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Friday
Feb122016

The Director Compensation Project: Hewlett Packard Company (HPQ)

This post is part of an ongoing series that examines the way stock exchange independence rules relate to director compensation. We are for the most part including companies from 2015’s Fortune 500 and using information found in their 2015 proxy statements. 

NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” NYSE Rule 303A.02(a). In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years.

The NYSE imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 (C.F.R. §240.10A-3) (see Rule 303A.06) and requires consideration by the board of directors of certain specified factors in designating directors for the Compensation Committee.  See NYSE Rule 303A.02(a)(ii). 

Finally, as the Commission has noted with respect to director independence: 

  • All compensation committee members must meet the general independence standards under NYSE’s rules in addition to the two new criteria being adopted herein. The Commission therefore expects that boards, in fulfilling their obligations, will apply this standard to each such director’s individual responsibilities as a board member, including specific committee memberships such as the compensation committee. Although personal and business relationships, related party transactions, and other matters suggested by commenters are not specified either as bright-line disqualifications or explicit factors that must be considered in evaluating a director’s independence, the Commission believes that compliance with NYSE’s rules and the provision noted above would demand consideration of such factors with respect to compensation committee members, as well as to all Independent Directors on the board. 

Exchange Act Release No. 68639 (Jan. 11, 2013); see also Exchange Act Release No. 68641 (Jan. 11, 2013).

Independent directors are compensated for their service on the board. The amount of “total compensation” can be seen from examining the director compensation table from the Hewlett Packard Company’s (NYSE: HPQ) 2015 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name

Fees Earned or Paid in Cash
($)

Stock Awards
($)

Option Awards
($)

All Other Compensation
($)

Total
($)

Marc L. Andreessen

21,333

275,003

0

0

296,336

Shumeet Banerji

12,000

275,003

0

192

287,195

Robert R. Bennett

114,329

175,031

0

29,721

319,081

Rajiv L. Gupta

139,333

87,516

87,388

26,845

341,082

Klaus Kleinfeld

31,132

109,315

0

0

140,447

Raymond J. Lane

10,000

275,003

0

0

285,003

Ann M. Livermore*

0

0

0

0

0

Raymond E. Ozzie

110,000

175,031

0

4,915

289,946

Gary M. Reiner

17,333

137,502

137,320

0

292,155

Patricia F. Russo

138,530

175,031

0

0

313,561

James A. Skinner

41,333

137,502

137,320

45,649

361,804

Margaret C. Whitman*

0

0

0

0

0

Ralph V. Whitworth**

155,763

175,031

0

0

330,794

*Employee directors

**Compensation reflects fees earned for service during the last four months of the March 2013 through February 2014 Board term and pro-rated fees earned for service during the portion of the first five months of the March 2014 through February 2015 Board term.

Director CompensationAs of the date of the proxy statement, Hewlett-Packard (HP) had five standing committees and held seventeen board of directors meetings, including six executive sessions. Each incumbent director serving during fiscal 2014 attended at least 75% of the aggregate of all board, as well as applicable committee meetings held during the period that he or she served as a director. Each non-employee director serving during fiscal 2014 was entitled to receive an annual cash retainer of $175,000. HP’s stock ownership guidelines required non-employee directors to accumulate shares of HP common stock equal in value to at least five times the amount of their annual cash retainer within five years of election to the board. Currently, all directors who have served five years or more have met the requirement.

Director TenureIn 2014, Mr. Andreessen and Mr. Gupta, who held their positions as members of the board of directors since 2009, held the longest tenures. Mr. Klausfeld is the newest director and was elected to the board in 2014. Several directors also sit on other boards. Mr. Andreessen is a former director of eBay Inc., and current director of Facebook, Inc., and several private companies. Mr. Bennett currently serves as a director of Discovery Communications, Inc., Liberty Media Corporation and Sprint Corporation. Mr. Gupta is a director of Delphi Automotive PLC, Tyco International Ltd., The Vanguard Group, and several private companies. Mr. Reiner is a director of Citigroup Inc. and several private companies and is a former director of Genpact Limited. Mr. Skinner currently serves as a director of Illinois Tool Works Inc. and previously served as a director of McDonald's. Ms. Whitman also serves as a director of The Procter & Gamble Company and is a former director of Zipcar, Inc. Mr. Kleinfeld also serves as a director of Alcoa, Inc. and Morgan.

CEO CompensationMargaret C. Whitman, who served as HP’s President and Chief Executive Officer, earned $19,612,164 during the 2014 fiscal year. Ms. Whitman became President and CEO of HP in September 2011. Ms. Whitman received a base salary of $1,500,058, $8,147,637 in stock awards, $5,355,075 in option awards, and $4,314,000 in incentive compensation. Ms. Whitman also received $295,394 in additional compensation, $251,666 of which accounted for personal use of the company aircraft. Dion J. Weisler, Executive Vice President in the Printing and Personal Systems Group during 2014, received $13,512,792 in total compensation. Mr. Weisler received $831,251 as base salary, $3,133,726 in stock awards, $2,059,650 in option awards, and $1,722,400 in incentive compensation. HP reported that it paid Mr. Weisler $5,765,765 in “all other compensation,” including $5,060,682 in tax gross-up and $665,298 as part of the Mobility Program. 

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