Company Name: Int'l. Business Machines Corp. (Hoffman)
Public Availability Date: 12-28-1995
[INQUIRY LETTER 1]
INTERNATIONAL BUSINESS MACHINES CORPORATION
ONE OLD ORCHARD ROAD
ARMONK, NEW YORK 10504
TELEPHONE(914) 765-6148 December 08, 1995 VIA AIRBORNE EXPRESS Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549 Attention: Vincent W. Mathis, Esquire
Special Counsel
Division of Corporation Finance
Room #3026 - Mail Stop 3-3 Subject: Shareholder Proposal of Mr. Harrell Hoffman Dear Mr. Mathis: Pursuant to Rule 14a-8(d) under the Securities Exchange Act of 1934, I am
enclosing seven copies of a proposal (the "Proposal") submitted by Mr. Harrell
Hoffman (hereinafter the "Proponent"), a current employee with 19 years of
service with International Business Machines Corporation (the "Company" or
"IBM") (See Exhibit A). The Proposal is focused on the IBM Retirement Plan, and
the changes the Company made to such Plan which the Proponent believes
negatively impact employees within a certain "service window," of which he is a
member. The Proponent seeks to have the Company take certain actions, such as
amending its Tax Deferred Savings Plan, Retirement Plan, or "create some other
mechanism" to ensure that such employees within this service window, "will be
treated fairly compared to other employees." IBM believes that the Proposal,
which seeks that the Corporation "fairly compensate" certain employees who, at
the end of 1994, had between 15 and 23 years of Company service, may properly be
omitted from the proxy materials for IBM's annual meeting of shareholders
scheduled to be held on April 30, 1996 (the "1996 Annual Meeting") on the
grounds discussed below. To the extent that the reasons for omission stated in this letter are based on
matters of law, these reasons are the opinion of the undersigned as an attorney
licensed and admitted to practice in the State of New York. I. THE PROPOSAL MAY BE OMITTED UNDER RULE 14a-8(c)(7) AS RELATING TO THE CONDUCT
OF THE ORDINARY BUSINESS OPERATIONS OF IBM. The Company believes that the Proposal may be omitted from the Company's proxy
materials for the 1996 Annual Meeting pursuant to the provisions of Rule
14a-8(c)(7) because it deals with matters relating to the conduct of the
ordinary business operations of the Company. The Commission has determined that a proposal is excludable under Rule
14a-8(c)(7) if the proposal involves business matters that are mundane in nature
and does not implicate any substantial policy or other considerations. See
Adoption of Amendments Relating to Proposals by Security Holders, Exchange Act
Release No. 12999, 1976-77 Transfer Binder Fed. Sec. L. Rep. 80,812, at 87,123,
87,131 (Nov. 22, 1976). The administration by the Company of its employee
benefit plans, such as the Company Retirement Plan or the Tax Deferred Savings
Plan, is an activity which is part of the ordinary business operations of the
Company. The Commission has long recognized that proposals concerning this and
other types of employee benefits relate to the ordinary business operations of a
corporation, and the staff has consistently concurred in the omission under Rule
14a-8(c)(7) of proposals regarding employee retirement, health, medical and
other benefits. Allied Signal Inc. (November 22, 1995) (retirement benefits);
American Telephone and Telegraph Company (December 15, 1992) (pension and
medical benefits); Minnesota Mining and Manufacturing Company (February 6, 1991)
(employee health and welfare plan selection); General Motors Corporation
(January 25, 1991) (scope of health care coverage); and Procter & Gamble Co.
