IBM will end stock-option grants for most directors, effective Jan. 1, replacing them with a doubling of their cash compensation.

In a filing made with the U.S. Securities and Exchange Commission Wednesday, IBM said it will end the annual practice of issuing 4,000 IBM stock-option grants to the 12 of its 13 directors who are not IBM executives. Instead, it will double their annual retainers to US$200,000 from $100,000 each.

The only director to continue to receive stock options is IBM Chairman and Chief Executive Officer Samuel Palmisano, whose compensation package is negotiated separately from that of other directors.

The change in policy is part of a continuing move away from stock options compensation, said John Bukovinsky, an IBM spokesman.

"We believe it’s sound governance to take this step," Bukovinsky said.

The move away from stock-options grants throughout the company is driven in part by accounting regulations, which took effect in 2005. They make public companies count stock-option grants as expenses in the quarter in which they are granted. Doing so diminishes earnings and can adversely affect a company’s stock price. Shifting away from stock options reduces the impact of the expensing requirement, said Bukovinsky.

IBM has also moved away from stock options because its competitors have been doing the same.

"We found, as we did benchmarks with our competitors, a greater reliance on cash compensation," he said.

-Robert Mullins, IDG News Service (San Francisco Bureau)

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