The Director Compensation Project: Hewlett-Packard Company

The Director Compensation Project: Hewlett-Packard Company

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2010’s Fortune 500 and using information found in their most recent proxy statements.  In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence.  While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting. 

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards.  Directors are not independent if they received over $120,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii).  This is a looser restriction than the equivalent NASDAQ Rule, 5605(a)(2), which includes "any compensation."  Rules 303A.06 and 5605 also require that, in addition to the general independence standards, audit committee members must comport with the requirements of  Rule 10A-3 (C.F.R. §240.10A-3).  See also IM-5605-4. Audit Committee Composition.

The director compensation table from Hewlett-Packard Company’s (NYSE:HPQ) 2011 proxy statement is listed below. The company determined that each director is independent, except for Mr. Apotheker, who is President and CEO of HP.  According to the proxy statement, the company paid the directors the following amounts: 

Director Compensation Table:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Marc L. Andreesen	36,000	389,633	0	8,677	434,310
Lawrence T. Babbio, Jr	203,333	87,540	87,250	0	378,123
Sari M. Baldauf	168,000	87,540	87,250	0	342,790
Rjiv L. Gupta	156,000	175,027	0	29,926	360,953
John H. Hammergren	82,000	137,533	137,094	29,981	386,608
Joel Z. Hyatt	90,667	275,012	0	19,723	385,402
John R. Joyce	146,000	175,027	0	0	321,027
Robert L. Ryan	255,333	175,027	0	28,389	458,749
Lucille S. Salhany	184,000	87,540	87,250	16,113	374,903
G. Kennedy Thompson	96,000	275,012	0	0	371,012

*Compensation amount reflects fees earned through retirement date.

Director Compensation. Throughout the 2010 fiscal year, HP held 34 board meetings, of which 17 were executive sessions.  Each director received a $100,000 cash retainer or could elect to receive an equivalent amount of securities instead of the cash retainer.  Each director also received a $150,000 equity retainer, which HP raised to $175,000 beginning March 2010. Committee chairs received an additional retainer ranging from $10,000 to $20,000. Each director also received $2,000 for attending more than six board or committee meetings per year.  HP reimburses directors for their expenses in connection with board meetings, allows them to use the company aircraft to travel to and from HP events, and allows each director to contribute up to $100,000 worth of HP products to a school or charity each year.  To contribute products, the director must pay 25% of the list price of the products and HP contributes the remaining cost.

Director Tenure.  The longest tenure of any director is Lawrence T. Babbio, Jr., who has served since 2002.  HP recently added several new directors. Mr. Apotheker and Mr. Lane were elected by the board to serve as directors effective November 1, 2010. Mr. Banerji, Mr. Reiner, Ms. Russo, Ms. Senequier, and Ms. Whitman were elected by the board to serve as directors effective January 21, 2011.  Certain directors also serve on additional boards. Ms. Baldauf is a director of Daimler AG and three companies headquartered in Finland.  Mr. Gupta is a director of Tyco International Ltd., The Vanguard Group, and several private companies.  Ms. Russo is a director of General Motors Company, Merck & Co., Inc., and Alcoa Inc.

Executive Compensation.  During fiscal year 2010, the highest paid executive was Mark V. Hurd, CEO and President of HP. In 2010, Mr. Hurd’s total compensation package was $23,863,744, of which salary accounted for $1,121,944.  Ann M. Livermore, the Executive Vice President of HP Enterprise Business, was the second highest paid executive, earning a salary of $748,000 and total compensation worth $9,4640,041 during 2010. On August 26, 2010, Mr. Hurd resigned as CEO and all of his outstanding equity awards were cancelled as a result of litigation commenced by HP against Mr. Hurd. On September 29, 2010, Leo Apotheker entered into a four-year employment contract with HP to replace Mr. Hurd.  He will receive a base salary of $1.2 million, a target annual bonus of 200% of his base salary, and long-term incentive short-term share incentives.  In addition, on November 29, 2010, Mr. Apotheker received a cash signing bonus of $4 million, a pro rata portion of which he must re-pay if he resigns or is terminated for cause within 18 months. Mr. Apotheker also received an additional cash payment of $4.6 million as reimbursement for foregone non-competition payments from his former employer and to cover relocation expenses.