UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by a Party other than the Registrant | ||
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o | Preliminary Proxy Statement | |
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
ý | Definitive Proxy Statement | |
o | Definitive Additional Materials | |
o | Soliciting Material |
HEWLETT-PACKARD COMPANY | |||
(Name of Registrant as Specified | |||
(Name of Person(s) Filing Proxy Statement, if |
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ý | No fee required. | |||
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||
(1) | Title of each class of securities to which transaction applies: | |||
(2) | Aggregate number of securities to which transaction applies: | |||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |||
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | ||||
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(4) | Date Filed: | |||
Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. |
Mark V. Hurd and President | Hewlett-Packard Company 3000 Hanover Street Palo Alto, CA 94304 www.hp.com |
To our stockholders:Stockholders:
We areI am pleased to invite you to attend the annual meeting of stockholders of Hewlett-Packard Company to be held on Wednesday, March 15, 200614, 2007 at 2 p.m., local time, at Thethe Hyatt Regency Century Plaza, Los Angeles,Santa Clara, 5101 Great America Parkway, Santa Clara, California.
Details regarding admission to the meeting and the business to be conducted are more fully described in the accompanying Notice of Annual Meeting and Proxy Statement.
Your vote is important. Whether or not you plan to attend the annual meeting, we hope you will vote as soon as possible. You may vote over the Internet, by telephone or by mailing a proxy or voting instruction card. Voting over the Internet, by phone or by written proxy will ensure your representation at the annual meeting regardless of whether you attend in person. Please review the instructions on the proxy or voting instruction card regarding each of these voting options.
Thank you for your ongoing support of and continued interest in Hewlett-Packard Company.
Sincerely,
Mark V. Hurd
Chairman, Chief Executive Officer
and President
20062007 ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS | 1 | ||
QUESTIONS AND ANSWERS | 2 | ||
Proxy Materials | 2 | ||
Voting Information | 3 | ||
Stock Ownership Information | 7 | ||
Annual Meeting Information | 8 | ||
Stockholder Proposals, Director Nominations and Related Bylaw Provisions | 8 | ||
Further Questions | 9 | ||
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS | 10 | ||
Board Policy Regarding Voting for Directors | 10 | ||
Board Independence | 10 | ||
HP's Director Independence Standards | 10 | ||
Board Structure and Committee Composition | 11 | ||
Executive Sessions | 16 | ||
Communications with the Board | 16 | ||
DIRECTOR COMPENSATION AND STOCK OWNERSHIP GUIDELINES | 17 | ||
PROPOSALS TO BE VOTED ON | 19 | ||
PROPOSAL NO. 1 Election of Directors | 19 | ||
PROPOSAL NO. 2 Ratification of Independent Registered Public Accounting Firm | |||
PROPOSAL NO. 3 | |||
PROPOSAL NO. 4 Stockholder Proposal entitled | |||
PROPOSAL NO. 5 Stockholder Proposal entitled | |||
PROPOSAL NO. 6 Stockholder Proposal entitled "Link Pay to Performance" | 28 | ||
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | |||
Beneficial Ownership Table | |||
Section 16(a) Beneficial Ownership Reporting Compliance | |||
EXECUTIVE COMPENSATION | |||
Summary Compensation Table | |||
Option Grants in Last Fiscal Year | |||
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values | |||
Long-Term Incentive Plans—Awards in Last Fiscal Year | |||
Equity Compensation Plan Information | |||
Employment Contracts, Termination of Employment and Change-in-Control Arrangements | |||
Pension Plan | |||
Report of the HR and Compensation Committee of the Board of Directors on Executive Compensation | |||
Stock Performance Graphs | |||
PRINCIPAL ACCOUNTANT FEES AND SERVICES | |||
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS | |||
APPENDIX A: AUDIT COMMITTEE CHARTER | A-1 | ||
APPENDIX B: HR AND COMPENSATION COMMITTEE CHARTER | B-1 | ||
APPENDIX C: NOMINATING AND GOVERNANCE COMMITTEE CHARTER | C-1 | ||
HEWLETT-PACKARD COMPANY
3000 Hanover Street
Palo Alto, California 94304
(650) 857-1501
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Time and Date | 2:00 p.m., local time, on Wednesday, March | |||
Place | ||||
Items of Business | (1) | To elect directors | ||
(2) | To ratify the appointment of the independent registered public accounting firm for the fiscal year ending October 31, | |||
(3) | To | |||
(4) | ||||
To consider such other business as may properly come before the meeting | ||||
Adjournments and Postponements | Any action on the items of business described above may be considered at the annual meeting at the time and on the date specified above or at any time and date to which the annual meeting may be properly adjourned or postponed. | |||
Record Date | You are entitled to vote only if you were an HP stockholder as of the close of business on January | |||
Meeting Admission | You are entitled to attend the annual meeting only if you were an HP stockholder as of the close of business on January | |||
The annual meeting will begin promptly at 2:00 p.m., local time. Check-in will begin at 12:30 p.m., local time, and you should allow ample time for the check-in procedures. | ||||
Voting | Your vote is very important. Whether or not you plan to attend the annual meeting, we encourage you to read this proxy statement and submit your proxy or voting instructions as soon as possible. You may submit your proxy or voting instruction card for the annual meeting by completing, signing, dating and returning your proxy or voting instruction card in the pre-addressed envelope provided, or, in most cases, by using the telephone or the Internet. For specific instructions on how to vote your shares, please refer to the section entitledQuestions and |
By order of the Board of Directors, | |
This notice of annual meeting and proxy statement and form of proxy are being distributed on or about January 24, 2006.23, 2007.
1. Why am I receiving these materials?
The Board of Directors (the "Board") of Hewlett-Packard Company, a Delaware corporation ("HP"), is providing these proxy materials for you in connection with HP's annual meeting of stockholders, which will take place on Wednesday, March 15, 2006.14, 2007. As a stockholder, you are invited to attend the annual meeting and are entitled to and requested to vote on the items of business described in this proxy statement.
2. What information is contained in this proxy statement?
The information in this proxy statement relates to the proposals to be voted on at the annual meeting, the voting process, HP's Board and Board committees, the compensation of directors and certain current and former executive officers for fiscal 2005,2006, and other required information.
3. How may I obtain HP's Form 10-K and other financial information?
A copy of our 20052006 Annual Report, which includes our 20052006 Form 10-K, is enclosed.
Stockholders may request another free copy of our 20052006 Annual Report, which includes our 20052006 Form 10-K, from:
Hewlett-Packard Company
Attn: Investor Relations
3000 Hanover Street
Palo Alto, CACalifornia 94304
(866) 438-4771 (U.S. and Canada) or (202) 315-4211 (International)
http://investor.hp.com/docreq.cfm
Alternatively, current and prospective investors can access the 20052006 Annual Report, which includes our 20052006 Form 10-K and other financial information, on HP's Investor Relations web site at:
http://investor.hp.com/edgar.cfm
HP also will furnish any exhibit to the 20052006 Form 10-K if specifically requested.
4. How may I obtain a separate set of proxy materials?
If you share an address with another stockholder, you may receive only one set of proxy materials (including our 20052006 Annual Report with 2005our 2006 Form 10-K and proxy statement) unless you have provided contrary instructions. If you wish to receive a separate set of proxy materials now, please request the additional copies by contacting our proxy solicitor, Innisfree M&A Incorporated ("Innisfree"), at:
(877) 750-5838 (U.S. and Canada)
(412) 232-3651 (International)
E-mail: info@innisfreema.com
A separate set of proxy materials will be sent promptly following receipt of your request.
If you are a stockholder of record and wish to receive a separate set of proxy materials in the future, please call Computershare Investor Services, LLC ("Computershare") at:
(800) 286-5977 (U.S. and Canada)
(312) 360-5138 (International)
If you hold shares beneficially in street name and you wish to receive a separate set of proxy materials in the future, please call Automatic Data Processing, Inc. (ADP) at:
(800) 542-1061
All stockholders also may write to us at the address below to request a separate copy of these materials:
Hewlett-Packard Company
Attn: Investor Relations
3000 Hanover Street
Palo Alto, CACalifornia 94304
5. How may I request a single set of proxy materials for my household?
If you share an address with another stockholder and have received multiple copies of our proxy materials, you may write us at the address above to request delivery of a single copy of these materials.
6. How may I request an electronic copy of the proxy materials?
If you wish to request electronic delivery of proxy materials in the future, please sign up at:
http://www.hp.com/hpinfo/investor/financials/edelivery/
7. What should I do if I receive more than one set of voting materials?
You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you may receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each HP proxy card and voting instruction card that you receive.
8. What items of business will be voted on at the annual meeting?
The items of business scheduled to be voted on at the annual meeting are:
We also will consider any other business that properly comes before the annual meeting. See question 19 "What happens if additional matters are presented at the annual meeting?" below.
9. How does the Board recommend that I vote?
Our Board recommends that you vote your shares "FOR" each of the nominees to the Board, "FOR" the ratification of HP's independent registered public accounting firm for the 20062007 fiscal year, "FOR" the adoption of the Hewlett-Packard Company 2005 Pay-for-Results Plan, and "AGAINST" each of the stockholder proposals.
10. What shares can I vote?
Each share of HP common stock issued and outstanding as of the close of business on January 17, 2006,16, 2007, theRecord Date, is entitled to be voted on all items being voted upon at the annual meeting. You may vote all shares owned by you as of this time, including (1) shares held directly in your name as thestockholder of record, including shares purchased through HP's Dividend Reinvestment Plan and HP's employee stock
purchase plans and shares held through HP's Direct Registration Service, and (2) shares held for you as thebeneficial owner through a broker, trustee or other nominee such as a bank. On theRecord Date weHP had approximately 2,820,994,0452,700,518,509 shares of common stock issued and outstanding.
11. How can I vote my shares in person at the annual meeting?
Shares held in your name as the stockholder of record may be voted in person at the annual meeting. Shares held beneficially in street name may be voted in person at the annual meeting only if you obtain a legal proxy from the broker, trustee or nominee that holds your shares giving you the right to vote the shares.Even if you plan to attend the annual meeting, we recommend that you also submit your proxy or voting instructions as described below so that your vote will be counted if you later decide not to attend the meeting.
12. How can I vote my shares without attending the annual meeting?
Whether you hold shares directly as the stockholder of record or beneficially in street name, you may direct how your shares are voted without attending the annual meeting. If you are a stockholder of record, you may vote by submitting a proxy. If you hold shares beneficially in street name, you may vote by submitting voting instructions to your broker, trustee or nominee. For directions on how to vote, please refer to the instructions below and those included on your proxy card or, for shares held beneficially in street name, the voting instruction card provided by your broker, trustee or nominee.
By Internet—Stockholders of record of HP common stock with Internet access may submit proxies by following the "Vote by Internet" instructions on their proxy cards. Most HP stockholders who hold shares beneficially in street name may vote by accessing the website specified on the voting instruction cards provided by their brokers, trustees or nominees. Please check the voting instruction card for Internet voting availability.
By Telephone—Stockholders of record of HP common stock who live in the United States or Canada may submit proxies by following the "Vote by Phone"Telephone" instructions on their proxy cards. Most HP stockholders who hold shares beneficially in street name and live in the United States or Canada may vote by phone by calling the number specified on the voting instruction cards provided by their brokers, trustee or nominees. Please check the voting instruction card for telephone voting availability.
By Mail—Stockholders of record of HP common stock may submit proxies by completing, signing and dating their proxy cards and mailing them in the accompanying pre-addressed envelopes. HP stockholders who hold shares beneficially in street name may vote by mail by completing, signing and dating the voting instruction cards provided and mailing them in the accompanying pre-addressed envelopes.
13. What is the deadline for voting my shares?
If you hold shares as the stockholder of record, or through the Hewlett-Packard Company 2000 Employee Stock Purchase Plan (the "Share Ownership Plan"), your vote by proxy must be received before the polls close at the annual meeting.
If you hold shares in the Hewlett-Packard Company 401(k) Plan (the "HP 401(k) Plan"), your voting instructions must be received by 11:59 p.m. Eastern time on March 12, 200611, 2007 for the trustee to vote your shares.
If you hold shares beneficially in street name with a broker, trustee or nominee, please follow the voting instructions provided by your broker, trustee or nominee.
14. May I change my vote?
You may change your vote at any time prior to the vote at the annual meeting, except that any change to your voting instructions for the HP 401(k) Plan must be provided by 11:59 p.m. Eastern time on March 12, 200611, 2007 as described above. If you are the stockholder of record, you may change your vote by granting a new
proxy bearing a later date (which automatically revokes the earlier proxy), by providing a written notice of revocation to the Corporate Secretary at the address below in question 27 prior to your shares being voted, or by attending the annual meeting and voting in person. Attendance at the meeting will not cause your previously granted proxy to be revoked unless you specifically make that request. For shares you hold beneficially in street name, you may change your vote by submitting new voting instructions to your broker, trustee or nominee, or, if you have obtained a legal proxy from your broker or nominee giving you the right to vote your shares, by attending the meeting and voting in person.
15. Is my vote confidential?
Proxy instructions, ballots and voting tabulations that identify individual stockholders are handled in a manner that protects your voting privacy. Your vote will not be disclosed either within HP or to third parties, except: (1) as necessary to meet applicable legal requirements, (2) to allow for the tabulation of votes and certification of the vote, and (3) to facilitate a successful proxy solicitation. Occasionally, stockholders provide on their proxy card written comments, which are then forwarded to HP management.
16. How are votes counted?
In the election of directors, you may vote "FOR" all"FOR," "AGAINST" or some of the nominees or your vote may be "WITHHELD""ABSTAIN" with respect to one or moreeach of the nominees. If you elect to "ABSTAIN" in the election of directors, the abstention will not impact the election of directors. In tabulating the voting results for the election of directors, only "FOR" and "AGAINST" votes are counted. You also may cumulate your votes as described in question 18 "Is cumulative voting permitted for the election of directors?"
For the other items of business, you may vote "FOR," "AGAINST" or "ABSTAIN." If you elect to "ABSTAIN," the abstention has the same effect as a vote "AGAINST."
If you provide specific instructions with regard to certain items, your shares will be voted as you instruct on such items. If you sign your proxy card or voting instruction card without giving specific instructions, your shares will be voted in accordance with the recommendations of the Board ("FOR" all of HP's nominees to the Board, "FOR" ratification of HP's independent registered public accounting firm, "FOR"and "AGAINST" approval of the Hewlett-Packard Company 2005 Pay-for-Results Plan and "AGAINST" each of the stockholder proposals, and in the discretion of the proxy holders, Patricia C. Dunn, Mark V. Hurd and Ann O. Baskins, on any other matters that properly come before the meeting)proposals).
For any shares you hold in the HP 401(k) Plan, if your voting instructions are not received by 11:59 p.m. Eastern time on March 12, 2006,11, 2007, your shares will be voted in proportion to the way the other HP 401(k) Plan participants vote their shares, except as may be otherwise required by law.
17. What is the voting requirement to approve each of the proposals?
In the election of directors, each director will be elected by the eleven persons receivingvote of the highestmajority of votes cast with respect to that director nominee. A majority of votes cast means that the number of votes cast "FOR" a nominee's election must exceed the number of votes cast "AGAINST" such nominee's election. Each nominee receiving more "FOR" votes at the annual meetingthan "AGAINST" votes will be elected.
With respect to Proposal No. 3, HP believes that approval of the proposal requires the affirmative vote of sixty-six and two-thirds percent (662/3%) of the outstanding shares entitled to vote on the proposal at the meeting. All other proposals require the affirmative "FOR" vote of a majority of those shares present in person or represented by proxy and entitled to vote on those proposals at the annual meeting.
If you hold shares beneficially in street name and do not provide your broker with voting instructions, your shares may constitute "broker non-votes." Generally, broker non-votes occur on a matter when a broker is not permitted to vote on that matter without instructions from the beneficial owner and instructions are not given. In tabulating the voting result for any particular proposal, shares that constitute broker non-votes are not considered entitled to vote on that proposal. Thus, broker non-votes will not affect the
affect the outcome of any matter being voted on at the meeting, assuming that a quorum is obtained. Abstentions have the same effect as votes against the matter.matter except in the election of directors, as described above.
18. Is cumulative voting permitted for the election of directors?
In the election of directors, you may elect to cumulate your vote. Cumulative voting will allow you to allocate among the director nominees, as you see fit, the total number of votes equal to the number of director positions to be filled multiplied by the number of shares you hold. For example, if you own 100 shares of stock and there are eleveneight directors to be elected at the annual meeting, you may allocate 1100800 "FOR" votes (eleven(eight times 100) among as few or as many of the eleveneight nominees to be voted on at the annual meeting as you choose. You may not cumulate your votes against a nominee.
If you choose to cumulate your votes, you will need to submit a proxy card or a ballot and make an explicit statement of your intent to cumulate your votes, either by so indicating in writing on the proxy card or by indicating in writing on your ballot when voting at the annual meeting. If you hold shares beneficially in street name and wish to cumulate votes, you should contact your broker, trustee or nominee.
If you sign your proxy card or voting instruction card with no further instructions, Ms. Dunn, Mr.Mark V. Hurd and Ms. Baskins,Charles N. Charnas, as proxy holders, may cumulate and cast your votes in favor of the election of some or all of the applicable nominees in their sole discretion, except that none of your votes will be cast for any nominee as to whom you instruct that your votes be withheld.vote against or abstain from voting.
Cumulative voting applies only to the election of directors. For all other matters, each share of common stock outstanding as of the close of business on theRecord Date is entitled to one vote.
19. What happens if additional matters are presented at the annual meeting?
Other than the fivesix items of business described in this proxy statement, we are not aware of any other business to be acted upon at the annual meeting. If you grant a proxy, the persons named as proxy holders, Ms. Dunn, Mr.Mark V. Hurd and Ms. Baskins,Charles N. Charnas, will have the discretion to vote your shares on any additional matters properly presented for a vote at the meeting. If for any reason any of our nominees is not available as a candidate for director, the persons named as proxy holders will vote your proxy for such other candidate or candidates as may be nominated by the Board.
20. Who will serve as inspector of elections?
The inspector of elections will be a representative from an independent firm, IVS Associates, Inc.
21. Who will bear the cost of soliciting votes for the annual meeting?
HP is making this solicitation and will pay the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials and soliciting votes. If you choose to access the proxy materials and/or vote over the Internet, you are responsible for Internet access charges you may incur. If you choose to vote by telephone, you are responsible for telephone charges you may incur. In addition to the mailing of these proxy materials, the solicitation of proxies or votes may be made in person, by telephone or by electronic communication by our directors, officers and employees, who will not receive any additional compensation for such solicitation activities. We also have hired Innisfree to assist us in the distribution of proxy materials and the solicitation of votes described above. We will pay Innisfree a base fee of $15,000 plus customary costs and expenses for these services. HP has agreed to indemnify Innisfree against certain liabilities arising out of or in connection with its agreement. We also will reimburse brokerage houses and other custodians, nominees and fiduciaries for forwarding proxy and solicitation materials to stockholders.
22. Where can I find the voting results of the annual meeting?
We intend to announce preliminary voting results at the annual meeting and publish final results in our quarterly report on Form 10-Q for the second quarter of fiscal 2006.2007.
23. What is the difference between holding shares as a stockholder of record and as a beneficial owner?
Most HP stockholders hold their shares through a broker or other nominee rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and those owned beneficially.
If your shares are registered directly in your name with HP's transfer agent, Computershare, Investor Services LLC ("Computershare"), you are considered, with respect to those shares, thestockholder of record, and these proxy materials are being sent directly to you by HP. As thestockholder of record, you have the right to grant your voting proxy directly to HP or to a third party, or to vote in person at the meeting. HP has enclosed a proxy card for you to use.
If your shares are held in a brokerage account or by another nominee, you are considered thebeneficial owner of shares heldin street name, and these proxy materials are being forwarded to you together with a voting instruction card on behalf of your broker, trustee or nominee. As the beneficial owner, you have the right to direct your broker, trustee or nominee how to vote and you also are invited to attend the annual meeting. Your broker, trustee or nominee has enclosed or provided voting instructions for you to use in directing the broker, trustee or nominee how to vote your shares.
Since a beneficial owner is not thestockholder of record, you may not vote these shares in person at the meeting unless you obtain a "legal proxy" from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the meeting.
24. What if I have questions for HP's transfer agent?
Please contact HP's transfer agent, at the phone number or address listed below, with questions concerning stock certificates, dividend checks, transfer of ownership or other matters pertaining to your stock account.
Computershare Investor Services, LLC
Shareholder Services2 North LaSalle250 Royall StreetChicago, Illinois 60602Canton, Massachusetts 02021
(800) 286-5977 (U.S. and Canada)
(312) 360-5138 (International)
A dividend reinvestment and stock purchase program is also available through Computershare. For information about this program, please contact Computershare at the following address or the phone number listed above:
Computershare Trust Company
Dividend Reinvestment Services2 North LaSalle250 Royall StreetChicago, Illinois 60602Canton, Massachusetts 02021
25. How can I attend the annual meeting?
You are entitled to attend the annual meeting only if you were an HP stockholder or joint holder as of the close of business on January 17, 200616, 2007 or you hold a valid proxy for the annual meeting. You should be prepared to present photo identification for admittance. In addition, if you are a stockholder of record or hold your shares through the HP 401(k) Plan or the Share Ownership Plan, your name will be verified against the list of stockholders of record or plan participants on the record date prior to your being admittedadmission to the annual meeting. If you are not a stockholder of record but hold shares through a broker, trustee or nominee (i.e., in street name), you should provide proof of beneficial ownership on the record date, such as your most recent account statement prior to January 17, 2006,16, 2007, a copy of the voting instruction card provided by your broker, trustee or nominee, or other similar evidence of ownership. If you do not provide photo identification or comply with the other procedures outlined above, you will not be admitted to the annual meeting.
The meeting will begin promptly at 2:00 p.m., local time. Check-in will begin at 12:30 p.m., local time, and you should allow ample time for the check-in procedures.
26. How many shares must be present or represented to conduct business at the annual meeting?
The quorum requirement for holding the annual meeting and transacting business is that holders of a majority of shares of HP common stock entitled to vote must be present in person or represented by proxy. Both abstentions and broker non-votes described previously in question 17 are counted for the purpose of determining the presence of a quorum.
Stockholder Proposals, Director Nominations and Related Bylaw Provisions
27. What is the deadline to propose actions for consideration at next year's annual meeting of stockholders?
You may submit proposals for consideration at future stockholder meetings. For a stockholder proposal to be considered for inclusion in HP's proxy statement for the annual meeting next year, the Corporate Secretary must receive the written proposal at our principal executive offices no later than September 26, 2006.25, 2007. Such proposals also must comply with Securities and Exchange Commission ("SEC") regulations under Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Proposals should be addressed to:
Corporate Secretary
Hewlett-Packard Company
3000 Hanover Street
Palo Alto, California 94304
Fax: (650) 857-4837
For a stockholder proposal that is not intended to be included in HP's proxy statement under Rule 14a-8, the stockholder must deliver a proxy statement and form of proxy to holders of a sufficient number of shares of HP common stock to approve that proposal, provide the information required by theHP's Bylaws of HP and give timely notice to the Corporate Secretary in accordance with theHP's Bylaws, of HP, which, in general, require that the notice be received by the Corporate Secretary:
If the date of the stockholder meeting is moved more than 30 days before or 60 days after the anniversary of the HP annual meeting for the prior year, then notice of a stockholder proposal that is not intended to be included in HP's proxy statement under Rule 14a-8 must be received not earlier than the close of
business 120 days prior to the meeting and not later than the close of business on the later of the following two dates:
28. How may I recommend or nominate individuals to serve as directors?
You may propose director candidates for consideration by the Board's Nominating and Governance Committee. Any such recommendations should include the nominee's name and qualifications for Board membership and should be directed to the Corporate Secretary at the address of our principal executive offices set forth in question 27 above.
In addition, theHP's Bylaws of HP permit stockholders to nominate directors for election at an annual stockholder meeting. To nominate a director, the stockholder must deliver a proxy statement and form of proxy to holders of a sufficient number of shares of HP common stock to elect such nominee and provide the information required by theHP's Bylaws of HP, as well asand a statement by the nominee acknowledging that he or she will owe a fiduciary obligation to HP and its stockholders.
29. What is the deadline to propose or nominate individuals to serve as directors?
A stockholder may send a proposed director candidate's name and information to the Board at anytime. Generally, such proposed candidates are considered at the Board meeting prior to the annual meeting.
To nominate an individual for election at an annual stockholder meeting, the stockholder must give timely notice to the Corporate Secretary in accordance with theHP's Bylaws, of HP, which, in general, require that the notice be received by the Corporate Secretary between the close of business on November 9, 2007 and the close of business on December 10, 2006 and December 11, 2006,2007, unless the annual meeting is moved by more than 30 days before or 60 days after the anniversary of the prior year's annual meeting, in which case the deadline will be as described in question 27.
30. How may I obtain a copy of HP's Bylaw provisions regarding stockholder proposals and director nominations?
You may contact the Corporate Secretary at our principal executive offices for a copy of the relevant Bylaw provisions regarding the requirements for making stockholder proposals and nominating director candidates. HP's Bylaws also are available on HP's website at http://www.hp.com/hpinfo/investor/bylaws.html.
31. Who can help answer my questions?
If you have any questions about the annual meeting or how to vote or revoke your proxy, you should contact HP's proxy solicitor:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, New York 10022
Stockholders: (877) 750-5838 (U.S. and Canada)
(412) 232-3651 (International)
Banks and brokers (call collect):
(212) 750-5833
If you need additional copies of this proxy statement or voting materials, please contact Innisfree as described above or send an e-mail to info@innisfreema.com.
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
HP is committed to maintaining the highest standards of business conduct and corporate governance, which we believe are essential to running our business efficiently, serving our stockholders well and maintaining HP's integrity in the marketplace. HP has adopted a code of business conduct and ethics for directors, officers (including HP's principal executive officer, principal financial officer and controller) and employees, known as the Standards of Business Conduct. HP also has adopted Corporate Governance Guidelines, which, in conjunction with the Certificate of Incorporation, Bylaws and Board committee charters, form the framework for governance of HP. All of these documents are available at http://www.hp.com/hpinfo/investor/.corp_governance. HP will post on this web site any amendments to the Standards of Business Conduct or waivers of the Standards of Business Conduct for directors and executive officers.
Stockholders may request free printed copies of the Standards of Business Conduct, and the Corporate Governance Guidelines and the Board committee charters from:
Hewlett-Packard Company
Attention: Investor Relations
3000 Hanover Street
Palo Alto, CACalifornia 94304
(866) GET-HPQ1 or (866) 438-4771
http://investor.hp.com/docreq.cfmwww.hp.com/investor/home
Board Policy Regarding Voting for Directors
HP has implemented a majority vote standard in the election of directors. In addition, HP has adopted a policy whereby any incumbent director nominee for director who receives a greater number of votes "withheld" from"against" his or her election than votes "for" such election will tender his or her resignation for consideration by the Nominating and Governance Committee. The Nominating and Governance Committee will recommend to the Board the action to be taken with respect to such offer of resignation.
HP's Corporate Governance Guidelines provide that a substantial majority of the Board will consist of independent directors. The Board has determined that each of the non-employee director nominees standing for election, including Patricia C. Dunn, Lawrence T. Babbio, Jr., Sari M. Baldauf, Richard A. Hackborn, John H. Hammergren, George A. Keyworth II, Thomas J. Perkins, Robert L. Ryan, and Lucille S. Salhany and G. Kennedy Thompson, and each of the members of each Board committee has no material relationship with HP (either directly or as a partner, shareholderstockholder or officer of an organization that has a relationship with HP) and is independent within the meaning of HP's director independence standards. These standards are available on our web site at http://www.hp.com/investor/director_standards. These standards reflect New York Stock Exchange, Inc. ("NYSE"),and NASDAQ StockGlobal Select Market, Inc. ("NASDAQ") and Pacific Exchange, Inc. corporate governance listing standards described below.standards. In addition, each member of the Audit Committee meets the heightened independence standards required for audit committee members under the applicable listing standards.
HP's Director Independence Standards
In determining independence, the Board reviews whether directors have any material relationship with HP. The Board considers all relevant facts and circumstances. In assessing the materiality of a director's relationship to HP, the Board considers the issues from the director's standpoint and from the perspective of the persons or organizations with which the director has an affiliation and is guided by the standards set forth below. The Board reviews commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships. An independent director must not have any material relationship with HP, either directly or as a partner, shareholderstockholder or officer of an organization that has a
relationship with HP, or any relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
A director will not be considered independent in the following circumstances:
For these purposes, an "immediate family" member includes a director's spouse, parents, children, siblings, mother andmother-and father-in-law, sons andsons-and daughters-in-law, brothers andbrothers-and sisters-in-law, and anyone who shares the director's home.
Board Structure and Committee Composition
As of the date of this proxy statement, our Board has tennine directors and the following fivefour standing committees: (1) Acquisitions, (2) Audit, (3) HR and Compensation, and (4) Nominating and Governance, and (5) Technology.Governance. The Technology Committee was dissolved on November 16, 2006. The committee membership and meetings during the last fiscal year and the function of each of the standing committees are described below. Each of the standing committees operates under a written charter adopted by the Board. All of the committee charters are available on HP's website at http:/ /www.hp.com/hpinfo//www.hp.com/investor/structure.html.board_charters. During fiscal 2005,2006, the Board held 1617 meetings. Each current director attended at least 75% of all Board and
applicable standing committee meetings. Directors are encouraged to attend annual meetings of HP stockholders. All then-current directors attended the last annual meeting of stockholders.
Name of Director | Acquisitions | Audit | HR and Compensation | Nominating and Governance | Technology | |||||
---|---|---|---|---|---|---|---|---|---|---|
Non-Employee Directors: | ||||||||||
Patricia C. Dunn(1) | Member | |||||||||
Lawrence T. Babbio, Jr. | Chair | Chair | Member | |||||||
Richard A. Hackborn | Member | |||||||||
John H. Hammergren(2) | Member | Member | ||||||||
George A. Keyworth II | Member | Member | Chair | |||||||
Robert E. Knowling, Jr.(3) | * | * | ||||||||
Sanford M. Litvack(4) | * | |||||||||
Thomas J. Perkins(5) | Chair | Member | ||||||||
Robert L. Ryan | Member | Chair | Member | |||||||
Lucille S. Salhany | Member | Member | ||||||||
Employee Directors | ||||||||||
Mark V. Hurd(6) | ||||||||||
Robert P. Wayman(7) | ||||||||||
Former Employee Director | ||||||||||
Carleton S. Fiorina(8) | ||||||||||
Number of Meetings in Fiscal 2005 | 7 | 15 | 9 | 4 | 6 |
| ||||||||
---|---|---|---|---|---|---|---|---|
Name of Director | Acquisitions | Audit | HR and Compensation | Nominating and Governance | ||||
Non-Employee Directors: | ||||||||
Lawrence T. Babbio, Jr. | Chair | Chair | Member | |||||
Sari M. Baldauf(1) | Member | |||||||
Richard A. Hackborn(2) | ||||||||
John H. Hammergren(3) | Member | Member | ||||||
Robert L. Ryan | Member | Chair | ||||||
Lucille S. Salhany(4) | Member | Member | Chair | |||||
G. Kennedy Thompson(5) | Member | |||||||
Employee Directors | ||||||||
Mark V. Hurd | ||||||||
Robert P. Wayman | ||||||||
Former Directors | ||||||||
Patricia C. Dunn(6) | * | |||||||
George A. Keyworth II(7) | * | * | ||||||
Thomas J. Perkins(8) | * | |||||||
Number of Meetings in Fiscal 2006 | 7 | 14 | 8 | 9 |
* = Former Committee Chair or member
On May 18, 2006, during a meeting of the Board, Thomas J. Perkins resigned as a director. During the meeting or in subsequent correspondence, Mr. Perkins stated that he objected to the process surrounding the decision of the Board to request another director on February 8, 2005.
