INTERNATIONAL BUSINESS MACHINES CORP

Stockholder engagement provides important feedback for the committee

IBM continually reviews and enhances its corporate governance and executive compensation programs. As part of this review, it is IBM’s longstanding practice to meet with a significant number of our largest investors during both the proxy season and the off-season to solicit their feedback on a variety of topics.

Stockholder feedback from engagement efforts is shared with the Committee and helps to inform the Board's decisions and our compensation policies, practices and disclosures. Our stockholder discussions and formal 2025 Say on Pay vote reaffirmed investor support of our pay practices with 92% approval. Previous investor feedback has highlighted the importance of relative performance measures in incentive plan design. We agree, and after careful consideration by the Committee, we introduced a relative Total Shareholder Return (rTSR) modifier to our long-term incentive plan in 2025. This enhancement reinforces IBM's commitment to sustained strategic growth and underscores our high-value business model by directly linking executive incentives to long-term stockholder outcomes.

This in-depth engagement process provides valuable feedback to the Compensation Committee on an ongoing basis. Our stockholders have shared that they are strongly supportive of the Company's compensation practices and overall program design, which focuses on long-term financial performance that drives stockholder value creation.

Compensation practices

Overall, IBM’s compensation policies and decisions, explained in detail in this Compensation Discussion and Analysis, continue to be focused on long-term financial performance to drive stockholder value.

The table below highlights practices that IBM embraces in support of strong governance practices.

What we do

Tie a significant portion of pay to Company performance

Mitigate risk taking by emphasizing long-term equity incentives, placing caps on potential payments, and maintaining robust clawback provisions

Require significant share ownership by the Chairman, President and CEO, Vice Chairman and Senior Vice Presidents

Utilize noncompetition and nonsolicitation agreements for senior executives

Remove impact of share repurchase on executive incentives

What we don’t do

No individual severance or change-in-control agreements for executive officers

No excise tax gross-ups for executive officers

No dividend equivalents on unearned RSUs/PSUs

No hedging/pledging of IBM stock

No stock option repricing, exchanges or stock options granted below market value

No guaranteed incentive payouts for executive officers

No accelerated vesting of equity awards for executive officers

No above-market returns on deferred compensation plans

Personal stake in IBM’s future through stock ownership requirements

Investors want the leaders of their companies to act like owners. That alignment, we believe, works best when senior leaders have meaningful portions of their personal holdings invested in the stock of their company. This is why IBM sets significant stock ownership requirements for IBM’s Chairman, President and CEO, Vice Chairman, and Senior Vice Presidents (SVPs). Within 5 years of hire or promotion, each is required to own a minimum number of IBM shares or equivalents that is equal to a multiple of salary at the time of hire, promotion, or election as an executive officer. The minimum multiple of salary required is in excess of standard market practice.

Stock ownership requirements

Mr. Krishna owns common stock and stock-based holdings above his ownership requirement (over 86 times his base salary) as of December 31, 2025. More information on Mr. Krishna’s holdings can be found in the Common Stock and Stock-Based Holdings of Directors and Executive Officers Table. As a group, the Chairman, President and CEO, Vice Chairman and SVPs, inclusive of the NEOs, owned shares or equivalents valued at over $282 million as of December 31, 2025; as of that date, this group held, on average, over 20 times their base salary, and are all on track to meet or exceed their ownership goal within 5 years of hire or promotion.

The following table illustrates which equity holdings count towards stock ownership requirements:

What counts

IBM shares owned personally or by members of the officer’s immediate family sharing the same household

Holdings in the IBM Stock Fund of the 401(k) Plan and the Excess Savings Plan

Shares of IBM stock deferred under the Excess Savings Plan

What does not count

Unvested equity awards

Unexercised stock options

Stock ownership continues beyond retirement

Finally, our programs are designed to ensure alignment with IBM’s long-term interests past the retirement date for our Chairman, President and CEO, Vice Chairman and SVPs. Share price performance and long-term goal achievement continue to impact the Long-Term Incentive Plan for these retired executives for at least two and a half years post retirement. For example, shares for Mr. Krishna that remained restricted and subject to IBM performance represent more than 200% of his share ownership requirement as of December 31, 2025, assuming future performance at target.

Compensation Committee consultant

The Committee enters into a consulting agreement with its outside compensation consultant on a biennial basis. In 2025, the Committee retained Semler Brossy as its compensation consultant to advise the Committee on market practices and specific IBM policies and programs. Semler Brossy reports directly to the Compensation Committee Chair and takes direction from the Committee. The consultant’s work for the Committee includes data analyses, market assessments and preparation of related reports. From time to time, the Committee seeks the views of the consultant on items such as incentive program design and market practices. The work done by Semler Brossy for the Committee is documented in a formal agreement which is executed by the consultant and the Committee. Semler Brossy does not perform any other work for IBM, other than services provided to IBM’s Directors and Corporate Governance Committee. The Committee determined that there is no conflict of interest with regard to Semler Brossy.

