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Bloomberg, March 23, 2011 article



Hewlett-Packard Shareholders Vote Against Executive Compensation Packages

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 rewarded.

At the 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.

Shareholders’ Perspectives

“While we are disappointed with the outcome of the advisory shareholder vote, HP intends to carefully consider our shareholders’ perspectives regarding executive compensation matters,” Hewlett-Packard spokeswoman 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 took over; Todd Bradley, who leads the PC unit; and former CEO Mark Hurd.

‘Broader Dissatisfaction’

“It signals a broader dissatisfaction with the company,” Charles Elson, director of the University of Delaware’s Weinberg Center For Corporate Governance, said in an interview. “You cannot move forward with a majority of shareholders opposing the pay package.”

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 board members.

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 Private Equity; Meg Whitman, former CEO of EBay Inc.; and Gary Reiner, former chief information officer of General Electric Co.

Lane’s Rebuttal

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 compensation.

“We feel pretty good about the input we’re receiving,” he said.

Focal Point

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’ policies.

“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 said.

Lipton Memo

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 cents.

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






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