Hewlett-Packard’s share price fell by more than 50% during Carly Fiorina’s tenure. Her successor charitably has described the Silicon Valley company as “not performing to its potential.” So, naturally, HP loaded Fiorina down with cash, stock options and other goodies when showing her the door.
In addition to her 2004 salary of $1.4 million, the ousted chief executive reaped $1.6 million in performance bonuses. Her severance package was valued at $21.3 million. What else? Six months of administrative support, home security payments for a year, her desktop computer and three months of tech support. Oh, and $50,000 for financial counseling and legal and outplacement services.
What did shareholders have to say about all of this? Nothing, really, because HP doesn’t subject executive severance to shareholder votes unless its value exceeds three times an executive’s base salary and “target” cash bonus. Fiorina’s package, the company said, didn’t exceed the limit -- although it would have if the company had counted all other compensation (including stock options) due her.
The board’s largess didn’t stop with Fiorina. Chief Financial Officer Robert Wayman got a $3-million bonus for two months as interim chief executive. Newcomer Mark Hurd, the former chief executive of NCR who moved into Fiorina’s office, was awarded a $2-million signing bonus in addition to a $1.4-million salary, a $2.7-million relocation allowance and other guarantees and incentives worth $7 million. Hurd also will benefit from the same lavish severance deal should he fail. Can’t HP find a CEO arrogant enough to bet on succeeding?
The average worker who is let go without cause doesn’t reap a windfall. Corporate boards of directors should resist executives’ pressure for these staggering severance deals. Unless directors learn to say no, shareholders are likely to awaken and demand a say on this unearned extravagance.