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Investors Sue H-P Over Size Of Fiorina Severance Package
By Kaja Whitehouse
The Wall Street Journal
Wednesday, March 8, 2006

Two institutional shareholders are suing Hewlett-Packard Co. over former Chief Executive Carly Fiorina's severance package, adding to what appears to be a growing number of shareholder lawsuits over executive compensation.

The suit, brought by pension funds for Indiana Electrical Workers union and the Service Employees International Union, charges that Ms. Fiorina's severance package - of at least $21 million - was large enough that it should have received shareholder approval first.  In order to get around shareholders, the lawsuit alleges, the company altered the terms of a bonus plan to provide Ms. Fiorina with payments she wasn't entitled to.  The suit seeks class-action status.

Hewlett-Packard had no comment.  "We don't comment on pending litigation," said a spokesman for the Palo Alto, Calif., company.

When Ms. Fiorina was terminated in early 2005, she was paid severance of roughly $14 million, which represented 2.5 times her base salary and cash bonus - not enough to require shareholder approval, according to the company's 2005 proxy statements.

Shareholders are now charging that Ms. Fiorina received at least $21 million, more than 2.99 times her 2004 base salary and cash bonus of about $5.6 million.  Stock options and other benefits raised her total exit package further to $42 million, the court filing said.

The disconnect is due in part to a payment of about $7.4 million made to Ms. Fiorina as part of the company's long-term bonus program.  Under the original terms of the bonus plan, she wasn't eligible for a payment, according to the lawsuit.  "They tried to disguise that (the bonus) as a severance payment," he said.

No bonus payments were to be made until after the program's three-year period had ended, said Michael J. Barry, a partner with Grant & Eisenhoffer and one of the lawyers representing the plaintiffs in the case.  Plus, executives who are involuntarily terminated, like Ms. Fiorina, were ineligible under the original agreement, said Mr. Barry.  The board amended the plan in order to provide Ms. Fiorina with a larger severance and bypass shareholder approval, Mr. Barry said.

In 2003, under pressure from shareholders, Hewlett-Packard agreed to seek shareholder approval for severance agreements that would provide senior executives with an amount exceeding 2.99 times the executive's annual base salary and cash bonus.

Shareholder lawsuits over compensation are a growing trend, said Michael Melbinger, a partner with Winston & Strawn in Chicago and author of a blog on executive compensation.  "Plantiffs lawyers are always looking for a reason to sue and they've recently discovered that companies make a lot of statements in their proxy statements" about compensation that are ignored when it comes time to pay executives, he said.

Write to Kaja Whitehouse at