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« 'Reporter' Gannon is Gone | Main | What Hewlett-Packard's Board Should Do Next »

February 09, 2005



HPQ's operational business plan is still what the old school MBA people would call ' BURNING THE FURNITURE TO HEAT THE HOUSE" still cutting, selling off, assets because the current management does not know how to leverage their assets.

Hanging on to a fleet of corporate aircraft while cutting over 35,000 people is one example. How many new ideas did those pieces of hardware come up with in the last five years to turn the company around.

Hanging on to lavish corporate offices while cutting 35,000 people. WHat did those overpriced buildings accomplish in the last five years, how many patents did those structures achieve, how has productivity been improved with those material things.

It's people that will turn this company around . not things, material things or executive possessions. It's time to change the focus.

Bryan William Jones

Good sheep? No way. Like I said on Slashdot earlier today:

I sold HP and invested in in Apple after HP did the following:

1) Less focus on the printing division so they could make "me too" Wintel boxes and purchasing Compaq for an unbelievable amount of cash.
2) Canceling then reinstating the HP calculator line.
3) Getting out of and then back into the storage business.
4) Failing to capitalize on technologies invented at HP.
5) Being way too late to capitalize on the imaging expansion. Although the current imaging campaign (The Kinks Picturebook) is a well run ad campaign focusing on the consumer, they are still missing the Pro level stuff.

If a company is going through significant expansion, one could excuse a series of screw-ups, but HP has not significantly expanded. Rather they have given marketshare to companies like Dell, Epson, Apple and others to the tune of about $10 Billion.

My investment money went from HP to Apple. Fiorina was brought on to HP to bring the company into the Internet era, but seemed to miss that original goal entirely. Companies like Apple got it.

Granted, running a company the size of HP is not easy, but Fiorina's hubris and arrogance have proven dangerous. Unfortunately, this pathological perspective is a model that American corporate (and political) figures seem to be embracing to their shareholders (and citizens) detriment.



After covering the tech industry and working for a regional paper, Dan, you ought to show a little more sophistication.

HP is merely meeting its obligations under contract. Nothing more, nothing less.

No, the Board is not claiming an involuntary termination for "cause", which might give them flexibility to avoid this payment ... at least until the inevitable lawsuit commenced.

There is also the problem of attracting a replacement, following the kind of extreme violation of contract you are advocating.

No, you don't have your "old job" anymore, you don't follow this beat, and you're proving that it's really for the best.


As for the severance, why do the boards go along with it? CEO's at that level have agents like sports players and entertainers. It's kind of how business is done. Spitzer's attacks on the insurance industry's commission practices are changing that industry. Should the government get into CEO pay???

I doubt it. Even if the $21M is true, what did she leave on the table?

And Dan calls it "failure". Did she really fail?

It's not going to be easy to find the right person for the job. Sure, there are dozens of candidates, but how many can really take HP and run with it???
The reality is there probably aren't too many. So maybe the pay issue isn't such an easy target.
Yes, for us mere mortals, $21M is a lottery, but how many of us could really lead and drive a company that size??

While I wonder about the justification for the ratio of CEO pay to average pay being so high, when you really consider what it takes to run a company like HP, the pay is probably worth it.


All of us can name plenty of tyrants and despots from the past. Genghis Khan, Alexander the Great, Napoleon, Hitler, Stalin - these men brought misery and death to millions of people in the course of realizing their own perverted ambitions. But because the overwhelming majority of people do not possess such a psychotic thirst for power, they find it all but impossible to recognize its presence in others.

Most Americans just want to provide decent lives and comfortable futures for themselves and their families. They are willing to work hard to achieve the necessities of life and even many luxuries. But they could no more conceive of scheming, -plotting and conniving to become economic commissars or kings than they would be interested in abandoning civilization for life as headhunters along the Amazon.

