Does It Pay to Be HP's CEO?

Leo Apotheker was elected as the CEO of Hewlett-Packard (NYSE: HPQ  ) on Sept. 30, 2010, with the stock closing at $42.07. eBay (Nasdaq: EBAY  ) ex-CEO Meg Whitman replaced Apotheker as CEO on Sept. 22, 2011, with the stock closing at $22.80, representing a gut-wrenching decline of 45.8% during his almost one-year tenure.

His reward for destroying roughly $52 billion in shareholder value?  

Pay for (poor) results
A severance payment of $7.2 million paid in installments over the next year and a half, a $2.4 million annual "Pay-for-Results" bonus, accelerated vesting of 156,000 shares of restricted stock valued at nearly $3.6 million, and paid relocation for him and his spouse back to France or Belgium with executive air travel. Oh, and and HP will eat up to $300,000 in losses related to the sale of Apotheker's California residence.

Sounds like a pretty sweet deal to me, even if it's a little short of predecessor Mark Hurd’s $35 million parting gift. How hard could it be to cut revenue forecasts multiple times, agree to pay a 64% premium -- and nearly a fifth of HP's market cap at the time -- for a software company that brings in 0.8% of HP's quarterly revenue, and ax a new product in a growing market after less than two months?

Think they'll have a spot for me if Whitman strikes out? I can do all of those things in my sleep.

The new deal
Whitman is getting a different deal. Her base salary will be a negligible $1 per year, similar to Apple ex-CEO Steve Jobs. She has options to buy up to 1.9 million shares of HP that are good for eight years but will vest in full only if the stock rises by 40%. Her target bonus for HP's fiscal year 2012 is $2.4 million and tops out at $6 million if she delivers.

Additionally, HP's executive chairman, Ray Lane, is getting options to buy up to 1 million shares with similar strings.

One for the books
I think HP's board will go down in history as one of the worst ever assembled. It's bad enough that they hired Apotheker sight unseen and twiddled their thumbs as he changed course, and then realized after the fact that the new direction wouldn't sit well with shareholders. Now they're giving him a boatload of money as they send him on his merry way back across the pond and potentially try to root themselves further into the status quo.

The board is supposed to help mitigate conflicts of interests, not exacerbate them. Until HP gets a new board of directors, this is one fiasco that's better to watch -- with our Watchlist feature -- from afar.

Fool contributor Evan Niu owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and eBay and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1562806, ~/Articles/ArticleHandler.aspx, 12/20/2014 10:14:06 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement