Hewlett-Packard Shareholders Vote Against Executive Compensation Packages
Aaron Ricadela -
Mar 23, 2011 7:09 PM ET
Hewlett-Packard Co. (HPQ) investors, gathered at an annual meeting
today, voted against proposed compensation packages for top executives,
signaling that shareholders want more influence over how managers are
meeting, held in a hotel in Arlington,
Virginia, the computer maker said 50 percent of shareholders voted
against approving the pay packages, while 48 percent were in favor. At the
same time, shareholders ratified a slate of 13 directors.
The nonbinding vote on pay was hailed as
a victory by Institutional Shareholder Services Inc., an adviser on
corporate-governance matters. Proposed compensation would reward
executives even if the company performs poorly, ISS said. The firm also
faulted Hewlett-Packard for its choice of directors, saying new board
members with ties to Chief Executive Officer
Leo Apotheker may not govern independently.
“For this season, they’re clearly the
poster company on this issue,” Patrick McGurn, an executive director at
ISS, said in an interview. Hewlett-Packard shareholders used the
compensation issue rather than rejection of board members to send a
message to management, McGurn said.
“Most shareholders will act on
compensation,” he said. “They’re not going to belt-and-suspender it by
voting against members of the board at the same time.”
In recommending against the compensation
plans, ISS cited Apotheker’s “inappropriate participation” in selecting
new board members, as well as his severance package, according to a March
2 report to its clients. ISS valued Apotheker’s proposed pay at $47
million, not including the severance package.
“While we are disappointed with the
outcome of the advisory shareholder vote, HP intends to carefully consider
our shareholders’ perspectives regarding executive compensation matters,”
Mylene Mangalindan said in an e-mailed statement.
Apotheker, 57, may earn as much as $85
million in the next five years, said
Brian Marshall, an analyst at Gleacher & Co. in San Francisco.
“For the biggest job in tech, I don’t
think that’s out of the ordinary,” said Marshall, who has a “buy” rating
on Hewlett-Packard shares.
The proposal that shareholders voted
against today included compensation for fiscal 2010 for senior executives,
including Chief Financial Officer
Cathie Lesjak, who served as interim CEO last year before Apotheker
Todd Bradley, who leads the PC unit; and former CEO
“It signals a broader dissatisfaction
with the company,”
Charles Elson, director of the University of
Weinberg Center For Corporate Governance, said in an interview. “You
cannot move forward with a majority of shareholders opposing the pay
Palo Alto, California-based Hewlett-Packard, the world’s biggest
computer maker, in January replaced four directors with five new board
members, several of whom had business ties to Apotheker and Chairman
Ray Lane. Both executives began their jobs on Nov. 1.
ISS, a unit of MSCI Inc., had also
recommended that shareholders vote against three sitting directors --
Lawrence Babbio, Sari Baldauf and G. Kennedy Thompson -- because they
shouldn’t have let Apotheker play a role in the nomination of the five new
The directors who joined the board were
Shumeet Banerji, CEO of Booz & Co.;
Patricia Russo, former CEO of Alcatel-Lucent SA; Dominique Senequier,
CEO of AXA
Meg Whitman, former CEO of EBay Inc.; and Gary Reiner, former chief
information officer of General Electric Co.
Lane lambasted the ISS evaluation earlier
this month, saying it was based on a misunderstanding of how
Hewlett-Packard picked its new directors.
The new board members “aren’t buddies of
Apotheker,” Lane said in a March 10 interview. “I knew these people better
than Leo. But because Leo and I know the industry it would be hard to pick
any name we don’t know.”
At today’s meeting, Lane said
Hewlett-Packard has been communicating with shareholders about
“We feel pretty good about the input
we’re receiving,” he said.
Companies are more often finding the need
to justify their executives’ pay in conjunction with U.S. Securities and
Exchange Commission requirements that compensation packages be submitted
for a regular vote, said Bruce Goldfarb, CEO of Okapi Partners, a
New York firm that advises investors on proxy-advisory services’
“Compensation issues become a focal point
for investors and certainly media attention,” he said in an interview.
Companies may increasingly argue against advisory services’
recommendations, as Lane did, he said.
“We may see more of that kind of rebuttal
from companies this year,” Goldfarb said.
Gary Hewitt, a spokesman for ISS, said
the firm has counted four lost “say-on-pay” votes this year. The others
are Beazer Homes USA Inc., Jacobs Engineering Group Inc. and Shuffle
Master Inc., he said. Last year, a majority of shareholders also voted
against pay packages at KeyCorp, Occidental Petroleum Corp., and the
former Motorola Inc., which has since split into two companies, McGurn
Attorney Martin Lipton said in a March 17
memo that Hewlett-Packard didn’t run afoul of corporate-governance rules
when it appointed directors who are acquainted with Apotheker and Lane.
Lipton, a founding partner of Wachtell, Lipton, Rosen & Katz in New York
who helped draft New York Stock Exchange governance rules, faulted ISS for
its criticism of Hewlett- Packard.
Apotheker and Lane were named as CEO and
chairman Sept. 30 after Hurd left last August. Hurd, now a co-president at
Oracle Corp. (ORCL), departed Hewlett-Packard after the company said
inaccurate expense reports filed by Hurd or on his behalf concealed a
personal relationship with a contractor, in violation of Hewlett-Packard’s
standards of business conduct.
Apotheker is overhauling
Hewlett-Packard’s $41 billion personal-computer division and says he will
use acquisitions to expand in the software market, dominated by rivals
such as Oracle and International Business Machines Corp.
Hewlett-Packard could earn $7 a share by
fiscal 2014, Apotheker said at a company event in San Francisco on March
14. That same day, Hewlett-Packard also raised its quarterly dividend for
the first time in 13 years, increasing it to 12 cents a share from 8
Hewlett-Packard rose 33 cents to $42.07
at 4 p.m. in New York Stock Exchange trading. The shares have declined 9.1
percent since Aug. 6, when Hurd left the company.
To contact the reporters on this story:
Aaron Ricadela in
San Francisco at
To contact the editor responsible for
this story: Tom Giles at