It is Mr. Average American and his family, however, who pay the price for the megalomania of the empire builders. Especially since our domestic would-be tyrants learned long ago that a political-economic conspiracy can become far more powerful than a criminal one-and is far, far safer for the participants.

We Americans have become way way to soft on the shenannigans these so called "trophy ceo's" are pulling off and the damage they leave in their wake while pocketing a 21$ million severance bonus. On top of the millions they yanked in during their tenures at the head of these companies.

IF your lucky and stand up for your rights maybe you can bring back the HP culture that works.


Glad she is gone, but don't forget that the board endorsed her plan to cut jobs and acquire Compaq. They are culpable, as well. I'm convinced Carly hated the HP culture so much she acquired Compaq as much for it's take no prisoner culture as for its mediocre products. She created animosity among many employees while she built her suite of offices to isolate her further. Her mark will be that she not only failed to accomplish her business objectives, but she created hatred from valuable employees and left behind something a lot worse than when she arrived. It will be interesting to see who replaces her. Hope it's Joshi, but the rumors mention Shane Robison, CTO, who was Carly's lacky, a real loser, and totally unqualified. A bigger disaster than Carly.

Dan Gillmor

Sigh, thanks for (inadvertently) backing me up. CEOs routinely get contracts that ensure mega-payments even for failure.


The issue is why people in top jobs in certain areas of human endeavors are "rewarded" when things go wrong. Many people complain about the $21M. Th fact is there aren't many people who know how to run company and strategize about the future for an organization the size of HP. If the Secretary of HUD, Tom Ridge or someone else in government goofs up, the department still goes on and on.
I think the reality is some portions of these deals are probably required to get the right person. As I said earlier, I don't agree with a lot of the deals, but the board's and shareholder's are to blame. I also don't care for the deals sports players and some actors get, but that's the way it is.

I guess my point is that when you look at the whole issue of hiring someone to run an organization like HP, it's going to cost a lot - in and out - to get talent.

Maybe the $21M is too much, but I sense that some of you want it to be zero.

Another point is there are only a fraction of the companies in the US (out of 15 to 20 million) who can have deals like this. Heck the Fortune 500 only has 500 companies in it! So maybe the lowly CEO in company 496 only gets $500K when he or she leaves.

There aren't many HP's out there. Put it in perspective.

Dan Gillmor

Al, you seem to be saying that massive pay for failure is okay because, after all, it's such a big company and so difficult to run. That's an odd approach, because it suggests failure is truly its own reward if the job is hard enough. And your comparison with a federal department head is misplaced; no one makes anything close to that kind of money in government work.

If this were an isolated affair that would be one thing. It's not. We've seen case after case of this kind of outrageous payout. (By the way, I wonder if the $21 million, which is a lot lower than some such payouts lately, is truly all of what Fiorina will eventually receive.)

The entire CEO compensation system is a mutual backscratching affair. CEOs and other senior execs serve on each others' boards and compensation committees. They hire pay consultants who -- surprise -- advise ever-higher packages.

And they rachet up pay and benefits (some visible and others carefully disguised or hidden outright) with no relationship to anything in the real world except a bogus argument of "what the market sets" -- as if it was a standard marketplace in which they were operating.

Executive pay in public companies is way, way out of whack and has been for a long time now, because it's not honest capitalism -- it's a rigged game.


I've often thought that the whole Senior Executive and Board of Director pay schemes have been seriously FUBAR'd for some time. The objectives of these employees of the company should be the same as any other employee, keep the company in business, help make a profit, get the stock price up for the shareholders. In order to do that there is a very simple pay scheme that can be developed.

Give these Senior Excutives and BoD's a moderate annual salary. Enough to live on and then some, say somewhere under $100k/year. And then lay a boat load of stock option on them at the Jan 1st price. The options vest in 1 year and you have 2 months after they vest to exercise the options. You've now given these people 14 months to get the stock price up if they want to make the big money that they think they're entitled to. Make them work for it instead of just granting it to them. What does a CEO do that warrants a $7 million a year salary, a $4 million bonus every year, and $20 million for walking away from their job?


