• For first time, directors award stock options to CEO
  • Shares fell to a five-year low amid a 15-quarter sales slide

IBM’s board granted Chief Executive Officer Ginni Rometty premium-priced stock options for the first time during her tenure at the helm of the company, sending a message that management needs to push the stock price higher as it seeks to transform the company’s business.

Rometty’s 2016 compensation will include 1.5 million options with strike prices from 5 percent to 25 percent higher than $122.93, the average of the lowest and highest stock price on Jan. 26, according to a filing on Thursday. The award, which will vest in three years, is the first of its kind since Rometty became CEO in 2012. IBM’s shares reached a five-year low last week after reporting that revenue declined for the 15th straight quarter.

Ginni Rometty
Ginni Rometty
Photographer: David Paul Morris/Bloomberg

Rometty is heading a transition to drive growth by focusing on cloud computing and data analytics software and services. These areas, which International Business Machines Corp. calls strategic imperatives, have yet to offset declines in older operations, weighing on earnings even with stock buybacks. Seven analysts of 27 rate the stock a buy or the equivalent, according to data compiled by Bloomberg.

For 2015, Rometty received a $4.5 million bonus payout -- the biggest she’s gotten while on the job -- in addition to a $1.6 million salary and restricted stock with a target value of $13.3 million. She took home 90 percent of her target bonus, the same rate as the prior year. The shares will vest in three years if the company meets its targets for operating earnings per share and free cash flow. Edward Barbini, a spokesman for IBM, declined to comment on the filing.

One of the objectives for the annual incentive bonus is to motivate “strong short-term business performance,” according to IBM’s proxy statement.

Last year, IBM tweaked the structure of its annual incentive bonuses, replacing the target for total sales growth with one focused on increasing revenues for its strategic imperatives, including cloud, analytics, social, mobile and security businesses, according to the company’s proxy. IBM reported 16 percent growth in strategic imperatives revenue to $28.9 billion for the year, while total sales declined 12 percent.

While IBM doesn’t report specific sales for those areas in its quarterly results, the company said in its Jan. 19 earnings statement that strategic imperatives made up about 35 percent of 2015 revenue.

Operating income in 2015, excluding some items, dropped 12 percent to $14.7 billion from the prior year. Net cash from operating activities increased 4.4 percent to $16.9 billion, while free cash flow was $13.1 billion, a 5.7 percent jump from 2014.

Rometty’s salary and target bonus for 2016 will remain unchanged at $1.6 million and $5 million, respectively. Her target pay also includes $13.3 million in restricted stock. One third will vest over four years, while the remaining shares will be hers if the company meets certain targets that weren’t disclosed in the filing. She must give up her new options if she leaves before they vest, according to the filing.

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