Why Did Mark Hurd, HP's Disgraced Ex-CEO, Get $37 Million Payoff?

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When Mark Hurd resigned as chief executive of Hewlett-Packard Co. (HPQ) last week, he got something few workers receive when they quit their jobs: a big payoff. Now, some corporate governance experts wonder if he was really entitled to that fat golden handshake.

Hurd resigned Friday in a scandal that began when a former actress and outside marketing consultant named Jodie Fisher accused him of sexual harassment. While HP said an investigation showed that Hurd hadn't violated the company's harassment policies, it did reveal that Hurd had submitted inaccurate expense reports. The sum involved was reported to be around $20,000.

A Sweet Severance

According to a regulatory filing known as a Form 8K, Hurd will receive $12.2 million in cash under HP's severance plan, vested options on 775,000 shares of HP stock, and another 345,000 shares earned as a performance bonus. Compensation experts said at Monday's market price of around $41 a share, Hurd stands to gain $25 million from the stock. That has made a lot of people angry.

"No matter how you put lipstick on the pig, Hurd was fired and there is no question he was fired for cause," says Jon Holman, president of a San Francisco recruiting firm, the Holman Group. "HP's agreement with Hurd says that when you are fired for cause, you don't get all that stuff. It's outrageous – why did he deserve it?"

While Hurd was allowed to resign rather than actually being fired, Holman says existing policy at HP was vague enough to include an expense account offense in the definition of cause for dismissal. The company's policy encompasses "conduct, including action or failure to act, that is not in the best interest of or is injurious to HP."

If he had been fired for cause, Hurd would have had to forfeit his severance pay and stock given for performance, but would have been allowed to keep the stock options that he already owned. But the separation agreement also gives him a month to exercise his options, a privilege rarely extended to terminated executives.

The Benefits of an
Endless Rainbow

Paul Hodgson, a compensation expert at the Corporate Library, a corporate governance and research firm, says CEOs are rarely forced to give up their severance pay when they leave companies, even when the circumstances are under a cloud. In contrast, most workers don't get severance pay when they quit.

"Severance payments are supposed to act like unemployment benefits and tide us over until our next job," Hodgson says. "They're not supposed to be a pot of gold at the end of the rainbow. Regular workers don't get to the end of the rainbow, whereas CEOs just seem to start at the top and slide down to the other side."

Jason Adwin, a compensation expert at Sibson Consulting, a human resources consultancy, says it is very rare for a chief executive to be forced out over an expense account offense. "Typically, the executives are at a compensation level and an overall organization level that the dollars we're talking about are rounding errors," Adwin says. "More important here was the messaging across the organization."

By that, Adwin means the board of HP faced a delicate situation with Hurd's departure. He became CEO in April, 2005, after the ouster of chief executive Carly Fiorina, who had raised hackles by merging the company with Compaq Computer and firing many old hands at HP. The following year, HP's chairwoman, Patricia Dunn, left the company in a wiretapping scandal. When HP reached a civil settlement with the California's attorney general in the wiretapping case, Hurd proclaimed he was "committed to ensuring that HP regains its standing as a global leader in corporate ethics and responsibility."

Holman says he believes it was the possibility of a drawn out lawsuit with Hurd, reopening all the wounds of the Fiorina and Dunn cases, eventually persuaded HP's board to allow Hurd to resign and receive all of his benefits.

HP's Succession Plan: No Plan


Adwin makes another key point about HP: The firm apparently had no succession plan in place, and it is now scrambling to find a replacement after Cathie Lesjak, the company's chief financial officer who was named interim chief executive, said she didn't want the job permanently.

"If HP had a clear, unequivocal succession plan in place and had communicated that to Wall Street, perhaps they wouldn't have seen the type of decline they had in their share price," Adwin says, referring to a 9% plunge in HP's stock market value on Monday. The board needs to have a clear understanding if any one of the termination scenarios arise about what their course of action is going to be so they can act quickly and stay true to their principles."

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kcrossfam

here is an anotother example:

My husband and I lost a large portion of our retirement because of Nortels bankruptcy.
And the higher management gave themselves large (sometimes double) increases just after.
I guess because they will soon be out of a job also and want to make sure they have enough money.
They took my retirement and gave it to themselves and still sleep at night

I DONT GET IT.