Acquisitions Committee
The Acquisitions Committee assists the Board in overseeing HP's investment, acquisition, managed services, joint venture and divestiture transactions as part of HP's business strategy. The Acquisitions Committee evaluates and revises policies with respect to such transactions, and reviews and approves proposed transactions in accordance with such policies. The Acquisitions Committee also oversees HP's integration planning and execution and the financial results of transactions after integration.
The charter of the Acquisitions Committee is available at http://www.hp.com/hpinfo/investor/structure.html.acquisitions_charter. A free printed copy also is available to any stockholder who requests it from the address on page 10.
Audit Committee
HP has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Audit Committee assists the Board in fulfilling its responsibilities for generally overseeing HP's financial reporting processes and the audit of HP's financial statements, including the integrity of HP's financial statements, HP's compliance with legal and regulatory requirements, the qualifications and independence of the independent registered public accounting firm, the performance of HP's internal audit function and the independent registered public accounting firm, risk assessment and risk management, and finance and investment functions. Among other things, the Audit Committee prepares the Audit Committee report for inclusion in the annual proxy statement; annually reviews its charter and performance; appoints, evaluates and determines the compensation of the independent registered public accounting firm; reviews and approves the scope of the annual audit, the audit fee and the financial statements; reviews and approves all permissible non-audit services to be performed by the independent registered public accounting firm; reviews HP's disclosure controls and procedures, internal controls, information security policies, internal audit function, and corporate policies with respect to financial information and earnings guidance; reviews regulatory and accounting initiatives and off-balance sheet structures; oversees HP's compliance programs with respect to legal and regulatory requirements; oversees investigations into complaints concerning financial matters; reviews other risks that may have a significant impact on HP's financial statements; reviews the activities of the Investment Review Committee; reviews and oversees treasury matters, HP's loans and debt, loan guarantees and outsourcings; reviews HP Financial Services' capitalization and operations; reviews the activities of Investor Relations; and coordinates with the HR and Compensation Committee regarding the cost, funding and financial impact of HP's equity compensation plans and benefit programs. The Audit Committee works closely with management as well as the independent registered public accounting firm. The Audit Committee has the authority to obtain advice and assistance from, and receive appropriate funding from HP for, outside legal, accounting or other advisors as the Audit Committee deems necessary to carry out its duties.
The Board determined that each of Robert L. Ryan, Chair of the Audit Committee, and Audit Committee members Patricia C. DunnSari M. Baldauf, Lucille S. Salhany and Dr. George A. Keyworth IIG. Kennedy Thompson is independent pursuant to applicable listing standards governing audit committee members. The Board also determined that each of Robert L. Ryan, Sari M. Baldauf and former Audit Committee member Sanford M. Litvack was,G. Kennedy Thompson is an audit committee financial expert as defined by SEC rules and applicable listing standards.
The report of the Audit Committee is included herein on page 72.60. The charter of the Audit Committee is available at http://www.hp.com/hpinfo/investor/structure.htmlaudit_charter and also is included herein as Appendix A. A free printed copy also is available to any stockholder who requests it from the address on page 10.
HR and Compensation Committee
The HR and Compensation Committee discharges the Board's responsibilities relating to the compensation of HP's executives and directors; produces an annualprepares the report on executive compensation for inclusionrequired to be included in the annual proxy statement; provides general oversight of HP's total rewards compensation structure; reviews and provides guidance on HP's human resources programs; and retains and approves the terms of the retention of compensation consultants and other compensation experts. Other specific duties and
responsibilities of the HR and Compensation Committee include reviewing senior management selection and overseeing succession planning, including reviewing the leadership development process; reviewing and approving objectives relevant to executive officer compensation, evaluating performance and determining the
compensation of executive officers in accordance with those objectives; approving severance arrangements and other applicable agreements for executive officers; overseeing HP's equity-based and incentive compensation plans; overseeing non-equity based benefit plans and approving any changes to such plans involving a material financial commitment by HP; monitoring workforce management programs; establishing compensation policies and practices for service on the Board and its committees and for the Chairman of the Board;committees; developing guidelines for and monitoring director and executive stock ownership; and annually evaluating its performance and its charter.
The report of the HR and Compensation Committee is included herein beginning on page 61.51. The charter of the HR and Compensation Committee is available at http://www.hp.com/hpinfo/investor/structure.htmlcompensation_charter and also is included herein as Appendix B. A free printed copy is available to any stockholder who requests it from the address on page 10.
Nominating and Governance Committee
The Nominating and Governance Committee recommends candidates to be nominated for election as directors at HP's annual meeting, consistent with criteria approved by the Board; develops and regularly reviews corporate governance principles and related policies for approval by the Board; oversees the organization of the Board to discharge the Board's duties and responsibilities properly and efficiently; and sees that proper attention is given and effective responses are made to stockholder concerns regarding corporate governance. Other specific duties and responsibilities of the Nominating and Governance Committee include: annually assessing the size and composition of the Board, including developing and reviewing director qualifications for approval by the Board; identifying and recruiting new directors consistent with the Board Composition Guidelines and considering candidates proposed by stockholders; recommending assignments of directors to committees to ensure that committee membership complies with applicable laws and listing standards; conducting a preliminary review of director independence and financial literacy and expertise of Audit Committee members;members and making recommendations to the Board relating to such matters; and overseeing director orientation and continuing education. The Nominating and Governance Committee also reviews proposed changes to and makes recommendations regarding HP's Certificate of Incorporation, Bylaws and Board committee charters; assesses and makes recommendations regarding stockholder rights plans or other stockholder protections, as appropriate; reviews and approves any executive officers for purposes of Section 16 of the Exchange Act ("Section 16 Officers") standing for election for outside for-profit boards of directors; reviews stockholder proposals in conjunction with the Chairman of the Board and recommends Board responses; oversees in conjunction with the Chairman of the Board the self-evaluation of the Board and its committees; ensures that the annual evaluation of the CEOChief Executive Officer is conducted by the Chairman of the Boardlead independent director in conjunction with the HR and Compensation Committee with input from all Board members; evaluates senior management in conjunction with the HR and Compensation Committee; and reviews requests for permissive indemnification.
The charter of the Nominating and Governance Committee is available at http://www.hp.com/hpinfo/investor/structure.htmlnominating_charter and also is included herein as Appendix C. A free printed copy is available to any stockholder who requests it from the address on page 10.
Technology Committee
The Technology Committee assesses HP's technology development strategies and the scope and quality of HP's intellectual property. The Technology Committee makes recommendations to the Board as to scope, direction, quality, investment levels and execution of HP's technology strategies; oversees the execution of technology strategies formulated by management; provides guidance on technology as it may pertain to, among other things, market entry and exit, investments, mergers, acquisitions and divestitures, new
business divisions and spin-offs, research and development investments, and key competitor and partnership strategies; and reviews and makes recommendations on proposed investment, acquisition, joint venture and divestiture transactions with a value of at least $100 million that involve technology prior to any review by the Acquisitions Committee or the Board pursuant to HP's M&A approval policies.
The charter of the Technology Committee is available at http://www.hp.com/hpinfo/investor/structure.html.
Consideration of Stockholder Recommendations for Director Nominees
Stockholder recommendationsRecommendations
The policy of the Nominating and Governance Committee is to consider properly submitted stockholder recommendations of candidates for membership on the Board as described below under "Identifying and Evaluating Candidates for Directors." In evaluating such recommendations, the Nominating and Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board and to address the membership criteria set forth below under "Director Qualifications." Any stockholder recommendations proposed for consideration by the Nominating and
Governance Committee should include the candidate's name and qualifications for Board membership and should be addressed to:
Corporate Secretary
Hewlett-Packard Company
3000 Hanover Street
Palo Alto, CACalifornia 94304
Fax: (650) 857-4837
Stockholder Nominations
In addition, theHP's Bylaws of HP permit stockholders to nominate directors for consideration at an annual stockholder meeting and to solicit proxies in favor of such nominees. For a description of the process for nominating directors in accordance with HP's bylaws,Bylaws, see "Questions and Answers—Stockholder Proposals, Director Nominations and Related Bylaw Provisions—28. How may I recommend or nominate individuals to serve as directors?"
Director Qualifications
HP's Corporate Governance Guidelines contain Board membership criteria that apply to nominees recommended for a position on HP's Board. Under these criteria, members of the Board should have the highest professional and personal ethics and values, consistent with longstanding HP values and standards. They should have broad experience at the policy-making level in business, government, education, technology or public service. They should be committed to enhancing stockholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties. Each director must represent the interests of all stockholders of HP.
Identifying and Evaluating Candidates for Directors
The Nominating and Governance Committee utilizesuses a variety of methods for identifying and evaluating nominees for director. The Nominating and Governance Committee regularly assesses the appropriate size of the Board and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Nominating and Governance Committee considers various potential candidates for director. Candidates may come to the attention of the Nominating and Governance Committee through current Board members, professional search firms, stockholders or other persons. TheseIdentified candidates are evaluated at regular or special meetings of the Nominating and
Governance Committee and may be considered at any point during the year. As described above, the Nominating and Governance Committee considers properly submitted stockholder recommendations for candidates for the Board to be included in HP's proxy statement. Following verification of the stockholder status of people proposing candidates, recommendations are considered together by the Nominating and Governance Committee at a regularly scheduled meeting, which is generally the first or second meeting prior to the issuance of the proxy statement for HP's annual meeting. If any materials are provided by a stockholder in connection with the nomination of a director candidate, such materials are forwarded to the Nominating and Governance Committee. The Nominating and Governance Committee also reviews materials provided by professional search firms and other parties in connection with a nominee who is not proposed by a stockholder. In evaluating such nominations, the Nominating and Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board.
HP engages a professional search firm on an ongoing basis to identify and assist the Nominating and Governance Committee in identifying, evaluating and conducting due diligence on potential director
nominees. Sari M. Baldauf,On November 16, 2006, the Board elected G. Kennedy Thompson as a nominee for election to HP's Board,director effective immediately. Mr. Thompson was identified by the professional search firm.
On November 18, 2005, the Board elected John Hammergren as a director effective November 22, 2005. Mr. Hammergren was identified by an HP director.
Executive sessions of independent directors are held at least three times a year. The sessions are scheduled and chaired by the Chairman of the Board.lead independent director. Any independent director may request that an additional executive session be scheduled.
Individuals may communicate with the Board by contacting:
Rosemarie Thomas
Secretary to the Board of Directors
3000 Hanover Street, MS 1050
Palo Alto, CACalifornia 94304
e-mail: bod@hp.com
All directors have access to this correspondence. In accordance with instructions from the Board, the Secretary to the Board reviews all correspondence, organizes the communications for review by the Board and posts communications to the full Board or individual directors, as appropriate. HP's independent directors have requested that certain items that are unrelated to the Board's duties, such as spam, junk mail, mass mailings, solicitations, resumes and job inquiries, not be posted.
Communications that are intended specifically for the lead independent director, the independent directors or non-management directors should be sent to the e-mail address or street address noted above, to the attention of the Chairman of the Board.lead independent director.
DIRECTOR COMPENSATION AND STOCK OWNERSHIP GUIDELINES
Employee directors do not receive any separate compensation for their Board activities. Non-employee directors receive the compensation described below.
Each non-employee director is entitled to receive an annual cash retainer of $50,000 but may elect to receive an equivalent amount of securities in lieu of the cash retainer. In addition, each non-employee director is entitled to receive an annual retainer of $150,000 in the form of restricted stock or stock options (under special circumstances, the securities portion of the annual retainer may be paid in cash, but no such exceptions were made during fiscal 2005)2006). The restricted stock awards are determined based on the fair market value of HP common stock on the grant date, and stock options are determined based on a Black-Scholes option valuation model. The restricted stock and options generally vest after one year from the date of grant, which is approximately one month after the annual meeting. In November 2005, HP amended the Hewlett-Packard Company 2005 Executive Deferred Compensation Plan to permit non-employeeNon-employee directors tomay elect to defer the cash portion of their annual retainer.retainer under the Hewlett-Packard Company 2005 Executive Deferred Compensation Plan. Under that plan, investment earnings are credited based on investment choices that are available to employees under the HP 401(k) Plan, and there is no formula that would result in above-market earnings or a preferential interest rate.
In addition to the annual retainer, non-employee directors who serve as committee chairs receive a retainer for such service, in the amount of $15,000 for the Chair of the Audit Committee and $10,000 for the chair of other Board committees. In addition, on January 23, 2006, the HR and Compensation Committee determined that the non-executive Chairman of the Board will receivewas awarded an additional retainer of $100,000, effective March 16, 2006. Non-employee directors also receive $2,000 for each Board meeting attended in excess of six per year, and $2,000 for each committee meeting attended in excess of six per year for each committee on which the non-employee director serves. Non-employee directors are reimbursed for their expenses in connection with attending Board meetings (including expenses related to spouses when theyspouses are invited to attend Board events), and non-employee directors may use the company aircraft for travel to and from HP events. Non-employee directorsEach non-employee director also may receive up to $2,500 worth of HP equipment each year. In addition, each non-employee director is eligible to participate in the product matching portion of the HP Employee Giving Program. Under this program, each non-employee director may contribute up to $20,000 worth of HP products each year to a school or qualified charity by paying 25% of the list price of those products and with HP paying the remaining 75%.
The following table provides information on fiscal 2005 compensation for non-employee directors who served during fiscal 2005.2006.
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NON-EMPLOYEE DIRECTOR COMPENSATION TABLE FOR FISCAL 2005 | ||||||||||||||||||||||||||||||
NON-EMPLOYEE DIRECTOR COMPENSATION TABLE | NON-EMPLOYEE DIRECTOR COMPENSATION TABLE | |||||||||||||||||||||||||||||
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Name | Cash Retainer | Equity Retainer | Additional Meeting Fees | Committee Chair Fees | HP Equipment | Total | Cash Retainer(1) | Equity Retainer(2) | Additional Meeting Fees(3) | Committee Chair Fees(1) | ||||||||||||||||||||
Patricia C. Dunn | — | $ | 200,000 | $ | 36,000 | — | $ | 399 | (1) | $ | 236,399 | |||||||||||||||||||
Lawrence T. Babbio, Jr. | $ | 50,000 | 150,000 | 26,000 | $ | 20,000 | — | 246,000 | $ | 50,000 | $ | 150,000 | $ | 34,000 | $ | 20,000 | ||||||||||||||
Sari M. Baldauf(4) | 200,000 | 12,000 | ||||||||||||||||||||||||||||
Richard A. Hackborn | 50,000 | 150,000 | 20,000 | — | 399 | 220,399 | 50,000 | 150,000 | 16,000 | |||||||||||||||||||||
George A. Keyworth II | 50,000 | 150,000 | 40,000 | 10,000 | 1,991 | 251,991 | ||||||||||||||||||||||||
Thomas J. Perkins | — | 200,000 | 8,000 | 2,500 | (2) | 1,692 | 212,192 | |||||||||||||||||||||||
John H. Hammergren(5) | 250,000 | 22,000 | ||||||||||||||||||||||||||||
Robert L. Ryan | 50,000 | 150,000 | 38,000 | 15,000 | — | 253,000 | 50,000 | 150,000 | 36,000 | 15,000 | ||||||||||||||||||||
Lucille S. Salhany | 50,000 | 150,000 | 16,000 | — | — | 216,000 | 50,000 | 150,000 | 32,000 | |||||||||||||||||||||
Former Directors | ||||||||||||||||||||||||||||||
Robert E. Knowling, Jr.(3) | 37,500 | 150,000 | 22,000 | 7,500 | — | 217,000 | ||||||||||||||||||||||||
Sanford M. Litvack(4) | 12,500 | — | — | — | — | 12,500 | ||||||||||||||||||||||||
Patricia C. Dunn(6) | 155,338 | 18,000 | ||||||||||||||||||||||||||||
George A. Keyworth II(7) | 50,000 | 73,562 | 30,000 | 10,000 | ||||||||||||||||||||||||||
Thomas J. Perkins(8) | 200,000 | 7,500 |
with HP's November 1st through October 31st fiscal year. Cash retainers and committee chair fees are paid quarterly in April, June, September and December, which results in only three payments being made during the fiscal year of election and the remaining payment being made in the following fiscal year. All cash retainer and committee chair fee payments made during fiscal 2006 are reported in the table irrespective of the term of office to which the payment applies.
Under HP's stock ownership guidelines, non-employee directors are required to accumulate over time shares of HP common stock equal in value to at least three times the value of the regular annual cash and equity retainers. Shares counted toward these guidelines include:
All non-employee directors with more than two years of service have met HP's stock ownership guidelines. See "Common Stock Ownership of Certain Beneficial Owners and Management" on page 33.31.
ELECTION OF DIRECTORS
There are eleveneight nominees for election to our Board this year. All of the nominees except Sari M. Baldauf, John H. Hammergren and Mark V. HurdG. Kennedy Thompson have served as directors since the last annual meeting. Mr. HammergrenThompson was elected by the Board to serve as a director effective November 22, 2005. Mr. Hurd was elected by the Board to serve as a director effective April 1, 2005. Information regarding the business experience of each nominee is provided below.16, 2006. Each director is elected annually to serve until the next annual meeting or until his or her successor is elected. There are no family relationships among our executive officers and directors.
If you sign your proxy or voting instruction card but do not give instructions with respect to voting for directors, your shares will be voted for the eleveneight persons recommended by the Board. If you wish to give specific instructions with respect to voting for directors, you may do so by indicating your instructions on your proxy or voting instruction card.
You may cumulate your votes in favor of one or more directors. If you wish to cumulate your votes, you will need to indicate explicitly your intent to cumulate your votes among the eleveneight persons who will be voted upon at the annual meeting. See "Questions and Answers—Voting Information 18. Is cumulative voting permitted for the election of directors?" for further information about how to cumulate your votes. Patricia C. Dunn, Mark V. Hurd and Ann O. Baskins,Charles N. Charnas, as proxy holders, reserve the right to cumulate votes and cast such votes in favor of the election of some or all of the applicable nominees in their sole discretion, except that a stockholder's votes will not be cast for a nominee as to whom such stockholder instructs that such votes be withheld.cast "AGAINST" or "ABSTAIN."
All of the nominees have indicated to HP that they will be available to serve as directors. In the event that any nominee should become unavailable, however, the proxy holders, Ms. Dunn, Mr. Hurd and Ms. Baskins,Mr. Charnas, will vote for a nominee or nominees designated by the Board, unless the Board chooses to reduce the number of directors serving on the Board.
If aan incumbent director nominee receives a greater number of votes "withheld" from"AGAINST" his or her election than votes "for""FOR" such election, he or she is required to tender his or her resignation for consideration by the Nominating and Governance Committee in accordance with Section V. of the policy adopted by the Board in fiscal 2005Corporate Governance Guidelines and as described on page 10.
Our Board recommends a vote FOR the election to the Board of the each of the following nominees.
Vote Required
The eleven persons receiving the highest number of "for"Each director nominee who receives more "FOR" votes represented bythan "AGAINST" votes representing shares of HP common stock present in person or represented by proxy and entitled to be voted at the annual meeting will be elected.
Lawrence T. Babbio, Jr. Director since 2002 Age | Mr. Babbio has served as Vice Chairman and President of Verizon Communications, Inc. (formerly Bell Atlantic Corporation), a telecommunications company, since 2000. He was a director of Compaq Computer Corporation | |
Sari M. Baldauf Age | Ms. Baldauf served as Executive Vice President and General Manager of the Networks business group of Nokia Corporation, | ||
Richard A. Hackborn Director since 1992 Age | Mr. Hackborn has served as HP's lead independent director since September 2006. Previously, Mr. Hackborn served as HP's Chairman of the Board from January 2000 to September 2000. He was HP's Executive Vice President, Computer Products Organization from 1990 until his retirement in 1993 after a 33-year career with HP. | ||
John H. Hammergren Director since 2005 Age | Mr. Hammergren has served as Chairman of McKesson Corporation, | ||
Mark V. Hurd Director since 2005 Age | Mr. Hurd has served as Chairman of HP since September 2006 and as Chief Executive Officer, | ||
Robert L. Ryan Director since 2004 Age | Mr. Ryan served as Senior Vice President and Chief Financial Officer of Medtronic, Inc., a medical technology company, from 1993 until his retirement in May 2005. He also is a director of UnitedHealth Group Incorporated, General Mills, Inc. and The Black and Decker Corporation. | ||
Lucille S. Salhany Director since 2002 Age | Ms. Salhany has served as President and Chief Executive Officer of JHMedia, a consulting company, since 1997. Since 2003, she has been a partner and director of Echo Bridge Entertainment, an independent film distribution company. From 1999 to March 2002, she was President and Chief Executive Officer of LifeFX Networks, Inc., which filed for federal bankruptcy protection in May 2002. From 1994 to 1997, Ms. Salhany was the Chief Executive Officer and President of UPN (United Paramount Network), a broadcasting company. From 1993 to 1994, she was Chairman of Fox Broadcasting Company, a national television network, and from 1991 to 1993 she was Chairman of Twentieth Television, a division of Fox Broadcasting Company. Ms. Salhany was a director of Compaq from 1997 until HP's acquisition of Compaq in May 2002. | |
G. Kennedy Thompson Director since 2006 Age 56 | Mr. Thompson has served as Chairman of the Board of Wachovia Corporation, a financial services company, since February 2003 and |
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board has appointed Ernst & Young LLP as the independent registered public accounting firm to audit HP's consolidated financial statements for the fiscal year ending October 31, 2006.2007. During fiscal 2005,2006, Ernst & Young LLP served as HP's independent registered public accounting firm and also provided certain tax and other audit-related services. See "Principal Accountant Fees and Services" on page 71.59. Representatives of Ernst & Young LLP are expected to attend the annual meeting, where they will be available to respond to appropriate questions and, if they desire, to make a statement.
Our Board recommends a vote FOR the ratification of the appointment of Ernst & Young LLP as HP's independent registered public accounting firm for the 20062007 fiscal year. If the appointment is not ratified, the Board will consider whether it should select another independent registered public accounting firm.
Vote Required
Ratification of the appointment of Ernst & Young LLP as HP's independent registered public accounting firm for the 20062007 fiscal year requires the affirmative vote of a majority of the shares of HP common stock present in person or represented by proxy and entitled to be voted at the meeting.
PROPOSAL NO. 3APPROVAL OFTHE HEWLETT-PACKARD COMPANY 2005 PAY-FOR-RESULTS PLAN
On November 17, 2005 the HR and Compensation Committee of the Board (the "Committee") approved the Hewlett-Packard Company 2005 Pay-for-Results Plan (the "PfR Plan"). The PfR Plan is a continuation of the Hewlett-Packard Company 2000 Executive Pay-for-Results Program, in which HP's Section 16 Officers, and other individuals previously participated. The PfR Plan provides a non-exclusive framework that can satisfy the standards of Section 162(m) of the United States Internal Revenue Code of 1986, as amended (the "Code"). Under the PfR Plan the Committee will designate performance measures and a bonus formula with respect to a performance period for each PfR Plan participant. Utilizing those criteria and other factors that the Committee determines appropriate, the Committee uses the PfR Plan to reward accomplishments achieved or recognized during the performance period. The Board believes that the PfR Plan benefits stockholders because it creates a strong incentive for executives to meet or exceed specified financial goals. Stockholders are being asked to approve the PfR Plan to fulfill one of the requirements to qualify the amounts paid pursuant to the PfR Plan for a United States federal income tax deduction.
The Board believes that it is in the best interests of HP and its stockholders to provide for a stockholder-approved plan under which bonuses paid to its Section 16 Officers can qualify for deductibility by HP for federal income tax purposes. Accordingly, HP has structured the PfR Plan in a manner such that payments under it can satisfy the requirements for "performance-based" compensation within the meaning of Section 162(m) of the Code. In general, Section 162(m) of the Code places a limit on the deductibility for federal income tax purposes of the compensation paid to the named executive officers set forth in the Summary Compensation Table on page 37 who were employed by HP on the last day of its taxable year. Under Section 162(m), compensation paid to such persons in excess of $1 million in a taxable year is not generally deductible. However, compensation that qualifies as "performance-based" as determined under Section 162(m) does not count against the $1 million limitation. One of the requirements of "performance-based" compensation for purposes of Section 162(m) of the Code is that the material terms of the performance goal under which compensation may be paid be disclosed to and approved by the company's stockholders. For purposes of Section 162(m) the material terms include (i) the employees eligible to receive compensation, (ii) a description of the business criteria on which the performance goal is based and (iii) the maximum amount of compensation that can be paid to an employee under the performance goal. Each of these aspects of the PfR Plan is discussed below, and stockholder approval of the PfR Plan will be deemed to constitute approval of each of these aspects of the PfR Plan for purposes of the approval requirements of Section 162(m) of the Code.
Our Board recommends a vote FOR the approval of the PfR Plan.
Vote Required
Approval of the PfR Plan requires the affirmative vote of a majority of the shares of common stock present or represented by proxy and entitled to vote on this proposal at the meeting.
SUMMARY OF THE PFR PLAN
ADMINISTRATION The Committee has complete authority to: (i) select from the eligible participants the individuals to whom awards under the PfR Plan may from time to time be paid, (ii) determine the performance periods and performance goals upon which payment of awards under the PfR Plan will be based, and (iii) make any other determination and take any other action that the Committee deems necessary or desirable to discharge its duties under the PfR Plan. The Committee may delegate various functions to a "Plan Committee" to act on certain compensation and benefits matters. The Plan
Committee will have the responsibility for general administration and interpretation of the PfR Plan, except to the extent inconsistent with Section 162(m) of the Code. The Plan Committee is composed of HP's Executive Vice President of Human Resources, General Counsel, Controller and Treasurer. The Plan Committee may further delegate its administrative tasks to other HP employees as it deems appropriate.
PARTICIPATION AND ELIGIBILITY Each Section 16 Officer is eligible to participate in the PfR Plan. HP's non-employee directors are not entitled to participate in the PfR Plan. Currently, HP has fifteen Section 16 Officers who are eligible to participate in the PfR Plan in fiscal 2006.
If a person ceases to be a Section 16 Officer or becomes a Section 16 Officer during a performance period, such participant may receive a prorated bonus under the PfR Plan.
A participant generally will forfeit any bonus for a performance period during which such participant is involuntarily terminated by HP or terminates his or her employment with HP for any reason, although the Committee may determine that the forfeiture does not apply in cases of termination due to death, workforce restructuring, disability, retirement or in connection with certain mutual separation agreements. Adjustments will also be made if a participant is on a leave of absence approved by HP or is on non-pay status.
Awards under the PfR Plan are subject to repayment in the event of a significant restatement of financial results pursuant to the following policy. In the event of such a restatement, the Board will review all bonuses that were made to Section 16 Officers on the basis of having met or exceeded specific performance targets for performance periods beginning after December 31, 2005 for the restatement period. If such bonuses would have been lower had they been calculated based on such restated results, the Board will, to the extent permitted by governing law, seek to recoup all such bonuses paid to Section 16 Officers whose fraud or misconduct resulted in such restatement.
PFR PLAN OPERATION Within the earlier of (i) 90 days after commencement of a performance period, or (ii) the expiration of 25% of the performance period, the Committee will designate or approve:
When the Committee establishes a bonus program, the Committee first determines the length of the performance period in which a bonus program applies. For example, the Committee determined at its November 2005 meeting that the variable pay programs will have a performance period that coincides with HP's 2006 fiscal year, rather than being composed of two semi-annual performance periods as in prior years. The Committee also determines the performance measures, and associated weighting and targeted goals, for the applicable performance period. For the 2006 fiscal year performance period, the Committee selected non-GAAP net profit and revenue as performance measures, and the threshold funding is based on year-over-year improvement in these performance measures. For certain participants, the Committee determined that the performance measures will also include business net profit and revenue metrics.
BUSINESS CRITERIA AND MAXIMUM AMOUNT OF COMPENSATION PAYABLE UNDER THE PFR PLAN The performance measures for any performance period will be any one or more of the following performance criteria, either individually, alternatively or in any combination, applied to either HP as a whole or to a region, business unit, affiliate or business segment, either individually, alternatively or in any combination, and measured either on an absolute basis or relative to a pre-established target, to a previous period's results or to a designated comparison group, in each case as specified by the Committee: (i) cash flow (including operating cash flow or free cash flow), (ii) revenue (on an absolute basis or adjusted for currency effects), (iii) gross margin, (iv) operating expenses or operating expenses as a percentage of revenue, (v) earnings (which may include earnings before interest and taxes, earnings before taxes and net earnings, and may be determined in accordance with United States Generally Accepted Accounting Principles ("GAAP") or adjusted to exclude any or all non-GAAP items), (vi) earnings per share (on a GAAP or non-GAAP basis), (vii) growth in any of the foregoing measures, (viii) stock price, (ix) return on equity or average stockholders' equity, (x) total stockholder return, (xi) growth in stockholder value relative to the moving average of the S&P 500 Index or another index, (xii) return on capital, (xiii) return on assets or net assets, (xiv) return on investment, (xv) economic value added, (xvi) operating profit, controllable operating profit, or net operating profit, (xvii) operating margin, (xviii) cash conversion cycle, (xix) market share, (xx) contract awards or backlog, (xxi) overhead or other expense reduction, (xxii) credit rating, (xxiii) strategic plan development and implementation, (xxiv) succession plan development and implementation, (xxv) improvement in workforce diversity, (xxvi) customer indicators, (xxvii) new product invention or innovation, (xxviii) attainment of research and development milestones, (xxix) improvements in productivity, (xxx) attainment of objective operating goals and (xxxi) employee metrics.
