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GOVERNANCE

IBM shareholders narrowly approve executive compensation, proxy access

International Business Machines Corp. shareholders ratified the compensation of CEO Virginia Rometty and other top executives by a 54.3% vote, with opposition from a number of large pension funds.

Investors also voted 59.4% in favor of a shareholder proposal calling for proxy access, according to IBM's 8-K filed Friday. IBM's annual shareholder meeting was Tuesday.

The $316 billion California Public Employees' Retirement System, Sacramento; $202.1 billion California State Teachers' Retirement System, West Sacramento; C$175.6 billion ($131.7 billion) Ontario Teachers' Pension Plan, Toronto; C$287.3 billion Canada Pension Plan Investment Board, Toronto; $133.2 billion Texas Teacher Retirement System, Austin; $186.2 billion Florida State Board of Administration, Tallahassee; and $16.1 billion Illinois State Board of Investment, Chicago, all voted against ratifying Ms. Rometty and the four other named executives' compensation in the management proposal, according to their proxy-voting disclosures,.

All seven entities voted in favor of the proxy-access proposal filed by New York City Comptroller Scott M. Stringer on behalf the five pension funds within the $170.6 billion New York City Retirement Systems. Under the proposal, a shareholder or group of shareholders holding a combined 3% of IBM stock for three years can nominate up to two, or 25%, of the board's directors.

In a report last month, proxy advisory firm Institutional Shareholders Services that Ms. Rometty's total pay rose to $50.9 million in 2016, up from $20.8 million in 2015. The pay of the four other executives ranged from $7.3 million to $9 million in 2016, according to ISS.

In the same report, ISS recommended that shareholders vote against ratifying the executives' pay, stating: “In addition to routine pay, the CEO received a sizeable premium-priced option award, the design of which does not appear particularly rigorous. Also, the lack of disclosed short- and long-term incentive program goals is concerning, particularly in light of the high level of CEO pay.”

On a one-time basis in January 2016, IBM awarded Ms. Rometty 1.5 million stock options, which IBM valued at $12.1 million and ISS argued was closer to $29 million.

ISS supported the proxy-access proposal.

In an email on the executive pay opposition, an IBM spokesman said Friday: “IBM has always aligned executive pay with the performance of the company. The IBM board will review the results of this vote, as is its customary practice. The company will continue to align its compensation practices with the best interests of our shareholders, and balance those practices with the flexibility needed to attract and retain great leaders for this unique moment in the technology industry."

IBM had recommended that shareholders vote against the proxy-access proposal.