(June 13, 1990) (prescription drug plan). The determination of the amount of benefits under the IBM Retirement Plan has
consistently been administered by the Company as part of its ordinary business
operations. For many years, IBM has provided retirement plan benefits to its
employees, and such benefits have been modified and supplemented over the years
to meet the changing needs of the Company as well as its employees. In providing
this and other benefit plans to our employees, IBM has always reserved the right
to modify its benefit plans. Last year, the Company made certain revisions to
its Retirement Plan, which revisions effected a number of changes to the manner
in which benefits would be calculated. At the same time, the Company enhanced
other benefits under the Tax Deferred Savings Plan. The changes to the IBM
Retirement Plan were implemented prospectively. The Proponent has reviewed, in
detail, the changes the Company has made to the Retirement Plan, has made
various assumptions, and prepared detailed spread-sheet calculations supporting
his conclusion on how these changes negatively affect certain employees,
including himself. The Proponent now seeks for the Company to take actions to
compensate employees within his 15-23 year service window "to make up the
difference between the expected retirement income of the employees within this
service window versus otherwise comparable employees outside this service
window." Since this type of proposal directly addresses the Company's ordinary
business operations, it should be excluded under Rule 14a-8(c)(7). See generally
no-action letters of Allied Signal, Inc. (November 22, 1995) (proposal to
increase pension benefits for retired employees excluded under Rule
14a-8(c)(7)); Walt Disney Company (November 7, 1995) (proposal to reinstate
registrant's dividend reinvestment plan excluded under Rule 14a-8(c)(7)); Mobil
Corporation (January 26, 1993) (policies with respect to downsizing activities);
International Business Machines Corporation (February 19, 1992) (employee
benefits relating to medical plans); Consolidated Edison Company (February 13,
1992) (general compensation issues relating to amendment of existing pension
benefits); General Electric Company (February 13, 1992) (general compensation
issues relating to increase in pension benefits); and NYNEX (February 13, 1992)
(general compensation issues relating to standardization of medical and other
benefits). The subject matter of the Proposal involves nothing but the ordinary
business operations of the Company, and by making the Company's Retirement Plan
and Tax Deferred Savings Plan for employees the subject of this Proposal, the
Proponent has placed himself within Rule 14a-8(c)(7)'s ordinary business
operations. The Proposal may therefore be omitted on that ground. Upon the basis
of these consistent precedents by the staff of the SEC with regard to the
subject matter of the Proposal, the Company requests that no enforcement action
be recommended to the Commission if it excludes the Proposal on the basis of
Rule 14a-8(c)(7). II. THE PROPOSAL MAY BE OMITTED UNDER RULE 14a-8(c)(4) AS A PERSONAL GRIEVANCE
AND IS DESIGNED TO RESULT IN A BENEFIT TO THE PROPONENT AND OTHER "SERVICE
WINDOW" EMPLOYEES WHICH IS NOT SHARED WITH OTHER SECURITY HOLDERS AT LARGE. Rule 14a-8(c)(4) permits omission of a proposal that relates to the redress of a
personal claim or grievance against the registrant, or if it is designed to
result in a benefit to a proponent or to further a personal interest, which
benefit or interest is not shared with other security-holders at large. The Proponent is an active employee of the Company with 19 years of service. The
Proposal seeks to have the Company take action to compensate the Proponent and
certain other active regular Company "service window" employees, who had between
15-23 years of Company service at the end of 1994, for changes which were made
to the IBM Retirement Plan, which changes the Proponent claims negatively impact
him and other regular IBM employees within this particular "service window." As noted earlier, the Proponent made various assumptions which he has included
in detailed spread-sheet calculations appended to his Proposal (See Exhibit A).