The PfR Plan further provides that the Committee may appropriately adjust any evaluation of performance under a performance measure to exclude any of the following events that occurs during a performance period: (A) the effects of currency fluctuations, (B) any or all items that are excluded from the calculation of non-GAAP earnings as reflected in any HP press release and Form 8-K filing relating to an earnings announcement, (C) asset write-downs, (D) litigation or claim judgments or settlements, (E) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results, (F) accruals for reorganization and restructuring programs, and (G) any other extraordinary or non-operational items. However, in no event will the Committee use its discretion to increase a bonus paid to a participant.
The maximum bonus that any one participant may be paid under the PfR Plan in any one fiscal year is $10 million.
COMMITTEE CERTIFICATION AND DETERMINATION OF AWARDS The bonus amount for each participant is determined after calculating the amount payable under the bonus formula approved at the beginning of the performance period for the participant. After the conclusion of each performance period, the Committee will determine and certify the extent to which the targeted goals for the performance measures applicable to the performance period were achieved. The Committee will also certify the bonus amount for each participant for the performance period based upon bonus formula for such participant as previously established by the Committee. The Committee has the authority to reduce or eliminate to zero the amount of any bonus payable under the PfR Plan to any participant; however, the Committee cannot increase the bonus amounts payable under the PfR Plan in excess of the maximum that a participant would receive based on the bonus formula established for the participant at the beginning of the performance period.
NON-EXCLUSIVITY Nothing contained in the PfR Plan prevents the Board from adopting other or additional compensation arrangements that provide for bonuses or other forms of compensation for HP's executive officers, directors or other employees regardless of stockholders approval of the PfR Plan. Such other arrangements may or may not qualify for deductibility under Section 162(m) of the Code and may be either applicable only for specific executives, directors or employees or may be generally applicable.
However, for payments under the PfR to qualify as performance-based compensation under Section 162(m), any such other or additional compensation arrangements may not be designed to provide PfR Plan participants all or part of the compensation they would receive under the PfR Plan regardless of whether the performance goal is attained.
TERM: AMENDMENT AND TERMINATION OF THE PFR PLAN The PfR Plan is effective as of November 1, 2005, provided that the PfR Plan will terminate unless it is approved at stockholders at the annual meeting. If approved by stockholders, the Committee may establish additional bonus grants for subsequent performance periods until the earlier of (i) its termination at the discretion of the Committee, (ii) the date any stockholder approval requirement under Section 162(m) of the Code ceases to be met or (iii) the date that is five years after the annual meeting.
The Committee may amend, suspend or terminate the PfR Plan at any time as it may deem proper and in the best interests of HP; provided that no amendment, suspension or termination may be made that would increase the amount of compensation payable pursuant to a bonus awarded under the PfR Plan or cause amounts payable under the PfR Plan to fail to qualify as performance-based compensation under Section 162(m) of the Code. Administrative changes or changes required by law may be made by the Plan Committee. To the extent required under applicable law, amendments to the PfR Plan will be subject to stockholder approval.
NEW PLAN BENEFITS The following table shows the maximum amounts of the awards that may be paid under the PfR Plan to Section 16 Officers named in the Summary Compensation Table if the performance goals for fiscal 2006 are achieved at the highest levels.
MAXIMUM POTENTIAL AWARDS UNDER THE PAY-FOR-RESULTS PROGRAMFOR FISCAL 2006
NAME AND POSITION | DOLLAR VALUE ($) | |||
---|---|---|---|---|
Mark V. Hurd Chief Executive Officer and President | $ | 9,240,000 | ||
Robert P. Wayman Executive Vice President and Chief Financial Officer | 4,387,500 | |||
Vyomesh I. Joshi Executive Vice President Imaging and Printing Group | 2,906,250 | |||
Ann M. Livermore Executive Vice President Technology Solutions Group | 2,906,250 | |||
R. Todd Bradley Executive Vice President Personal Systems Group | 2,718,750 | |||
Randall D. Mott Executive Vice President and Chief Information Officer | 2,587,500 | |||
Former Officers | ||||
Carleton S. Fiorina Former Chairman and Chief Executive Officer | 0 | |||
Michael J. Winkler Former Executive Vice President | 0 | |||
Executive Officer Group | 37,290,000 | |||
Non-Executive Director Group | 0 | |||
Non-Executive Officer Employee Group | 0 |
FEDERAL INCOME TAX CONSIDERATIONS
All amounts paid pursuant to the PfR Plan constitute taxable income to the employee when received. If a participant elects to defer a portion of the bonus, the participant may be entitled to defer the recognition of income. Generally, and subject to Section 162(m) of the Code, HP will be entitled to a federal income tax deduction when amounts paid under the PfR Plan are included in employee income. Subject to stockholder approval of the PfR Plan, the failure of any aspect of the PfR Plan to satisfy Section 162(m) shall not void any action taken by the Committee under the PfR Plan.
As stated above, the PfR Plan is being submitted for stockholders approval at the annual meeting so that payments under the PfR Plan can qualify for deductibility by HP under Section 162(m) of the Code. However, stockholder approval of the PfR Plan is only one of several requirements under Section 162(m) of the Code that must be satisfied for amounts payable under the PfR Plan to qualify for the "performance-based" compensation exemption under Section 162(m) of the Code, and submission of the PfR Plan to stockholder approval should not be viewed as a guarantee that all amounts paid under the PfR Plan will in practice be deductible by HP.
The foregoing is only a summary of the effect of federal income taxation upon employees and HP with respect to amounts paid pursuant to the PfR Plan. It does not purport to be complete and does not discuss the tax consequences arising in the context of the employee's death or the income tax laws of any municipality, state or foreign country in which the employee's income or gain may be taxable.
INCORPORATION BY REFERENCE
The foregoing is only a summary of the PfR Plan and is qualified in its entirety by reference to the full text of the PfR Plan, a copy of which is attached hereto as Appendix D.
PROPOSAL NO. 4
STOCKHOLDER PROPOSAL ENTITLEDRELATING TODIRECTORSTOCKHOLDER NOMINEES FOR ELECTION MAJORITY VOTE STANDARD PROPOSAL
TO THE HP BOARD
HP has received a stockholder proposal from The United Brotherhood of Carpentersthe AFSCME Employee Pension Plan, the New York State Common Retirement Fund, the Connecticut Retirement Plans and Joiners of America ("United Brotherhood of Carpenters"), 101 Constitution Avenue, N.W., Washington, D.C. 20001. The United Brotherhood of Carpenters hasTrust Funds and the North Carolina Equity Investment Fund Pooled Trust. These proponents have requested that HP include the following proposal and supporting statement in its proxy statement for the 20062007 annual meeting of stockholders, and, if properly presented, this proposal will be voted on at the annual meeting. The United BrotherhoodHP will provide the addresses of Carpentersthese proponents and the number of shares beneficially owns 49,700 sharesowned by each upon oral or written request of HP common stock.any stockholder. The stockholder proposal is quoted verbatim in italics below.
Management of HP does not support the adoption of the resolution proposed below and asks stockholders to consider management's response, which follows the stockholder proposal.
Our Board recommends a vote AGAINST Proposal No. 4.3.
Vote Required
HP believes that approval of the stockholder proposal requires the affirmative vote of sixty-six and two-thirds percent (662/3%) of the outstanding shares entitled to vote on the proposal at the annual meeting. Article IX of HP's Bylaws requires such a vote for any proposal by a stockholder to amend provisions of the Bylaws that relate to the nomination and election of directors. While the stockholder proposal seeks to add a new section to the Bylaws, it clearly relates to the nomination and election of directors and the 662/3% standard should apply. Among other things, the stockholder proposal expressly requires compliance with some, but not all, provisions of Section 2.2 of HP's Bylaws, and, therefore, effectively amends Section 2.2.
STOCKHOLDER PROPOSAL
RESOLVED, pursuant to Article IX of the Bylaws (the "Bylaws") of Hewlett-Packard Company ("HP") and section 109(a) of the Delaware General Corporation Law, stockholders amend the Bylaws to add section 3.17:
"HP shall include in its proxy materials for a meeting of stockholders at which directors are to be elected the name, together with the Disclosure and Statement (both as defined in this section 3.17), of any person nominated for election to the Board of Directors by a stockholder or group thereof that satisfies the requirements of this section 3.17 (the "Nominator"), and allow stockholders to vote with respect to such nominee on HP's proxy card. Each Nominator may nominate up to two candidates for election at a meeting.
A Nominator must:
material other than HP's proxy materials, comply with all applicable laws and regulations, including, without limitation, the SEC's Rule 14a-12.
The Nominator may furnish a statement, not to exceed 500 words, in support of the nominee's candidacy (the "Statement"), at the time the Disclosure is submitted. The Board of Directors shall adopt a procedure for timely resolving disputes over whether notice of a nomination was timely given and whether the Disclosure and Statement comply with this section 3.17 and any applicable SEC rules."
SUPPORTING STATEMENT
We believe that stockholders of U.S. public companies currently have no meaningful control over the process by which directors are nominated and elected. Stockholders whose suggested nominees are rejected by a nominating committee have no recourse other than sponsoring a dissident election campaign, which is so expensive that it rarely occurs outside the takeover context. Harvard Law School professor Lucian Bebchuk has estimated only about 80 contested elections occurred at U.S. public companies from 1996 through 2002 that did not seek to change control of the corporation.
In our view, access to the proxy for purposes of electing a director nominated by stockholders with a significant stake in HP is the most effective mechanism for ensuring accountability. We believe that greater accountability would benefit HP and enhance shareholder value.
We urge stockholders to vote for this proposal.
MANAGEMENT STATEMENT IN OPPOSITION TO STOCKHOLDER PROPOSAL
The Board recommends a vote against this proposal that amends HP's Bylaws to require HP to include in its proxy materials (like this proxy statement) the names of up to two director candidates nominated by certain stockholders for election to HP's Board. The Board opposes this proposal because it provides for a mandatory amendment to HP's Bylaws without any input from HP's Board or management, and it would result in expensive, divisive director elections. Moreover, existing HP policies and procedures already provide for stockholder input in the director nomination and election process.
Permitting certain stockholders to nominate director candidates in HP's proxy materials could lead to the election of "special interest directors" who represent the interests of the stockholders who nominated them, not the interests of all HP stockholders. It also could turn every director election into a proxy contest. This would be tremendously disruptive, require expenditure of significant HP resources and discourage directors from serving on the Board.
Moreover, the proposal is not necessary because HP's stockholders have the opportunity for significant input in the director nomination and election process. As discussed on page 14 of this proxy statement, stockholders may submit recommendations for director candidates to the Nominating and Governance Committee. In addition, HP's Bylaws permit stockholders to nominate directors for consideration at an annual stockholder meeting and to solicit proxies in favor of such nominees. With respect to director elections, HP's Board has amended HP's Bylaws to implement a majority vote standard requiring that each director nominee receive more "for" than "against" votes to be elected. In addition, HP's Board has adopted a policy pursuant to which any incumbent director nominee who receives a greater number of votes "against" his or her election than votes "for" such election will tender his or her resignation for consideration by the Nominating and Governance Committee. Finally, unlike many companies, HP permits stockholders to cumulate votes in director elections, which gives stockholders an even more meaningful role in the director election process.
For the reasons described above, the Board recommends a vote AGAINST this proposal.
STOCKHOLDER PROPOSAL ENTITLED
SEPARATE THE ROLES OF CEO AND CHAIRMAN
HP has received a stockholder proposal from Harold J. Mathis, Jr., represented by John Chevedden. Mr. Mathis has requested that HP include the following proposal and supporting statement in its proxy statement for the 2007 annual meeting of stockholders, and, if properly presented, this proposal will be voted on at the annual meeting. HP will provide Mr. Mathis' address and the number of shares that he beneficially owns upon oral or written request of any stockholder. The stockholder proposal is quoted verbatim in italics below.
Management of HP does not support the adoption of the resolution proposed below and asks stockholders to consider management's response, which follows the stockholder proposal.
Our Board recommends a vote AGAINST Proposal No. 4
Vote Required
Approval of the stockholder proposal requires the affirmative vote of a majority of the shares of HP common stock present in person or represented by proxy and entitled to be voted on the proposal at the annual meeting.
STOCKHOLDER PROPOSAL
4–Director Election Majority Vote Standard ProposalSeparate the Roles of CEO and Chairman
Resolved:That the shareholders of Hewlett-Packard Company ("Company") herebyRESOLVED: Shareholders request that our Board establish a rule (required in our charter or bylaws if practicable) of separating the roles of our Board Chairman and CEO, so that an independent director who has not served as an executive officer of Directors initiate the appropriate process to amend the Company's governance documents (certificate of incorporation or bylaws) to provide that director nominees shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders.our Company, serve as our Chairman whenever possible.
Supporting Statement:This proposal gives our company an opportunity to follow SEC Staff Legal Bulletin 14C to cure a Chairman's non-independence. This proposal shall not apply to the extent that compliance would necessarily breach any contractual obligations in effect at the time of the 2007 shareholder meeting.
Our CompanyHarold Mathis, P.O. Box 1209, Richmond, TX 77406 sponsors this proposal.
This proposal is incorporatedrelated to the announcement that Mr. Mark Hurd will become our Chairman and CEO in Delaware. Delaware law providesJanuary 2007. The Financial Times said: Since March 2005, when Mark Hurd was appointed chief executive, shares in Hewlett-Packard soared 62% while those of rival Dell slumped 45%. Even during HP boardroom turmoil because of a scandal over its decision to spy on phone records, HP shares remained almost unnaturally calm.
Investors are belatedly waking up to probably the biggest threat: that a company's certificateMr. Hurd might get caught in the storm. HP shares fell 5% on the morning of incorporationSeptember 21, 2006. The fear is that Mr. Hurd, as CEO, was aware of elements of the investigation that were of dubious legality, or bylaws may specifydid nothing about them when he was made aware. That could raise questions over his judgment, or potentially drag him into more serious investigations by external agencies into the number of votesscandal.
Especially given that shall be necessary forvarious journalists' records were spied on by HP, the transaction ofstory looks unlikely to die any business, includingtime soon.
That leaves HP's fudged response to the elections of directors. (DGCL, Title 8, Chapter 1, Subchapter VII, Section 216.) The law provides that ifcrisis, which gives Mr. Hurd the level of voting support necessary for a specific action is not specifiedchairmanship starting in January 2007, looking increasingly misjudged. Investors want him to run the business. HP's board should have tried to ring-fence him as far as possible from the boardroom shenanigans and brought in a corporation's certificate or bylaws, directors "shall be electedheavy-hitting, external chairman—untainted by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled problems—to vote on the election of directors."
Our Company presently uses the plurality vote standard to elect directors. This proposal requests that the Board initiate a change in the Company's director election vote standard to provide that nominees for the board of directors must receive a majority of the vote cast in order to be elected or re-elected to the Board.
We believe that a majority vote standard in director elections would give shareholders a meaningful role in the director election process. Under the Company's current standard, a nominee in a director election can be elected with as little as a single affirmative vote, even if a substantial majority of the votes cast are "withheld" from the nominee. The majority vote standard would require that a director receive a majority of the vote cast in order to be elected to the Board.
The majority vote proposal received high levels of support last year, winning majority support at Advanced Micro Devices, Freeport McMoRan, Marathon Oil, Marsh and McClennan, Office Depot, Raytheon, and others. Leading proxy advisory firms recommended voting in favor of the proposal.restore order.
Some companies have adopted board governance policies requiring director nomineesInstead, they now face the threat of him taking over as chairman with the scandal still rumbling—and soaking up a lot of his time. Even worse, there is the outside possibility that failthe ongoing investigations recast him as the blundering Hurd and threaten his ability to receive majority support from shareholderscontinue running the company effectively. Shareholders are right to tender their resignations to the board. We believe that these policies are inadequate for they arebe nervous. (End of text based on continued use of the plurality standard and would allow director nominees to be elected despite only minimal shareholder support. We contend that changing the legal standard to a majority vote is a superior solution that merits shareholder support.
Our proposal is not intended to limit the judgment of the Board in crafting the requested governance change. For instance, the Board should address the status of incumbent director nominees who fail to receive a majority vote under a majority vote standard and whether a plurality vote standard may be appropriate in director elections when the number of director nominees exceeds the available board seats.
We urge your support for this important director election reform.The Financial Times article.)
The primary purpose of our Chairman and Board of Directors is to protect shareholders' interests by providing independent oversight of management, including our Chief Executive Officer. Separating the roles of Chairman and CEO can promote greater management accountability to shareholders and lead to a more objective evaluation of our CEO.
The Council of Institutional Investors adopted a Corporate Governance Policy which recommends, "The board should be chaired by an independent director."
An independent Chairman can enhance investor confidence.
Separate the Roles of CEO and Chairman
Vote Yes on 4
MANAGEMENT STATEMENT IN OPPOSITION TO STOCKHOLDER PROPOSAL
This proposal requests that HP adopt a majority voting standard for director elections so that stockholders have a meaningful role in the director election process. As noted in the proposal, HP, a Delaware company, uses a plurality voting standard, the default under Delaware law. The plurality voting standard provides that the nominees who receive the most affirmative votes are elected to serve as HP directors. Most large public companies that are incorporated in Delaware and elsewhere use a plurality voting standard.
After careful consideration, we recommendBoard recommends a vote against this proposal becauserequesting that HP establish a rule in the charter or bylaws separating the roles of the Chairman and CEO. After careful consideration, the Board has determined that it is in the best interests of HP to maintain flexibility with respect to combining or separating the positions of Chairman and CEO. Such flexibility permits the Board to select the most qualified candidate for the position of Chairman, including a member of management, if the Board believes he or she will provide the most effective leadership for HP. At the same time, the Board believes it is important to maintain independent Board leadership, and thus, at the present time when the positions of Chairman and CEO are combined, the independent directors have appointed an independent lead director.
HP has already implementedbeen, and continues to be, a policy (described below)strong advocate of Board independence and has put into place measures to see that addressesits directors provide independent oversight. Currently, seven of the proponent's concerns.nine HP directors are independent within the meaning of HP's director independence standards, which reflect New York Stock Exchange, Inc. and NASDAQ Global Select Market, Inc. listing standards. Moreover, as noted above, the plurality voting standardindependent directors have designated a lead independent director. The lead independent director presides at Board meetings when the Chairman is compatiblenot present, including at the executive sessions of independent directors, serves as a liaison between the Chairman and independent directors, coordinates information sent to the Board, approves meeting schedules to ensure sufficient time to cover all agenda items, is available for consultation and direct communication with HP's cumulative voting provisions, which allowmajor stockholders to aggregate their votes for a single director nominee,upon request and therefore provide stockholders a meaningful ability to express their preferences in the election of directors.
As announced on November 2, 2005, HP has adopted a policy whereby any director nominee who receives a greater number of votes "withheld" from his or her election than votes "for"performs such election will tender his or her resignation for consideration by the Nominatingother functions and Governance Committee. HP believes that this policy is effective in giving stockholders a meaningful role in the election of directors and in removing a director opposed by stockholders. Under HP's policy, a nominee and incumbent director who receives a majority of withheld votes would tender his or her resignation and could be removed from the Board. By contrast, the majority voting standardresponsibilities as requested by the proposal only addressesBoard from time to time.
HP's current corporate governance structure provides the voting requirement for being electedflexibility to choose the Board. It does not remove incumbent directorsmost effective leadership, while maintaining independent Board leadership through the lead independent director. Depriving the Board of the ability to exercise its business judgment to decide who have not received a majority vote because under Delaware law, an incumbent director who is not re-elected "holds over" and continuesthe best candidate to serve with the same voting rightsas Chairman is would be detrimental to HP and powers until his or her successorits stockholders. There is elected and qualified. Therefore, even if the proposal were adopted, HP could not force a director who failed to receive a majority vote to leave the Board until the next annual meeting.
The HP policy also gives stockholders a meaningful roleno clear consensus in the director election process without interfering with cumulative voting. The ability to cumulate votes in director electionsUnited States that separating the roles of Chairman and CEO is universally recognized as protecting stockholder rights. A majority voting standard may raise difficult issues indesirable. In fact, more than two-thirds of Fortune 500 companies combine the contextpositions of cumulative voting. While the rules governing plurality voting are well understood, majority voting at companies that have cumulative voting presents technicalChairman and legal issues for which there is no precedent. These difficulties have led the American Bar Association Committee on Corporate Laws, the Council of Institutional Investors and the Institutional Shareholder Services Institute for Corporate Governance to indicate that majority voting should not apply to companies that allow cumulative voting. HP's voting system must be a reliable process for the election of qualified directors to represent the interests of all of our stockholders. In the absence of uniform, workable standards that can be consistently applied by all companies and that take into account the special circumstances of companies with cumulative voting, HP believes it would be inappropriate to adopt a majority voting standard.CEO.
For the reasons described above, the Board recommends a vote AGAINST this proposal.
STOCKHOLDER PROPOSAL ENTITLEDRECOUP UNEARNED MANAGEMENT BONUSES
SUBJECT ANY FUTURE POISON PILL TO SHAREHOLDER VOTE
HP has received a stockholder proposal from Mr. Nick Rossi, custodian for Katrina Wubbolding, P.O. Box 249, Boonville, California, 95415.represented by John Chevedden. Mr. Rossi has requested that HP include the following proposal and supporting statement in its proxy statement for the 20062007 annual meeting of stockholders, and, if properly presented, this proposal will be voted on at the annual meeting. HP will provide Mr. RossiRossi's address and the number of shares that he beneficially owns 206 sharesupon oral or written request of HP common stock.any stockholder. The stockholder proposal is quoted verbatim in italics below.
Management of HP does not support the adoption of the resolution proposed below and asks stockholders to consider management's response, which follows the stockholder proposal.
Our Board recommends a vote AGAINST Proposal No. 5.5
Vote Required
Approval of the stockholder proposal requires the affirmative vote of a majority of the shares of HP common stock present in person or represented by proxy and entitled to be voted on the proposal at the annual meeting.
STOCKHOLDER PROPOSAL
5–5—Recoup Unearned Management BonusesSubject Any Future Poison Pill to Shareholder Vote
RESOLVED:Recoup Unearned Management Bonuses. Shareholders request that our Board adopt a rule that our Board subject any future poison pill to shareholder vote, as a separate ballot item, as soon as possible. It is essential to this proposal that it be adopted through bylaw or charter inclusion and that a sunset on a poison pill will not substitute for a shareholder vote.
Nick Rossi, P.O. Box 249, Boonville, Calif. 95415 sponsors this proposal.
Pills Entrench Current Management
"Poison pills... prevent shareholders, and the overall market, from exercising their right to discipline management by turning it out. They entrench the current management, even when it's doing a poor job. They water down shareholders' votes and deprive them of a meaningful voice in corporate affairs."
"Take on the Street" by Arthur Levitt, SEC Chairman, 1993-2001
Our Board has less accountability if it can adopt a future poison pill without a shareholder vote. I believe this proposal is consistent with other proposals to improve the lack of accountability of our Board.
For instance, a proposal that seeks access to H-P's proxy in order to allow shareholders groups more say in who gets on the H-P board has been submitted for the 2007 annual meeting. The proposal asks H-P to change its bylaws to allow groups that hold 3% or more of the company's stock to be able to post nominations for H-P board members. The sponsors are retirement funds from the states of New York, Connecticut and North Carolina plus the American Federation of State, County and Municipal Employees Pension Funds (AFSCME). The four funds own a combined 30 million H-P shares worth about $676 million.
At least one governance expert goes so far as to recommend a complete sweep of the existing board. "I think you clean house," said Charles Elson, the chairman of the John L. Weinberg Center for Corporate Governance at the University of Delaware. "You do it in a logical, determined, measured way, but I think over the next couple of years you need to reconstitute that board." Elson suggested to Business Week to start with those who had the closest connections to past management.
There are additional improvements our Board can make. For one, the new majority-vote rule only goes so far: The board can still reject a member's resignation, making the rule, which can be rescinded, "pretty slippery,"
Nell Minow told Business Week. Minow is the co-founder and editor of governance adviser The Corporate Library.
The board should also turn to a new outside attorney, said governance experts. Larry Sonsini, H-P outside attorney, suggested that the H-P Board leak investigation was "within legal limits" and then helped run an H-P board meeting after news of the scandal broke.
To improve the lack of accountability of our Board...
Subject Any Future Poison Pill to Shareholder Vote
Yes on 5
MANAGEMENT STATEMENT IN OPPOSITION TO STOCKHOLDER PROPOSAL
The Board recommends a vote against this proposal requesting that HP submit any future stockholder rights plan (often referred to as a "poison pill") to a vote of HP's stockholders because in 2003 the Board adopted a policy (described below) that addresses the proposal's objective. The Board believes that the existing policy addresses the proposal's objective because it gives stockholders the assurance that the Board will not adopt a future stockholder rights plan without stockholder approval except where the Board determines it to be in the best interest of stockholders.
In July 2003, the Board adopted a policy providing that HP will submit any future stockholder rights plan to a stockholder vote, subject only to the ability of the Board to adopt a policy whereby,stockholder rights plan on its own if, in the eventexercise of its fiduciary duties under Delaware law, the Board determines that adoption of a stockholder rights plan prior to stockholder approval would be in the best interests of stockholders (often called a "fiduciary out"). HP currently does not have a stockholder rights plan, as the Board terminated the previous rights plan and the preferred share purchase rights issued under the rights plan effective January 21, 2003.
The existing policy was designed to balance the concerns of stockholders with the Board's fiduciary responsibilities under Delaware law. The Board announced the adoption of its policy following stockholders' approval of a similar proposal submitted by the proponent at HP's 2003 annual meeting. The policy responds directly to stockholders' concerns by setting forth a process that the Board must follow in considering and, if applicable, implementing a stockholder rights plan.
Further, as provided by Delaware law, the Board must have the ability to adopt a stockholder rights plan in certain circumstances without the prior approval of stockholders in order to protect the interests of HP's stockholders. Delaware counsel has advised the Board that a commitment to submit all future stockholder rights plans to a stockholder vote without a fiduciary out would be impermissible under Delaware law. Such a blanket requirement that stockholders approve all rights plans under all circumstances could, in certain circumstances, prevent the directors from fulfilling their fiduciary responsibilities, especially in the context of preventing certain unfair and coercive takeover attempts. Thus, the policy gives the Board the flexibility to adopt a stockholder rights plan in the future when, consistent with its fiduciary duties under Delaware law, the Board determines this action is necessary and in the best interests of the stockholders.
While the proposal requests that the Board adopt a bylaw or charter amendment, the existing policy requires the Board to follow the same process regardless of whether that process is included in a Board policy, HP's Bylaws or HP's Certificate of Incorporation. HP's Board will adopt a stockholder rights plan only if the Board first submits the plan to a stockholder vote, unless the Board determines, in the exercise of its fiduciary duties, that it is in the best interests of HP's stockholders to adopt a rights plan without delay.
The Board believes that its existing policy addresses the concerns raised by the proposal, and accordingly, the proposal is unnecessary.
For the reasons described above, the Board recommends a vote AGAINST this proposal.
STOCKHOLDER PROPOSAL ENTITLED
LINK PAY TO PERFORMANCE
HP has received a stockholder proposal from William Steiner, represented by John Chevedden. Mr. Steiner has requested that HP include the following proposal and supporting statement in its proxy statement for the 2007 annual meeting of stockholders, and, if properly presented, this proposal will be voted on at the annual meeting. HP will provide Mr. Steiner's address and the number of shares that he beneficially owns upon oral or written request of any stockholder. The stockholder proposal is quoted verbatim in italics below.
Management of HP does not support the adoption of the resolution proposed below and asks stockholders to consider management's response, which follows the stockholder proposal.
Our Board recommends a vote AGAINST Proposal No. 6
Vote Required
Approval of the stockholder proposal requires the affirmative vote of a majority of the shares of HP common stock present in person or represented by proxy and entitled to be voted on the proposal at the annual meeting.
STOCKHOLDER PROPOSAL
6–Link Pay to Performance
RESOLVED: Shareholders request the Board of Directors adopt a long-term policy that a significant restatementportion of financial results or significant extraordinary write-off, our board will review all bonuses and any other awards that were madefuture long-term equity compensation to senior executives on the basis of having met or exceeded specificshall be performance-based, i e., linked to demonstrable performance criteria, measured by challenging performance targets, duringand using as benchmarks such criteria as Hewlett-Packards' performance compared to its peers and a broader market standard.
Mr. William Steiner, 112 Abbottsford Gate, Piermont, NY 10968 sponsors this proposal.
The Corporate Library (TCL), an independent investment research firm in Portland, Maine expressed concern about executive pay not linked to demonstrable performance criteria at H-P. TCL said H-P executive compensation was a "Very High Concern" category:
"The amount of the restatement period and will recoup forCEO's 'Other Annual Compensation' questions the benefit of our Company all such bonuses or awardsboard's ability to the extentensure that the specified performance targets were not achievedexecutive compensation process is sufficiently performance-related."
TCL also said that Performance-Based CEO Compensation is a key indicator of board independence. Additionally Mr. Mark Hurd, H-P Chairman and focus on those employees most responsible. This would include that all applicable employment agreements adopt enabling text in an expedited manner as soon as feasibly possible and/or retroactively.CEO, had annual pay of $23 million according to TCL.
Important Because Our Board Has a RecordHistory of OvercompensationOver-Paying
On February 8, 2005 our Board ousted our chairpersonChairperson Carleton Fiorina. Our board shoulders much of the blame for both Ms. Fiorina's pay and her failure. Our board delivered excess pay to Ms. Fiorina in the beginning, front-loaded, with a massive value not related to performance.
Ms. Fiorina received almost $180 million in pay during her tenure, including a $21 million severance.
Our Board approved the pay in question, including the "golden hello",hello," the excess base salary the substantial stock option awards and the excessive severance package. None of these were properly tied to performance,performance; indeed most were completely independent of it. Consequently our board should not be surprised that since October 1998, Hewlett-Packard lost $41 in share price. If pay is delivered regardless of performance, there is no incentive to deliver performance. If our board had made all but the basic fixed elements of Ms. Fiorina's pay dependent on both turning HP around and realizing the so-called promise of the Compaq merger, then HP stockholders would be richer.
Text of the above three paragraphs based on a 2005 report from The Corporate Library (TCL), an independent investment research firm in Portland, Maine.
Similar to Proposal Voted at Computer Associates
This proposal is similar to the proposal voted at the Computer Associates (CA) August 2004 annual meeting. In October 2003 Computer Associates announcedI believe that it had inflated revenues in the fiscal year ending March 31, 2000 by reporting revenue from contracts before they had been signed.
Bonusesour Board of Directors should adopt a more rigorous standard for senior executivesexecutives' incentive pay—one that year were based on income exceeding goals. Sanjay Kumar, then CEO, received a $3.2 million bonusconsiders both our company's performance and 80,000 shares based on Computer Associates' supposedly superioralso how that performance in 2000. Mr. Kumar did not offercompares to return his bonuses based on discredited earnings.
