Compaq, HP Detail Retention Bonuses

Hewlett-Packard Co. and Compaq Computer Corp. would shell out $634 million in bonuses to key employees as an incentive to stay on board if their merger goes through, the companies disclosed Monday.

Hewlett-Packard would pay $33.1 million to 10 top executives and $337 million to about 6,000 selected employees over two years, according to an updated merger prospectus filed with the Securities and Exchange Commission.

Compaq would pay $22.4 million to seven top executives and $242 million to an undisclosed number of employees over two years, the filing said.

The companies disclosed in their original prospectus on Nov. 15 that HP Chief Carly Fiorina had turned down a merger-related bonus package that would have been worth $8 million, and that Compaq leader Michael Capellas forfeited a $14.4-million plan. Both companies said the CEOs wanted to avoid the appearance of conflicts of interest as they fight hard for the deal.

The retention bonuses are designed to keep important employees during the difficult integration of the massive technology companies. HP has 86,000 employees; Compaq has 66,500. At least 15,000 layoffs are expected if the deal goes through.

HP’s bonus plan was crafted by board members Sam Ginn, Phil Condit and Walter Hewlett, the co-founder’s son who originally voted for the deal and is now encouraging shareholders to torpedo it.

Compaq’s retention package was developed by directors Lawrence Babbio, Judith Craven and Kenneth Lay, the head of shattered Enron Corp. Lay resigned from Compaq’s board last month.

HP and Compaq say their $24.2-billion deal is essential for their long-term growth and would bolster their position in servers, data storage, personal computing and high-tech services. The companies expect merging would save at least $2.5 billion a year by 2004, or $5 to $9 a share.

Opponents believe the deal is too risky, would shrink the contribution of HP’s profitable printing division and overexpose the company to the weak personal-computer market. Hewlett and Packard family interests with 18% of HP shares are against the deal.

Palo Alto-based HP and Houston-based Compaq are awaiting regulatory approval before setting a date for a shareholder vote.

European regulators have until Jan. 31 to announce a decision on the deal or to inform the companies they need more time to study it.

HP shares fell 36 cents, about 1.5%, to $22.52 on the New York Stock Exchange, while Compaq lost 36 cents, or 3%, to $11.14, also on the NYSE.