Hewlett-Packard Co.
Summary:
What can we say? Our confidence in the executive compensation program at Hewlett-Packard rose steadily in the beginning, but came crashing down at the end. The ceiling is far too high for the non-equity incentive programs and the termination clauses allow for large payments if you need to get rid of the CEO. Not to mention a lot of discretionary power for the compensation committee and dangerous language regarding termination. Changes should be in store for this program.
Analysis:
The computer industry is still chugging away. Everyone seems to be predicting a fall due to the economy, but most of the companies have continued to perform well. You can count Hewlett-Packard as one of the companies that continues to move forward. One of the main reasons is because of their strong international focus, with 70% of revenues coming from abroad. They are also expanding into emerging markets, which is a high growth segment that many of the large computer companies are fighting over.
HP's stock price has risen from a low of $10.80 shortly after the tech bubble burst, to a high of $53.50 in 2007. Although increasing in volatility as of late, the stock price has remained fairly constant fluctuating between $40 and $50 over the past year. So with the company continuing to perform well, you might expect to see a climb in executive pay right? Not so fast. Let's take a look at the numbers.
So… What Are They Paid?
The first few categories look good for the executive compensation program at HP. Salaries and options given out were not especially high. Stock awards were average; $6.2 million for the CEO and an average of $1.4 million for the NEOs. Perquisites ran hot and cold. "Hot" in that the perks were high in a few areas like: CEO security ($126,000), CEO restricted stock dividends ($138,000), and NEO plane usage ($35,000 to $112,000). "Cold" referring to the comparatively lower perks such as; CEO plane usage ($50,000) and no car expenses.
The bonus category is where we saw the big increase in pay relative to the other DOW 30 companies. The CEO received $12 million in non-equity incentives and another $1.4 million in bonus money. This is EXTREMELY high, even for a company performing well! The average non-equity incentive bonus for the NEOs also appeared to be maxed out, at $6 million each. This is the danger of having a high ceiling on bonus ranges; sometimes the compensation committee uses it!
The other area for concern is the termination and change in control clauses. If the CEO is fired without good cause, he will be in line to make approximately $65 million, of which $13.5 million is severance pay. If he is terminated due to a change in control scenario, the CEO will net even more, about $91 million!
Compensation Details:
| CEO | NEO Avg. | |
|---|---|---|
| Base Salary | $1,437,500 | $725,417 |
| Bonus | $1,386,000 | $0 |
| Stock | $6,238,795 | $1,416,902 |
| Options | $3,724,919 | $2,090,523 |
| non-Equity Incentives | $11,949,789 | $6,000,424 |
Reference Links:
(1) Annual
Proxy Statement
(2) Annual
Report