IBM Extends Contract of Its CEO

IBM Corp. on Friday extended Chief Executive Louis Gerstner’s contract an additional five years and granted him a multimillion-dollar options package, saying the company’s turnaround is far from complete.

Gerstner, 55, joined IBM in 1993 as declining sales of mainframe computers led to almost $16 billion in losses. He slashed more than 35,000 jobs, returning the world’s largest computer maker to profitability and increasing its stock price fivefold.

But Gerstner is still trying to shore up sales of many of its flagship computers and software.

Although Gerstner improved IBM’s focus on customers and pushed computer services to become its fastest-growing business, recent earnings growth has come largely from cost-cutting. IBM’s software sales are falling, it was late entering the hot market for $1,000 personal computers, and competition is driving down prices for its mainframes.

In return for staying, Gerstner will receive options for 2 million shares of stock, the Armonk, N.Y.-based company said. Gerstner, who is also chairman, was asked by the eight-member board to stay at least until he turns 60, in March 2002.

The company declined to give the value of the award. Gerstner made $1.5 million in salary and $3.27 million in bonuses last year, and already holds $95 million in options.

Gerstner “wants to move IBM into a leadership position in this industry, and he believes this will take several more years to complete,” said Rob Wilson, an IBM spokesman.

Gerstner’s decision to remain at the company was first reported by the Wall Street Journal.

Gerstner joined IBM from RJR Nabisco Holdings Corp., bringing sales and marketing skills the computer maker badly needed. He also was the former head of American Express Travel Related Services, one of IBM’s biggest customers.

He came to IBM with an almost maniacal focus on customers and a goal of making IBM a one-stop-shop for all their computer needs.

Yet even as IBM’s stock price has surged, its revenue is increasing at a slower rate than the rest of the computer, software and computer services industries.

“They need to grow at the pace of the industry,” said analyst Stephen Dube of Wasserstein Perella Securities in New York.

The company is trying to cut costs further, offering voluntary buyout packages to most of its 240,000 employees. It said recently that it would lay off several hundred employees in its North American sales and distribution unit.

IBM is facing stiffening competition and falling prices in laptop computers, where supply has caught up with demand. Prices for its big mainframes continue to fall as competition heats up in the market.

IBM shares rose 94 cents to close at $105.56 in New York Stock Exchange trading after rising as much as $1.63 a share earlier in the day.