Corporate Governance

The Director Compensation Project: Hewlett-Packard

By Katharine Jensen

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2009's Fortune 100 and using information found in their 2009 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 know as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Hewlett-Packard (NYSE: HPQ) 2009 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

* Reflects compensation through fiscal year 2008.  Mr. Hackborn retired in January, 2009.  Mr. Raj Gupta joined the board shortly thereafter.

Director Compensation.  During 2008, Hewlett-Packard's board held eight meetings.  Each director attended at least 75% of the aggregate board and standing committee meetings.  The nine non-employee directors averaged $285,899 in total compensation.  Effective March 2008, each non-employee director was entitled to an annual cash retainer of $100,000.  Each director could elect to receive an equivalent amount of securities instead of a cash retainer.  Mr. Joyce was the only director who elected to defer his cash retainer.  Non-employee directors could also contribute up to $100,000 worth of HP products in 2008 to schools or qualified charities by paying 25% of the list price of the donated products. 

Director Tenure.  In 2008, the average tenure of a board director was 3 years, with the longest tenure of 6 years shared by Mr. Babbio and Ms. Salhany.  Mr. Gupta, who was elected in January of 2009 after the retirement of Mr. Hackborn, holds the shortest tenure of only a few months.  Several directors also sit on other boards.  Mr. Ryan, a director since 2004, is also a director of General Mills, Inc; The Black and Decker Corporation; and Citigroup, Inc.  Ms. Baldauf also serves as a director for Daimler AG, CapMan Plc, Sanoma Oyj, and F-Secure Corporation.

CEO Compensation.  Mark Hurd, who serves as Chairman, Chief Executive Officer, and President, received $42,514,524 in total compensation for fiscal year 2008, nearly twice his compensation in 2007.  Of his total compensation, Mr. Hurd received a $5,341,882 bonus.  Mr. Hurd was also compensated for $135,734 for his personal use of Hewlett-Packard's private aircraft and $255,872 for his personal home security services.  Randall Mott, Executive Vice President and Chief Information Officer, earned $28,293,134 in total compensation in 2008.  The company also compensated him for $60,000 in legal fees paid to defend against litigation a former employer brought against him. 

Full post as published by The Race to the Bottom on May 05, 2009 (boomark / email).