The Proponent believes the Company, in effecting changes to the Retirement Plan,
did not fairly consider employees such as himself and others within the 15-23
year service window. As noted in his Supporting Statement, the Proponent
believes that the new 1995 IBM Retirement Plan is "inherently unfair" to a
certain "window" of IBM employees with between 15-23 years of service. In noting
his belief that the change "hits especially hard" those employees within the
"service window," the Proponent highlights two factors he believes supports his
position. First, that employees who had more than 23 years of service were
"grandfathered" under the old plan; and second, that employees with less than 15
years of service will have more time than the Proponent and other
similarly-situated "service window" employees to make up for the changes to the
Retirement Plan and save more for their own retirement under the Company's
recently-enhanced Tax Deferred Savings Plan, which Plan was not available to the
Proponent and other "service window" employees when they began employment with
the Company. The Proponent therefore seeks for the Company to "rectify this
situation" and notes various options in his Proposal for the Company to take,
such as amending the Tax Deferred Savings Plan or the IBM Retirement Plan, or
creating some other mechanism to add to his retirement benefits and the benefits
of other "service window" employees. The Company believes that the Proposal is otherwise excludible under Rule
14a-8(c)(7), as relating to the Corporation's ordinary business operations. In
addition, the Proposal is excludible under Rule 14a-8(c)(4), as the Proposal
demands a clear personal benefit that will accrue specifically to the Proponent
and other members in the "service window" if the Company were to take the
actions sought in the Proposal. Upon receipt of the Proposal, a senior Corporate Employee Relations executive in
Armonk, New York, contacted the Proponent to discuss the Proposal. He inquired
whether the Proponent had pursued any internal channels with regard to these
issues, including his management, the Company's Personal Benefits Center, or any
other outlet with persons with specific expertise in these matters. After the
Proponent indicated that he had not done so, the Company executive informed the
Proponent that he would, in any event, forward a copy of the Proponent's
Proposal and accompanying spread-sheets to the Program Director in charge of the
Company's Retirement and Capital Accumulation Programs, who would review the
Proposal and respond to him. The Proposal subsequently had a conversation with
such Program Director, and in such conversation, the intent, business purposes,
financial impact and costs of the Company Retirement and Tax Deferred Savings
Plan were discussed. The Proponent believes that the Company should honor the expectations held by
"service window" employees, including himself, by making such employees whole in
the manner described in the Proposal. He feels the expectations of service
window employees were negatively impacted by changes made by the Company to the
employee plans, and seeks for the Proposal to be included in the Company's proxy
materials to have the shareholders decide on his Proposal. The Proponent also
understands that the Company planned on filing the instant request seeking
no-action relief from the Securities and Exchange Commission. It is clear that the Proponent believes that he and other "service window"
employees were negatively impacted by the Company's decision to make certain
changes to the Company's Retirement Plan. Under the rules and regulations of the
Securities and Exchange Commission, however, the Proponent's Proposal, which
attempts to rectify the matter of the diminution of his and other
similarly-situated employees' benefits, cannot survive scrutiny under Rule
14a-8(c)(4). The Commission long ago established that the purpose of a
stockholder proposal process is "to place stockholders in a position to bring
before their fellow stockholders matters of concern to them as stockholders in
such corporation...." Release 34-3638 (January 3, 1945) (Exchange Act Regulation
241.3638). The purpose of Rule 14a-8(c)(4) is to allow registrants to exclude
proposals that involve disputes that are not of interest to stockholders in
general. The provision was developed "because the Commission does not believe
that an issuer's proxy materials are a proper forum for airing personal claims
or grievances." Release 34-12999 (November 22, 1976). It is equally clear the Proponent's Proposal to rectify matters, by creating
some "mechanism to make up the difference" in benefits for those employees
fitting within the "service window" defined by the Proponent, would benefit only
those employees within the "service window," and not the Company's
security-holders at large. Therefore, the Proponent is requesting, for himself
and for other employee stockholders who hold a small percentage of the total
stock outstanding, a benefit which cannot be shared with other IBM
security-holders at large. The Commission has consistently taken the position that Rule 14a-8 is intended
to provide a means for shareholders to communicate on matters of interest to
them as shareholders, and not to further personal interests. See Release No.