There is no excuse for over-compensation based on discredited earnings at any company. This proposal will give shareholders more options if we find ourselves in a situation with similarities toits peers and the Computer Associates scenario. If it appears that our Company reported erroneous results that must be restated downward, then our board should be enabled by adoption of this proposal to recoup money that was not earned or deserved.broader market.
Recoup Unearned Management BonusesLink Pay to Performance
Vote Yes on 56
MANAGEMENT STATEMENT IN OPPOSITION TO STOCKHOLDER PROPOSAL
The Board recommends a vote against this proposal. The Board believes that HP's executive compensation arrangements are already substantially performance-related in a manner that aligns the interests of the executive officers with those of the stockholders. In addition, the Board believes that adopting the proposal would put HP at a competitive disadvantage in hiring and retaining executives. The proposal also fails to take into account non-financial performance measures that are essential in the evaluation of executive performance.
The HR and Compensation Committee of the Board, which is composed solely of independent directors, sets executive compensation in a manner it believes to be in the best interests of HP and its stockholders. HP's executive compensation programs are designed to attract and retain highly qualified executives and to motivate executives to maximize stockholder returns. In determining compensation, the committee considers HP's compensation and benefits programs holistically. The HRcomponents of compensation and Compensation Committeebenefits include: (1) base pay, (2) variable pay, (3) rewards and the Board agree that a review of executive performance-based compensation is appropriate when resultsrecognition programs, (4) equity, and (5) benefits. Of these components, variable pay and equity are restated due to fraud or misconduct,performance-related, and the Board has adopted a policy that addresses the fundamental concerns expressed by the proposal. The Board believes that the key concerns expressed by this proposal are already addressed by the policy adopted by the Board, as well as the Sarbanes-Oxley Act of 2002. In contrast, the stockholder proposal adopts an overly mechanistic approach to this issue. In addition, the Board believes that it would be difficult or impossible to implement some aspects of this proposal because the proposal is vague in some respects and would cause HP to violate existing contractual obligations in other respects. Accordingly, after careful consideration, the Board recommends a vote against the stockholder's proposal.
The Board believes that the fundamental concerns expressed by the proposal are already largely addressed. Upon the recommendation of the HR and Compensation Committee, the Board has implemented a policy that accomplishes many of the underlying goals raised by the proposal, without mechanistically recouping bonuses in inequitable circumstances or violatingfor most HP's existing contractual commitments. In particular, the policy provides:
In the event of a significant restatement of financial results, our Board will review all bonuses that were made to senior executives, onthese two components make up the basismajority of having met or exceeded specific performance targets for performance periods beginning after December 31, 2005 which occur during the restatement period. If such bonuses would have been lower had they been calculated based on such restated results, the Board will, to the extent permitted by governing law, seek to recoup for the benefit of our company all such bonuses to senior executives whose fraud or misconduct resulted in such restatement, as determined by the Board. For purposes of this policy, the term "senior executives" means executive officers for purposes of the Securities Exchange Act of 1934, as amended, and the term "bonuses" means bonuses and awards undercompensation. The variable pay programs include the Pay-for-Results ("PfR") Program (a one-year bonus program) and the Long-Term Performance Cash Program.Program (the "LTPC Program") (a three year bonus program). The performance metrics for the PfR Program are based on revenue and non-GAAP net profit, and HP must have improvements over prior year revenue and non-GAAP net profit for bonuses to be paid. The LTPC program uses balance sheet and total stockholder return performance measures. Thus, each program requires the achievement of specific, pre-established financial goals as a condition of payout.
Moreover,HP's equity awards mostly consist of stock option grants, which require achievement of improved financial performance to realize gains. HP option grants are generally subject to a four-year vesting period (25% vesting each year) and have an eight-year term. As options are granted at fair market value on the Sarbanes-Oxley Actdate of 2002 already requires thatgrant, the recipient has no economic benefit from the grant unless HP's stock price increases during the term of the option. Likewise, restricted stock awards also align the interests of employees with the interests of stockholders by focusing employee efforts on improved company performance as reflected through an increase in the casecompany's stock price. In addition, HP's stock ownership guidelines are designed to increase executives' equity stakes in HP and to align executives' interests more closely with those of accounting restatements duestockholders. The guidelines provide that the CEO should attain an investment position in HP's stock equal to five times his base salary and all other executive officers should attain an investment position equal to three times their base salary. These guidelines should be achieved within five years.
The Board also opposes the issuer's material non-compliance, asproposal because it believes it would put HP at a competitive disadvantage in recruiting and retaining executives. As described in last year's proxy, HP negotiated an employment contract with Mr. Hurd that included certain equity awards, guaranteed performance payments and certain benefits in the event of termination. The contract was the result of misconduct,an arms-length negotiation, and the Board believed that each of these components was necessary to recruit Mr. Hurd. Furthermore, with any financial reporting requirement underrespect to existing executives, several of HP's executives have been approached regarding potential offers of employment from other companies, including HP's competitors. Thus, in order to have the securities laws,ability to recruit and retain its executives, the company's chief executive officer and chief financial officerBoard believes it must have the full range of compensation reward vehicles at its disposal, as well as full discretion to make awards it believes are in HP's overall interests.
must reimburse the company for any bonus or other incentive-based or equity-based compensation and profits from the sale of the company's securities during the 12-month period following initial publication of the financial statement that had to be restated.
The proposal is fundamentally flawed because of its mechanistic approach. Under the proposal, the Board would be required to recoup all affected bonuses and awards to executive officers without regard to the relevant facts and circumstances present in a particular case, including whether the restatement was merely due to a change in accounting pronouncements. Because the proposal could put a substantial portion of performance-based compensation at risk due to events over which an executive had no control and would prevent the Board from considering all relevant facts and circumstances, we believe that attempted implementation of the proposal would be inequitable, thereby negatively affecting employee morale and inhibiting HP's ability to attract, retain and motivate executive talent.
Finally, the proposal would be difficult or impossiblefails to implement as written. In particular,recognize the fact that superior performance by HP executives requires more than an increase in stock price. For example, evaluation of Mr. Hurd's performance by the Board includes not only a review of HP's financial performance, but also Mr. Hurd's leadership abilities, people development, management of external relationships and effectiveness in working with the Board. Succession planning and development of people within HP is critical to HP's future success. Thus, the Board opposes the proposal requiresbecause it fails to take into account the broad range of performance measures that in the event of a "significant extraordinary write-off," the Board will recoup all bonusesgo into evaluating executive performance and awards that were made to senior executives "during the restatement period." Since there are no "restatement periods" associated with write-offs, it is not possible to tell which bonuses should be recouped. Moreover, our existing employment agreements and the agreements governing bonuses and long-term performance cash previously awarded to our senior executives do not provide for recouping bonuses in the event of a restatement. While future awards could include provisions for recouping bonuses, HP cannot unilaterally change the terms of preexisting agreements without violating its contractual commitments.setting executive compensation.
For the reasons described above, the Board recommends a vote AGAINST this proposal.
COMMON STOCK OWNERSHIP OF
CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of December 31, 2005,2006, concerning beneficial ownership by:
There are currently no known beneficial owners of more than 5% of HP's common stock.
The information provided in the table is based on HP's records, information filed with the SEC and information provided to HP, except where otherwise noted.
The number of shares beneficially owned by each entity or individual is determined under SEC rules, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the entity or individual has sole or shared voting power or investment power and also any shares that the entity or individual has the right to acquire as of March 1, 20062007 (60 days after December 31, 2005)2006) through the exercise of any stock option or other right. Unless otherwise indicated, each person has sole voting and investment power (or shares such powers with his or her spouse) with respect to the shares set forth in the following table.
Name of Beneficial Owner | Amount of Beneficial Ownership | Nature of Beneficial Ownership(1) | Percent of Class | |||
---|---|---|---|---|---|---|
Beneficial Owners of More than 5% | ||||||
Capital Research and Management Company 333 South Hope Street, 55th Floor Los Angeles CA 90071 | 156,949,130 | (2) | 5.6% | |||
Current Directors and Nominees: | ||||||
Lawrence T. Babbio, Jr. | 28,028 117,801 | Direct Vested Options | ||||
145,829 | * | |||||
Sari M. Baldauf | 0 | * | ||||
Patricia C. Dunn | 65,996 40,000 | Direct Vested Options | ||||
105,996 | * | |||||
Richard A. Hackborn | 40,239 40,000 | Direct Vested Options | ||||
80,239 | * | |||||
John H. Hammergren | 1,708 2,600 | Direct Indirect(3) | ||||
4,308 | * | |||||
Name of Beneficial Owner | Amount of Beneficial Ownership | Nature of Beneficial Ownership(1) | Percent of Class | |||||
---|---|---|---|---|---|---|---|---|
Current Directors and Nominees: | ||||||||
Direct | ||||||||
122,160 | Vested Options | |||||||
* | ||||||||
* | ||||||||
44,862 | Direct | |||||||
40,000 | Vested Options | |||||||
* | ||||||||
John H. Hammergren | 1,708 | Direct | ||||||
2,600 | Indirect(2) | |||||||
4,308 | * | |||||||
Robert L. Ryan | Direct | |||||||
* | ||||||||
Lucille S. Salhany | Direct | |||||||
110,480 | Vested Options | |||||||
* | ||||||||
Direct | ||||||||
466,919 | Direct | |||||||
350,000 | Vested Options | |||||||
* | ||||||||
Current Director and Named Executive Officer: | ||||||||
Robert P. Wayman | 156,832 | Direct | ||||||
119,582 | Indirect(3) | |||||||
1,182,114 | Vested Options | |||||||
1,458,528 | * | |||||||
Current Named Executive Officers: | ||||||||
Direct | ||||||||
52,313 | Indirect(4) | |||||||
863,358 | Vested Options | |||||||
* | ||||||||
Direct | ||||||||
3,854 | Indirect(5) | |||||||
2,251,500 | Vested Options | |||||||
* | ||||||||
Direct | ||||||||
48,265 | Indirect(6) | |||||||
391,250 | Vested Options | |||||||
* | ||||||||
All current directors and executive officers as a group | ||||||||
* |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, requires our directors, executive officers and holders of more than 10% of HP common stock to file reports with the SEC regarding their ownership and changes in ownership of our securities. HP believes that, during fiscal 2005,2006, its directors, executive officers and 10% stockholders complied with all Section 16(a) filing requirements, with the exceptions noted herein. One late Form 4 was filed by Ann O. BaskinsRobert P. Wayman on February 9, 2005September 6, 2006 to report an option exercise on November 15, 2004.August 31, 2006. One late Form 4 was filed by Dick LampmanShane V. Robison on December 7, 2004May 24, 2006 to report a salethe release of shares of restricted stock on November 23, 2004.May 15, 2006. One late Form 4 was filed by Duane ZitznerGeorge A. Keyworth II on December 22, 2005 to report a purchase of shares by Mr. Keyworth's spouse on November 12, 2004 to report an option exercise and same day sale on November 9, 2004.21, 2005. One late Form 4 was filed by Marcela Perez De AlonsoAnn O. Baskins on January 20, 2005December 22, 2006 to report a dispositiongifts of shares for tax withholding purposesto Ms. Baskins' sons that were not timely reported on January 15, 2005.Form 5. In making these statements, HP has relied upon examination of the copies of Forms 3, 4, and 5, and amendments thereto, provided to HP and the written representations of its directors, executive officers and 10% stockholders.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 2005, Ms. Lyons, an HP executive officer, repaid $85,037.46 plus $23,806.19 in interest to HP for required withholding taxes that HP paid on behalf of Ms. Lyons upon the release of a restricted stock grant prior to the time that she became an executive officer.
The following table discloses compensation received by HP's current CEO, each other person who served as CEO during fiscal 2005, HP'schief executive officer and four other most highly paid executive officers and a former executive officer who would have been among HP's four most highly paid executive officers at the end of fiscal 20052006 (collectively, the "named executive officers") and their compensation from HP for each of the fiscal years ending October 31, 2006, 2005 2004 and 2003.2004.
| | Long Term Compensation | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Annual Compensation | Awards | Payouts | | |||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | ||||||||||||||||||||
Name and Principal Position | Year | Salary ($) | Bonus ($)(1) | Other Annual Compensation | Restricted Stock Award(s) ($)(3) | Securities Underlying Options/SARs(#) | LTIP Payouts ($)(4) | ($)(5) | ||||||||||||||||||||
Mark V. Hurd Chairman of the Board, Chief Executive Officer and President | 2006 2005 2004 | 816,667 0 | 8,624,000 5,131,333 0 | 338,580 492,858 0 | 4,725,000 8,684,000 0 | 500,000 1,150,000 0 | 3,956,355 0 0 | 8,119,977 0 | ||||||||||||||||||||
Robert P. Wayman(6) Former Executive Vice President and Chief Financial Officer | 2006 2005 2004 | 975,000 975,000 | 4,095,000 4,513,688 546,342 | 51,953 130,008 80,512 | 0 0 330,150 | 150,000 400,000 300,000 | 4,063,759 0 0 | 12,542 12,307 | ||||||||||||||||||||
Vyomesh I. Joshi Executive Vice President, Imaging and Printing Group | 2006 2005 2004 | 793,750 775,000 775,000 | 2,369,343 1,002,656 361,886 | 22,217 21,750 36,474 | 1,890,000 4,109,500 330,150 | 340,000 500,000 300,000 | 6,772,931 0 0 | 10,335 12,635 | ||||||||||||||||||||
Ann M. Livermore Executive Vice President, Technology Solutions Group | 2006 2005 2004 | 793,750 775,000 764,583 | 2,762,250 789,448 355,674 | 95,392 68,463 164,262 | 2,110,500 3,057,000 330,150 | 340,000 400,000 500,000 | ||||||||||||||||||||||
0 0 | ||||||||||||||||||||||||||||
Shane Robison Executive Vice President and Chief | 2006 2005 2004 | 746,250 717,500 668,750 | 2,611,875 760,725 246,576 | 23,340 22,369 22,094 | 1,575,000 3,688,500 330,150 | 300,000 400,000 300,000 | 2,709,173 0 0 | |||||||||||||||||||||
earned under the Executive PfR Plan: Mr. Hurd, $2,898,000; Mr. Wayman, $1,513,688; Mr. Joshi, $1,002,656; Ms. Livermore, $789,448; Mr. Bradley, $724,796; Mr. Mott, $438,231; and Mr. Winkler, $751,992.
under the PfR Plan. The HR and Compensation Committee awarded a bonus outside of the variable pay plans for all employees in an aggregate amount shownof $90 million for HP's performance in thisthe fourth quarter of fiscal 2004. This column for Mr. Bradleyalso includes the $1,000,000 signing bonus described in "Employment Contracts, Termination of Employmentfollowing amounts paid to the named executive officers pursuant to that action: Mr. Wayman, $197,438; Mr. Joshi, $130,781; Ms. Livermore, $130,781; and Change-in-Control Arrangements—Employment Agreement with R. Todd Bradley" beginning on page 53.
PERQUISITES TABLE FOR FISCAL 2006 | PERQUISITES TABLE FOR FISCAL 2006 | ||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Security Services/ Systems | Personal Aircraft Usage Non-relocation | Personal Aircraft Usage Relocation | Personal Automobile Usage | Financial Counseling | Tax Reimbursements | Total | Security Services/ Systems | Personal Aircraft Usage | Financial Counseling | Tax Reimbursements | Miscellaneous | Total | ||||||||||||||||||||||||||
Mark V. Hurd | $ | 109,835 | $ | 59,559 | $ | 237,095 | N/A | $ | 10,500 | $ | 75,869 | $ | 492,858 | $ | 119,328 | $ | 111,067 | $ | 18,000 | $ | 88,042 | $ | 2,143 | $ | 338,580 | ||||||||||||||
Robert P. Wayman | N/A | 106,774 | N/A | N/A | 18,000 | 5,234 | 130,008 | $ | 0 | $ | 27,839 | $ | 18,000 | $ | 1,957 | $ | 4,157 | $ | 51,953 | ||||||||||||||||||||
Vyomesh I. Joshi | N/A | 296 | N/A | N/A | 18,000 | 3,454 | 21,750 | $ | 0 | $ | 1,464 | $ | 18,000 | $ | 2,616 | $ | 137 | $ | 22,217 | ||||||||||||||||||||
Ann M. Livermore | N/A | 50,223 | N/A | N/A | 18,000 | 240 | 68,463 | $ | 0 | $ | 73,916 | $ | 18,000 | $ | 2,973 | $ | 503 | $ | 95,392 | ||||||||||||||||||||
R. Todd Bradley | N/A | 10,263 | N/A | N/A | 7,500 | 267 | 18,030 | ||||||||||||||||||||||||||||||||
Randall D. Mott | N/A | 2,291 | N/A | N/A | 6,000 | N/A | 8,291 | ||||||||||||||||||||||||||||||||
Former Officers | |||||||||||||||||||||||||||||||||||||||
Carleton S. Fiorina | 308 | 46,047 | N/A | $ | 180 | 6,000 | 7,979 | 60,513 | |||||||||||||||||||||||||||||||
Michael J. Winkler | N/A | 1,499 | N/A | N/A | 18,000 | 4,800 | 24,751 | ||||||||||||||||||||||||||||||||
Shane V. Robison | $ | 0 | $ | 18,319 | $ | 0 | $ | 2,785 | $ | 2,236 | $ | 23,340 |
| Number of Shares | Value | |||
---|---|---|---|---|---|
Mark V. Hurd | 400,000 | $ | 11,216,000 | ||
Robert P. Wayman | 0 | 0 | |||
Vyomesh I. Joshi | 200,000 | 5,608,000 | |||
Ann M. Livermore | 150,000 | 4,206,000 | |||
R. Todd Bradley | 100,000 | 2,804,000 | |||
Randall D. Mott | 285,000 | 7,991,400 | |||
Former Officers | |||||
Carleton S. Fiorina | 0 | 0 | |||
Michael J. Winkler | 0 | 0 |
Name | Number of shares | Value | |||
---|---|---|---|---|---|
Mark V. Hurd | 416,666 | $ | 16,141,641 | ||
Robert P. Wayman | 0 | $ | 0 | ||
Vyomesh I. Joshi | 235,000 | $ | 9,103,900 | ||
Ann M. Livermore | 217,000 | $ | 8,406,580 | ||
Shane V. Robison | 215,000 | $ | 8,329,100 |
Name | 401(k) Company Match | Term-Life Insurance Payment | Mortgage Interest Subsidy | Relocation Bonus | Relocation Expenses | Legal Fees | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mark V. Hurd | |||||||||||||||||||
2005 | N/A | $ | 2,320 | $ | 53,288 | $ | 2,750,000 | $ | 270,038 | $ | 43,910 | ||||||||
2004 | N/A | N/A | N/A | N/A | N/A | N/A | |||||||||||||
2003 | N/A | N/A | N/A | N/A | N/A | N/A | |||||||||||||
Robert P. Wayman | |||||||||||||||||||
2005 | $ | 8,400 | 4,142 | N/A | N/A | N/A | N/A | ||||||||||||
2004 | 8,200 | 4,107 | N/A | N/A | N/A | N/A | |||||||||||||
2003 | 8,000 | 3,289 | N/A | N/A | N/A | N/A | |||||||||||||
Vyomesh I. Joshi | |||||||||||||||||||
2005 | 8,400 | 1,935 | N/A | N/A | N/A | N/A | |||||||||||||
2004 | 11,400 | 1,235 | N/A | N/A | N/A | N/A | |||||||||||||
2003 | 4,800 | 842 | N/A | N/A | N/A | N/A | |||||||||||||
Ann M. Livermore | |||||||||||||||||||
2005 | 8,400 | 1,278 | N/A | N/A | N/A | N/A | |||||||||||||
2004 | 8,200 | 1,151 | N/A | N/A | N/A | N/A | |||||||||||||
2003 | 8,000 | 595 | N/A | N/A | N/A | N/A | |||||||||||||
R. Todd Bradley | |||||||||||||||||||
2005 | N/A | 1,201 | N/A | N/A | N/A | N/A | |||||||||||||
2004 | N/A | 0 | N/A | N/A | N/A | N/A | |||||||||||||
2003 | N/A | 0 | N/A | N/A | N/A | N/A | |||||||||||||
Randall D. Mott | |||||||||||||||||||
2005 | N/A | 1,143 | N/A | 300,000 | N/A | 31,456 | |||||||||||||
2004 | N/A | 0 | N/A | 0 | N/A | 0 | |||||||||||||
2003 | N/A | 0 | N/A | 0 | N/A | 0 | |||||||||||||
Former Officers | |||||||||||||||||||
Carleton S. Fiorina | |||||||||||||||||||
2005 | 8,850 | 2,320 | 0 | N/A | N/A | N/A | |||||||||||||
2004 | 8,750 | 2,209 | 36,343 | N/A | N/A | N/A | |||||||||||||
2003 | 7,000 | 1,394 | 83,589 | N/A | N/A | N/A | |||||||||||||
Michael J. Winkler | |||||||||||||||||||
2005 | 8,400 | 2,974 | N/A | N/A | N/A | N/A | |||||||||||||
2004 | 8,200 | 2,921 | N/A | N/A | N/A | N/A | |||||||||||||
2003 | 8,000 | 3,280 | N/A | N/A | N/A | N/A |
Name | 401(k) Company Match | Term-Life Insurance Payment | ||||
---|---|---|---|---|---|---|
Mark V. Hurd 2006 2005 2004 | $ | 13,200 N/A N/A | $ $ | 1,960 2,320 N/A | ||
Robert P. Wayman 2006 2005 2004 | $ $ $ | 8,800 8,400 8,200 | $ $ $ | 4,781 4,142 4,107 | ||
Vyomesh I. Joshi 2006 2005 2004 | $ $ $ | 8,800 8,400 11,400 | $ $ $ | 1,728 1,935 1,235 | ||
Ann M. Livermore 2006 2005 2004 | $ $ $ | 8,800 8,400 8,200 | $ $ $ | 1,127 1,278 1,151 | ||
Shane V. Robison 2006 2005 2004 | $ $ $ | 0 0 0 | $ $ $ | 1,623 1,729 1,001 |
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in fiscal 20052006 by HP to each of the named executive officers. HP did not grant any stock appreciation rights to the named executive officers during fiscal 2005.2006.
Name | Number of Securities Underlying Options Granted(1)(2) | Percent of Total Options Granted to Employees in Fiscal Year(3) | Exercise Price ($/Share) | Expiration Date | Grant Date Present Value ($)(4) | Number of Securities Underlying Options Granted(1)(2) | Percent of Total Options Granted to Employees in Fiscal Year(3) | Exercise Price ($/Share) | Expiration Date | Grant Date Present Value ($)(4) | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mark V. Hurd | 700,000 450,000 | 1.1 0.7 | % % | $ | 21.730 21.730 | March 2013 March 2013 | $ | 3,784,877 2,433,135 | 500,000 | 1.0 | % | $ | 31.50 | 1/23/2014 | $ | 4,810,000 | ||||||||
Robert P. Wayman | 400,000 | 0.6 | % | 21.770 | April 2013 | 2,166,768 | 150,000 | 0.3 | % | $ | 32.70 | 5/18/2014 | $ | 1,539,000 | ||||||||||
Vyomesh I. Joshi | 500,000 | 0.8 | % | 21.770 | April 2013 | 2,708,460 | 340,000 | 0.7 | % | $ | 31.50 | 1/23/2014 | $ | 3,070,200 | ||||||||||
Ann M. Livermore | 400,000 | 0.6 | % | 21.770 | April 2013 | 2,166,768 | 340,000 | 0.7 | % | $ | 31.50 | 1/23/2014 | $ | 3,270,800 | ||||||||||
R. Todd Bradley | 400,000 | 0.6 | % | 23.770 | June 2013 | 2,365,828 | ||||||||||||||||||
Randall D. Mott | 500,000 | 0.8 | % | 24.930 | July 2013 | 3,101,604 | ||||||||||||||||||
Former Officers | ||||||||||||||||||||||||
Carleton S. Fiorina(6) | 0 | N/A | N/A | N/A | N/A | |||||||||||||||||||
Michael J. Winkler(7) | 0 | N/A | N/A | N/A | N/A | |||||||||||||||||||
Shane V. Robison | 300,000 | 0.6 | % | $ | 31.50 | 1/23/2014 | $ | 2,886,000 |
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table provides information on option exercises with respect to HP common stock in fiscal 20052006 by each of the named executive officers and the values of each of such officer's unexercised options at October 31, 2005.2006. There were no stock appreciation rights for the named executive officers exercised or outstanding.
| | | Number of Securities Underlying Unexercised Options at Fiscal Year-End(2) | Value of Unexercised In-The-Money Options at Fiscal Year-End(3) | | | Number of Securities Underlying Unexercised Options at Fiscal Year-End(2) | Value of Unexercised In-The-Money Options at Fiscal Year-End(3) | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| # of Shares Acquired on Exercise | Value Realized(1) | # of Shares Acquired on Exercise | Value Realized(1) | ||||||||||||||||||||||||||
Name | Exercisable | Unexercisable | Exercisable | Unexercisable | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||||||||
Mark V. Hurd | 0 | $ | 0 | 0 | 1,150,000 | $ | 0 | $ | 7,256,500 | 100,000 | $ | 1,366,160 | 225,000 | 1,325,000 | $ | 3,827,250 | $ | 17,653,250 | ||||||||||||
Robert P. Wayman | 252,386 | 2,128,108 | 1,672,298 | 875,000 | 5,397,897 | 6,338,875 | 690,184 | $ | 8,600,712 | 1,332,114 | 675,000 | $ | 12,046,913 | $ | 10,231,875 | |||||||||||||||
Vyomesh I. Joshi | 101,918 | 1,123,679 | 976,352 | 1,075,000 | 3,198,286 | 8,195,876 | 500,000 | $ | 6,755,525 | 901,352 | 990,000 | $ | 8,307,145 | $ | 14,210,350 | |||||||||||||||
Ann M. Livermore | 30,716 | 277,212 | 2,030,490 | 1,025,000 | 6,115,048 | 7,242,625 | 163,990 | $ | 2,665,124 | 2,266,500 | 965,000 | $ | 21,952,660 | $ | 13,459,975 | |||||||||||||||
R. Todd Bradley | 0 | 0 | 0 | 400,000 | 0 | 1,710,000 | ||||||||||||||||||||||||
Randall D. Mott | 0 | 0 | 0 | 500,000 | 0 | 1,555,000 | ||||||||||||||||||||||||
Former Officers | ||||||||||||||||||||||||||||||
Carleton S. Fiorina(4) | 2,250,000 | 6,279,000 | 3,815,852 | 0 | 0 | 0 | ||||||||||||||||||||||||
Michael J. Winkler(5) | 192,764 | 1,785,891 | 1,536,334 | 284,228 | 5,050,898 | 2,556,529 | ||||||||||||||||||||||||
Shane V. Robison | 342,312 | $ | 5,125,306 | 316,250 | 800,000 | $ | 0 | $ | 10,923,000 |
LONG-TERM INCENTIVE PLANS—AWARDS IN LAST FISCAL YEAR
The Long-Term Performance Cash Program (the "LTPC Program") was established in fiscal 2003 to drive value creation and operational efficiency, to retain top-performing and critical employees, and to reward senior managers for exceptional performance. The LTPC Program also is designed to reduce HP's use of option grants for senior executives and, therefore, HP's dilution levels. As described below, the LTPC Program includes both short-term cash flow as a percentage of total revenue ("Cash Flow") metrics and three-year total stockholder return ("TSR") metrics, which together determine the payout, if any, under the LTPC Program.
During the regular compensation review cycle, the LTPC Program works in conjunction with option grants to provide long-term incentives to senior managers ("Regular LTPC Grants"). For the named executive officers, the HR and Compensation Committee reviews Total Rewards on a holistic basis, including base pay, variable pay and long-term incentives. During this review process, a total value for long-term incentives is determined for each participant. HalfIn general, a portion of that total value is granted in the form of options. Theoptions, and the remainder of the total value is then used as the target LTPC amount. For example, if the total long-term incentive amount for a participant is 10,000 option shares, the participant would receive 5,000 option sharesMessrs. Hurd, Joshi and a long-term performance cash award that, if it pays out at target, is equivalent in value to the 5,000 option shares (based on a Black-Scholes valuation model at the time of grant). Mr. Wayman, Mr. JoshiRobison and Ms. Livermore each received a Regular LTPC Grant in connection with their fiscal 20052006 compensation review.
In addition, grants of long-term performance cash may be made outside of the normal compensation cycle in connection with in-hire decisions ("In-hire LTPC Grants"). In-hire LTPC Grants may be intended in part to compensate a participant for the value of long-term incentives from the participant's former employer that the participant has forfeited by joining HP. HP believes that making participants whole for such forfeitures is necessary and appropriate in order to hire top candidates for key roles. Because the amounts forfeited will vary depending upon each individual's compensation arrangements with his or her prior employer, In-hire LTPC Grants do not necessarily bear a meaningful relationship to Regular LTPC Grants or to other In-hire LTPC Grants.In fiscal 2005, Mr. Hurd Mr. Bradley and Mr. Mott received In-hire LTPC Grants based in part on HP's intention to compensate themhim for amounts from theirhis previous employersemployer that theywere forfeited by joining HP.
Because Regular LTPC Grants were granted under the LTPC Program in the course of annual compensation reviews in 2003, 2004, 2005 and 2005,2006, and Regular LTPC Grants are subject to a three-yearthree year cycle, multiple program cycles are outstanding simultaneously. In fiscalJuly 2005, the HR and Compensation Committee amended the award agreements for the outstanding program cycles to align the cycles with HP's fiscal year. As a result of this fiscal year alignment, some of the annual performance periods were broken into two six-month stub periods. The following diagram depicts the LTPC program cycles that were outstanding in fiscal 2005:past and current programs and performance periods:
Under the LTPC Program, short-term Cash Flow milestones are set. At the end of each short-term performance period, if HP achieves a threshold level of performance for the Cash Flow metric, a percentage iswill be applied to each participant's targeted cash amount for the period, and this amount is banked on the participant's behalf. The percentage to be applied to each participant's targeted cash amount for the first, second and third three-year programs ranges from 0%may be to 150% based upon the extent to which performance goals are achieved. Interest, using the applicable federal rates determined by the IRS,Internal Revenue Service, is applied to banked amounts. If HP does not achieve a certain threshold level of Cash Flow performance for
the period, the percentage applied is zero. For the May 2003-April 2004 initial performance period, Cash Flow targets were achieved and amounts were banked. For the May 2004-April 2005 performance period, threshold Cash Flow performance levelstargets were not metachieved and no amounts were banked for participants. For the May 2005-October 2005, November 2005-April 2006, and November 2005-October 2006 performance period,periods, Cash Flow performance exceeded aspirationaltarget levels and amounts were banked for participants accordingly.