August 11 2010 at 12:06 PM Report abuse rate up rate down Reply
hdcurlee

Not shocking the company I worked for American Color. The president ran the company in the ground. So many were put out of work yet she got around a 7 mil payout. Whats wrong with this country. Oh and her name was Kathy DeKam

August 10 2010 at 10:10 PM Report abuse +1 rate up rate down Reply
rbra107166

WONT DONT THEY ARREST THIS CROOK. NO WONDER OBAMA IS RUNNING THIS COUNTRY IN TO THE GROUND BECAUSE OF PEOPLE LIKE THIS *******

August 10 2010 at 8:40 PM Report abuse -1 rate up rate down Reply
1 reply to rbra107166's comment
dretis

ha ha ha umm , last i heard this country was in a depression when he was elected in, fact.
3 car companies scores of banks an many states up sh!t creek, fact
insurance companies ? bankrupt, fact
vp cheney and pupet bush had share of main companies fleecing america in irag , fact
YET I STILL HEAR obama running this country into the ground, maybe he was just running like hell to catchup to it to stop it. and you have to admit this place was so F ed up that it will take time to turn around, that and the conservative parties at large to make up thier mind to be american and not look to just help it continue down the drain

August 10 2010 at 11:39 PM Report abuse rate up rate down Reply
steph

Maybe I might sound pious, but I can't help but wonder why do folks have to have that much money when there are soooo many good hard working folks out there who can't find a job. Do they really need that much money to survive? I am tryin to live on $850 a month and am 61 yrs old. I am far from stupid but have no chance with the youngsters out there applying for the same positions I am. So, I'm wonderin how is this a righteous act??? Just how much does a person need to live comfortably---w/out being extravagant, or tryin to outdo the neighbors. Who needs a gold plated faucet? just sayin

August 10 2010 at 8:18 PM Report abuse +3 rate up rate down Reply
Bob

He filed fake expense accounts to about $20,000 and gets paid a bonus of $37.2 Million. Does this make sense?

August 10 2010 at 8:07 PM Report abuse +3 rate up rate down Reply
pgmclarney

The treatment of Mark Hurd is just another example of Corporate Incest that has occured at the top levels of corporate compensation for many years.The only direction it appears to be tracking is more unbelievable over time. It stems from the make up of most compensation committees of large corporations. The typical three member group are most often the CEO's other large corporations, retired CEO's of the Company or of other companies. In all their recommendations they are guided by the principle of "There by the grace of GOD, GO I" Since they set the salary of the two or three jobs for the corporation, they have caused an explosion in CEO compensation levels for the 30 years. The pay levels in most corporate jobs below management have been closser to a flat line during that same time period has been flat to unimpressive. The ratio of pay for CEO's vs the lowest hourly jobs was about 50 to 1 in 1975 has increased to 500 to 1 today. That is irrespective of company performance! That is a crime! Most management bonus plans are a sham! Show me a bonus plan that hasn't been paying out and I'll show you a bonus plan under study. Even stock option plans are adjusted or replaced with outright stock grants if company performance haven't produced payouts in several years in a row! The stock holder is being taken to the cleaner and is helpless because of proxies that management holds. And top management has been richly rewarded for moving jobs off shore even given the disaster it has made in the US economy. The middle class is becoming the dinasour of the 21 century! And the US Congress has been busy DE-REGULATING us into a depression that will make '29 look like a gestile time! There's just never enough time or combined interest to avoid theee mini drama's, but always time to put a patch on this, pump some mud into that! And NONE OF THESE EVENTS ARE REOTELY RELATED! AMAZING! And Congress can be counted to vote itself a pay raise!
CONCLUSION: THE RICH GET RICHER!

August 10 2010 at 8:03 PM Report abuse +2 rate up rate down Reply
economistm

Nothing wrong with that. Free enterprise system working at its best. He received a package commensurate to what his value was as CEO of a corporate giant. The word on Wall Street was that in a relatively short time frame, he steered HP to high levels of growth, revenue and profitability that created more jobs and benefited its employees & shareholders. I am currently an unemployed financial economist, laid-off due to financial losses incurred by the company. I am not complaining.

August 10 2010 at 8:03 PM Report abuse -2 rate up rate down Reply
1 reply to economistm's comment
rickard0508

Working at its best? Perhaps we need a new system if this is the "best".

August 10 2010 at 10:24 PM Report abuse rate up rate down Reply
annie

Who really NEEDS a 37 million pay off???? HP made a profit this quarter, but STILL corporations won't hire people.How many jobs could , oh, let's say ....HALF of his golden parachute provided?

August 10 2010 at 7:58 PM Report abuse +2 rate up rate down Reply
noelle64

Im alright with the golden handshake. Putting myself in his shoes I would want it too. We are quick to criticize, but it is a corporate decision; its dirty but its clean.

August 10 2010 at 7:47 PM Report abuse rate up rate down Reply
Mingo

This is the kind of pay off that should be stopped. These CEO'S get big pay and if they are fired or what ever you call it they should just leave. The stock holders get robbed and that kind of money can put many jobs at stake . The big shots pay is why jobs go to china and america goes down the drain.

August 10 2010 at 7:43 PM Report abuse +3 rate up rate down Reply
1 reply to Mingo's comment
Vera

That is how the good USA gets aheads. The rich get richer,they do not have a clu on how the seniors struggle in the god old USA

August 30 2010 at 6:36 PM Report abuse rate up rate down Reply