34-19135 (October 14, 1982). While paragraph (c)(7) of Rule 14a-8 provides an
independent basis for omission of this Proposal, paragraph (c)(4) of this rule
has been cited by registrants, just as consistently, as an alternate basis for
omitting proposals seeking to reinstate or restore employee benefits such as
those requested here. In many of the cases that we have reviewed, the staff has
concluded that such proposals related to the ordinary conduct of the
registrant's business and therefore the staff has not found it necessary to
address Rule 14a-8(c)(4) as an alternative basis. See e.g., International
Business Machines Corporation (January 13, 1993); American Telephone and
Telegraph Company (December 15, 1992). The Company believes that Rule
14a-8(c)(4) provides an equally adequate basis in this particular case for
omitting the Proposal from the proxy materials for its 1996 meeting, and
requests that no enforcement action be recommended if it excludes the Proposal
on the basis of Rule 14a-8(c)(4). See International Business Machines
Corporation (January 6, 1995) (proposal to reinstate health benefits properly
excluded by staff under Rule 14a-8(c)(4)); Lockheed Corporation (April 25, 1994
and March 10, 1994) (proposal to reinstate sick leave benefits properly excluded
under Rule 14a-8(c)(4)); International Business Machines Corporation (January
25, 1994) (proposal to increase retirement plan benefits properly excluded under
Rule 14a-8(c)(4)); and General Electric Company (January 25, 1994) (proposal to
increase pension benefits properly excluded under Rule 14a-8(c)(4)). See also
Tri-Continental Corporation (February 24, 1993) (Rule 14a-8(c)(4) utilized by
staff to exclude proposal seeking registrant to assist the Proponent in a
lawsuit against former employer); Caterpillar Tractor Company (December 16,
1983) (former employee's proposal for a disability pension properly excluded
under Rule 14a-8(c)(4)); SmithKline Corporation (January 20, 1978) (Rule
14a-8(c)(4) used to exclude proposal seeking to compensate community of
homeowners, which included the Proponent). See generally Orbital Sciences
Corporation (October 16, 1995) (proposal seeking for registrant to hire would-be
rocket engineer properly excluded by staff as relating to redress of a personal
claim or grievance under Rule 14a-8(c)(4)). III. THE PROPOSAL MAY BE OMITTED UNDER RULE 14a-8(c)(1) AS IT IS NOT A PROPER
SUBJECT FOR ACTION BY STOCKHOLDERS UNDER STATE LAW Section 701 of the Business Corporation Law of the State of New York (the "NYBCL"),
the law of the state of IBM's incorporation, provides that "...the business of a
corporation shall be managed under the direction of its board of directors...."
Nothing in the law of New York places the decision making related to the
institution or amendment of employee retirement, savings plan or other benefits
directly in the hands of shareholders. In addition to the fact that the Proposal
is couched in mandatory terms, requiring the Company to take various actions,
nowhere does the Proposal recommend any action to be taken by the board of
directors of the Company. The Proposal improperly eliminates the role of the
board of directors, and places the decision-making relating to the matter
addressed therein directly in the hands of stockholders. Since this is an
improper subject for action by stockholders under New York State law, the
Company believes that the Proposal may be omitted from the 1996 proxy materials
pursuant to Rule 14a-8(c)(1), and requests that no enforcement action be
recommended if it excludes the Proposal on the basis of Rule 14a-8(c)(1). In summary, for the reasons and on the basis of the authorities cited above, IBM
respectfully requests your advice that the Division will not recommend any
enforcement action to the Commission if the Proposal is omitted from IBM's proxy
materials for the 1996 Annual Meeting. We are sending the Proponent a copy of
this submission, thus advising him of our intent to exclude the Proposal from
the proxy materials for the 1996 Annual Meeting. Enclosed are seven copies of
this letter, incorporating the Proposal as Exhibit A giving the Company's
reasons and legal arguments for omission of the Proposal. If the staff disagrees
with the Company's conclusion that the Proposal may be omitted from its 1996
proxy materials, I request the opportunity to confer with the staff prior to the
issuance of your position. If you wish any further information, please call me
at 914-765-6148. The Proponent is hereby requested to copy me on any response
the Proponent may choose to make to the Commission in connection with the
Proposal. Thank you for your attention and interest in this matter. Very truly yours, Stuart S. Moskowitz
Senior Counsel
Attachments cc: Mr. Harrell Hoffman
3509 Greenway
Austin, Texas 78705
[INQUIRY LETTER 2]
HARRELL HOFFMAN
3509 GREENWAY