At the end of each three-year program period, the total banked amounts, if any, will be adjusted by applying a modifier based on HP's TSR (which includes(including reinvestment of dividends) relative to the TSR for the S&P 500 for the three-year program period. The modifier to be applied to each participant's total banked
amount for the first, second and third three-year program period ranges from 0% to 200% (reduced. Beginning with the fourth three-year program period, the modifier ranges from 0% to 150% for performance periods after 2005). If HP does not achieve a threshold TSR level, then the modifier will be zero, and, subject to certain exceptions described below, any banked amounts held by then-current participants will be forfeited.
If Cash Flow is below the threshold level, no amounts will be banked for these current participants for the short-term performance period. Similarly, if TSR thresholds are not achieved for the three-year performance period, any banked amounts held by then-current participants at the end of the period will be forfeited. To achieve a modifier above 100%, for the three-year program period beginning in fiscal 2006, HP's TSR must exceed the median of the TSR for the S&P 500 over the three-year program period, and, to achieve the maximum payout, HP's TSR must significantly exceedapproximate the median75th percentile for S&P 500 companies.
As previously disclosed, Ms. Fiorina received a payout under the LTPC Program calculated at target for the 2003 - 2004 and 2004 - 2005 program years and Mr. Winkler also is entitled to receive guaranteed payouts under the LTPC Program. Also as previously disclosed, certainCertain amounts under the LTPC Program have been guaranteed to pay out at least at target levels for Messrs.Mr. Hurd and Mott in accordance with the terms of theirhis employment agreements. For a description of these arrangements, seeagreement described in "Employment Contracts, Termination of Employment and Change-in-Control Arrangements" beginning on page 50.44. In addition, the HR and Compensation Committee has the discretion to modify awards, which would include the authority to accelerate or waive forfeiture restrictions, and otherwise to determine the effect that a termination of employment has on an LTPC Grant.
AwardsIn fiscal 2006, awards to the named executive officers under the LTPC Program were granted pursuant to the Hewlett-Packard Company 2004 Stock Incentive Plan, which has been approved by HP stockholders.
Payouts from the LTPC Program to the named executive officers for the first three-year program period from May 2003 to April 2006, are reported in column (h) of the Summary Compensation Table.
Because the amount of an executive's LTPC Program bonus is dependent upon the satisfaction of annual cash flow and three-year TSR objectives, the exact amount of the payout (if any) to an executive under the program cannot be determined at this time. The following table describes the hypothetical amounts that would be payable to named executive officers, excluding accrued interest, for LTPC Program awards granted during fiscal 2005,2006, assuming that threshold, target and maximum levels of both cash flow and TSR performance metrics are met.
Long-Term Incentive Plans—Awards In Last Fiscal Year
| | Hypothetical Estimated Future Payouts Under Non-Stock Price-Based Plans (Cash) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Performance Or Other Period Until Maturation Or Payout | |||||||||||||
Name | Below Threshold Value | Threshold Value | Target Value | Hypothetical Maximum Value | ||||||||||
Regular LTPC Grants | ||||||||||||||
Robert P. Wayman | 3 years | $ | 0 | $ | 689,585 | $ | 2,758,338 | $ | 8,275,014 | |||||
Vyomesh I. Joshi | 3 years | 0 | 861,981 | 3,447,923 | 10,343,769 | |||||||||
Ann M. Livermore | 3 years | 0 | 689,585 | 2,758,338 | 8,275,014 | |||||||||
In-hire LTPC Grants | ||||||||||||||
Mark V. Hurd(1) | 3 years | 0 | 1,050,000 | 4,200,000 | 12,600,000 | |||||||||
R. Todd Bradley | 3 years | 0 | 690,000 | 2,760,000 | 8,280,000 | |||||||||
Randall D. Mott(1) | 3 years | 0 | 1,750,000 | 7,000,000 | 21,000,000 | |||||||||
Former Officers | ||||||||||||||
Carleton S. Fiorina | N/A | 0 | 0 | 0 | 0 | |||||||||
Michael J. Winkler | N/A | 0 | 0 | 0 | 0 |
| | Hypothetical Estimated Future Payouts Under Non-Stock Price-Based Plans | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Performance or Other Period Until Maturation Or Payout | |||||||||||||
Name | Below Threshold Value | Threshold Value | Target Value | Maximum Value | ||||||||||
Mark V. Hurd | 3 years | $ | 0 | $ | 702,380 | $ | 4,013,602 | $ | 9,030,605 | |||||
Robert P. Wayman | 3 years | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||
Vyomesh I. Joshi | 3 years | $ | 0 | $ | 477,619 | $ | 2,729,249 | $ | 6,140,810 | |||||
Ann M. Livermore | 3 years | $ | 0 | $ | 477,619 | $ | 2,729,249 | $ | 6,140,810 | |||||
Shane V. Robison | 3 years | $ | 0 | $ | 421,428 | $ | 2,408,161 | $ | 5,418,362 |
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes our equity compensation plan information as of October 31, 2005.2006. Information is included for equity compensation plans approved by HP stockholders and equity compensation plans not approved by HP stockholders. In the case of equity compensation plans not approved by HP stockholders, many of the plans (including the equity compensation plans available to directors, officers and employees of Compaq, which HP acquired in fiscal 2002) were approved by stockholders of companies acquired by HP, as described in footnote (6) below.
Plan Category | Common shares to be issued upon exercise of outstanding options, warrants and rights(1) | Weighted-average exercise price of outstanding options, warrants and rights(2) | Common shares available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | Common shares to be issued upon exercise of outstanding options, warrants and rights(1) | Weighted-average exercise price of outstanding options warrants and rights(2) | Common shares available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (a) | (b) | (c) | (a) | (b) | (c) | ||||||||||
Equity compensation plans approved by HP stockholders | 347,674,719 | (3) | $ | 28.0441 | 228,220,012 | (4)(5) | 304,742,342 | (3) | $ | 28.9837 | 178,404,949 | (4)(5) | ||||
Equity compensation plans not approved by HP stockholders | 183,291,181 | (6)(7)(8)(9) | $ | 32.7557 | 32,449,276 | (10) | 140,194,766 | (6)(7)(8) | $ | 34.7756 | 39,150,651 | (9) | ||||
Totals: | 530,965,900 | $ | 29.6701 | 260,669,288 | 444,937,108 | $ | 30.8087 | 217,555,600 | ||||||||
exercise price of $13.1948.$15.1737. These options were issued under the plans listed below, which have not been approved by HP stockholders: the Compaq Computer Corporation 1987 Nonqualified Stock Option Plan for Non-employee Directors, the Compaq Computer Corporation 1998 Former Non-Employee Replacement Option Plan (Digital), the VeriFone, Inc. Amended and Restated 1987 Supplemental Stock Option Plan, the StorageApps Inc. 2000 Stock Incentive Plan, the Flexible Stock Incentive Plan of Indigo N.V. ("Indigo"), the Indigo N.V. 1996 International Flexible Stock Incentive Plan, the Consera Software Corporation 2002 Stock Plan, the TruLogica, Inc. 2003 Stock Plan, the Digital Equipment (India) Limited 1999 Stock Option Plan, the Digital GlobalSoft Limited 2001 Stock Option Plan, the Novadigm, Inc. 1992 Stock Option Plan, the Novadigm, Inc. 1999 Nonstatutory Stock Option Plan, the Novadigm, Inc. 2000 Stock Option Plan, the 1995 Convex Stock Option Conversion Plan and the AppIQ, Inc. 2001 Stock Option and Incentive Plan.Plan, and the 2003 Equity Incentive Plan of Peregrine Systems. Inc. These options are not reflected in the table above. In connection with the Compaq acquisition, HP also assumed stock options to purchase 189,750 shares of HP common stock at a price of $35.97 and 189,750 shares of HP common stock at a price of $37.46 granted to former Compaq directors in April 1999. These options were not issued under any of the plans listed above and are not reflected in the table
above. While the Compaq plans listed above have not been approved by HP stockholders, they were approved by Compaq stockholders when the plans were initially implemented. Prior to the applicable acquisition by HP, stockholders of the acquired companies also approved the following plans: the StorageApps Inc. 2000 Stock Incentive Plan, the Flexible Stock Incentive Plan of Indigo N.V., the Indigo N.V. 1996 International Flexible Stock Incentive Plan, the VeriFone Inc. Amended and Restated 1987 Supplemental Stock Option Plan, the Consera Software Corporation 2002 Stock Plan, the TruLogica, Inc. 2003 Stock Plan, the Digital Equipment (India) Limited 1999 Stock Option Plan, the Digital GlobalSoft Limited 2001 Stock Option Plan, the Novadigm, Inc. 1992 Stock Option Plan, the Novadigm, Inc. 2000 Stock Option Plan, and the AppIQ, Inc. 2001 Stock Option and Incentive Plan.
Material Features of Plans Not Approved by Stockholders
HP assumed the Compaq Computer Corporation 1989 Equity Incentive Plan, the Compaq Computer Corporation 1995 Equity Incentive Plan, the Compaq Computer Corporation 1998 Stock Option Plan and the Compaq Computer Corporation 2001 Stock Option Plan in connection with the Compaq acquisition. These plans are administered by the HR and Compensation Committee of the Board. While the plans originally provided for a variety of awards, including non-qualified stock options, qualified stock options, stock appreciation rights, stock awards and cash, HP has amended these plans so that from July 18, 2002 only non-qualified stock options may be granted under these plans. Outstanding non-stock option awards, e.g., stock appreciation rights, will remain outstanding until they are exercised or expire pursuant to their original terms and conditions. Generally, options granted under these plans have grant prices equal to the fair market value of the stock on the grant date. These plans allow the HR and Compensation Committee to specify the conditions of the awards, including but not limited to the vesting period, option period, termination provisions and transferability provisions. Pursuant to the terms of these plans, all outstanding awards granted prior to September 1, 2001 under these plans became fully vested on March 20, 2002, the date on which Compaq stockholders approved the acquisition by HP. Vesting did not accelerate for awards granted on or after September 1, 2001, and those awards typically vest monthly over a 48-month period. Generally, awards may be exercised for the full life of the award if a participant's employment is terminated due to death, disability, or retirement. If a participant's employment is terminated other than due to death, disability, or retirement, the vested portion of his or her award may be exercised for up to one year (not to exceed the original term of the award) after his termination of employment. These plans will expire when there are no shares available for future grants. A total of 3,076,078; 2,608,436; 10,426,9683,281,630; 2,034,122; 16,876,602 and 16,337,79416,958,297 shares remain available for grants under the Compaq Computer Corporation 1989 Equity Incentive Plan, the Compaq Computer Corporation 1995 Equity Incentive Plan, the Compaq Computer Corporation 1998 Stock Option Plan and the Compaq Computer Corporation 2001 Stock Option Plan, respectively.
Individual Arrangements
On March 7, 1999, HP issued Stone Yamashita an option to purchase 80,000 shares of HP common stock (as adjusted to reflect HP's subsequent two-for-one stock split) at a split-adjusted exercise price of $34.5150, all of which are fully vested and expire on March 7, 2009, unless sooner terminated or cancelled in accordance with the terms of the agreements between HP and Stone Yamashita.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
HP Severance Policy for Senior Executives
Under the HP Severance Policy, which the Board adopted in July 2003, HP will seek stockholder approval for future severance agreements, if any, with certain senior executives that provide specified benefits in an amount exceeding 2.99 times the sum of the executive's current annual base salary plus annual target cash bonus, in each case as in effect immediately prior to the time of such executive's termination. In implementing the HP Severance Policy, the Board may elect to seek stockholder approval after the material terms of the relevant severance agreement are agreed upon. Senior executives subject to the HP Severance Policy are Section 16 Officers ("Senior Executives").designated by the Board.
For purposes of determining the amounts subject to the HP Severance Policy, benefits subject to the limit generally include cash separation payments that directly relate to salary and bonus and extraordinary benefits that are not available to groups of employees other than the Senior ExecutivesSection 16 Officers upon termination of employment. However, benefits that have been earned or accrued, as well as prorated bonuses, accelerated stock or option vesting and other benefits that are consistent with HP practices applicable to employees other than the Senior Executives,Section 16 Officers, are not counted against the limit. In particular,Specifically, benefits subject to the HP Severance Policy include: (a) separation payments based on a multiplier of salary plus target bonus, or cash amounts payable for the uncompleted portion of employment agreements; (b) any gross-up payments made in connection with severance, retirement or similar payments, including any gross-up payments with respect to excess parachute payments under Section 280G of the Code;U.S. Internal Revenue Code of 1986, as amended (the "Code"), (c) the value of any service period credited to a Senior ExecutiveSection 16 Officer in excess of the period of service actually provided by such Senior ExecutiveSection 16 Officer for purposes of any employee benefit plan; (d) the value of benefits and perquisites that are inconsistent with HP practices applicable to one or more groups of employees in addition to, or other than, the Senior ExecutivesSection 16 Officers ("Company Practices"); and (e) the value of any accelerated vesting of any stock options, stock appreciation rights, restricted stock or long-term cash incentives that is inconsistent with Company Practices. The following benefits are not subject to the HP Severance Policy, either because they have been previously earned or accrued by the employee or because they are consistent with Company Practices: (a) compensation and benefits earned, accrued, deferred or otherwise provided for employment services rendered on or prior to the date of termination of employment pursuant to bonus, retirement, deferred compensation or other benefit plans, e.g., 401(k) plan distributions, payments pursuant to retirement plans, distributions under deferred compensation plans or payments for accrued benefits such as unused vacation days, and any amounts earned with respect to such compensation and benefits in accordance with the terms of the applicable plan; (b) payments of prorated portions of bonuses or prorated long-term incentive payments that are consistent with Company Practices; (c) acceleration of the vesting of stock options, stock appreciation rights, restricted stock or long-term cash incentives that is consistent with Company Practices; (d) payments or benefits required to be provided by law; and (e) benefits and perquisites provided in accordance with the terms of any benefit plan, program or arrangement sponsored by HP or its affiliates that are consistent with Company Practices.
For purposes of the HP Severance Policy, future severance agreements include any severance agreements or employment agreements containing severance provisions that HP may enter into after the adoption of the HP Severance Policy by the Board and agreements renewing, modifying or extending such agreements. Future severance agreements do not include retirement plans, deferred compensation plans, early retirement plans, workforce restructuring plans, retention plans in connection with extraordinary transactions or similar plans or agreements entered into in connection with any of the foregoing, provided that such plans or agreements are applicable to one or more groups of employees in addition to the Senior Executives.Section 16 Officers.
HP Severance ProgramPlan for Senior Executives
In October 2003, the HR and Compensation Committee adopted a severance programplan for Senior Executives (or personsexecutives who were Senior ExecutivesSection 16 Officers of HP within 90 days of termination of HP employment)employment that provides a lump-sum severance payment upon a qualifying termination that is a multiple of annual base salary and target cash bonus, as in effect prior to employment termination. In July 2005, the HR and Compensation Committee amended this programplan to reduce the cash severance benefits payable to the CEO, Executive Vice Presidents and Senior Vice Presidents and to base payments upon a multiple of annual base salary and actual bonuses paid (averaged over the most recent three-year performance period) rather than a multiple of annual base salary and target cash bonuses. Under the amended program,plan, the multiple used is 2.0 times for the position of CEO, 1.5 times for Executive Vice Presidents, and 1.0 times for Senior Vice Presidents and Vice Presidents. Any payments under the severance program will be reduced by any cash severance benefit payable to the participant under any other HP plan, program or agreement, including cash amounts payable for the uncompleted portion of employment agreements and prorated cash bonuses under the applicable short-term bonus plan.
A participant will be deemed to have incurred a qualifying termination for purposes of this programplan if he or she is involuntarily terminated without cause (as defined below) and executes a full release of claims, in a form satisfactory to HP, promptly following termination. For purposes of the program,plan, cause means a participant's material neglect (other than as a result of illness or disability) of his or her duties or responsibilities to HP or conduct (including action or failure to act) that is not in the best interest of, or is injurious to, HP.
ThisNotwithstanding the foregoing, the amount of severance program is consistent with the HP Severance Policy because the payments provided forbenefits received by an executive under the program doplan will not exceed 2.99 times the sum of the Senior Executive'sexecutive's base salary plus target bonus as in effect immediately prior to separation from employment.employment, unless such benefits are approved by HP's stockholders pursuant to the HP Severance Policy.
Employment Agreement with Mark V. Hurd
HP entered into an employment agreement with Mark V. Hurd as of March 29, 2005, the terms of which are set forth below.below as of October 31, 2006.
Position | President and CEO | ||
Term of Employment | At will employment. Employment may be terminated by Mr. Hurd or HP, at any time. The agreement has an initial term of four years. | ||
Board Membership | Mr. Hurd was appointed to the Board upon his hire and thereafter will be nominated as a member of the Board during each year of his employment. Following his termination, Mr. Hurd will be deemed to have resigned from the Board. | ||
Salary | $1,400,000 base salary. The base salary will not be reduced other than pursuant to a reduction applied to substantially all other executive officers of HP and a reduction that is no greater than the percentage reduction applied to substantially all other executive officers. | ||
Bonus | |||
Long-Term Incentives | |||
Long-Term Cash Performance Plan | At least $4,200,000 (300% of base) pro-rated for mid-plan entry in the three-year cycles beginning May 1, 2003 and May 1, 2004, respectively. The plan provides for a cash payout after three years with additional cycles beginning May 1 of every year. The potential cash payout can range from $0 to $12,600,000, depending on actual HP performance. The applicable targets for the first year of the first full target cycle (beginning May 1, 2005) will be deemed to have been met. | ||
Stock Options | |||
Number of Shares | Option for 700,000 shares (with a maximum term of eight years) with a grant date of April 1, | ||
Black-Scholes Value | Approximately $4,200,000 at the grant date. | ||
Vesting Schedule | Vests at a rate of 25% annually over four years. | ||
One-Time Make-Up Grants: Restricted Stock and Options | 400,000 shares of restricted stock and an option for 450,000 shares (with a maximum term of eight years) with a grant date of April 1, 2005. | ||
Value at Grant | Approximately $8,000,000 for restricted stock shares and a Black-Scholes value of approximately $2,700,000 for options on the grant date. | ||
Vesting Schedule | Vest at a rate of 33.3% annually over three years. | ||
Signing Bonus | $2,000,000 cash bonus payment paid within 30 days of April 1, 2005 and upon removal of any conditions. If Mr. Hurd is terminated for cause within two years of his hiring date, Mr. Hurd will return a pro-rata portion of the bonus to HP. | ||
Price Protection | Mr. Hurd received reimbursement up to 20% for declines in the per share fair market value of NCR's stock as covered by his vested options. In the event that the share value decreased more than 20%, only the first 20% was subject to reimbursement. This price protection applied to the 850,184 shares vested prior to March 24, 2005. The starting fair market value for this price protection was the highest share price during the five full trading days immediately preceding the public announcement of Mr. Hurd's resignation from NCR. This price protection ended upon Mr. Hurd's sale of the shares covered by his vested options (or 90 days after his termination of employment with NCR, whichever was sooner). Mr. Hurd received a payment of $5,000,421 pursuant to this provision. | ||
Benefits | Mr. Hurd is eligible to participate in HP's employee benefit plans, policies and arrangements applicable to other executive officers including: participation in the Share Ownership Plan, the HP 401(k) Plan, deferred compensation | ||
Perquisites | Mr. Hurd is eligible for HP perquisites | ||
Time Off | Mr. Hurd will receive paid time off in accordance with HP policy for other senior executive officers. In no event will Mr. Hurd receive fewer than 25 days of paid time off per calendar year. | ||
Security | Mr. Hurd received appropriate home security in accordance with market practice. | ||
Relocation Benefit | Mr. Hurd received the standard relocation package with the following adjustments: | ||
— | $2,750,000 relocation allowance paid after the execution of a definitive agreement and removal of any conditions (such relocation allowance paid in lieu of any other relocation allowance provided for under HP's relocation policy); | ||
— | Mortgage interest subsidy for four years; | ||
— | Temporary housing for up to one year; | ||
— | No limit on the weight of household goods shipped, and coverage for three cars; and | ||
— | Storage of household goods for up to one year. | ||
Severance | Participation in the HP Severance | ||
In addition, Mr. Hurd would receive the following: | |||
— | Payment of any accrued salary and bonus; | ||
— | Mr. Hurd's stock options will become fully vested, exercisable and will remain exercisable until the earlier of the date provided in the applicable stock option agreement or under any applicable workforce reduction policy adopted by HP from time to time; | ||
— | Any unvested restricted stock will vest on a pro-rata basis; | ||
— | Any banked amounts in the LTPC Plan; and | ||
— | Continuation of certain health benefits. | ||
The HR and Compensation Committee reviews the HP Severance | |||
Confidential Information and Intellectual Property | Mr. Hurd has been required to execute HP's Agreement Regarding Confidential Information and Proprietary Developments. | ||
Attorneys' Fees | HP reimbursed Mr. Hurd for reasonable legal fees and tax advice expenses incurred in the negotiation, preparation and execution of this agreement as well as his separation from his current employer. | ||
Arbitration | All disputes arising as a result of Mr. Hurd's employment, including the termination thereof, or Mr. Hurd's compensation or benefits will be resolved through binding arbitration. | ||
Indemnification | Mr. Hurd will be provided indemnification on terms no less favorable than that provided to any other HP executive officer or director, including, if applicable, appropriate directors and officers insurance. |
On January 23, 2006, the HR and Compensation Committee agreed to increase Mr. Hurd's target bonus opportunity under HP's PfR Plan to 220% of his base salary (with a maximum bonus opportunity of three times that amount).
Employment Agreement with R. Todd Bradley
HP offered Mr. Bradley employment on June 9, 2005, on the terms set forth below.
Employment Agreement with Randall D. Mott
HP offered Mr. Mott employment on July 11, 2005 on the terms set forth below.
On January 23, 2006, the HR and Compensation Committee agreed to increase Mr. Mott's target bonus opportunity under HP's PfR Plan to 125% of his base salary (with a maximum bonus opportunity of three times that amount).
Michael J. Winkler Agreement
On October 4, 2004, HP entered into an employment agreement with Mr. Winkler that provided for an annual base salary of $775,000 effective August 15, 2004, a target bonus opportunity under the Executive Pay-for-Results Plan of 125% of base salary, a $1,000,000 retention bonus paid out at the end of May 2005, additional bonuses of $250,000 per quarter for every quarter that Mr. Winkler stayed after May 1, 2005 until April 30, 2006, a guaranteed payout under the 2003-2006 LTPC Program at target (or higher if HP exceeds target during the performance period that Mr. Winkler was an active employee), a guaranteed payout of 50% of target for the 2004-2007 LTPC Program, and an additional payment of $429,343 pursuant to the 2004-2007 LTPC Program for every six-month period that he stayed after May 1, 2005 until April 30, 2006.
Mr. Winkler retired on November 7, 2005. He left his position as Executive Vice President of HP's Customer Solutions Group in July and was on an unpaid leave of absence until his retirement, at which time Mr. Winkler was entitled to exercise vested stock options that he received from Compaq for the life of the options and was eligible to participate in the retiree medical program. He received HP's standard retirement benefits and the benefits described in his October 4, 2004 employment agreement, including the guaranteed bonuses under the LTPC Program of $2,958,685, which will be paid as soon as possible after May 6, 2006.
Carleton S. Fiorina Severance Agreement and Release
Carleton S. Fiorina terminated as HP's Chairman and CEO and resigned as a director of HP on February 8, 2005. In light of the then-current HP Severance Plan for Senior Executives, various plans in which Ms. Fiorina participated and past practice with respect to certain other employees whose employment with HP terminated, HP entered into a Severance Agreement and Release (together, the "Agreement") with Ms. Fiorina, dated February 8, 2005. Pursuant to the Agreement, and in accordance with the terms of the HP Severance Program for Senior Executives adopted in 2003, prior to its 2005 amendment (as described above), HP made a cash payment of $14,000,000 to Ms. Fiorina, which represented 2.5 times her base salary and targeted annual cash bonus. This amount was paid six months after the date of the Agreement, together with interest at an annual rate of 2.78%. In addition, Ms. Fiorina received a payout of $5,880,000, which represented Ms. Fiorina's award for the 2003-2004 program year of the LTPC Program, and a payout of $1,502,700, which represented a prorated amount of Ms. Fiorina's award for the 2004-2005 program year of the LTPC Program, in each case calculated to reflect cash flow and total shareholder return performance metrics established under the LTPC Program with respect to each program year at target. Ms. Fiorina's outstanding options to purchase 6,065,852 shares of HP common stock, with a weighted average exercise price of $35.73 as of the date of the Agreement, vested, with a one-year post-termination exercise period. Ms. Fiorina received $50,000 for financial counseling, legal and outplacement services. Ms. Fiorina also was permitted to keep her personal computer equipment and receive technical support for a three-month period, received administrative support for a six-month period, and received maintenance of home security for a one-year period. Ms. Fiorina received a cash payment for the balance of her unused vacation time. Ms. Fiorina retained her vested rights under qualified HP retirement plans and under an HP excess benefit plan and will be eligible for HP's continued group medical coverage through the Consolidated Omnibus Budget Reconciliation Act of 1995 (COBRA), for up to 18 months. Cash amounts payable as described above will be reduced by applicable withholding taxes. Pursuant to the Agreement, Ms. Fiorina provided HP and affiliates a general liability release and indemnification.
HP Retirement Arrangements
Upon retirement, all HP employees, including the named executive officers, generally receive full vesting of options granted under HP common stock plans with a three-year post-retirement exercise period. Restricted stock continues to vest in accordance with its normal vesting schedule, subject to certain restrictions. Targeted cash amounts, if any, are paid at a prorated rate to participants in the LTPC Program, and bonuses, if any, under the Executive PfR Plan are also paid at a prorated rate. In accordance with Section 409A of the American Jobs Creation Act of 2004,Code, certain amounts payable upon retirement to named executive officers and other key employees from covered plans arewill not be paid out for at least six months following termination of employment.
The following table shows the estimated annual pension benefits accrued through the end of fiscal 20052006 and payable upon attainment of age 65 to HP employees in the United States under the Hewlett-Packard Company Retirement Plan (the "Retirement Plan") and the Hewlett-Packard Company Excess Benefit Retirement Plan (the "EBP").
