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August 6, 2010

What will Mark Hurd's parachute look like?

HP boss Mark Hurd "resigned" because internal investigators found "violations of HP's Standards of Business Conduct" after allegations of sexual harrassment made by a former contractor to the company.

The public doesn't know what happened, but the question now is what kind of parachute will Hurd get? It looks at first blush like the board isn't deeming him fired for cause even though he transgressed corporate policy. The delicate language from the press release says Hurd "has decided with the Board of Directors to resign his positions effective immediately."
The big bosses always get off more lightly than the lower-level folks when they break the rules.

Here is a good profile of Hurd from Business Week. Here is some of the language from the HP proxy on what happens upon a termination of Hurd or other executives:

Termination of Employment. In the case of stock awards, including stock units, unless the Administrator determines otherwise, the restricted stock or restricted stock unit agreement will provide that the unvested stock or stock units will be forfeited upon the awardee's termination of employment for any reason.

Under the HP equity plans, the Board and the Committee have the discretion to accelerate vesting of options and to release vesting restrictions on stock and cash awards in the case of a change in control, as well as in connection with individual employment terminations. The information reported in these three columns assumes that the Board or the Committee would exercise discretion to accelerate vesting and release restrictions in both of these circumstances, except


that in the case of a "not for cause" termination of Mr. Hurd, the amounts reported reflect the minimum amounts required to be paid under the terms of his employment agreement. From time to time, however, certain HP executives have received less than full acceleration of vesting on stock options, and no (or less than full) release of the vesting restrictions on stock and cash awards, so the amounts actually paid to an NEO [Named Executive Officer] upon a "not for cause" termination may be lower in some circumstances.

Under the terms of Mr. Hurd's employment agreement, a "not for cause" termination includes a substantial reduction in his duties as CEO without his consent and his failure to be re-elected to the Board during the term of his employment. In addition, upon Mr. Hurd's termination of employment for any reason, he is eligible to be indemnified to the maximum extent permitted under HP's Certificate of Incorporation and Bylaws.

Voluntary or "For Cause" Termination

In general, an NEO who remained employed through October 31, 2009 (the last day of the fiscal year) but voluntarily terminated employment immediately thereafter, or was terminated immediately thereafter as a "for cause" termination, would be eligible (1) to receive his or her annual incentive amount earned for fiscal 2009 under the PfR Plan (subject to any downward adjustment or elimination by the Committee prior to actual payment, except in the case of Mr. Hurd), (2) to exercise his or her vested stock options on or before the last day of employment, (3) to receive a distribution of vested amounts deferred or credited under the EDCP, and (4) to receive a distribution of his or her vested benefits under the HP 401(k) and pension plans. An NEO who terminated employment before the last day of the fiscal year, either voluntarily or as a "for cause" termination, would generally not be eligible to receive any amount under the PfR Plan with respect to the fiscal year in which the termination occurred, except that the Committee has the discretion to make payment of prorated bonus amounts to individuals on leave of absence or in non-pay status, as well as in connection with certain voluntary severance incentives, workforce reductions and similar programs.

Under Mr. Hurd's employment agreement, he is entitled to be paid any earned and accrued bonus under the PfR Plan for any completed fiscal year as of his termination of employment.

"Not for Cause" Termination

A "not for cause" termination would qualify the NEO for the amounts described above under a "voluntary" or "for cause" termination and also for benefits under the SPEO, if the NEO signs the required release of claims in favor of HP. The SPEO would provide a cash benefit to each NEO calculated as a multiple of the sum of base pay plus the average of the last three years' actual annual bonus payments; in the case of the CEO, the multiple is two, and for the other NEOs, the multiple is 1.5. In all cases, the cash benefit would be paid as a lump sum and would not exceed 2.99 times the sum of the NEO's base pay plus annual target bonus, unless approved by HP stockholders, consistent with the HP Severance Policy for Senior Executives, as currently in effect.

Under the SPEO, a "not for cause" termination generally includes any termination that is not due to a material neglect of responsibilities to HP (other than as a result of illness or disability) or conduct that is not in the best interest of, or is injurious to, HP. In addition, Mr. Hurd's employment agreement provides that a "not for cause" termination includes a substantial reduction in his duties as CEO without his consent and his failure to be re-elected to the Board during the terms of his employment.

In addition to the cash severance benefit payable under the SPEO, the NEO would be eligible to exercise vested stock options and receive distributions of vested, accrued benefits from HP deferred compensation and pension plans. The Committee may also exercise its discretion to accelerate vesting of stock options and to release restrictions on stock and cash awards in individual cases.

Posted by Jay Hancock at 5:52 PM | | Comments (3)
        

Comments

I imagine they made a deal to facilitate a quick exit but "for cause" to me means just that. In my last employment I had an options package and it was clear a for cause termination also terminated the options.

This guy was a dope. He jeopardized his hold on one of the most elite positions in corporate USA over the intent to have an inappropriate relationship with someone linked to his employment. When one makes the kind of money he did $20,000 or so is card game money. Why did he not at least take it out of his pocket in the first place?
Now he he has 2 marks against his integrity, petty theft and the relationship issue.

I'm sure that part of his 'severance' package will come in the form of being embraced by a major political party, with plenty of his earnings funding a run for office. Portions of the voting populace will love him for no other reason than he fit the exec mold for a few years. After all, we definitely need more failed business execs running, these days.

Damage limitation, pay him off, spot of gardening leave then pop up somewhere else.

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About Jay Hancock
Jay Hancock has been a financial columnist for The Baltimore Sun since 2001. He has also been The Baltimore Sun's diplomatic correspondent in Washington and its chief economics writer. Before moving to Baltimore in 1994 he worked for The Virginian-Pilot of Norfolk and The Daily Press of Newport News.

His columns appear Tuesdays and Sundays.
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