IBM Pays Record $1.6 Billion in Non-Executive Bonuses

IBM Corp. will pay out a record $1.6 billion in performance-based cash bonuses to its non-executive employees for 1998, 21% above what it paid in 1997, a spokesman said.

The incentive--for which IBM’s 291,000 employees are eligible--is calculated according to both individual job performance and the performance of the employee’s business unit, a spokesman for the world’s largest computer maker said. The bonuses amount to 25% of the net profit IBM earned last year, he said.

Net income of $6.3 billion rose 3% from $6.1 billion in 1997, although IBM’s stock repurchase program helped boost earnings per share by 9% year-over-year. Revenue of $81.7 billion also rose 4% from 1997’s $78.5 billion.

The variable compensation plan is only one piece of IBM’s overall effort to peg employee compensation to performance and reflects a growing trend by U.S. companies.

A survey of 1,069 employers by Hewitt Associates found that 72% of the responding organizations had a variable pay plan in 1998, up from 61% two years ago.

In IBM’s case, a top performer in a top-performing unit can qualify for up to a 20% cash bonus in addition to the employee’s base pay, the spokesman said.

IBM classifies employees into 18 business units. Among the best performers were the software and services units, while some of the company’s hardware units lagged.

IBM has paid annual bonuses since 1992. In the last two years, the awards have topped $1 billion. Since Chairman Louis Gerstner took over in 1993, the portion of employee compensation coming from bonuses has grown.

Individual bonuses averaged about $5,500 for all employees worldwide, although high achievers stood to gain substantially more. The checks should appear in IBM paychecks by early March.

IBM also has a program permitting employees to buy the company’s stock at a discount.