Estimated Annual Benefits(1)(2)
| | Years of Service | ||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Highest Annual Average Pay Rate | Highest Annual Average Pay Rate | Years of Service | Highest Annual Average Pay Rate | |||||||||||||||||||||||||||||||||||
5 | 10 | 15 | 20 | 25 | 30 | 5 | 10 | 15 | 20 | 25 | 30 | |||||||||||||||||||||||||||
$ | 400,000 | $ | 28,543 | $ | 57,085 | $ | 85,628 | $ | 114,171 | $ | 142,714 | $ | 171,256 | 400,000 | $ | 28,470 | $ | 56,939 | $ | 85,409 | $ | 113,879 | $ | 142,348 | $ | 170,818 | ||||||||||||
500,000 | 36,043 | 72,085 | 108,128 | 144,171 | 180,214 | 216,256 | 500,000 | 35,970 | 71,939 | 107,909 | 143,879 | 179,848 | 215,818 | |||||||||||||||||||||||||
600,000 | 43,543 | 87,085 | 130,628 | 174,171 | 217,714 | 261,256 | 600,000 | 43,470 | 86,939 | 130,409 | 173,879 | 217,348 | 260,818 | |||||||||||||||||||||||||
700,000 | 51,043 | 102,085 | 153,128 | 204,171 | 255,214 | 306,256 | 700,000 | 50,970 | 101,939 | 152,909 | 203,879 | 254,848 | 305,818 | |||||||||||||||||||||||||
800,000 | 58,543 | 117,085 | 175,628 | 234,171 | 292,714 | 351,256 | 800,000 | 58,470 | 116,939 | 175,409 | 233,879 | 292,348 | 350,818 | |||||||||||||||||||||||||
900,000 | 66,043 | 132,085 | 198,128 | 264,171 | 330,214 | 396,256 | 900,000 | 65,970 | 131,939 | 197,909 | 263,879 | 329,848 | 395,818 | |||||||||||||||||||||||||
1,000,000 | 73,543 | 147,085 | 220,628 | 294,171 | 367,714 | 441,256 | 1,000,000 | 73,470 | 146,939 | 220,409 | 293,879 | 367,348 | 440,818 | |||||||||||||||||||||||||
1,100,000 | 81,043 | 162,085 | 243,128 | 324,171 | 405,214 | 486,256 | 1,100,000 | 80,970 | 161,939 | 242,909 | 323,879 | 404,848 | 485,818 | |||||||||||||||||||||||||
1,200,000 | 88,543 | 177,085 | 265,628 | 354,171 | 442,714 | 531,256 | 1,200,000 | 88,470 | 176,939 | 265,409 | 353,879 | 442,348 | 530,818 | |||||||||||||||||||||||||
1,300,000 | 96,043 | 192,085 | 288,128 | 384,171 | 480,214 | 576,256 | 1,300,000 | 95,970 | 191,939 | 287,909 | 383,879 | 479,848 | 575,818 | |||||||||||||||||||||||||
1,400,000 | 103,543 | 207,085 | 310,628 | 414,171 | 517,714 | 621,256 | 1,400,000 | 103,470 | 206,939 | 310,409 | 413,879 | 517,348 | 620,818 | |||||||||||||||||||||||||
1,500,000 | 111,043 | 222,085 | 333,128 | 444,171 | 555,214 | 666,256 | 1,500,000 | 110,970 | 221,939 | 332,909 | 443,879 | 554,848 | 665,818 | |||||||||||||||||||||||||
1,600,000 | 118,543 | 237,085 | 355,628 | 474,171 | 592,714 | 711,256 | 1,600,000 | 118,470 | 236,939 | 355,409 | 473,879 | 592,348 | 710,818 | |||||||||||||||||||||||||
1,700,000 | 126,043 | 252,085 | 378,128 | 504,171 | 630,214 | 756,256 | 1,700,000 | 125,970 | 251,939 | 377,909 | 503,879 | 629,848 | 755,818 | |||||||||||||||||||||||||
1,800,000 | 133,543 | 267,085 | 400,628 | 534,171 | 667,714 | 801,256 | 1,800,000 | 133,470 | 266,939 | 400,409 | 533,879 | 667,348 | 800,818 | |||||||||||||||||||||||||
1,900,000 | 141,043 | 282,085 | 423,128 | 564,171 | 705,214 | 846,256 | 1,900,000 | 140,970 | 281,939 | 422,909 | 563,879 | 704,848 | 845,818 | |||||||||||||||||||||||||
2,000,000 | 148,543 | 297,085 | 445,628 | 594,171 | 742,714 | 891,256 | 2,000,000 | 148,470 | 296,939 | 445,409 | 593,879 | 742,348 | 890,818 | |||||||||||||||||||||||||
2,100,000 | 156,043 | 312,085 | 468,128 | 624,171 | 780,214 | 936,256 | 2,100,000 | 155,970 | 311,939 | 467,909 | 623,879 | 779,848 | 935,818 | |||||||||||||||||||||||||
2,200,000 | 163,543 | 327,085 | 490,628 | 654,171 | 817,714 | 981,256 | 2,200,000 | 163,470 | 326,939 | 490,409 | 653,879 | 817,348 | 980,818 | |||||||||||||||||||||||||
2,300,000 | 171,043 | 342,085 | 513,128 | 684,171 | 855,214 | 1,026,256 | 2,300,000 | 170,970 | 341,939 | 512,909 | 683,879 | 854,848 | 1,025,818 | |||||||||||||||||||||||||
2,400,000 | 178,543 | 357,085 | 535,628 | 714,171 | 892,714 | 1,071,256 | 2,400,000 | 178,470 | 356,939 | 535,409 | 713,879 | 892,348 | 1,070,818 | |||||||||||||||||||||||||
2,500,000 | 186,043 | 372,085 | 558,128 | 744,171 | 930,214 | 1,116,256 | 2,500,000 | 185,970 | 371,939 | 557,909 | 743,879 | 929,848 | 1,115,818 | |||||||||||||||||||||||||
2,600,000 | 193,543 | 387,085 | 580,628 | 774,171 | 967,714 | 1,161,256 | 2,600,000 | 193,470 | 386,939 | 580,409 | 773,879 | 967,348 | 1,160,818 | |||||||||||||||||||||||||
2,700,000 | 201,043 | 402,085 | 603,128 | 804,171 | 1,005,214 | 1,206,256 | 2,700,000 | 200,970 | 401,939 | 602,909 | 803,879 | 1,004,848 | 1,205,818 | |||||||||||||||||||||||||
2,800,000 | 208,543 | 417,085 | 625,628 | 834,171 | 1,042,714 | 1,251,256 | 2,800,000 | 208,470 | 416,939 | 625,409 | 833,879 | 1,042,348 | 1,250,818 | |||||||||||||||||||||||||
2,900,000 | 216,043 | 432,085 | 648,128 | 864,171 | 1,080,214 | 1,296,256 | 2,900,000 | 215,970 | 431,939 | 647,909 | 863,879 | 1,079,848 | 1,295,818 | |||||||||||||||||||||||||
3,000,000 | 223,543 | 447,085 | 670,628 | 894,171 | 1,117,714 | 1,341,256 | 3,000,000 | 223,470 | 446,939 | 670,409 | 893,879 | 1,117,348 | 1,340,818 | |||||||||||||||||||||||||
3,100,000 | 230,970 | 461,939 | 692,909 | 923,879 | 1,154,848 | 1,385,818 | ||||||||||||||||||||||||||||||||
3,200,000 | 238,470 | 476,939 | 715,409 | 953,879 | 1,192,348 | 1,430,818 | ||||||||||||||||||||||||||||||||
3,300,000 | 245,970 | 491,939 | 737,909 | 983,879 | 1,229,848 | 1,475,818 | ||||||||||||||||||||||||||||||||
3,400,000 | 253,470 | 506,939 | 760,409 | 1,013,879 | 1,267,348 | 1,520,818 | ||||||||||||||||||||||||||||||||
3,500,000 | 260,970 | 521,939 | 782,909 | 1,043,879 | 1,304,848 | 1,565,818 | ||||||||||||||||||||||||||||||||
3,600,000 | 268,470 | 536,939 | 805,409 | 1,073,879 | 1,342,348 | 1,610,818 | ||||||||||||||||||||||||||||||||
3,700,000 | 275,970 | 551,939 | 827,909 | 1,103,879 | 1,379,848 | 1,655,818 | ||||||||||||||||||||||||||||||||
3,800,000 | 283,470 | 566,939 | 850,409 | 1,133,879 | 1,417,348 | 1,700,818 | ||||||||||||||||||||||||||||||||
3,900,000 | 290,970 | 581,939 | 872,909 | 1,163,879 | 1,454,848 | 1,745,818 | ||||||||||||||||||||||||||||||||
4,000,000 | 298,470 | 596,939 | 895,409 | 1,193,879 | 1,492,348 | 1,790,818 |
The Retirement Plan is a traditional defined benefit pension plan covering employees hired by HP before 2003. Benefits are earned based on years of service and highest average pay rate (as defined below), reduced by a portion of Social Security earnings. Messrs. Wayman, Joshi and WinklerRobison and Ms. Livermore and Ms. Fiorina were participants in the Retirement Plan during fiscal 2005.2006.
Benefits under the Retirement Plan are calculated using a participant's highest average pay rate (the "HAPR"), which is determined during the 20 consecutive fiscal quarters when pay is the highest. The HAPR for named executive officers includes base pay and bonuses paid pursuant tounder the Executive PfR Plan, as reported in the Summary Compensation Table in columns (c) for salary and (d) for bonus.
Up to 30 years of HP service are taken into account in calculating benefits under the Retirement Plan. As of October 31, 2005,2006, Mr. Wayman, Mr. Joshi, and Ms. Livermore and Mr. Robison were credited with 3630 years, 2526 years, 24 years and 23 years, respectively. Ms. Fiorina and Mr. Winkler were credited with six and three3 years, respectively.
For participants employed by HP prior tobefore 1993, benefits are calculated under both the Retirement Plan and the Hewlett-Packard Company Deferred Profit Sharing Plan ("DPSP"). Benefits under the DPSP are based on contributions made by HP prior to 1993 on behalf of eligible participants, plus investment gains or losses. Together, the Retirement Plan and the DPSP constitute a "floor-offset arrangement" for periods prior to 1993. This type of arrangement provides a minimum guaranteed retirement benefit (the "floor"), offset by amounts held under the DPSP. If a participant's benefit under the DPSP exceeds his or her benefit from the Retirement Plan for years prior to 1993, no amounts are payable from the Retirement Plan with respect to that period of service. Due to the level of benefits paid under the Retirement Plan, as well as the generally favorable investment experience under the DPSP, most participants will receive only the DPSP benefit for periods prior to 1993. Messrs. Wayman and Joshi and Ms. Livermore participate in the Retirement Plan and DPSP.
Benefits under the Retirement Plan may be taken in one of several different annuity forms, or in an actuarially-equivalent lump sum.
Benefits not payable from the Retirement Plan and the DPSP due to IRS limits are payablepaid from the non-qualified EBP, under which benefits are unfunded and unsecured. When an EBP participant terminates employment, an account is created for him or her in the amount not able to be paid from the Retirement Plan and/or the DPSP due to IRS limits. This account then is credited with investment earnings (gains and losses) according to the investment return under the DPSP, until such amounts are paid to the participant. The EBP was most recently amended on November 17, 2005, effective January 1, 2005,2006, to comply with Section 409A of the Code. Effective January 1, 2008,2007, EBP accounts will be credited with investment earnings based upon the returns of a fixed-income fund withinelection by participants among the investment options offered under the HP 2005 Executive Deferred Compensation Plan. Under that plan, investment earnings are credited based on investment choices that are available to employees under the HP 401(k) Plan.Plan, and there is no formula which would result in above-market earnings or a preferential interest rate.
The Hewlett-Packard Company Cash Account Pension Plan ("CAPP") covers HP employees hired after 2002; it is a cash balance pension plan that provides pension benefits determined by reference to a hypothetical account balance. "Pay Credits" equal to four percent of base pay are credited quarterly to this account with respect to each participant; in addition, "Interest Credits" are credited daily to each account. Interest Credits are credited at the rate equal to the one-year rate for Treasury securities plus one percent and are adjusted annually. Benefits under CAPP may be taken in one of several different annuity forms or in a lump sum equal to the hypothetical account.account balance.
Participants in the CAPP who earn amounts in excess of the IRS limits receive Pay Credits and Interest Credits to a hypothetical account balance established for them under the HP Cash Account Restoration Plan ("CARP"), at the same rates as credited under the CAPP. Amounts under the CARP are unfunded and unsecured. Upon termination of employment, a CARP participant is paid his or her account
balance in the form of a lump sum; no other optional forms are available. The CARP was amended on November 17, 2005, effective January 1, 2005, to comply with Section 409A of the Code.
Messrs.Mr. Hurd Bradley and Mott participateparticipates in the CAPP and the CARP, and, as of October 31, 2005, they2006, he had accrued benefitsa benefit which, if paid upon attainment of age 65 as a single life annuity, areis estimated to be as follows: Mr. Hurd $4,174, Mr. Bradley $1,520, and Mr. Mott $1,074,$737.94, annually.
As announced onin July 19, 2005, HP has made significant changes to its U.S. retirement plans effective January 1, 2006. Employees with fewer than 62 "points" (age plus service) as of December 31, 2005 will ceaseceased accruing benefits in the Retirement Plan and the CAPP. A participant who no longer earns benefits under the Retirement Plan or the CAPP will likewise no longer earnearns any benefits under the HP supplemental pension plans, the EBP and the CARP. Messrs. Wayman and Joshi and Ms. Livermore had more than 62 points as of December 31, 2005 and therefore each will continuecontinues to accrue benefits under the Retirement Plan and the EBP after 2005. Messrs. Hurd Bradley and MottRobison each had fewer than 62 points as of December 31, 2005, and therefore willdid not accrue any further pension benefits under the CAPP, the CARP, the Retirement Plan or the CARPEBP after 2005.
REPORT OF THE HR AND COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
HP'sCompensation policies for HP executive compensation program is administeredofficers are overseen by the HR and Compensation Committee of the Board of Directors (the "Committee"). TheEach Committee member is composed entirely ofa non-employee independent directorsdirector with significant experience in managing employee-related issues and making executive compensation decisions. During fiscal 2006, the Committee met eight times, including three executive sessions with Frederic W. Cook & Co., Inc., its independent advisor. Frederic W. Cook & Co., Inc. is retained by the Committee and reports directly to the Committee. The Committee also retains its own independent legal counsel. Neither the Committee's independent advisor nor its legal counsel does any other work for HP, and neither will do any other work for HP in the future without the prior consent of the chair of the Committee.
The Committee provides strategic direction for HP's Total Rewards program for HP employees worldwide; determines the compensation and severance benefits structure for HP's employees worldwide;executive officers; reviews HP's human resources programs, including leadership development, succession planning and diversity initiatives; determines the compensation of HP's executive officers; and establishes compensation policies and practices for directors for service on the Board and its committees, as well as for the Chairman of the Board. The Committee's decisions are made in the context of HP's specific business imperatives, including attaining a competitive cost structure in each of HP's businesses, as well as economy-wide trends, such as rising healthcare costs and expensing equity-based compensation. HP is committed to attracting, retaining and developing a talented, diverse workforce in a manner that provides incentives to create stockholder value, and the work of the Committee supports these endeavors.committees. The specific duties and responsibilities of the Committee are described under "Board Structure and Committee Composition—HR and Compensation Committee" beginning on page 13 and in the charter of the Committee, which is included as Appendix B hereto and also is available on HP's website at http://www.hp.com/hpinfo/investor/structure.html.
The Committee met nine times during fiscal 2005. The Committee's regularly scheduled meetings typically last several hours, and all Committee members are actively engaged in the review of matters presented. The Committee utilizes outside compensation consultants from time to time during the year for survey data and other information as it deems appropriate. It is the Committee's practice to make the most significant compensation decisions in a multi-step process over more than one meeting, so that Committee members have the ability to consider and discuss alternative courses of action, to ask for additional information as necessary and to raise and discuss further questions.compensation_charter.
The Committee has furnished the following report for fiscal 2005,2006, which includes a discussion of: (1)of HP's compensation and benefits programs,Total Rewards philosophy, including compensation and benefits for executive officers; (2) CEO compensation; and (3) stock ownership guidelines for senior executives.Section 16 Officers and HP's option-granting process.
Overall, the vast majority of compensation for executives is at-risk, vested or earned over time and is tied directly to HP's long-term success as well as each executive's individual contributions. HP executives are compensated on an ongoing basis at levels competitive with individuals performing similar jobs at comparable companies and achieving similar results. This conclusion reflects the Committee's evaluation of comprehensive market data compiled by Mercer Human Resource Consulting, as well as input from the Committee's independent advisor.
HP's Total Rewards Program
Compensation and Benefits Programs
benefits for employees at all levels of HP are determined in the context of HP's Total Rewards program. The Committee considers tenets of this program are:
The elements of compensation and benefits as "TotalTotal Rewards" which include: include (1) base pay; (2) variable pay; (3) rewards and recognition programs (small, on-the-spot bonus awards for individual contributions);programs; (4) equity; and (5) benefits. The components of Total Rewards are depicted in the diagram below.
We believe that appropriately balancingDecision making regarding employee compensation at all levels of HP, including executive officers, is made within the framework of this Total Rewards philosophy. Specifically with respect to executive officers, the Committee hopes to achieve a Total Rewards package for HP executives that is closely tied to both individual and ensuringcorporate performance, as well as aligned with the viabilityinterests of each component of the package is necessary in order to provide market-competitive compensation and benefits, and to ensure the health of HP, which benefits employees and stockholders alike. In addition, we believe that employees should share in the value they help create and that their rewards should be proportional to their performance. At the same time, because HP has approximately 150,000 employees, the costs of HP's Total Rewards programs are a significant determinant of HP's competitiveness. Accordingly, the Committee is focused on ensuring that the balance of the various components of HP's Total Rewards is optimized to motivate employees to improve HP's results on a cost-effective basis.stockholders.
In rebalancing theThe components of Total Rewards the Committee also considers changes in the external environment. In the first quarter of fiscal 2006, HP began expensing equity awards in accordanceare viewed holistically, but with FAS 123R, which will result in significantly higher expenses in the equity component of Total Rewards. In addition, HP, like many of its peers, has been impacted by rising healthcare costs. As a result, HP has made difficult decisions to reduce salary expenses (through headcount reductions) and benefits (through changes in its retirement programs). By taking these actions, HP hopes to see increases in other components of Total Rewards that are more closely tied to performance, such as the variable pay awarded to employees, and in HP's stock price, which benefits employees as well as stockholders.
The Committee also recognizes the need to balance the components of Total Rewards appropriately dependingdifferent emphasis on employeecertain elements based on an employee's position and ability to impact HP'sHP results. Accordingly,At the executive officer level, HP's Total Rewards programs areis structured so that more than two-thirds of senior managers' targeted Total Rewards areis "at risk" (in the form of option grants, long-term performance cash and variable pay) dependentdepending upon HP's results. ByIn contrast, the broad-based employee population'sa much smaller percentage of total compensation is designed to provide more income stability, and less than one-tenth ofat risk for most non-sales employees'employees below the executive level.
The programs that make up the Total Rewards components are "at risk."reviewed from time to time, and adjustments may be made based upon both internal and external factors. The Committee provides direction to management when changes to the programs are being considered. The Committee considers overall competitiveness and peer group measures, among other factors, in providing guidance.
Review of External DataIdentifying Peer Companies and Benchmarking Executive Compensation
Each year, we survey the compensation practices of our peers in the United States as well as other countries in which we have significant employee populations in order to assess our competitiveness. For fiscal 2005, we targeted the aggregate value of our Total Rewards at approximately the median level for our
"blended peer" group (which combines our technologyWith input from management and general industry peers) for most positions. However, we strongly believe in engaging the best talent in critical functions, and this may entail negotiations with individual executives who have significant retention packages in place with other employers. In order to make such individuals whole for the compensation that they would forfeit by terminating their previous employment,its independent advisor, the Committee may determine that it is in the best interestsestablished a set of HPcriteria to negotiate packages that deviateidentify appropriate companies for executive pay and performance comparisons. Major objectives were emulating how institutional investors and their representatives would define such peers, avoiding self-selection, and providing continuity from the general principle of targeting Total Rewards at the median of our peers. Similarly,year to year. Criteria used by the Committee may determine to providewere: (1) U.S. based companies from market sectors including information technology, industrials, telecommunications, and consumer staples where there generally are similar business and pay models; and (2) for those companies that meet the first criterion, those with a market capitalization of at least a $45 billion and at least $10 billion in annual revenue (generally the largest category covered by compensation outside of the normal cycle to individuals to address retention issues. Therefore, for some executives, compensation was above the median.surveys).
Going forward, we determined to use a technologyThe peer group for benchmarking purposes rather than our "blended peer" group. This ensures that was selected includes the cost structures that we create will enable us to remain competitive in our markets. Ourfollowing information technology peer group is composed of International Business Machines Corporation, Dell Inc.,companies: Apple Computer, Inc., Cisco Systems, Inc., Electronic Data Systems Corporation, EMC Corporation,Dell Inc., Intel Corporation, Lexmark International Group Inc.,Business Machines Corporation, Microsoft Corporation, Motorola, Inc., and Oracle Corporation. It also includes the following companies from the other relevant industry sectors, as described above: Altria Group, Inc., AT&T Inc., The Boeing Company, General Electric Company, The Procter & Gamble Company, PepsiCo, Inc., Sprint Nextel Corporation, Sun Microsystems,Texas Instruments Incorporated, United Technologies Corporation, United Parcel Service, Inc. and Xerox Corporation.Verizon Communications, Inc.
Overall, our outside consultants determined that our compensation programs, as structured, are at market relative to our technology peers. Based upon review of the compensation arrangements discussed below, peer group compensation levels and our assessments of individual and corporate performance, we believe that the value and design of our executive compensation program are appropriate.
Components of Total Rewards
Base Pay
In general, base pay for each employee, including executive officers, is established based on the individual's job responsibilities, performance and experience; HP's overall budget for merit increases; and the competitive environment. Consistent with HP's philosophy of tying pay to business results, executive officers receive a relatively small percentage of their overall targeted compensation in the form of base pay.
In fiscal 2005,2006, HP provided a base pay increase to some of its employees, including executive officers, but in accordance with HP's philosophy of providing a strong link between pay and performance, the exact amount of theany increase (if any)in base pay varied among employees based on their performance levels. Consistent with HP's philosophy of tying pay to business results, executive officers received a relatively low proportion of their overall targeted compensation in the form of base pay.
Variable Pay
Our HP's Total Rewards program is designed to provide significant incentives for executive officers in the form of variable pay programs focus on matching rewards with results. Executivepay. Achievement of annual performance objectives by executive officers and high-level, non-sales managers and individual contributors participate inother designated employees is rewarded under the HP 2005 Pay-for-Results ("PfR") Program1. Most other employees participate in the Company Performance Bonus Plan ("CPB(the "PfR Plan"). In addition,Achievement of longer-term performance objectives by certain high-level employees, participate in ourincluding executive officers, is rewarded under the Long-Term Performance Cash Program (the "LTPC Program"). The philosophy of each of our variable pay programs is simple: a basic reward for reaching minimum expectations, and an upside for reaching HP's aspirational goals. The variable pay programs linkEach program links compensation directly to HP's performance and encourageencourages employees to make significant contributions toward HP's results.
Pay-for-Results
Short-term incentives are provided under the PfR Plan, which was approved by stockholders in 2006. The Pay-for-Results Program is structured similarly for all participants, but is operated under two plans. In fiscal 2005, the HP Executive Pay-for-ResultsPfR Plan (the "Executive PfR Plan") was used for executive officers and other high-level managers. We are seeking stockholder approval of the 2005 HP Pay-for-Results Plan for purposes of qualifying compensation paid to "covered officers" for tax deduction purposes, and therefore this plan is designed to meetreward achievement of financial performance objectives during the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). For a description of the HP 2005 Pay-for-Results Plan, see "Proposal No. 3 'Approval of the Hewlett-Packard Company 2005 Pay-for-Results Plan."' Other participants in the Pay-for-Results Program (generally high-level, non-sales managersfiscal year; it has two components, revenue and individual contributors) participate through a similar short-term bonus plan.
HP's results. For executives, a significant portion of cash compensation is "at risk" dependent upon those results, in accordance with HP's philosophy of providing pay for performance.
Pay-for-Results/Company Performance Bonus
Thenet profit, that are equally weighted. These components address both "top line" (revenue) and "bottom line" (net profit) corporate financial goals. Bonuses are paid only when performance metrics forgoals are achieved; if threshold targets are not met, no amounts are paid under the PfR Program participants during fiscal 2005 were measured on a semi-annual basis and were weighted as follows: 40% based on revenue, 40% based on non-GAAP2 net profit and 20% based on total customer experience. For executive officers and most other United States participants, these metrics were set at the HP level. For regional PfR Program participants, metrics were based on both HP and regional goals. The variable pay plans measure company performance for each metric at three levels of performance (threshold, target and aspiration), each of which is tied to a successively higher level of reward. In the event that threshold non-GAAP net profit measures were not met, there would be no payout under the short-term bonus programs, regardless of whether other metrics fund. In addition, there were noPlan. If targets are exceeded, payouts under the PfR Program unless therePlan may be significant. Targets for fiscal 2006 performance were payouts under the CPB Plan, so that executives would not receive payouts unless the general employee population was also rewarded. The Committee could adjust bonuses from the amount that would have otherwise been paid under the variable pay programs, but under no circumstances couldset by the Committee adjust bonuses upwardat its November 2005 meeting. For some executive officers, payouts were determined based solely upon business unit performance; for other executive officers. Onceofficers, payouts were determined 50% on business unit performance and 50% on overall corporate performance. For corporate executive officers, payouts were determined 100% on overall corporate performance. For fiscal 2006, the funding for each metric was determined, managers were permitted to use discretion in the distribution of a portion of the funded amount.
The targeted short-term bonus amount for the named executive officers in fiscal 2005generally ranged from 100%50% to 220% of base salary, and the maximum payout could not exceed 300% of base salary. Bonuses were paid when, and only if, performance goals were achieved. Based upon performance measured against pre-established goals, HP did not pay bonuses for the semi-annual period coveringtarget amount. The Committee has structurally reduced the first and second quartersmaximum payout from 300% to 250% of fiscal 2005 (except as required pursuant to an employment contract) because non-GAAP net profit for the period was below threshold levels. In contrast, HP's results were very strong for the second half of 2005, with an increase in non-GAAP net profit of 46% and 22% for the third and fourth quarters of fiscal 2005, respectively, compared to the prior-year periods. Even after adjusting for currency effects, HP also experienced year-over-year revenue improvement in the same periods. Accordingly, HP paid bonuses above target levels under the PfR Program and CPB Plan to all eligible participants, including the executive officers. The exact amounts of such payouts to named executive officers for the second semi-annual period of fiscal 2005 are set forth in footnote 1 to the Summary Compensation Table beginning on page 37.
In line with the programs of many of HP's technology peers and in order to promote a longer-term focus by management and employees, for fiscal 2006, the Committee determined to set goals for the PfR Program and CPB Plan on an annual rather than semi-annual basis. Metrics will be based on revenue and non-GAAP net profit, with improvements over prior year revenue and non-GAAP net profit required in order for any funding to take place under those metrics.2007.
LTPC Program
The LTPC Program, which the Committee approved in May 2003, is designed to drive value creation and operational results through its use of balance sheet and total stockholder return ("TSR") performance measures. EachA long-term incentive target amount is set for each participant in the LTPC Program receives a targeted long-term incentive amount. PeriodicProgram. If periodic milestones3 relating to HP's cash flow from operations as a percentage of revenue must beare met, to receive aamounts are banked amount under the LTPC Program. At the end of the three-year performance period, a modifier approved at the beginning of the LTPC program will beProgram is applied to banked amounts held by then-current
participants based on TSR relative to the TSR for the S&P 500 for the period. Because HP failedThe TSR modifier is designed to achievelimit payouts under the threshold level ofprogram if stockholders have not benefited during the period relative to overall S&P 500 performance. Conversely, where there has been a significant return to stockholders, LTCP Program participants may receive payouts at rates substantially above the market median at peer companies. In addition, the HR and Compensation Committee has the discretion to adjust awards in exceptional circumstances, including accelerating payouts or waiving forfeiture conditions.
For the three-year performance forperiod ending April 2006, the cash flow as a percentage of total revenue metric was achieved at target during the first 12 months; threshold performance was not achieved for the May 2004-April 2005 performancesecond 12-month period, resulting in no amounts werebeing banked for participants, consistent with HP's pay-for-results philosophy.that period; and targets were achieved for the final two six-month periods (May 2005 through October 2005 and November 2005 through April 2006). For the May 2005-October 2005 performancetotal three-year program period, TSR was approximately the 71st percentile of the S&P 500. Accordingly, the banked amounts were banked above target dueadjusted by applying a modifier based on HP's TSR relative to HP's achievement ofthe TSR for the S&P 500, and a cash flow goals. For a further description ofaward was paid out for the three-year period ending April 30, 2006. Payouts to LTPC Program see "Long-term Incentive Plans—Awards in Last Fiscal Year" on page 43.
Other
participants, including the named executive officers, were approved by the Committee at its May 2006 meeting. The Committee also periodically considers bonuses outsideamounts of the variable pay plans, based on both individual and corporate performance. The Committee paid a bonus outside of the variable pay planssuch payouts to all employees, including each of the then-currentnamed executive officers in Decemberfiscal 2006 are reported in column (h) of the Summary Compensation Table beginning on page 34.
Mr. Hurd's employment agreement provided for mid-plan entry into the LTPC Program's three-year cycles that began May 1, 2003 and May 1, 2004 and deemed the targets for HP's performance in the fourth quarterhis first full year of fiscal 2004.participation (May 1, 2005 through April 30, 2006) to have been met.
Equity Programs
HP's equity programs are designed to encourage creation of long-term value for our stockholders, employee retention and stock ownership. The programs consist of stock option grants, the Share Ownership Plan (an employee stock purchase program), and restricted stock awards. A majorityMany of our employees participate in one or more equity programs, which we believe promote a long-term focus on results and align employee and stockholder interests. At the same time, the Committee has carefully considered the impact of equity expensing, actions taken by HP's peers to reduce the use of options, and HP's dilution and overhang levels, and made certain changes to HP's equity programs in order to strike an appropriate balance between promoting HP's cost competitiveness and maintaining employee incentives.
Executive officers receive a relatively large proportion of their overall targeted compensation in the form of equity, in order to align interests of management and stockholders and promote a focus on long-term results. During the fiscal 20052006 annual grant cycle, our executive officers received an equivalent value (at the time of grant) of options and targeted long-term performance cash.cash awards. Most fiscal 20052006 stock option grants to executive officers were made under HP's 2000 Stock Plan and 2004 Stock Incentive Plan. Each such grant allows the executive officer to acquire shares of HP's common stock, subject to the completion of a four-year vesting period (25% vesting each year). These shares may be acquired at a fixed price per share (the fair market value on the grant date) and have an eight-year term. For information on options granted to named executive officers during fiscal 2005,2006, see "Option Grants in Last Fiscal Year" on page 41.37.
From time to time, we also grant restricted stock to encourage retention and reward performance. In fiscal 2005,2006, we authorized the grant of restricted stock (or restricted stock units in certain countries outside of the United States) to certain executive officers, including Mr.Messrs. Hurd, Joshi and Robison and Ms. Livermore, and other key employees on a case-by-case basis. HalfIn general, half of the restricted stock granted to executive officers vested in one year, and the remainder after three years, subject to continued employment.
We Ms. Livermore also grantedreceived restricted stock and options to certain new hires on a case-by-case basis, including Messrs. Hurd, Bradley and Mott, as described under "Employment Contracts, Termination of Employment and Change-in-Control Arrangements" beginning on page 49. These grants were, in part, to compensate these executives for long-term incentives they would forfeit by joining HP.that vest 100% after one year.
Benefits
HP's global benefits philosophy for employees, including executive officers, is that benefits should provide employees protection from catastrophic events, should enable employees to plan for their futures, and should be competitive in local markets in order to attract and retain a high-quality workforce. The cost of providing benefits to employees has continued to increase on an industry- and economy-wide basisin the U.S. due to factors such as rising healthcare costs.
HP's executive officers receive health and welfare benefits under the same programs and subject to the same terms and conditions as are available to HP employees generally. In July 2005, to address these coststhe U.S., this includes the
standard range of health benefits, including medical, dental and promotevision benefits, as well as coverage for life insurance, disability, accidental death and disability.
Likewise, HP's long-term health, the full Board determined, basedexecutive officers participate in HP's retirement programs on the recommendationssame terms and conditions as are available to HP employees generally, including 401(k) eligibility for all U.S. employees, and pension coverage for certain grandfathered groups.
In fiscal 2006, HP made a number of the Committee,changes that will reduce both its U.S. pension and medical benefit costs relating to HP's executive officers as well as other employees. Effective December 31, 2005, U.S. employees with fewer than 62 age plus years of service points as of December 31, 2005 would no longer be eligibleceased accruing additional pension benefits. All U.S. employees were subject to these changes, including executive officers. In addition, HP implemented a cap on the extent to which it will subsidize retiree medical benefits for both current and future retirees.
accrue benefits In connection with the 2006 pension benefit changes, HP increased the company matching contribution under the HP Retirement401(k) Plan and the related HP Excess Benefit Retirement Plan4, or the HP Cash Account Pension Plan and the related HP Cash Account Restoration Plan5. Messrs. Hurd, Bradley and Mott will not have 62 age plus service points at December 31, 2005, and therefore, like other similarly-situatedfrom 4% to 6% for U.S. employees will no longer accruewho ceased accruing pension benefits. In addition, U.S. employees who ceased accruing pension benefits on or after January 1, 2006. In lieu of these benefits, employees with fewer than 62 points and newly-hired employees will be eligible tomay receive a 6% matching contribution under the HP 401(k) Plan.
HP maintains a non-qualified deferred compensation plan, the Hewlett-Packard Company Executive Deferred Compensation Plan ("EDCP"),with respect to some compensation in excess of certain IRS limits that is unfunded and unsecured and allows certain high-level employees, including executive officers,may not be contributed to voluntarily defer receipt of their salary above specified amounts and bonus payments under the Pay-for-Results Program into bookkeeping accounts established under the EDCP. EDCP accounts are credited with hypothetical earnings, as if invested in funds available under the HP 401(k) Plan, as selected by each participant.Plan.
Perquisites
While HP provides benefitsseeks to certainoffer a level of perquisites sufficient to recruit and retain key executive officers in the formtalent, HP believes that setting appropriate levels of security services, limited personal aircraft usagebase and financial counseling. For thevariable pay are of greater importance to motivating key talent and increasing stockholder return than any package of non-cash perquisites.
HP's named executive officers are eligible to receive reimbursement for an annual physical exam and for up to $18,000 in financial counseling each year. Furthermore, the amountsCEO and his direct reports (the "Executive Council") may use company aircraft for personal purposes, if available and approved by the CEO. Executive Council members are taxed on the value of suchthis personal usage based on the standard industry fare level; the CEO (but not the Executive Council members) receives tax reimbursement for the first 25 hours of personal usage.