AUSTIN, TEXAS 78705
TELEPHONE(512) 476-0582 November 13, 1995 Office of the Secretary
International Business Machines Corporation
One Old Orchard Road
Armonk, N.Y. 10504 IBM, I would like to submit the following enclosed stockholder proposal for inclusion
in your 1996 proxy material so that it may be voted on at the 1996 stockholder
meeting. I have also enclosed copies of some detailed spreadsheets showing the
assumptions and results of my analysis (which I would not expect to be included
in the proxy material due to its length). I would be glad to discuss any of this
material with someone from your office if you desire. Thank you. Harrell Hoffman, Shareholder 3509 Greenway
Austin, Texas 78705 Home 512-476-0582
Work 512-838-6524 Supporting Statement: The terms of the new 1995 IBM Retirement Plan are inherently unfair to a certain
"window" of IBM employees, specifically those employees who had between 15 and
23 years of service at the time the plan changed. While the new plan generally lowers the retirement income of every employee's
retirement, it hits especially hard those employees in the above mentioned
service window. The reason this set of employees see an even greater reduction in prospective
income compared to other employees is substantially due to 2 reasons: The new plan "grandfathers" (retains) the terms of the old plan for those
employees with can retire before end of year 2000. This means that employees
with 24 or more years of service at year end 1994 can retire with their original
retirement benefits generally unaffected. The new plan places great emphasis on contributions to the TDSP (Tax Deferred
Savings Plan) to "make up the difference" between the old plan and the new plan.
However, the TDSP was not available under the old plan until 1985, and then at a
reduced IBM matching percentage. This means that employees in the defined
service window were unable to make any TDSP contributions and received no
matching IBM funds for between 5 and 13 years because there was no TDSP plan. Comparing the expected IBM retirement income (using reasonable assumptions for
salary growth, inflation, and including the maximum IBM matching portion of TDSP
contributions) for 3 sample employees with similar salary histories points this
out. Compared to an employee with 18 years of service at year end 1994: an employee with 24 years of service at year end 1994 will receive 5.7% to 36.2%
higher total IBM retirement income upon normal retirement depending on
inflation, exact earnings history, etc. an employee with 6 years of service at year end 1994 will receive 6.6% to 8.6%
higher total IBM retirement income upon normal retirement depending on
inflation, exact earnings history, etc. (Copies of assumptions and calculations have been made available to IBM) In order to rectify this situation, the following proposal is submitted. Resolved: That IBM shall amend the TDSP plan, the 1995 Retirement Plan, or
create some other mechanism so that employees within that certain service
window, as defined below, will be treated fairly compared to other employees.
Specifically, IBM will fairly compensate these employees to make up the
difference between the expected retirement income of the employees within this
service window versus otherwise comparable employees outside this service
window. This shall first be accomplished by increasing the percentage amount
with which IBM matches TDSP contributions for these employees for a period of 5
years, if law allows. Otherwise it shall be accomplished by modifying the 1995
Retirement Plan, or by using some other mechanism to make up the difference. The
service window as mentioned above is the window covering employees who had
between 15 and 23 years of service, inclusive, at year end 1994, and the changes
to any plans or mechanisms would apply to this group only.
[STAFF REPLY LETTER]
December 28, 1995 RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF CORPORATION FINANCE Re: International Business Machines Corporation (the "Company")
Incoming letter dated December 8, 1995 The proposal would require the board of directors to amend its Tax Deferred
Savings Plan or Retirement Plan to ensure that employees within a specified
service window are treated fairly as compared to other employees. There appears to be some basis for your view that the proposal relates to the
conduct of the ordinary business of the registrant (i.e., employment related
matters) and therefore may be excludable under rule 14a-8(c)(7). Under the
circumstances, the staff will raise no objection if the proposal is omitted from
the Company's proxy materials under rule 14a-8(c)(7). The staff has not found it
necessary to address the alternative bases for omission upon which the Company
relies. Sincerely, Stephanie D. Marks
Attorney Advisor
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