IBM: Gerstner, Profits, and Y2K Costs



IBM posted its annual report and proxy statement on its Web site yesterday, disclosing a big pay hike for CEO Lou Gerstner and releasing previously unavailable details on IBM profits by business segment and on the company's total year 2000 costs.

Gerstner's base pay increased 25% to $1.8 million, while his bonus increased 67% to $7.5 million. In addition, he received $4.4 million in cash and restricted stock from a long-term performance-incentive program, and he exercised 301,386 stock options for $32.8 million. Among Gerstner's accomplishments noted in the proxy statement was the increase in the company's market capitalization last year to $169 billion from $100 billion, and a 76% increase in price per share of IBM stock.

The annual report included the first disclosure IBM has made of its internal year 2000 costs. The total of $575 million is among the largest of any corporation, although it is less than the totals disclosed, for example, by AT&T and General Motors. Both those companies expect to spend more than $700 million each.

As a result of new accounting standards, the annual report disclosed more information than previously available on the profitability of various IBM business segments. Merrill Lynch analyst Steve Milunovich notes, "65% of IBM's pretax profits came from software and services, while only 29% was from hardware."

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