IBM's chief executive Louis Gerstner received a windfall potentially amounting to hundreds of millions of dollars this week when he agreed with IBM to remain as its chairman and CEO for another five years.
The contract, which will finish shortly after Gerstner turns 60, includes a one-time option of two million shares of IBM stock. The contract renewal offer from IBM was no surprise, although some observers had begun to wonder whether Gerstner thought his job at IBM was done, and that the turnaround was complete.
However Gerstner is believed to want to take the company further and improve the revenue performance in crucial areas such as the server and PC divisions. Large numbers of redundancies are still being completed as part of an ongoing battle against costs that five years ago had nearly brought Big Blue to its knees.
A loss of nearly $5 billion in 1992 saw the stock price at $40 and one Louis Gerstner brought in from US food and tobacco supplier RJR Nabisco. Determined to keep the company in one piece he refocused IBM on its mainframe and services business, despite the supposed death of the mainframe.
So far his plan seem to have worked. Third quarter 1997 saw a profit of $1.4 billion, with $5.9 billion for the whole of 1996. Share price was hovering around the $105 mark on Monday 24 November and that's after stock splits.
"Although we still face many challenges, IBM is a much different company than it was only a few years ago. Our portfolio of businesses is now better balanced to reflect the changing requirements of our industry," said Gerstner himself at the end of last year.
"For example, services made up just 13 per cent of our revenues in 1993. By year end 1996, services represented 21 per cent of revenues. Also, we refocused and reorganised our sales team around customers - around industries - so that we can provide industry specific products, services and solutions to common customer needs. It is clear now that this was the right strategy," he added.
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