$21,000,000 = 262.5 engineering-man-years at a modest engineers salary of $80,000.

This is, of course, grossly simplified, but this kind of money could have yielded real products, real business, and real return on investment for HP share-holders.

Does anybody think this 'lovely parting gift', was the best possible use of this money?

These huge CEO compensation packages come at a tangible cost; and I have a hard time believing Carly contributed more to HP's bottom line, than the value of ~250 engineering man years.

Walter Riker

Dan I think that most miss the boat on this one. Carly was only one member of the Board Of Directors. She, as I understand it, reported to the Board on ongoing events to which the Board would respond favorably or un-favorably. They could follow the direction she took however these widely experienced people could have given guidance and through their power altered her position on any one of the items. Perhaps Carly Fiorini deserves the 21 million for being the fall guy for the Board Of Directors.


As much as Fiorina was the public face of the company's disastrous recent path and deserves criticism, she was by no means its sole architect. Instead, a large measure of blame has to be put on the shoulders of the board itself, which has proven to be unworthy of the legend and legacy of company founders William Hewlett and David Packard.

It was the board, after all, that hired Fiorina in the first place and handed her an unbelievable sum of money despite the fact that she was completely unproven as the manager of an enterprise as large and complicated as Hewlett-Packard. She had enjoyed success as the sales manager of a major unit of Lucent Technologies (LU:NYSE - commentary - research), but there was little in her background to suggest that she would have the strategic vision to be the boss of an entire company in a business she ever had previously worked in.

Her 1999 pay package of 1.5 million shares of stock valued at $65.5 million, plus a $3 million signing bonus, was the equivalent of a major league baseball team handing half of its payroll to a player who previously had been a successful third-base coach but was suddenly entrusted with the job of general manager.

And now the board is giving Fiorina another queen's ransom to leave the kingdom -- a severance package worth at least $21 million. And they risk a lawsuit if she sues them for firing her without cause. It's no wonder that investors are pulling money out of the stock market when you see the wasteful ways of the stewards of their funds. How much would the board have given her if she had actually been successful? The deed to California?

By the way, in a sign of the true piggishness of the situation, Hewlett also helped Fiorina with her mortgage and paid for her personal travel on Hewlett jets. And, of course, she will get a very handsome Hewlett pension of at least a few hundred thousand dollars a year.


That's sexism in action. If Fiorina had been a man, she'd still be running the show and the board would have voted her an extra $100,000,000 bonus.

Am I the only one here who's been following the business news? It's only in cloud cuckoo land that the man who destroys the company doesn't at least get seriously rewarded.

Denis de Bernardy

"HP's shareholders should be outraged, but like good sheep they'll just let it go."

Ah, come on! You know better than this: They should be outraged at the idiots who signed a ridiculous clause when they appointed the CEO. Not at the CEO who got away with it.


Success or failure on a massive scale is rarely a one-person affair, and the disconnection between obscene compensation and performance requires the connivance of clueless or corrupt boards, arrogant managers and apathetic stockholders. This corporate welfare at its finest.


Dan, I think I said a few times that I don't always agree with the pay. And yes, I think the system has problems, but I still point out that there aren't many people capable of running a company like HP. Just like there aren't many Barry Bonds. The trend is for the superstars to make big bucks.

Apparently the boards and shareholders don't have a problem paying big bucks. Should a top Hollywood star get $20 million PER picture - even when it fails?

As I said, there aren't many companies that pay $21M (plus whatever else she'll get) on an exit. HP's annual sales are in the $80,000M range. When you consider everything, is $21M that outrageous?

I can see both sides. For me, and most people, $21M is a lot of money. But I personally don't know anybody who can run a company that size and strategize about where to go in the future against the likes of IBM, Dell, etc.

As for government leaders not making much, the top people seem to make out pretty well when they move into the private sector.

So I'm not sure the compensation is "obscene" as Owen says.


