A pair of large HP shareholders sued HP yesterday, trying to get back part of the cash that Hewlett-Packard's board of directors paid former CEO Carly Fiorina to leave the company in 2005. The legal action points out a proper difference between on the job compensation versus the pay to go away. The 3000 customers who stick with HP over the next three years, following the vendor down the migration path, should consider what kind of pay policies get funded by system purchases.
In the case of Fiorina, an executive who demanded faster growth than the 3000 sector could deliver nearing its third decade of earnings for HP, her exit pay might have exceeded HP limits. A major shareholder, the Service Employees International Union, had sponsored a shareholder proposal to limit these golden parachutes to not more than about three times a CEO's annual pay plus bonuses.
The proposal become part of HP's bylaws after HP paid Michael Capellas, the CEO of Compaq who helped engineer HP's takeover of that company, a cool $17 million on his exit. Fiorina got a package worth more than $22 million. It might rise to as much as $42 million, now that HP's stock is on its way back up from the record low prices of Fiorina's reign. In a bit of irony, new CEO Mark Hurd is helping to feather his predecessor's retirement nest.
And it's not like the shareholders are asking HP to adopt Google's thinking on compensation. Google pays execs Sergey Brin, Larry Page, and Eric Schmidt just $1 a year. They rely on the company's share price for their compensation, rather than millions a year and even more on exit.
This kind of corporate gratitude, which comes right off HP's bottom line, begins to matter when the company needs to cut back — as HP has done relentlessly since Hurd took his job just about one year ago. Among other things, HP is dialing back its investment in the HP 3000 support and development operations while this corporate compensation is striking new high-water marks.
Whether these two items are related depends on the customer's view of accounting checks and balances. Hurd's compensation for the first seven months on the job actually exceeded Fiorina's fiscal 2005 pay. HP paid Hurd $5.95 million: a $5.13 million signing bonus and $816,667 in salary for April through October. If you add options to the package, it topped $24 million.
Nobody's complaining about the CEO's pay on the job now, as Hurd earns that paycheck by delivering a better HP stock price as well as revenue growth to match a rise in earnings. He gets to stand at the head of the HP chain of leadership to announce last week that Itanium now has 7,100 applications ready for the chip that's at the heart of HP-UX futures, "more than twice as many as where we were at this time last year."
At this time last year Hurd was being wooed by HP, which had already paid out to terminate Fiorina. Those shareholders are trying to ensure more of the company's money stays with executives inside HP, instead of departing in a golden parachute.
HP has places to spend millions of dollars, spots that could affect the value of any platform that relies on Itanium or Integrity servers. "HP and Intel are co-funding specific, go-to-market initiatives with key ISVs in targeted vertical markets," Hurd said in last week's Webcast. He promised more details on these initiatives in the weeks to come.
We hope the details on the initiatives include reaching out to the ERP vendor community. At last check, just three apps popped up on the Itanium Solutions Alliance Web site under the heading of "discrete manufacturing." Itanium might have 7,100 apps — but if your vertical has few of them, it might as well be a million or none.
We have a good idea about how HP might fund more of those kinds of initiatives, but HP says that shareholder suit is without merit. The suit seeks to recover the extra money paid to Fiorina. The former CEO is making a living by exalting her HP accomplishments in paid speeches — which might be some evidence that she wouldn't miss the $4 million or so she'd have to give back