How compensation decisions are made

At any level, compensation reflects an employee’s value to the business — market value of skills, individual contribution and business results. To be sure we appropriately assess the value of senior executives, IBM follows an evaluation process, described here in some detail:

1. Making annual performance commitments

All IBM employees, including the Chairman, President and CEO, Vice Chairman and SVPs, develop goals, both qualitative and quantitative, that they seek to achieve in a particular year in support of the business. The Board of Directors reviews and approves the Chairman, President and CEO’s performance goals and formally reviews progress and outcomes. As part of this process, many factors are considered, including an understanding of the business risks associated with the performance goals.

2. Determining annual incentive payouts

Evaluation of Chairman, President and CEO results by the Compensation Committee

The Chair of the Compensation Committee works directly with the Committee’s compensation consultant to provide a decision-making framework for use by the Committee in determining annual incentive payouts for the Chairman, President and CEO. This framework considers the Chairman, President and CEO’s self-assessment of performance against commitments in the year, both qualitative and quantitative, and also considers progress against strategic objectives, an analysis of IBM’s total performance over the year and the overall Company incentive score. The Committee considers all of this information in developing its recommendations, which are then presented to the independent members of the IBM Board of Directors for further review, discussion, and final approval.

Evaluation of Vice Chairman and SVP results by the Chairman, President and CEO and the Compensation Committee

Executives work with their managers throughout the year to update their own results against their stated goals. The self-assessments of the Vice Chairman and SVPs are reviewed by the Senior Vice President and Chief Human Resources Officer and the Chairman, President and CEO.

Following this in-depth review and taking into account the Company incentive score, the Chairman, President and CEO makes compensation recommendations to the Compensation Committee based on an evaluation of the Vice Chairman and each SVP’s performance for the year, and the Committee decides whether to approve or adjust the Chairman, President and CEO’s recommendations for the Vice Chairman and SVPs. The Committee then presents the compensation decisions for the Chief Financial Officer to the independent members of the IBM Board of Directors for ratification.

3. Setting competitive target pay

Approach to benchmarking

IBM participates in several executive compensation surveys that provide general trend information and details on levels of salary, target annual incentives and long-term incentives, the relative mix of short- and long-term incentives, and mix of cash and stock-based pay. Given the battle for talent that exists in our industry, the benchmark companies that are used by the Compensation Committee to guide its decision making have included a broad range of key information technology companies, to help us identify trends in the industry. We also include companies outside our industry, with stature, size, and complexity that approximate our own, in recognition of the flow of executive talent in and out of IBM from other industries. The surveys and benchmark data are supplemented by input from the Compensation Committee’s outside consultant on factors such as recent market trends. The Committee reviews and approves this list annually.

For 2025 compensation decisions, the Committee utilized the following benchmark group criteria:

•Companies in the technology industry with revenue that exceeds $10 billion, plus

•Additional companies in other industries, with revenue that exceeds $30 billion, and that have a global complexity similar to IBM, and whose business strategy results in substantial competition for senior leadership talent. For 2025 compensation decisions, the Committee approved the following benchmark group using the criteria above, which achieves a balance between prominent technology competitors and large-scale companies of similar size to IBM. In consideration of size and complexity, IBM’s philosophy is to generally target the 50 th percentile of the market for cash and total compensation. Executives in new roles are typically positioned below and brought up to median with sustained performance, while high performing executives may have an above median target total pay opportunity driven by long-term incentives to retain executive skills and support strong succession plans.

Benchmark group

Approach to determining individual compensation

For individual compensation decisions, the benchmark information is used together with an internal view of individual performance relative to other executives and recognizing that the skills and experience of our senior executives are highly sought after by other companies and, in particular, by IBM’s competitors. Because factors such as performance and retention, as well as size and complexity of the job role, are considered when compensation decisions are made, the cash and total compensation for an individual named executive officer may be higher or lower than the target reference point of the benchmark group.

Evaluation of Chairman, President and CEO target pay by the Compensation Committee

The Chair of the Compensation Committee works directly with the Committee’s compensation consultant to provide a decision-making framework for use by the Committee in setting target compensation for the Chairman, President and CEO. The independent members of the IBM Board of Directors review and provide final approval.

Evaluation of Vice Chairman and SVP target pay by the Chairman, President and CEO and the Compensation Committee

The Chairman, President and CEO makes compensation recommendations on the Vice Chairman and SVPs’ target compensation to the Compensation Committee. The Committee evaluates all of the factors considered by the Chairman, President and CEO and reviews compensation summaries that tally the dollar value of compensation related items, including salary, target annual incentive, and long-term compensation. The Committee decides whether to approve or adjust the Chairman, President and CEO’s recommendations for the Vice Chairman and SVPs. The Committee then presents the compensation decisions for the Chief Financial Officer to the independent members of the IBM Board of Directors for ratification.