More on the Hewlett-Packard Saga

News Brief

By Cydney Posner

As noted in the blog this morning and as reported in this Bloomberg article, Hewlett-Packard shareholders, instead of ousting directors as ISS had recommended, voted no (50% against, 48% in favor) on H-P's say-on-pay proposal.  ISS had argued that several new nominees may not be independent of the CEO and that the CEO's role in their selection was inappropriate (see my emails of 3/10 and 3/14). ISS had also recommended against H-P's say-on-pay proposal (thanks Amy). According to the article, ISS was unhappy with the new H-P CEO's pay and severance package and viewed H-P's proposed compensation as problematic in that it would reward executives even if the company performed poorly. An ISS blog indicates that the CEO's "pay arrangements include substantial up-front signing awards of cash and stock, and severance provisions that would result in sizeable payouts--including automatic vesting of all his time-based equity--upon his termination without cause. Many aspects of the company's incentive programs are subject to board discretion as well, and depend on the board exercising its authority objectively--e.g., the granting of discretionary bonuses and approval of higher-than-median pay benchmarking. The company has paid substantial discretionary awards and does not disclose goals for the key metrics that drive payouts under its annual and long-term plans, even retrospectively. Without complete disclosure, shareholders cannot ascertain the rigor of the goals relative to payouts." Further, the "opposition from H-P shareholders may reflect concern over the lucrative pay package for new CEO Leo Apotheker and the independence of the five new board members that he helped recruit. In the past, the company provided generous severance payouts after the board ousted former chief executives Mark Hurd and Carly Fiorina."

ISS's spin on the failure of H-P shareholders to follow its recommendation against several of the directors is that H-P shareholders used the compensation issue rather than rejection of board members to send a message to management: " ‘Most shareholders will act on compensation,' [Patrick McGurn, an executive director at ISS,] said. ‘They're not going to belt-and-suspender it by voting against members of the board at the same time.' " One commentator cited in the article viewed the CEO's $85 M pay package as not "out of the ordinary" and another viewed the vote as a signal of "a broader dissatisfaction with the company."

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