As provided under his employment agreement, Mr. Hurd is provided security at his personal residence. The incremental cost to HP of providing these benefits are describedto Mr. Hurd is reported in footnote 4 to the Summary Compensation Table on page 38.under "Other Annual Compensation."
Executive Officer Severance Plan
As part of its ongoing focus on the competitiveness of various compensation and benefits programs, duringDuring fiscal 2005, the Committee reduced the cash severance benefits payablemultiplier in effect under the Executive OfficerHP Severance Plan for the Chief Executive Officer ("CEO"), Executive Vice PresidentsSenior Executives, which is described above under "Employment Contracts, Termination of Employment and Senior Vice Presidents.Change-in-Control Arrangements." In addition, the formula for the determination of payouts was changed so that payouts are a multiple of salary plus the average of the actual bonusbonuses paid during the past three years, as opposed to targeted bonus amounts. For a description of the Executive Officer Severance Plan and amounts payable under the plan, see "Employment Contracts, Termination of Employment and Change-in-Control Arrangements" on page 49.
Employment Agreements with Executive Officers
In order to recruit and retain external candidates with impressive leadership records in key areas, the Committee agreed to enter into employment agreements with Messrs. Hurd, Bradley and Mott during fiscal 2005. The Committee carefully reviewed the terms of these employment agreements and determined that the amounts offered were appropriate under the circumstances, and were designed, in part, to compensate these executives for benefits from their former employers that they forfeited by joining HP. For a further description of these employment agreements, see "Employment Contracts, Termination of Employment and Change-in-Control Arrangements" beginning on page 50 and for a discussion of Mr. Hurd's compensation, see "CEO Compensation—Compensation for Mark V. Hurd" below.
CEO Compensation
On February 8, 2005, Carleton S. Fiorina terminated as CEO of HP, and Robert P. Wayman was appointed as interim CEO untilMr. Hurd's compensation is reviewed annually by the hiring of Mark Hurd effective April 1, 2005. The Committee and full Board were actively involved in the compensation and severance arrangements relating to these decisions.
The Committee believes that HP maintained stability during this transition period and put in place the right senior management team to improve HP results going forward. As previously described, non-GAAP profits were significantly higher in the third and fourth quarters of fiscal 2005 compared to the prior-year periods, and from April 1, 2005 through the end of HP's fourth fiscal quarter, HP's stock price increased by 29.2%. The compensation decisions that were made with respect to each of the individuals who served as CEO during fiscal 2005overall performance, as well as the process for determining such amounts are described below.
Compensation for Mark V. Hurd
The Committee and Board recognized the need to hire a CEO for HP who would focus on operational excellence and improve HP's financial results for the benefit of HP's stockholders, employees and partners. After a thorough search, the Board determined to recruit Mark V. Hurd. Mr. Hurd, who was serving as Chief Executive Officer of NCR (where he had been employed for over 20 years) at the time he was approached by HP, had significant retention incentives in place commensurate with the importance of his role and his tenure at NCR. Accordingly, in determining an appropriate compensation package to recruit Mr. Hurd, the Committee considered the value of the compensation that Mr. Hurd would forfeit by leaving NCR, as well as competitive data on CEO compensation among HP's blended peers. As a result of this process, in fiscal 2005, the Committee agreed to provide Mr. Hurd the following compensation pursuant to the terms of an employment contract dated March 29, 2005: (1) annual base salary of $1,400,000; (2) a targeted bonus opportunity under the Executive PfR Plan of 200% of base salary6; (3) 700,000 option shares with a vesting schedule of 25% per year; (4) a targeted bonus opportunity of 300% of base salary under the LTPC Program7; (5) 400,000 shares of restricted stock vesting at a rate of 33.3% annually over 3 years; (6) 450,000 option shares with a vesting schedule of 33.3% per year, (7) a sign-on bonus of $2,000,000; (8) a relocation bonus of $2,750,000; (9) price protection of up to 20% of declines in fair market value of his vested NCR options; and (10) other benefits described in his employment contract. In addition, Mr. Hurd received perquisites valued at $492,858 and other compensation of $8,119,977, the details of which are set forth in footnotes 4 and 7 of the Summary Compensation Table beginning on page 37. For a further description of Mr. Hurd's employment arrangements, see "Employment Contracts, Termination of Employment and Change-in-Control Arrangements—Employment Agreement with Mark V. Hurd" beginning on page 50. A significant proportion of Mr. Hurd's targeted compensation is performance-based, including options and compensation above target under the PfR Program and the LTPC Program. Although Mr. Hurd's PfR Program bonus was guaranteed at least at target under the terms of his employment contract, he actually received a payout of $2,898,000 for the second half of the PfR Program (in excess of the targeted amount) due to HP's performance on non-GAAP net profit and revenue metrics during that period. For the PfR Program in the first half of fiscal 2005, he received $233,333.
In future periods, the Committee has determined to consider the following factors in assessing CEO performance, which will be used in conjunction with competitive data to determine future targeted compensation:compensation. Factors considered in evaluating Mr. Hurd's performance include strategic leadership, financial performance, operational excellence, people development, management of external relationships and effectiveness in working with the Board.
Compensation for Robert P. Wayman
Mr. Wayman served as the interim CEO of HP from the period of Ms. Fiorina's termination in February 2005 until In reviewing Mr. Hurd's hiring in April 2005. Mr. Wayman wascompensation this year, the Committee considered these factors, as well as his broad range of accomplishments during fiscal 2006, including establishment of strategic priorities and programs to deliver results, implementation of targeted cost reductions against industry benchmarks, completion of a significant number of acquisitions resulting in a unique position to provide stability and continuity to HP during this transitional period due to his responsibilities as Chief Financial Officer of HP (a position that he has held since 1984) and his more than 30 years of experience with HP.sizable increase in
incremental annual revenue, and a significant increase in cash flow from operations. Furthermore, Mr. Wayman's regular compensation package in fiscal 2005 was determined based on his service as CFO. In orderHurd has implemented a clear approach to determine his targeted compensation,strategy and execution across the Committee utilized the same process as for other executive officers: analyzing the total rewards for similarly-situated executivesorganization, based on the survey datastrategic initiatives of growth, efficiency and capital.
Since Mr. Hurd's appointment as HP's CEO was first reported in late March of 2005 through early January 2007, total HP stockholder return was 115% compared to S&P 500 performance of 24% during the same period.
Consistent with HP's philosophy of providing a large percentage of targeted compensation for our blended peer group and technology peers; consideringits executives in the form of variable compensation, Mr. Wayman'sHurd received no increase in the amount of his base pay during fiscal 2006, but his target short-term bonus under the PfR Plan was increased during fiscal 2006 from 200% to 220% of base pay. In addition, Mr. Hurd received amounts under the PfR Plan consistent with achievement of performance and reviewing HP's results.in excess of target. Mr. Hurd's long-term incentive payout was also in accordance with achievement of significant financial metrics. Because of the significant performance achievements, neither the PfR payment nor the long-term performance payment to Mr. Hurd required adjustment to satisfy the minimums guaranteed under his employment agreement.
Based on this review,HP's achievement of significant financial and restructuring goals during fiscal 2006, Mr. Hurd's role in leading HP to these strong financial results, and Mr. Hurd's attainment of non-financial performance goals, the Committee determinedbelieves that the Mr. Hurd's compensation is appropriate relative to award Mr. Wayman the fiscal 2005 compensation shown on the Summary Compensation Table on page 37. As previously reported,HP's performance, as well as in recognition of his unique abilitycomparison to guide HP during the transitional period between CEOs and his continued assistance during Mark Hurd's acclimation to HP, the Committee determined to award Mr. Wayman a cash payment of $3 million during fiscal 2005.
Compensation for Carleton S. Fiorina
Ms. Fiorina terminated as Chairman and CEO on February 8, 2005. In light of the then-existing provisions of the HP Severance Plan for Senior Executives, various plans in which Ms. Fiorina participated, and past practice with respect to certain other employees whose employment with HP terminated, the Committee and the full Board agreed to the terms of Ms. Fiorina's severance arrangements, which resulted in a total severance payout of approximately $21.4 million. The terms of Ms. Fiorina's severance arrangements are described under "Employment Contracts, Termination of Employment and Change-In-Control Arrangements—Carleton S. Fiorina Severance Agreement and Release" beginning on page 57.
All aspects of the fiscal 2005 compensation of Ms. Fiorina were governed by the general principles of HP's Total Rewards program described above. The elements of Ms. Fiorina's compensation that were in effect at the time of her termination were as follows: base pay of $1,400,000 per year and a targeted short-term bonus opportunity of 300% of base salary for the first half of fiscal 2005. During fiscal 2005, Ms. Fiorina did not receive grants of options or an award for the 2005-2006 program period under the LTPC Program. Ms. Fiorina's salary and short-term bonus amounts in effect at the time of her termination were determined in fiscal 2004 by analyzing the total direct compensation for CEOs based on the survey data for HP's blended peer group and technology peers; considering Ms. Fiorina's performance; and reviewing HP's results. Ms. Fiorina also received perquisites and other compensation in fiscal 2005 as shown on the Summary Compensation Table on page 37.external market data.
Corporate Tax Deduction on Compensation in Excess of $1 Million a Year
Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended, (the "Code"), generally limits to $1 million the deductibility of compensation paid by a public company to any employee who on the last day of the year is the CEO or one of the four other most highly compensated officers.officers as of the last day of the fiscal year in which the compensation is paid. Compensation may qualify for an exemption from the deduction limit if it satisfies certain conditions under Section 162(m). The Committee considers the impact of this rule when developing and implementing HP's executive compensation programs. While many of HP's stock options and the Executive PfR PlanTotal Rewards Programs are designed so that compensation paid under them can qualify for an exemption from the limitation on deductible compensation, HP believes that it is important to preserve flexibility in administering compensation programs. Accordingly, HP has not adopted a policy that all compensation must qualify as deductible under Section 162(m), and amounts paid under any of HP's compensation programs may be determined not to so qualify.
Stock Ownership Guidelines
OurHP's stock ownership guidelines are designed to increase executives' equity stakes in HP and to align executives' interests more closely with those of our stockholders. The guidelines provide that within five years of appointment as CEO, the CEO should attain an investment position in HP's stock equal to five times his base salary and all other executive
officersExecutive Council members should attain an investment position equal to three times their base salary. These guidelines should be achieved within five years. Shares counted toward these guidelines include:
Employee ownership of HP shares also is encouraged through the Share Ownership Plan, HP's employee stock purchase plan.
HPThe Committee has reviewed the stock ownership of each of HP's executive officers. MostAll executive officers who have served as such for more than one yearwith five years of service have met the foregoing stock ownership guidelines.
Policy Regarding Recoupment of Bonus Amounts in the Event of a Restatement of Earnings or Similar Event
The HP Board of Directors adopted a policy that permits the Board to recoup bonuses from senior executives whose fraud or misconduct resulted in a financial restatement. This policy allows for the recovery of bonuses in certain circumstances, while allowing HP to honor its existing contractual
commitments, and would supplement any recoupment required by the Sarbanes-Oxley Act of 2002. This policy is as follows:
In the event of a significant restatement of financial results, our Board will review all bonuses that were made to senior executives on the basis of having met or exceeded specific performance targets for performance periods beginning after December 31, 2005 which occur during the restatement period. If such bonuses would have been lower had they been calculated based on such restated results, the Board will, to the extent permitted by governing law, seek to recoup for the benefit of our company all such bonuses to senior executives whose fraud or misconduct resulted in such restatement, as determined by the Board. For purposes of this policy, the term "senior executives" means executive officers for purposes of the Securities Exchange Act of 1934, as amended, and the term "bonuses" means bonuses and awards under the Pay-for-Results Program and the Long-Term Performance Cash Program.
Option Granting Process
Stock options are part of the Total Rewards Program for many HP employees, and options are typically granted in January of each year in connection with the annual performance appraisal cycle. Grant approval occurs either at a regularly-scheduled Committee meeting or by unanimous written consent of the Committee. Grants to executive officers are made at the same time as grants are made to all other eligible employees. The timing of grants is not coordinated with the release of material non-public information. For grants made during fiscal 2006 all grants were made at fair market value, defined as the average of the high and low trading price of HP common stock on the date of grant. During fiscal 2007, HP's plans will be amended to define fair market value as the closing market price of HP common stock on the date of the grant.
In addition to grants made each year in connection with the annual performance appraisal cycle, options grants are made during the year to newly-hired employees as part of the in-hire package, as well as to existing employees for purposes of retention or in recognition of special achievements. In order to address the need to grant options at other times of year, the Committee has delegated authority to the HP Plan Committee to make grants to employees other than Section 16 officers, subject to certain guidelines and an overall share limitation. The Plan Committee is authorized to identify the award recipient and the number of shares subject to the option grant; the Committee sets all other terms of the awards. The members of Plan Committee are the following officers of HP: the Executive Vice President of Human Resources and Workforce Development, the General Counsel, the Treasurer and the Controller. Plan Committee members serve at the pleasure of the Committee. The Plan Committee meets quarterly in person and takes action by the unanimous written consent on a monthly basis. All grants are made at fair market value, currently defined as the average of the high and the low trading price of HP common stock, on the day that the last Plan Committee member signs the consent. In addition to duties associated with option grants, the Plan Committee's responsibilities include administration of HP's equity plans and non-equity plans, such as approving amendments to HP's qualified retirement plans and hearing retirement plan appeals.
The undersigned members of the HR and Compensation Committee have submitted this Report to the Board of Directors and approved its inclusion in HP's 20062007 proxy statement.
HR AND COMPENSATION COMMITTEE
Lawrence T. Babbio, Jr., Chair
John H. Hammergren
Lucille S. Salhany
The graphs below show the cumulative total stockholder return assuming the investment of $100 on the date specified for each graph (and the reinvestment of dividends thereafter) in each of HP common stock, the S&P 500 Index, the S&P 500 Information Technology Index and HP's current and former peer groupgroups(1).
FIVE-YEAR CUMULATIVE RETURN*
(Investment of $100 on October 31, 2000)2001)
ONE-YEAR CUMULATIVE RETURN**
(Investment of $100 on October 31, 2004)2005)
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Audit Committee has appointed Ernst & Young LLP as HP's independent registered public accounting firm for the fiscal year ending October 31, 2006.2007. Stockholders are being asked to ratify the appointment of Ernst & Young LLP at the annual meeting pursuant to Proposal No. 2. Representatives of Ernst & Young LLP are expected to be present at the annual meeting, will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.
Fees Incurred by HP for Ernst & Young LLP
The following table shows the fees paid or accrued (in millions) by HP for audit and other services provided by Ernst & Young LLP for fiscal 20052006 and 2004.2005.
| 2005 | 2004 | 2006 | 2005 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Audit Fees(1) | $ | 25.4 | $ | 18.1 | $ | 23.9 | $ | 25.4 | ||||
Audit-Related Fees(2) | 7.9 | 4.2 | 7.5 | 7.9 | ||||||||
Tax Fees(3) | 6.1 | 10.1 | 4.8 | 6.1 | ||||||||
All Other Fees(4) | 0.0 | 0.0 | — | — | ||||||||
Total | $ | 39.4 | $ | 32.4 | $ | 36.2 | $ | 39.4 | ||||
The Audit Committee has approved all of the fees above.
The Audit Committee has delegated to the Chair of the Audit Committee the authority to pre-approve audit-related and non-audit services not prohibited by law to be performed by HP's independent registered public accounting firm and associated fees up to a maximum for any one non-audit service of $250,000, provided that the Chair shall report any decisions to pre-approve such audit-related or non-audit services and fees to the full Audit Committee at its next regular meeting.
REPORT OF THE AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS
The Audit Committee represents and assists the Board in fulfilling its responsibilities for general oversight of the integrity of HP's financial statements, HP's compliance with legal and regulatory requirements, the independent registered public accounting firm's qualifications and independence, the performance of HP's internal audit function and independent registered public accounting firm, risk assessment and risk management, oversight of investments and assets for pension plans, oversight of treasury matters, oversight of loan and debt activities, review of HP Financial Services capitalization, review of activities of Investor Relations, and oversight of cost and funding of equity compensation plans and benefit programs. The Audit Committee manages HP's relationship with its independent registered public accounting firm (which reports directly to the Audit Committee). The Audit Committee has the authority to obtain advice and assistance from outside legal, accounting or other advisors as the Audit Committee deems necessary to carry out its duties and receives appropriate funding, as determined by the Audit Committee, from HP for such advice and assistance.
HP's management is primarily responsible for HP's internal control and financial reporting process. HP's independent registered public accounting firm, Ernst & Young LLP, is responsible for performing an independent audit of HP's consolidated financial statements and issuing opinions on the conformity of those audited financial statements with United States generally accepted accounting principles, the effectiveness of HP's internal control over financial reporting and management's assessment of the internal control over financial reporting. The Audit Committee monitors HP's financial reporting process and reports to the Board on its findings.
In this context, the Audit Committee hereby reports as follows:
The undersigned members of the Audit Committee have submitted this Report to the Board of Directors.
AUDIT COMMITTEE | |
Robert L. Ryan, Chair G. Kennedy Thompson |
January 12, 200617, 2007
Hewlett-Packard Company Board of Directors
Audit Committee Charter
I. Purpose and Authority
The purpose of the Audit Committee (the "Committee") of the Board of Directors (the "Board") of Hewlett-Packard Company ("HP") is:
1. To assist the Board in fulfilling its responsibilities for generally overseeing: (a) HP's financial reporting processes and the audit of HP's financial statements, including the integrity of HP's financial statements, (b) HP's compliance with legal and regulatory requirements, (c) the independent registered public accounting firm's qualifications and independence, (d) the performance of HP's internal audit function and independent registered public accounting firm, and (e) risk assessment and risk management;
2. To prepare the report required by the proxy rules of the U.S. Securities and Exchange Commission (the "SEC") to be included in HP's annual proxy statement;
3. To oversee the finance and investment functions of HP; and
4. To perform such other duties and responsibilities as are enumerated in and consistent with this charter.
II. Membership
1. Membership and Appointment. The Committee will consist of at least three directors whom the Board appoints and such number of additional directors as the Board deems appropriate and appoints.
2. Qualifications; Independence. Each director on the Committee will have such qualifications as the Board determines. In addition, each director on the Committee will be independent within the meaning of applicable laws or listing standards, and will meet applicable listing standard financial literacy requirements, each as the Board determines. Finally, at least one director on the Committee will be an "audit committee financial expert," as determined by the Board in accordance with SEC rules. In addition, no director on the Committee may have participated in the preparation of the financial statements of HP or any of HP's current subsidiaries at any time during the past three years.
3. Removal. The entire Committee or any individual director on the Committee may be removed with or without cause by the affirmative vote of a majority of the Board upon the recommendation of the Nominating and Governance Committee.
4. Chairman. The Board may designate a Chairman of the Committee (the "Chairman"). In the absence of such designation, the Committee may designate the Chairman by majority vote of the Committee. From time to time the Chairman may establish such other rules as are necessary and proper for the conduct of the business of the Committee.
III. Procedures
1. Number of Meetings. The Committee will convene at least six times each year, with additional meetings as appropriate.
2. Agenda. The Chairman will establish the agenda, with input from management and other directors on the Committee and the Board as appropriate.
3. Executive and Private Sessions. The Committee will meet regularly in separate executive sessions at which only Committee members are present and in private sessions with each of management, the internal auditors and the independent registered public accounting firm.
4. Delegation of Authority.
a. The Committee may create a subcommittee of the Committee consisting of one or more directors on the Committee and may delegate any of its duties and responsibilities to such subcommittee, unless otherwise prohibited by applicable laws or listing standards.
b. The Committee may delegate any of its duties and responsibilities to one or more directors on the Committee, another director or other persons, unless otherwise prohibited by applicable laws or listing standards.
c. Any subcommittee, director or other person will provide a written or oral report to the Committee regarding any activities undertaken pursuant to such delegation.
d. The Committee may terminate any such subcommittee and revoke any such delegation at any time.
5. Authority to Retain Advisors. In the course of its duties, the Committee will have sole authority, at HP's expense, to engage and terminate consultants or advisors, as the Committee deems advisable, including the sole authority to approve the consultant or advisor's fees and other retention terms.
6. Charter Review. The Committee annually will review and reassess the adequacy of this charter and will submit any recommended changes to the charter to Nominating and Governance Committee and the Board for approval.
7. Performance Review. The Committee annually will undertake an evaluation assessing its performance with respect to its purposes and its duties and tasks set forth in this charter, and will report the results of such evaluation to the Nominating and Governance Committee and the Board.
8. Reporting to the Board. The Committee will report regularly to the Board with respect to the Committee's activities.
9. Open Access. The Committee will be given open access to HP's internal auditors, Board Chairman, HP executives and independent registered public accounting firm, as well as HP's books, records, facilities and other personnel.
IV. Responsibilities
The following responsibilities of the Committee are set forth as a guide to the Committee with the understanding that the Committee may alter or supplement them as appropriate under the circumstances to the extent permitted by applicable laws and listing standards.
1. Independent Registered Public Accounting Firm. The Committee will appoint, evaluate and compensate the independent registered public accounting firm, which will report directly to the Committee, and oversee the rotation of the independent registered public accounting firm's lead audit and concurring partners at least once every five years and the rotation of other audit partners at least once every seven years, with applicable time-out periods, in accordance with SEC regulations. The Committee will determine whether to retain or, if appropriate, terminate the independent registered public accounting firm. The Committee is responsible for recommending the independent registered public accounting firm for approval by the shareholders, if appropriate.
2. Audit and Non-Audit Services and Fees. The Committee will review and approve in advance the scope of the fiscal year's independent audit and the audit fees, establish policies for the independent registered public accounting firm's activities and any fees beyond the core audit, approve in advance all non-audit services to be performed by the independent registered public accounting firm that are not otherwise prohibited by law and associated fees, and monitor the usage of and fees paid to the independent registered public accounting firm. The Committee may delegate to the Chairman the authority, within agreed limits, to pre-approve audit-related and non-audit services not
prohibited by law to be performed by the independent registered public accounting firm. The Chairman will report any decisions to pre-approve such services to the full Committee at its next meeting.
3. Relationships with Independent Registered Public Accounting Firm. The Committee will review and discuss with the independent registered public accounting firm its annual written statement delineating all relationships or services between the independent registered public accounting firm and HP, or any other relationships or services that may impact its objectivity and independence.
4. Hiring Polices. The Committee will set clear hiring policies for employees or former employees of the independent registered public accounting firm, and monitor compliance with such policies.
5. Annual Audited and Quarterly Financial Statements; Other Matters. The Committee will:
a. Meet to review and discuss with management and the independent registered public accounting firm HP's annual audited and quarterly financial statements, including HP's disclosures in "Management's Discussion and Analysis of Financial Condition and Results of Operations;" and
b. Review with management and the independent registered public accounting firm:
i. the results of the independent registered public accounting firm's audit and the independent registered public accounting firm's opinion on the annual financial statements;
ii. analyses prepared by management or the independent registered public accounting firm setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements;
iii. the independent registered public accounting firm's judgments on the quality, not just the acceptability, and consistent application of HP's accounting principles, the reasonableness of significant judgments, clarity of disclosures and underlying estimates in the financial statements;
iv. major issues regarding accounting principles and financial statement presentations, including changes in accounting principles or application thereof, significant judgment areas, and significant and complex transactions;
v. the effectiveness and adequacy of HP's internal auditing; and
vi.vi any disagreements between management and the independent registered public accounting firm, about matters that individually or in the aggregate could be significant to HP's financial statements or the independent registered public accounting firm's report, and any serious difficulties the independent registered public accounting firm encountered in dealing with management related to the performance of the audit and management's response.
6. Inclusion of Audited Financial Statements in 10-K. The Committee will recommend to the Board whether the audited financial statements should be included in HP's Annual Report on Form 10-K.
7. Regulatory and Accounting Initiatives and Off-Balance Sheet Structures. The Committee will review the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on HP's financial statements.
8. Earnings Press Releases, Corporate Policies and Earnings Guidance. The Committee will review and discuss earnings press releases (paying particular attention to the use of "pro forma," or
"adjusted" non-GAAP information), as well as corporate policies with respect to financial information and earnings guidance provided to analysts and ratings agencies.
9. Report from Independent Registered Public Accounting Firm. At least annually, the Committee will obtain from and review a report by the independent registered public accounting firm describing (a) the independent registered public accounting firm's internal quality control procedures, and (b) any material issues raised by the most recent internal quality-control review, or peer review, or by any governmental or professional inquiry or investigation within the preceding five years regarding any audit performed by the independent registered public accounting firm, and any steps taken to deal with any such issues.
10. Disclosure Controls and Procedures. The Committee will review the adequacy and effectiveness of HP's disclosure controls and procedures.
11. Internal Controls. The Committee will review the adequacy and effectiveness of HP's internal controls, including any significant deficiencies in such controls and significant changes or material weaknesses in such controls reported by the independent registered public accounting firm, the internal auditors or management and any special audit steps adopted in light of material control deficiencies, and any fraud, whether or not material, that involves management or other HP employees who have a significant role in such controls.
12. Information Security. The Committee will review the adequacy and effectiveness of HP's information security policies and the internal controls regarding information security.
13. Internal Audit. The Committee will review the overall scope, qualifications, resources, activities, reports, organizational structure and effectiveness of the internal audit function.
14. Director of Internal Audit. The Committee will approve the appointment, replacement, reassignment or dismissal of the Director of Internal Audit.
15. Compliance. The Committee will oversee HP's compliance programs with respect to legal and regulatory requirements, and review with management and the Director of Internal Audit the results of their review of compliance with applicable laws, regulations and listing standards, HP's Standards of Business Conduct and internal audit reports.
16. Complaints and Submissions. The Committee will oversee procedures established for the receipt, retention and treatment of complaints on accounting, internal accounting controls or auditing matters, as well as for confidential, anonymous submissions by HP's employees of concerns regarding questionable accounting or auditing matters and compliance with the Standards of Business Conduct.
17. Attorneys' Reports. The Committee will receive and, if appropriate, respond to attorneys' reports of evidence of material violations of securities laws and breaches of fiduciary duty and similar violations of U.S. or state law.
18. Risks. The Committee will review and assess risks facing HP and management's approach to addressing these risks, including significant risks or exposures relating to litigation and other proceedings and regulatory matters that may have a significant impact on HP's financial statements.
19. Regulatory Investigations. The Committee will review the results of significant investigations, examinations or reviews performed by regulatory authorities and management's response.
20. Related Party Transactions. The Committee will review and approve all "related party transactions," as defined in applicable SEC rules.
21. Investigations. The Committee will conduct or authorize investigations into any matters within the Committee's scope of responsibilities.
22. Investments. The Committee will review the activities of the Investment Review Committee.
23. Treasury Matters. The Committee will review or oversee significant treasury matters such as capital structure, derivative policy, global liquidity, fixed income investments, borrowings, currency exposure, dividend policy, share issuance and repurchase, capital spending, and risk management identification and coverage.
24. Loans and Obligations. The Committee will oversee HP's loans, loan guarantees of third party debt and obligations and outsourcings.
25. HP Financial Services. The Committee will review HP Financial Services' capitalization and operations, including residual and credit management, risk concentration, and return on invested capital (ROIC).
26. Investor Relations. The Committee will review the activities of Investor Relations.
27. Coordination with HR and Compensation Committee. The Committee will coordinate, as appropriate, with the HR and Compensation Committee regarding the cost, funding and financial impact of equity compensation and benefits.
Hewlett-Packard Company Board of Directors
HR and Compensation Committee Charter
I. Purpose
The purpose of the HR and Compensation Committee (the "Committee") of the Board of Directors (the "Board") of Hewlett-Packard Company ("HP") is:
1. To discharge the responsibilities of the Board relating to compensation of HP's executives and directors;
2. To produce an annualprepare the report on executive compensation for inclusionrequired by the proxy rules of the U.S. Securities and Exchange Commission (the "SEC") to be included in HP's annual proxy statement (in accordance with applicable rules and regulations);statement;
3. To provide general oversight of HP's compensation structure including equity compensation plans and benefits programs;
4. To review and provide guidance on HP's HR programs such as its global workforce programs, talent review and leadership development and best place to work initiatives; and
5. To perform such other duties and responsibilities as are enumerated in and consistent with this charter.
II. Membership
1. Membership and Appointment. The Committee will consist of three directors, or such greater number of directors as the Board appoints.
2. Qualifications; Independence. Each director on the Committee will have such qualifications as the Board determines. In addition, each director on the Committee will be independent within the meaning of applicable laws or listing standards, as the Board determines. In addition, members of the Committee will qualify as "non-employee directors" for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and as "outside directors" for purposes of Section 162(m) of the Internal Revenue Code.
3. Removal. The entire Committee or any individual director on the Committee may be removed with or without cause by the affirmative vote of a majority of the Board upon the recommendation of the Nominating and Governance Committee.
4. Chairman. The Board may designate a Chairman of the Committee (the "Chairman"). In the absence of such designation, the Committee may designate the Chairman by majority vote of the Committee. From time to time the Chairman may establish such other rules as are necessary and proper for the conduct of the business of the Committee.
III. Procedures
1. Number of Meetings. The Committee will convene at least four times each year, with additional meetings as appropriate.
2. Agenda. The Chairman will establish the agenda, with input from management, staff and other directors on the Committee and the Board as appropriate.
3. Executive Sessions. As appropriate, the Committee may meet in executive sessions.
4. Delegation of Authority.
a. The Committee may create a subcommittee of the Committee consisting of one or more directors on the Committee and may delegate any of its duties and responsibilities to such subcommittee, unless otherwise prohibited by applicable laws or listing standards.
b. The Committee may delegate any of its duties and responsibilities, including the administration of equity incentive or employee benefit plans, to one or more directors on the Committee, another director or other persons, unless otherwise prohibited by applicable laws or listing standards.
c. Any subcommittee, director or other person will provide a written or oral report to the Committee regarding any activities undertaken pursuant to such delegation.
d. The Committee may terminate any such subcommittee and revoke any such delegation at any time.
5. Authority to Retain Advisors. In the course of its duties, the Committee will have sole authority, at HP's expense, to engage and terminate outside compensation consultants, counsel, and other experts and advisors as the Committee deems advisable, with respect to the evaluation of director, Chief Executive Officer ("CEO") or executive compensation or other matters, including the sole authority to approve the consultant or advisor's fees and other retention terms.
6. Charter Review. The Committee annually will review and reassess the adequacy of this charter and will submit any recommended changes to the charter to the Nominating and Governance Committee and the Board for approval.
7. Performance Review. The Committee annually will undertake an evaluation assessing its performance with respect to its purposes and its duties and tasks set forth in this charter, and will report the results of such evaluation to the Nominating and Governance Committee and the Board.
