating profits after tax (consolidated GAAP net income plus after-tax interest expense) divided by the sum of the average debt and average total stockholders’ equity over the period. Due to the significant nature of the Red Hat acquisition, the Company utilizes a computation of ROIC excluding goodwill associated with the acquisition. The goodwill that was generated is primarily attributable to the assembled workforce of Red Hat and the increased synergies expected to be achieved over time from the integration of Red Hat products into the Company’s various integrated solutions. The calculation also excludes current period U.S. tax reform charges due to its unique, non-recurring nature.
Note: For PSU performance periods that began prior to 2021, the metrics included Operating EPS at 70%, Free Cash Flow at 30%, and the ROIC Modifier.
IBM shares its financial model each year with investors in the context of its long-term strategy. To provide transparency into the rigor of our goal setting process, IBM discloses the performance attainment against targets for the most recent performance period, for both the Annual Incentive Program and the Performance Share Unit Program.
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2021 Annual Incentive Program
How It Works
IBM sets business objectives at the beginning of each year, which are approved by the Board of Directors. The Compensation Committee and the Board of Directors review IBM’s annual business objectives and set the metrics and weightings for the annual program to reflect current business priorities. These objectives translate to targets for IBM and for each business unit for purposes of determining the target funding of the AIP.
Performance against business objectives determines the actual total funding pool for the year, which can vary from 0% to 200% of total target incentives for all executives. At the end of the year, performance for IBM is assessed against these predetermined financial targets, which are updated to remove any impact of currency movement or the change in tax rates, compared to plan.
The financial targets may be adjusted up or down for extraordinary events if recommended by the Chairman and CEO and approved by the Compensation Committee. For example, adjustments are usually made for large acquisitions and divestitures. For 2021, following the separation of Kyndryl on November 3, 2021 into its own publicly traded company with approximately $19 billion in revenue, the targets were adjusted to incorporate the impact on planned Revenue and Operating Cash Flow plan due to separating Kyndryl two months ahead of schedule.
Beginning in 2021, a new diversity modifier was added to AIP to affirm management’s commitment to improving diverse representation of our workforce. This modifier can result in a 5 point reduction, no impact, or 5 point increase to the AIP scoring. In 2021, the modifier was based on the improvement in representation for executive women globally, and Black and Hispanic executives in the United States.
Finally, the Chairman and CEO can recommend an adjustment, up or down, based on factors beyond IBM’s financial performance; for example, client experience, market share growth and diversity and inclusion of IBM’s workforce. For 2021, no qualitative adjustment was made.
The Compensation Committee reviews the financial scoring, diversity modifier, and proposed qualitative adjustments, and approves the final AIP funding level.
Once the total pool funding level has been approved, payouts for each executive are calculated using an Individual Contribution Factor (ICF). The ICF is determined by evaluating individual performance against predetermined business objectives. As a result, a lower-performing executive will receive as little as zero payout and the most exceptional performers (excluding the Chairman and CEO) are capped at three times their individual target incentive (payouts at this level are rare and only possible when IBM’s performance has also been exceptional). The AIP, which covers approximately 4,000 IBM executives, includes this individual cap at three times the individual target to ensure differentiated pay for performance. For the Chairman and CEO, the cap is two times target. An executive generally must be employed by IBM at the end of the performance period in order to be eligible to receive an AIP payout. At the discretion of appropriate senior management, the Compensation Committee, or the Board, an executive may receive a prorated payout of AIP upon retirement. AIP payouts earned during the performance period are generally paid on or before March 15 of the year following the end of such period.
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This incentive design ensures payouts are aligned to IBM’s overall business performance and diversity goals while also ensuring individual executive accountability for specific business objectives.
2021 AIP Payout Results
Based on full year financial performance against IBM revenue and operating cash flow, the weighted incentive score was 93. In addition, executive representation of women globally, and Black and Hispanic executives in the United States improved by 1.0 point, 1.5 points and 0.4 points, respectively in 2021. This improvement in executive representation for these groups resulted in the diversity modifier increasing the weighted incentive score by 5 points, to 98.
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(1)
Based on AIP payout table.
(2)
IBM Revenue and Operating Cash Flow are presented on a consolidated basis, which includes activity from discontinued operations related to the separation of Kyndryl. Operating Cash Flow is a non-GAAP financial metric. See Appendix A for information on how we calculate these performance metrics.
2022 Notice of Annual Meeting & Proxy Statement   |   2021 Compensation Discussion and Analysis 37
 

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Performance Share Unit Program
The Performance Share Unit (PSU) metrics for the 2019-2021 performance period were Operating EPS and Free Cash Flow, unchanged from previous years. Targets are established at the beginning of each three-year performance period. These targets are based on IBM’s financial model, as shared with investors, and the Board-approved annual budget. The Committee’s longstanding practice is that the Company’s share repurchase activities have no effect on executive compensation. Actual operating EPS results are adjusted to remove the impact of any difference between the actual share count and the budgeted share count, while simultaneously ensuring that executive compensation targets are normalized for any planned buybacks that are incorporated into the Operating EPS target. Additionally, the scoring for the PSU Program may also take into account extraordinary events.
At the end of each three-year performance period, the Compensation Committee approves the determination of actual performance relative to pre-established targets, and the number of PSUs are adjusted up or down from 0% to 150% of targets, based on the approved actual performance.
In addition, the PSU Program has a Relative Return on Invested Capital (ROIC) modifier. The modifier is based on IBM’s ROIC performance over the three-year performance period, relative to the S&P 500 Index (excluding financial services companies due to lack of comparability) and the S&P Information Technology Index. This modifier reduces the score up to 20 points when performance falls below the S&P 500 Index median, and increases the score up to 20 points when IBM exceeds the median performance of both the S&P 500