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Big Blue chief gets big bucks

Lou Gerstner's efforts at IBM are making him extremely wealthy, though he's not yet in Bill Gates's league.

Lou Gerstner's efforts in turning around IBM (IBM) are making him extremely wealthy--though he's not yet in Bill Gates's league.

Gerstner, 56, earned $6 million in salary and bonuses last year, excluding stock options, up sharply from the $4.77 million he made during the previous year, according to the company's proxy filing with the Securities and Exchange Commission today.

On top of this, Gerstner was granted a "special" stock option covering 2 million shares of IBM common stock. The award will vest in five equal installments over five years.

The stock option package, with an exercise price of $103.56 per share, will have a potential realized value of $330.1 million if IBM's stock price appreciates at 10 percent annually for the ten-year option term; or $130.3 million for a 5 percent annual appreciation.

IBM stock was trading at 100 3/4 at midday.

Gerstner's compensation last year also included another 200,000 stock options, as well as a long-term performance-incentive payout of $2.1 million, based on the company's financial results between 1995 and 1997.

This year's bonus of $4.5 million was awarded to Gerstner for demonstrating "highly effective leadership," leading IBM to "industry strength," and bringing stockholders a 394 percent return during his tenure, which began in April 1993, the filing said. In addition, IBM has amended Gerstner's employment contract to provide him with a ten-year consulting agreement upon his retirement.

Now in his fifth year as chairman and CEO, Gerstner has agreed to stay on as Big Blue's chairman and CEO until he reaches age 60 in March of 2002.

The proxy also said that Minoru Makihara, 68, president of Mitsubishi, who was elected to IBM's board by its directors in July 1997, will be nominated to the board of directors by shareholders for the first time. Harold Brown will retire from the board in April and is not a nominee.

This marks the first year thatstockholders can vote their shares via the Internet or the telephone.

IBM will hold its annual meeting on April 28.