Has HP learned a lesson about time and money?…

February 6, 2012

After Hewlett-Packard (HPQ) filed its proxy on Friday, news organizations from coast to coast published articles about the compensation that CEO Meg Whitman and the other top executives received last year (see here and here).

Each exec got a total compensation package of $9 million or more; and we noticed that former chief executive LâŸo Apotheker got $30.4 million – a number respectably in the middle of our prior estimate of what he would walk away with. (See our post on the Worst Footnote of 2011 for details.) And yet (other than a nod in passing from CNNMoney here) another well-paid leader at HP largely escaped the compensation klieg lights.

That person is the executive chairman, Raymond J. Lane, who received equity awards and a little cash in fiscal 2011 that added up to nearly $10.65 million. Lane started out as simply a director, but his role quickly evolved into much more than that. His pay followed suit.

To provide a little context on Lane’s compensation, let’s first consider the fact that Lane’s fellow directors made between $290,676 and $355,868, if they served a full year. Each got an annual $100,000 cash retainer (or an equivalent amount in shares, if they preferred) and an annual $175,000 equity retainer. Directors got $2,000 more for each board meeting or committee meeting they attended in excess of six, and committee chairs got more cash for their extra work.

As stated, Lane started out as a director. So how, and when, did he end up getting so much more than his fellow directors? Lane was elected to the board on September 30, 2010, and later tapped to be the non-executive Chairman of the Board on November 1 of the same year. At the time, the board awarded him 45,000 RSUs that would vest equally over three years, starting with the first anniversary of the grant, so long as he remained in that position. The proxy then notes:

“No other compensation was paid to Mr. Lane for his service on the Board from November 1, 2010 until the 2010-2011 Board term ended on March 23, 2011. For the remainder of fiscal 2011, Mr. Lane received the same compensation paid to other non-employee directors.”

On September 22, 2011, Lane’s title changed to executive Chairman of the Board, and — in addition to the change in title — the board gave him an equity retainer in the form of a non-qualified option to purchase 1,000,000 shares of HP common stock. The award vests according to a fairly complicated formula (p. 28, if you’re interested), but the gist is that he gets 200,000 over three years just for keeping the executive chairman’s title, another 400,000 over three years if Lane stays in the job and HP’s share price “has met or exceeded 120% of the exercise price of the option for at least 20 consecutive trading days”, and the final 400,000 if he stays even longer and the stock prices stays at 140% of his option price for at least 20 consecutive trading days.

Perhaps HP’s board has learned its lesson from the LâŸo Apotheker chapter, whose departure forced the company to pay out tens of millions of dollars for a short-term chief executive. Whether Lane ultimately receives the full value of the $10.65 million award depends on him both sticking around and helping to turn around HP’s stock price, which is currently trading almost 40% lower than it did one year ago. For investors, some stability and share-price gains would no doubt be welcome changes.

Image source: Bulb mark on blackboard, via Shutterstock

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