IBM lost $28bn in revenues in the past six years but that made not one jot of difference the salary and bonuses the top execs got paid. The message from Wall Street? Ever-shrinking sales are not sustainable.

Unlike hardware rival Hewlett Packard Enterprise and other tech giants Apple and HP Inc, Big Blue's leaders are not really compensated to drive top line expansion, Wall Street analyst Bernstein noted.

The dynamic was pored over in a paper "IBM: Are executives' incentives the right ones?", written by the firm’s equity research analyst Toni Sacconaghi Jnr.

At "first glance", he said, all of the CEOs for the four tech giants looked to be paid in a similar way with 25 per cent to 35 per cent of targeted compensation granted in cash and 65 to 80 per cent in long-term stock and at-risk units.

"However, IBM was an outlier in that it doesn't consider overall revenue growth or share price performance to be determinants of performance compensation," he wrote.

IBM CEO Ginni Rometty and others in her executive team are measured on operating profit growth, cash flow and to a far lesser extent, revenue growth of strategic imperatives (SI): cloud, big data social, mobile and analytics, an area that has grown from $16bn to $37bn in six years.

"While SI growth drives just 5 per cent total variable comp, it is the only revenue metric that IBM executives are incentivised to think about," stated Sacconaghi.

"The result is that SI growth has been very strong, total revenues have declined $28bn since 2011," IBM does not provide revenues guidance these days, again in contrast to its rivals.

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Rometty, who joined IBM in 1981 as a systems engineer, rose through the ranks and was made CEO and president in late 2011, a year that IBM turned over $107bn and reported historically high operating income of $21.6bn.

But then things went awry and in the most recent financial year ended 31 December 2017, IBM reported sales of $79.1bn and operating income of $13.8bn. Rometty was given $17.1m in total compensation last year.

"So, yes, incentives drive behaviour and we believe that IBM’s executive incentives may not be comprehensive enough to drive management behaviour that is aligned with shareholders," the Bernstein analyst said.

"At a minimum, we believe that a comprehensive revenue growth metric target (adjusted for acquisitions and divestitures) should be part of executives’ performance metrics, as should share performance over time."

IBM might have faced "structural headwinds", but the "lack of incentives for management to drive revenue growth may have also contributed to poor total company revenue growth and stock performance".

Rometty was latterly made chairman too, which didn't ever go down well among investment houses because it flouts good corporate governance that calls for two to three different people to take up those roles.

Sacconaghi reflected on this: "We also believe that IBM should look to separate its chairman and CEO roles".

Criticism

The analyst described Big Blue's growth in its SIs as "very strong" but also noted criticism from investors that the "disposition and composition" of those tech areas was "discretionary and opaque, and executives have conceded in that part of the growth in SI has been a shift in revenues from 'old IBM'."

"While we understand the importance of strategic imperatives to IBM’s future, we believe that the most important financial metric for IBM is total revenue growth," said Sacconaghi.

"A company with declining revenues (especially one with high marginal contribution like IBM) risks falling into a spiral of perennial cost cutting if it fails to grow revenues (something we witnessed before with Sun Microsystems)."

We all know how that particular corporate tale ended: in the cold arms of Larry Ellison's Oracle.

IBM has spent the past three years dumping overheads in the West, and building the workforce in offshore locations including India. In the Global Technology Services division, for example, IBM employs just one-fifth of the workforce onshore, one fifth near-shore and 60 per cent offshore. It might not have reached those ratios in each country yet. It will do.

The company is in the process of laying off or transferring people from certain services divisions, including Technical Support Services, to other parts of the business, so maybe IBM is acting on the advice handed down from consultancy Bain after all. It seemed a little confused about what it was going to do earlier this year.

Bernstein concluded: "We view IBM as still in the throes of a turnaround - with success uncertain." ®