8. Reporting to the Board. The Committee will report regularly to the Board with respect to the Committee's activities. As a matter of practice, the Committee expects to discuss with the Board significant matters, such as material changes to executive officer (within the meaning of Section 16 of the 1934 Act, as amended ("Section 16 Executive Officer")) compensation and severance arrangements, and other significant matters.
IV. Responsibilities
The following responsibilities of the Committee are set forth as a guide to the Committee with the understanding that the Committee may alter or supplement them as appropriate under the circumstances to the extent permitted by applicable laws and listing standards.
1. Evaluate Human Resources and Compensation Strategies. The Committee will oversee and evaluate HP's overall human resources and compensation structure, policies and programs, and assess whether these establish appropriate incentives and leadership development opportunities for management and other employees. The Committee will oversee HP's total rewards program in order to attract and retain key talent and promote HP's best place to work initiative.
2. Oversee Executive Succession Planning and Leadership Development. The Committee will review senior management selection and oversee executive succession planning. As part of this process, the Committee will review the leadership development process for senior management positions. The Committee also will review compensation, incentive and other programs to promote such development.
3. Conduct Executive Performance Review and Set Executive Compensation. The Committee will review and approve corporate goals and objectives relevant to the compensation of the CEO of HP,
evaluate the performance of the CEO in light of those goals and objectives and approve the CEO's annual compensation level, including salary, bonus, stock options, other stock incentive awards and long-term cash incentive awards, based on this evaluation. The Committee will also review and approve the annual compensation levels of other Section 16 Executive Officers, including salaries, bonuses, stock options, other stock incentive awards and long-term cash incentive awards, and evaluate the performance of the other Section 16 Executive Officers. In addition, the Committee, in its discretion, may review and act upon management proposals to designate key employees to receive stock options and stock or other bonuses.
4. Approve Severance Arrangements and Other Applicable Agreements. The Committee will review and approve severance arrangements for the CEO and other Section 16 Executive Officers, including change-in-control provisions, plans or agreements, and, to the extent that any such agreements are entered into, employment agreements for the CEO and other Section 16 Executive Officers.
5. External Reporting of Compensation Matters. The Committee will produce an annualprepare the report on executive compensation in HP's proxy statement as required by the proxy rules of the U.S. Securities and Exchange Commission.SEC to be included in HP's annual proxy statement.
6. Oversight of Equity-Based and Incentive Compensation Plans. The Committee will supervise and administer HP's incentive compensation and equity-based plans and may approve, amend, modify, interpret or ratify the terms of, or terminate, any such plan to the extent that such action does not require shareholder approval; make recommendations to the Board with respect to incentive-compensation plans and equity-based plans as appropriate; provide for accelerated vesting of options, foreign stock appreciation rights ("FSARs"), stock appreciation rights ("SARs") and restricted stock and units, and determine the post-termination exercise periods for such awards, in connection with divestitures or otherwise; and delegate certain of such functions to the extent set forth herein.
7. Oversight of Employee Benefit Plans. The Committee will monitor the effectiveness of non-equity based benefit plan offerings, in particular benefit plan offerings and perquisites pertaining to Section 16 Executive Officers, and approve any material new employee benefit plan or change to an existing plan that creates a material financial commitment by HP. In its discretion, the Committee may otherwise approve, amend, modify, ratify or interpret the terms of, or terminate, any non-equity based benefit plan or delegate such authority to the extent set forth herein.
8. Monitor Workforce Management Programs. The Committee will monitor the effectiveness of workforce management programs that are global in scope, including global restructuring programs. The Committee also will periodically review reports in order to monitor workforce diversity and equal employment opportunity issues.
9. Set Director Compensation. The Committee will establish compensation policies and practices for directors for service on the Board and its committees, as well as for the Chairman of the Board.committees. The Committee will recommend to the Board and regularly review the appropriate level of director compensation.
10. Monitor Director and Executive Stock Ownership. The Committee will develop and monitor compliance by Section 16 Executive Officers and directors with HP's stock ownership guidelines and periodically review such guidelines.
Hewlett-Packard Company Board of Directors
Nominating and Governance Committee Charter
I. Purpose
The purpose of the Nominating and Governance Committee (the "Committee") of the Board of Directors (the "Board") of Hewlett-Packard Company ("HP") is:
1. To recommend to the Board candidates to be nominated for election as directors by shareholders at HP's annual meeting, consistent with HP's Board Composition Guidelines;the operating requirements of HP and other considerations the Committee deems appropriate, as approved by the Board;
2. To develop HP's Corporate Governance Guidelines for approval by the Board, and to review regularly and recommend updates to the Corporate Governance Guidelines, as appropriate;
3. To oversee the organization of the Board to discharge the Board's duties and responsibilities properly and effectively, including oversight with the Chairman of the Board of the annual evaluation of the Board and its committees;
4. To see that proper attention is given, and effective responses are made, to shareholder concerns regarding corporate governance; and
5. To perform such other duties and responsibilities as are enumerated in and consistent with this charter.
II. Membership
1. Membership and Appointment. The Committee consists of such number of directors as the Board appoints.
2. Qualifications; Independence. Each director on the Committee will have such qualifications as the Board determines. In addition, each director on the Committee must be independent within the meaning of applicable laws or listing standards, as the Board determines.
3. Removal. The entire Committee or any individual director on the Committee may be removed from office with or without cause by the affirmative vote of a majority of the Board.
4. Chairman. The Board may designate a Chairman of the Committee. In the absence of such designation, the Committee may designate the Chairman of the Committee by majority vote of the Committee. From time to time, the Chairman of the Committee may establish such other rules as are necessary and proper for the conduct of the business of the Committee.
III. Procedures
1. Number of Meetings. The Committee convenes at least four times each year, with additional meetings as appropriate.
2. Agenda. The Chairman of the Committee establishes its agenda, with input from management, staff, the Chairman of the Boardlead independent director and other directors on the Committee and the Board as appropriate.
3. Executive Sessions. As appropriate, the Committee may meet in executive sessions.
4. Delegation of Authority.
a. The Committee may create a subcommittee of the Committee consisting of one or more directors on the Committee and may delegate any of its duties and responsibilities to such subcommittee, unless otherwise prohibited by applicable laws or listing standards.
b. The Committee may delegate any of its duties and responsibilities to one or more directors on the Committee, another director or other persons, unless otherwise prohibited by applicable laws or listing standards.
c. Any subcommittee, director or other person will provide a written or oral report to the Committee regarding any activities undertaken pursuant to such delegation.
d. The Committee may terminate any such subcommittee and revoke any such delegation at any time.
5. Authority to Retain Advisors. In the course of its duties, the Committee has sole authority, at HP's expense, to engage and terminate consultants or search firms, as the Committee deems advisable, and to identify director candidates, including the sole authority to approve the consultant or search firm's fees and other retention terms. The Committee also has the sole authority, at HP's expense, to engage and terminate other advisors as the Committee deems appropriate to carry out its duties, including the sole authority to approve such other advisor's fees and any other retention terms.
6. Charter Review. The Committee annually reviews and reassesses the adequacy of this charter and submits any recommended changes to the charter to the Board for approval.
7. Performance Review. The Committee annually undertakes an evaluation assessing its performance with respect to its purposes and its duties and tasks set forth in this charter, and reports the results of such evaluation to the Board.
8. Reporting to the Board. The Committee reports regularly to the Board with respect to the Committee's activities.
IV. Roles and Responsibilities
1. Board and Committee Composition. The Committee has the following responsibilities related to the composition of the Board and committees of the Board:
a. Annually, with input from the Chief Executive Officer and the Chairman of the Board and the Chief Executive Officer (the "CEO""CEO/Chairman"), the Committee assesses the size and composition of the Board in light of the operating requirements of HP includingand other considerations the development and review of the Board Composition Guidelines for approvalCommittee deems appropriate, as approved by the Board, and makes recommendations to the Board with respect to candidates for election as directors by shareholders at HP's annual meeting.
b. The Committee works with the CEO/Chairman of the Board in identifying and recruiting new directors consistent with HP's Board Composition Guidelines and considers candidates proposed by shareholders as part of this process.
c. The Committee recommends to the Board the assignment of directors to committees of the Board to ensure that committee membership complies with the requirements of applicable laws and listing standards. Such recommendations take into account the experience, availability and preferences of the directors, as well as input from the Chairman of the Boardlead independent director and the CEO.CEO/Chairman.
d. The Committee conducts a preliminary review of director independence and the financial literacy and expertise of Audit Committee members and nominees who may be asked to serve on the Audit Committee, and makes recommendations to the Board relating to such matters.
e. In conjunction with the Chairman of the Board and withWith input from the CEO,CEO/Chairman, the Committee is responsible for and oversees the orientation program HP provides to new directors and makes recommendations regarding continuing education programs for directors, which may relate to corporate governance, trends in HP's industries or other appropriate topics.
2. Corporate Governance Principles. The Committee is responsible for establishing and reviewing HP's corporate governance principles, including Corporate Governance Guidelines and related policies, taking into account best practices. The Committee will regularly review and make recommendations, as appropriate, to update the Corporate Governance Guidelines and related policies.
3. Charter Documents.Documents and Charters for Committees of the Board. The Committee reviews proposed changes to HP's Certificate of Incorporation and Bylaws, and charters of the committees of the Board, and makes recommendations for any changes to the Board.
4. Shareholder Rights Issues. The Committee assesses and makes recommendations to the Board regarding shareholder rights plans and other shareholder protections, as appropriate.
5. Outside Directorships. The Committee reviews and approves, as appropriate, any requests from Section 16 executive officers, as defined in the Securities Exchange Act of 1934, as amended ("Section 16 Executive Officers"), to stand for election to any outside for-profit boards of directors.
6. Shareholder Proposals. The Committee reviews shareholder proposals in conjunction with the CEO/Chairman of the Board and recommendrecommends Board responses.
7. Board, Committee and Management Evaluations. In conjunction with the Chairman of the Board, theThe Committee oversees the annual self-evaluation of the Board and its committees. The Committee also ensures that an annual evaluation of the CEO is conducted by the Chairman of the Board,lead independent director, in conjunction with the HR and Compensation Committee, with input from all Board members. The Committee also evaluates senior management in coordination with the HR and Compensation Committee.
8. Requests for Permissive Indemnification. The Committee reviews claims for permissive indemnification under Article VI of HP's Bylaws, provided that the Committee may delegate to such employee or employees of HP as it deems appropriate such claims that:
a. are in the ordinary course of business,
b. do not involve a material financial commitment by HP, and
c. do not involve Section 16 Executive Officers or directors.
Such employee or employees will report to the Committee on any activities pursuant to such delegation.
9. Charters for Committees of the Board. The Committee reviews any proposed changes to the charters of any other committees of the Board and submits any recommended changes to such charters to the Board for approval.
10.General. The Committee performs such other duties and carry out such responsibilities as are consistent with the purpose of the Committee and as the Board or the Committee deems appropriate.
HEWLETT-PACKARD COMPANY2005 PAY-FOR-RESULTS PLAN
1. Purpose.
The purpose of this Plan is to provide certain employees of HP and its subsidiaries with incentive compensation based upon the level of achievement of financial, business and other performance criteria. This Plan is intended to permit the payment of bonuses that may qualify as performance-based compensation under Code Section 162(m).
2. Definitions.
(b) "Affiliate" means (i) any entity that, directly or indirectly, is controlled by HP and (ii) any entity in which HP has a significant equity interest.
(c) "Board" means the Board of Directors of HP.
(d) "Bonus" means a cash payment made pursuant to this Plan with respect to a particular Performance Period, determined pursuant to Section 8 below.
(e) "Bonus Formula" means as to any Performance Period, the formula established by the Committee pursuant to Section 6 in order to determine the Bonus amounts, if any, to be paid to Participants based upon the level of achievement of targeted goals for the selected Performance Measures. The formula may differ from Participant to Participant or business group to business group. The Bonus Formula shall be of such a nature that an objective third party having knowledge of all the relevant facts could determine whether targeted goals for the Performance Measures have been achieved.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the HR and Compensation Committee of the Board who shall qualify as "outside directors" within the meaning of Code Section 162(m).
(h) "Fiscal Year" means the twelve-month period from November 1 through October 31.
(i) "HP" means Hewlett-Packard Company, a Delaware corporation.
(j) "Participant" means a Section 16 Officer.
(k) "Performance-Based Compensation" means compensation that qualifies as "performance-based compensation" within the meaning of Code Section 162(m).
(l) "Performance Measure" means any one or more of the following performance criteria, either individually, alternatively or in any combination, applied to either HP as a whole or to a region, business unit, Affiliate or business segment, either individually, alternatively or in any combination, and measured either on an absolute basis or relative to a pre-established target, to a previous period's results or to a designated comparison group, in each case as specified by the Committee: cash flow (including operating cash flow or free cash flow), revenue (on an absolute basis or adjusted for currency effects), gross margin, operating expenses or operating expenses as a percentage of revenue, earnings (which may include earnings before interest and taxes, earnings before taxes, and net earnings, and may be determined in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") or adjusted to exclude any or all non-GAAP items), earnings per share (on a GAAP or non-GAAP basis), growth in any of the foregoing measures, stock price, return on equity or average stockholders' equity, total stockholder return, growth in stockholder value relative to the moving average of the S&P 500 Index or another index, return on capital, return on assets or net assets, return
on investment, economic value added, operating profit, controllable operating profit, or net operating profit, operating margin, cash conversion cycle, market share, contract awards or backlog, overhead or other expense reduction, credit rating, strategic plan development and implementation, succession plan development and implementation, improvement in workforce diversity, customer indicators, new product invention or innovation, attainment of research and development milestones, improvements in productivity, attainment of objective operating goals and employee metrics.
(m) "Performance Period" means any Fiscal Year or such other period as determined by the Committee.
(n) "Plan" means this Hewlett-Packard Company 2005 Pay-for-Results Plan.
(o) "Plan Committee" means the committee to which the Committee delegates certain authority to act on various HP compensation and benefit matters.
(p) "Predetermination Date" means, for a Performance Period, (i) the earlier of 90 days after commencement of the Performance Period or the expiration of 25% of the Performance Period, provided that the achievement of targeted goals under the selected Performance Measures for the Performance Period is substantially uncertain at such time; or (ii) such other date on which a performance goal is considered to be pre-established pursuant to Code Section 162(m).
(q) "Section 16 Officer" means an employee of HP or its Affiliates who is considered an officer of HP within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
3. Eligibility.
The individuals eligible to participate in this Plan for a given Performance Period shall be Section 16 Officers.
4. Plan Administration.
(a) The Committee shall be responsible for the requirements for qualifying compensation as Performance-Based Compensation. Subject to the limitations on Committee discretion imposed under Code Section 162(m), the Committee shall have such powers as may be necessary to discharge its duties hereunder. The Plan Committee shall be responsible for the general administration and interpretation of this Plan and for carrying out its provisions, including the authority to construe and interpret the terms of this Plan, determine the manner and time of payment of any Bonuses, prescribe forms and procedures for purposes of Plan participation and distribution of Bonuses and adopt rules, regulations and to take such actions as it deems necessary or desirable for the proper administration of this Plan. The Plan Committee may delegate its administrative tasks to HP employees or others as appropriate for proper administration of this Plan.
(b) Any rule or decision by the Committee, Plan Committee or its delegate(s) that is not inconsistent with the provisions of this Plan shall be conclusive and binding on all persons, and shall be given the maximum deference permitted by law.
5. Term.
This Plan shall be effective as of November 1, 2005. Notwithstanding the foregoing, this Plan shall terminate unless it is approved at the next HP annual stockholders meeting following the date that the Board adopts this Plan. Once approved by HP's stockholders, this Plan shall continue until the earlier of (i) a termination under Section 9 of this Plan, (ii) the date any stockholder approval requirement under Code Section 162(m) ceases to be met or (iii) the date that is five years after the stockholder meeting in fiscal 2006.
6. Bonuses.
Prior to the Predetermination Date for a Performance Period, the Committee shall designate or approve in writing, the following:
(a) Performance Period;
(b) Positions or names of employees who will be Participants for the Performance Period;
(c) Targeted goals for selected Performance Measures during the Performance Period; and
(d) Applicable Bonus Formula for each Participant, which may be for an individual Participant or a group of Participants.
7. Determination of Amount of Bonus.
(a) Calculation. After the end of each Performance Period, the Committee shall certify in writing (to the extent required under Code Section 162(m)) the extent to which the targeted goals for the Performance Measures applicable to each Participant for the Performance Period were achieved or exceeded. The Bonus for each Participant shall be determined by applying the Bonus Formula to the level of actual performance that has been certified by the Committee. Notwithstanding any contrary provision of this Plan, the Committee, in its sole discretion, may eliminate or reduce the Bonus payable to any Participant below that which otherwise would be payable under the Bonus Formula. The aggregate Bonus(es) payable to any Participant during any Fiscal Year shall not exceed U.S.$10 Million.
The Committee may appropriately adjust any evaluation of performance under a Performance Measure to exclude any of the following events that occurs during a Performance Period: (A) the effects of currency fluctuations, (B) any or all items that are excluded from the calculation of non-GAAP earnings as reflected in any HP press release and Form 8-K filing relating to an earnings announcement, (C) asset write-downs, (D) litigation or claim judgments or settlements, (E) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results, (F) accruals for reorganization and restructuring programs, and (G) any other extraordinary or non-operational items.
(b) Right to Receive Payment. Each Bonus under this Plan shall be paid solely from general assets of HP and its Affiliates. This Plan is unfunded and unsecured; nothing in this Plan shall be construed to create a trust or to establish or evidence any Participant's claim of any right to payment of a Bonus other than as an unsecured general creditor with respect to any payment to which he or she may be entitled.
8. Payment of Bonuses.
(a) Timing of Distributions. HP and its Affiliates shall distribute amounts payable to Participants as soon as is administratively practicable following the determination and written certification of the Committee for a Performance Period, but in no event later than two and one-half months after the end of the calendar year in which the Performance Period ends, except to the extent a Participant has made a timely election to defer the payment of all or any portion of such Bonus under the Hewlett-Packard Company 2005 Executive Deferred Compensation Plan or any other HP approved deferred compensation plan or arrangement.
(b) Payment. The payment of a Bonus, if any (as determined by the Committee at the end of the Performance Period), with respect to a specific Performance Period requires that the employee be
an active employee on HP's or its Affiliate's payroll on the last day of each applicable Performance Period, subject to the following:
(i) Leave of Absence or Non-Pay Status. A Participant may receive a Bonus while on an approved leave of absence or non-pay status. Such Bonus shall be prorated in a manner that HP determines in it sole discretion.
(ii) Disability, Workforce Restructuring, Voluntary Severance Incentive Program, Divestiture or Retirement. A Participant who terminates due to disability, participation in a workforce restructuring or voluntary severance incentive program, divestiture or retirement under HP's retirement policies may receive a prorated Bonus; the method in which a Bonus is prorated shall be determined by HP in its sole discretion.
(iii) Death. The estate of a Participant who dies prior to the end of a Performance Period or after the end of a Performance Period but prior to payment may receive a Bonus or prorated Bonus; the method in which a Bonus is prorated shall be determined by HP in its sole discretion.
(c) Change in Status. A Participant who has a change in status that results in being ineligible to participate in this Plan or eligible in more than one variable pay plan, including this Plan, in a Performance Period may receive a prorated Bonus, if any (as determined by the Committee at the end of the Performance Period), under this Plan; the method in which a Bonus is prorated shall be determined by HP in its sole discretion.
(d) Code Section 409A. To the extent that any Bonus under the Plan is subject to Code Section 409A, the terms and administration of such Bonus shall comply with the provisions of such Section, applicable IRS guidance and good faith reasonable interpretations thereof, and, to the extent necessary to achieve compliance, shall be modified, replaced, or terminated at the discretion of the Committee or Plan Committee.
9. Amendment and Termination.
(a) The Committee may amend, modify, suspend or terminate this Plan, in whole or in part, at any time, including the adoption of amendments deemed necessary or desirable to correct any defect or to supply omitted data or to reconcile any inconsistency in this Plan or in any Bonus granted hereunder; provided, however, that no amendment, alteration, suspension or discontinuation shall be made which would (i) increase the amount of compensation payable pursuant to such Bonus, or (ii) cause compensation that is, or may become, payable hereunder to fail to qualify as Performance-Based Compensation. Notwithstanding the foregoing, the Plan Committee may any amend, modify, suspend or terminate this Plan if any such action is required by law. To the extent required under applicable law, including Code Section 162(m), Plan amendments shall be subject to stockholder approval. At no time before the actual distribution of funds to Participants under this Plan shall any Participant accrue any vested interest or right whatsoever under this Plan except as otherwise stated in this Plan.
(b) In the case of Participants employed outside the United States, HP or its Affiliate may vary the provisions of this Plan as deemed appropriate to conform with, as required by, or made desirable by, local laws, practices and procedures.
10. Withholding.
Distributions pursuant to this Plan shall be subject to all applicable taxes and contributions required by law to be withheld in accordance with procedures established by HP.
11. No Additional Participant Rights.
The selection of an individual for participation in this Plan shall not give such Participant any right to be retained in the employ of HP or any of its Affiliates, and the right of HP and any such Affiliate to
dismiss such Participant or to terminate any arrangement pursuant to which any such Participant provides services to HP, with or without cause, is specifically reserved. No person shall have claim to a Bonus under this Plan, except as otherwise provided for herein, or to continued participation under this Plan. There is no obligation for uniformity of treatment of Participants under this Plan. The benefits provided for Participants under this Plan shall be in addition to and shall in no way preclude other forms of compensation to or in respect of such Participants. It is expressly agreed and understood that the employment of a Participant is terminable at the will of either party and, if such Participant is a party to an employment contract with HP or one of its Affiliates, in accordance with the terms and conditions of the Participant's employment agreement.
12. Successors.
All obligations of HP or its Affiliates under this Plan, with respect to awards granted hereunder, shall be binding on any successor to HP, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business or assets of HP.
13. Nonassignment.
The rights of a Participant under this Plan shall not be assignable or transferable by the Participant except by will or the laws of descent and distribution.
14. Severability.
If any portion of this Plan is deemed to be in conflict with local law, that portion of the Plan, and that portion only, will be deemed void under local law. All other provisions of the Plan will remain in effect. Furthermore, if any provision of this Plan would cause Bonuses not to constitute Performance-Based Compensation, that provision shall be severed from, and shall be deemed not to be a part of, the Plan, but the other provisions hereof shall remain in full force and effect.
15. Governing Law.
This Plan shall be governed by the laws of the State of Delaware.
IMPORTANT INFORMATION CONCERNING THE HP ANNUAL MEETING
Check-in begins: 12:30 p.m. | Meeting begins: 2:00 p.m. |
THANK YOU FOR YOUR INTEREST AND SUPPORT—YOUR VOTE IS IMPORTANT!
PLEASE RETURN YOUR PROXY CARD OR VOTING INSTRUCTION
CARD FOR THE ANNUAL MEETING TODAY
Hyatt Regency Century PlazaSanta Clara2025 Avenue of the Stars, Los Angeles,5101 Great America Parkway, Santa Clara, California, USA 310 228+1 408 200 1234
http://centuryplaza.hyatt.com/hyatt/hotels/santaclara.hyatt.com
From Los AngelesSan Francisco International Airport
Take Century Boulevard East to the San Diego Freeway (Interstate 405) North and exit at Santa Monica Boulevard. Turn right onto Santa Monica Boulevard, proceed 2 miles, and turn right onto Avenue of the Stars. The hotel is located 2 blocks ahead, on the right.
From East
Take Interstate 10 West past downtown Los Angeles. Exit at Overland Avenue and turn right. Proceed 1 mile to Pico and turn right. Proceed 1 mile to Avenue of the Stars and turn left.
From North (approximately 30 miles):
Take Highway 101 South to I-405 South. Exit I-405Great America Parkway. Turn left onto Santa Monica Boulevard and turn left. Turn right onto Avenue of the Stars.Great America Parkway. The hotel is located 2 blocks ahead, on the right.right at the corner of Tasman Drive and Great America Parkway.
From SouthNorman Y. Mineta San Jose International Airport (approximately 5 miles):
Turn left onto Airport Boulevard, and then turn left again onto Highway 87 North (Guadalupe Parkway). Follow the signs to Highway 101 North. Take Interstate 5Highway 101 North to I-405. Follow I-405 North to Santa Monica Boulevard and turn right. Proceed 2 miles to Avenue of the Stars and turn right.Great America Parkway exit. Turn right onto Great America Parkway. The hotel is located 2 blocks ahead, on the right.right at the corner of Tasman Drive and Great America Parkway.
4AA0-3336From the North on Highway 101 (San Francisco):
Take Highway 101 South to Great America Parkway. Turn left onto Great America Parkway. The hotel is located on the right at the corner of Tasman Drive and Great America Parkway.
From the North on Interstate 880 (Oakland/Hayward/Fremont):
Take I-880 South to Highway 237 West towards Mountain View. Take Highway 237 West to the Great America Parkway exit. Turn left onto Great America Parkway. The hotel is located at the corner of Tasman Drive and Great America Parkway.
From the South:
Take Highway 101 North and exit at Great America Parkway. Turn right onto Great America Parkway. The hotel is located on the corner of Tasman Drive and Great America Parkway.
From the East (Sacramento):
Take I-80 West toward San Francisco. Take I-680 South toward San Jose. Take the Mission Boulevard West exit towards I-880. Turn right onto Mission Boulevard and then merge onto I-880 South toward San Jose. Take I-880 South to Highway 237 West towards Mountain View. Take Highway 237 West to the Great America Parkway exit. Turn left onto Great America Parkway. The hotel is located at the corner of Tasman Drive and Great America Parkway.
4AA0-8602 ENW
HEWLETT-PACKARD COMPANY
PLEASE VOTE TODAY!
SEE REVERSE SIDE FOR THREE EASY WAYS TO VOTE.
THANK YOU FOR VOTING!
P R O X Y\/ TO VOTE BY MAIL PLEASE DETACH PROXY CARD HERE AND RETURN IN THE ENVELOPE PROVIDED \/
PROXY
HEWLETT-PACKARD COMPANY |
ANNUAL MEETING OF STOCKHOLDERS-MARCH 15, 2006STOCKHOLDERS—MARCH 14, 2007
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Patricia C. Dunn, Mark V. Hurd and Ann O. Baskins,Charles N. Charnas, and each of them, as proxies for the undersigned, with full power of substitution, to act and to vote all shares of common stock of Hewlett-Packard Company held of record or in an applicable plan by the undersigned at the close of business on January 17, 2006,16, 2007, at the Annual Meeting of Stockholders to be held at the Hyatt Regency Century Plaza, Los Angeles,Santa Clara, 5101 Great America Parkway, Santa Clara, California, at 2:00 p.m., local time, on Wednesday, March 15, 2006,14, 2007, or any postponement or adjournment thereof.
In their discretion the proxies are authorized to vote upon such other business as may properly come before the Annual Meeting of Stockholders or any postponement or adjournment thereof.
This proxy, when properly executed and returned, will be voted in the manner directed herein by the undersigned stockholder. If this proxy is properly executed and returned but no direction is made, this proxy will be voted for all of the nominees for director in proposal 1, for proposalsproposal 2 and 3 and against proposals 3, 4, 5 and 5.6. Whether or not direction is made, this proxy, when properly executed, will be voted in the discretion of the proxy holders upon such other business as may properly come before the Annual Meeting of Stockholders or any adjournment or postponement thereof. The proxy holders reserve the right to cumulate votes and cast such votes in favor of the election of some or all of the applicable director nominees in their sole discretion. If the undersigned has a beneficial interest in shares held in a 401(k) plan sponsored by Hewlett-Packard Company, voting instructions with respect to such plan shares must be provided by 11:59 p.m. Eastern time on March 12, 200611, 2007 in the manner described in the proxy statement. If voting instructions are not received by that time, such plan shares will be voted by the plan trustee as described in the proxy statement. The undersigned hereby revokes all proxies previously given by the undersigned to vote at the Annual Meeting of Stockholders or any adjournment or postponement thereof.
IMPORTANT—THIS PROXY CARD MUST BE SIGNED ON THE REVERSE SIDE.
PLEASE REFER TO THE REVERSE SIDE FOR TELEPHONE AND INTERNET VOTING INSTRUCTIONS.
HEWLETT-PACKARD COMPANY
YOUR VOTE IS IMPORTANT
Please take a moment now to vote your shares of Hewlett-Packard Company
common stock for the upcoming Annual Meeting of Stockholders.
PLEASE REVIEW THE 20062007 PROXY STATEMENT AND ACCOMPANYING MATERIALS
AND VOTE TODAY IN ONE OF THREE WAYS:
OR
You may vote by telephone or Internet 24 hours a day, 7 days a week. Your telephone or Internet vote authorizes the named proxies to vote your shares in the same manner as if you had marked, signed and returned a proxy card. |
OR
\/ TO VOTE BY MAIL PLEASE DETACH PROXY CARD HERE AND RETURN IN THE ENVELOPE PROVIDED \/
THE BOARD OF DIRECTORS RECOMMENDS A VOTEFOR PROPOSALSALL OF THE NOMINEES FOR DIRECTOR IN PROPOSAL 1,FOR PROPOSAL 2, AND 3, ANDAGAINST PROPOSALS 3, 4, 5 AND 5.6.
1. | Election of directors: | |||||||||||||||
FOR | AGAINST | ABSTAIN | FOR | AGAINST | ABSTAIN | |||||||||||
01-L.T. Babbio, Jr. | o | o | o | 05-M.V. Hurd | o | o | o | |||||||||
02-S.M. Baldauf | o | o | o | 06-R.L. Ryan | o | o | o | |||||||||
03-R.A. Hackborn | o | o | o | 07-L.S. Salhany | o | o | o | |||||||||
04-J.H. Hammergren | o | o | o | 08-G.K.Thompson | o | o | o | |||||||||
2. | Proposal to ratify the appointment of the independent registered public accounting firm for the fiscal year ending October 31, | o | o | o | ||||||||||||
FOR | AGAINST | ABSTAIN | ||||||||||||||
3. | Stockholder proposal relating to stockholder nominees for election to the Board of Directors of Hewlett-Packard Company | o | o | o | ||||||||||||
4. | Stockholder proposal entitled "Separate the Roles of CEO and Chairman" | o | o | o | ||||||||||||
5. | Stockholder proposal entitled "Subject Any Future Poison Pill to Shareholder Vote" | o | o | o | ||||||||||||
6. | Stockholder proposal entitled "Link Pay to Performance" | o | o | o | ||||||||||||
o Address change (make correction at left) |
Signature | ||||
Signature | ||||
Title | ||||
Date | ||||
NOTE: Please sign exactly as your name or names appear hereon. For joint accounts each owner should sign. When signing as executor, administrator, attorney, trustee or guardian, etc., please print your full title. |