Column: IBM’s CEO had a decent year — but she still doesn’t deserve her pay

IBM Chairman and Chief Executive Virginia Rometty had a pretty good 2016. The technology behemoth’s share price gained 20.6%, a nice change from its dismal record over the last few years.

Largely on that strength, the IBM board awarded Rometty a healthy raise this year. Her base salary was kept at $1.6 million, the same figure as last year, but her bonus was jacked up to $4.95 million from $4.5 million — her largest bonus ever. She’s to receive another $13.3 million in long-term incentive stock awards (the same as last year), which will be formally granted in June and paid out in February 2020.

On the face of it, this looks like well-deserved compensation for performance that reversed a serious slide in IBM’s share price. If you dig just a little deeper, however, you’ll see it for what it is: proof that IBM continues to set the standard for overpaying its CEO for mediocre performance.

As we observed last year and the year before, Rometty’s tenure has been one marked by running as fast as the company can to fall behind. Year after year, investors hear almost identical assurances from IBM executives that the company is making great strides in redirecting itself that just aren’t yet reflected in financial results.

Setting the gain in the share price to the side for a moment, here are the company’s results for 2016, the fifth year of Rometty’s tenure: Its revenue declined 2% to $79.9 billion; the company turned in four more quarters of declining revenue, making 19 in a row; and its full-year profit was down 11% to $11.9 billion.

IBM’s 13-member board, not including Rometty, comprises 10 current or former corporate CEOs or chairmen. As we observed last year (employing an image cribbed from George Orwell), these directors collect more than $250,000 each for doing not much more than gripping their board seats with prehensile bottoms.

The fact that Rometty received almost as large a bounty from this supine gang for 2015 as she did for 2016 leads one to wonder whether they’re capable of distinguishing good performance from bad, or really mediocre from plain-vanilla mediocre — or whether they care about the difference. Until boards do care, no effort to restrain the growth in CEO pay will bear fruit.

As for IBM’s share price, while it did well during the year, it’s still nothing for Rometty to brag about. The shares have continued their recent run-up, closing Friday at $181.35, but they’re still below the dividend-adjusted peak of $194.34 reached during her tenure (in September 2012), and about where they were when she took office in January 2012.

Five years of dead money isn’t a great record, especially when one considers that from Jan. 1, 2012, through December 2016, while IBM was losing about 11% of its value, the Standard & Poor’s 500 benchmark was gaining more than 75%.

It’s true that IBM is a big company, not easy to manage, and still hugely profitable — $12 billion in annual profits aren’t nothing. Yet shouldn’t raises be reserved for CEOs who do more than run on a treadmill?

One unmistakable bright spot for IBM investors was mentioned in the company’s announcement of its 2016 financial results on Jan. 19. Amid the corporate-speak describing IBM’s efforts to make its way in the changing technology space by acquiring 15 companies to “strengthen … our capabilities in analytics, security, cognitive and cloud,” it said, “we returned almost $9 billion to shareholders through dividends and gross share repurchases.”

That sounds like the key, doesn’t it? Revenue may be flat and profits down, but IBM has kept its shareholders fat and happy by shoveling out $9 billion via dividends and share buybacks. If the company’s board really believes this is the path to business success, maybe Ginni Rometty really is some kind of genius.

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