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 2010 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 all compensation.  Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Hewlett-Packard Company’s (NYSE: HPQ) 2010 proxy statement.  The fiscal year begins in March and ends the following February, which does not coincide with HP’s November through October fiscal year.  Cash amounts included in the table above represent the portion of the annual retainers, committee chair fees, lead independent director fees and additional meeting fees earned with respect to service during HP’s 2009 fiscal year. 

Name	Total ($)
Marc L. Andreeseen (4)	32, 002
Lawrence T. Babbio, Jr.	305,573
Sari M. Baldauf	330,698
Rajiv M. Gupta	206,407
John H. Hammergren	339,575
Joel Z. Hyatt	297,755
John R. Joyce	289,579
Robert L. Ryan (5)	430,497
Lucille S. Salhany	330,420
G. Kennedy Thompson	301,764
Richard A Hackborn (6)	136,506

(1) For purposes of determining director compensation, the term of office for directors be

(2) The dollar amounts shown for stock awards and option awards represent the dollar amount of those awards recognized for financial statement reporting purposes with respect to fiscal 2009 in accordance with authoritative accounting literature for stock-based compensation awards.  These amounts reflect HP’s accounting expense for these awards and do not correspond to the actual value that may be realized by the directors with respect to these awards.  For information on the assumptions used to calculate the value of the awards, refer to Note 2 to HP’s consolidated financial statements in its Annual Report on Form 10-K for the fiscal year ended October 31, 2009, as filed with the SEC on December 17, 2009.  In accordance with SEC rules, the amounts shown exclude the impact of estimated forfeitures related to the service-based vesting conditions.  

(3) Amounts in this column represent the cost to HP of product donations made on behalf of non-employee directors as described above.

(4) Mr. Andreeseen was elected to the Board effective on September 17, 2009.  His prorated equity award with respect to his service during the March 2009 through February 2010 Board Term was granted on November 2, 2009, which is after the end of HP’s 2009 fiscal year.

(5) Mr. Ryan elected to defer the stock award that he received as his equity retainer for the March 2009 through February 2010 Board term.  That deferred compensation will be paid in the form of restricted stock units.

(6) Mr. Hackborn did not stand for re-election to the Board at HP’s 2009 Annual Meeting of Stockholders, and his service on the Board terminated on March 18, 2009.

Director Compensation.  Each non-employee director is entitled to receive an annual cash retainer of $100,000 or may choose to receive an equivalent amount of securities instead of cash.  In addition, each director is entitled to receive an annual equity retainer which, effective March 2009, was reduced from $175,000 to $150,000 in the form of restricted stock units rather than restricted stock as before.  Directors who serve as chairs of committees receive an additional retainer.  Directors have use of the company aircraft for travel to and from HP events and may also contribute up to $100,000 worth of HP products to a school or qualified charity by paying 25% of the list price the products.  

Director Tenure.  In 2009, Ms. Salhany, who has held her position as a member of the Board of Directors since 2002, held the longest tenure.  Mr. Hackborn did not stand for re-election to the Board of Directors at the Annual Meeting of Stockholders.  Several directors also sit on other boards.  Mr. Joyce also serves as a director of Gartner, Inc., Avago Technologies Limited, Sabre, Inc., Serena Software, Inc., and Intelstat, Ltd.  Mr. Ryan is a director of General Mills, Inc, The Black and Decker Corporation, and Citigroup, Inc.  

CEO Compensation.  Mark V. Hurd, who served as HP’s Chief Executive Officer and President earned $30,332,527 during the fiscal year.  Mr. Hurd resigned from this position in August 2010.  Ann M. Livermore, who serves as Executive Vice President of HP Enterprise Business, earned $13,424,406 during the fiscal year.  As part of base pay reductions throughout HP, Mr. Hurd’s base pay in 2009 was reduced by 20% and Ms. Livermore’s was reduced by 15%.  HP follows a Pay-for-Results Plan which allows executives to receive annual incentive pay based on achievement of key financial targets.  Mr. Hurd had use of corporate aircraft for personal use and also received personal security while traveling and at his personal residence.  Other executive members may use the corporate aircraft subject to availability.