IBM: Advisory Vote on Pay ‘Very Interesting’

In Corporate Responsibility briefing, tech firm also says it focuses on energy efficiency

 By Dennis Schaal

IBM considers the “say on pay” trend “very interesting,” but feels “very comfortable” with its current performance-based system, an official said.

However, speaking at an IBM briefing for analysts about its Corporate Responsibility (CR) efforts June 13, Rich Calo, the company’s Vice President, Human Resources, said IBM still supports its decades-long practice of executive compensation based on performance.

In response to an analyst’s question, Calo said IBM wants to learn more about “say on pay” and whether it is delivering on its objectives before mulling an embrace of the practice.

He noted that there is much debate in governance circles whether “say on pay” is an optimum approach.

Calo offered that shareholders currently have the right to express dissatisfaction with pay practices at IBM’s annual meeting if they are dissatisfied by voting out directors.

Earlier this year, a “say on pay” resolution at IBM was defeated, but it garnered 43 percent shareholder support.

“Say on pay” advocates believe an advisory resolution on executive compensation pressures boards when there is a skewed relationship between pay and performance.

IBM states: “On average, 86% of IBM’s senior leaders’ annual compensation is ‘at risk’—which means it varies year to year based on business results, with the remainder coming from salary. With this much pay ‘at risk’, the Company ensures that the interests of senior executives are aligned with stockholders.”

In other CR-related matters, officials commented on IBM’ supply chain practices, which cover some 30,000 suppliers in 60 countries.

Answering an analyst’s question, John Gabriel, IBM’s Manager of Supply Chain Social Responsibility, said the technology services and hardware provider “may entertain” releasing a list of its suppliers, as HP did.

In April, HP publicly identified its major suppliers. HP said its list represented “more than 95 percent of the company’s procurement expenditures for materials, manufacturing and assembly of its products worldwide.”

HP added: “The release of the list, the first by a major technology company, promotes transparency and progress in raising standards in the IT industry supply chain. The increased visibility will result in positive operational changes in supplier labor, health and safety, environmental and ethics practices. It also will encourage other companies to do more to advance supply chain responsibility.”

IBM has been busy trying to extend its supplier code of conduct principles to its partners and their subcontractors. Since 2004, IBM has conducted 500 supplier audits and re-audits, the company states.

Traditionally, the supply chain focus in the technology sector focused on manufacturing suppliers, but IBM, which gets 55 percent of its revenue from services, has extended its audits to logistics, software and other suppliers, as well, officials said.

Gabriel said all levels of the supply change need to be engaged, adding that IBM works with its first-tier suppliers, for example, and encourages them to ensure that their suppliers adhere to IBM’s standards, as well.

On environmental matters, IBM states it is focusing on making its operations more energy and fuel efficient, and it is geared to producing more energy-efficient products, too.

For instance, IBM’s Project Big Green, unveiled a year ago, is geared to reduce energy consumption in IBM’s and clients’ data centers.

That push is all-encompassing, according to Wayne Balta, IBM’s Vice President of Corporate Citizenship and Corporate Affairs.

In fact, Balta says, IBM’s efforts to make its data centers more energy-efficient extend to examining the cabling beneath data-center floors to ensure that it has been strung in a manner that doesn’t impede air flow. 

And, on June 17, several days after IBM's CR update, the company opened what it billed as "the most technologically advanced, energy-efficient data center ever built."

The 115,000-square-foot data center, in Boulder, Colo., is partially powered by IBM-purchased wind-powered electricity, and utilizes the area's climatic conditions to maximize energy efficiency, IBM stated.

The new data center is part of Project Big Green, which attracted $300 million in new revenue from clients in the fourth quarter, IBM said.