The wrong language is being used. It's not compensation or pay or a benefits package or a severance package. It should be and is extortion and bribery and thievery. There is no connection whatsoever between performance and "pay" or "the market."

Plenty of talent can be "insourced" from overseas. They have MBAs and stellar companies run by competent people who could fill the bill at a fraction of the cost of these white-collar criminals and their boardroom cronies.


Jim, if you owned these large companies, you might go find "an MBA who runs a steller company" and offer him less. But you don't. You might find yourself in the same shoes as thse boards and have to cough up the big bucks to get the right person.
Why is this such a big deal? Again, I don't always agree with the pay scales or seemingly wimpy boards, but why is this such a big deal?

And, Jim, who is "extorting" who? All of the CEO's I know are very driven people. They would rather succeed than not.

This high pay is the similar to the Hollywood-types and sports figures. Arguably, the CEO's of large companies produce all sorts of needed products and lead thousands of employees. I'm curious if those who loathe Carly's big payout also loath big Hollywood paychecks and big sports paychecks???



"Pay" scales across the board are out of whack. What they're getting is a cut of the take, a piece of the action, not pay. I don't begrudge owners or founders, such as Bill Gates, their take. They started the company, created something. But these "professional" managers who waltz in and bring no value, then are given million-dollar severance packages for failure, in addition to their regular exorbitant salaries, options, perks, and benefits packages, is an egregious misuse of other people's money.


Al -
I believe that movie stars and athletes are also overpaid, but that's irrelevant. When they don't come through, producers and GM's see that their compensation (or their career) ends. The hubris and short-sightedness of CEOs usually ends up with employees laid off and small investors stuck.


As for the argument about attracting talent, etc., the CEO of our country only gets $400k per annum and he oversees millions of employees and a far larger bureaucracy than any corporation.

Joe Buck

No, it's not sexism in action. HP seriously underperformed its rivals; its stock has dropped hugely since Fiorina took power; Carly can't blame anyone else because she was a micromanager who consolidated all decisions into her own hands and she refused the board's initial proposal to share power. Furthermore, the director (now chairperson of the board) that led the move to fire Fiorina is a woman.

I think the board could have gotten out of part of that $21 million by making it a firing for cause. This would have taken longer, because they would have had to document Ms. Fiorina's offenses and shortcomings, but it could have been done.


Owen, when a CEO has string of failures, they don't command the $ that they maybe once had - same as Hollywood.

Then you said "The hubris and short-sightedness of CEOs usually ends up with employees laid off and small investors stuck." Yes people get laid off (that's where business differs from government), but almost ALL investors lose - not just the small investor. Why ignore the non-small investor?

To my previous posts, BusinessWeek has an article titled "CAN ANYONE SAVE HP?". Now, some percentage of the headline's meaning is hype, but it does come back to how much would you spend to get someone who can turn it around? It's going to cost more than $400k per annum (see Jim's comment above.) Now, is it going to cost a $21M severance when the person leaves? Who knows, it's just another element of a term sheet to hire the right person to run a company with $80,000M in sales. If they could get away with a $5M severance, they would, but is a $16M difference such a big deal with a company that size? (Btw, HP sells $21M every 2 to 3 hours.)

What are the stakes?

I think you guys are whining about something that doesn't happen all that often. (How many Fortune 500 companies are there? (grin)) Poorer countries would love to have a world-class company like HP around that employs as many as it does and has significant sales.

The reality is the cream of the crop companies have their CEO's on big comp plans. I don't think it's always wrong.

Brian Benz

Hey, she didn't fail. Her efforts had a great deal of benefit - for HP's competitors, who hired all their laid-off staff and ran record profits while HP floundered.

As for the $21 million; hey, it's not cheap to gas up the company jet and fly to Davos for....for what exactly?

Note to hiring boards: Make golden parachutes valued to the stock price when the CEO joins the company. In this case, it would be the number of shares that make up $21 million when they were hired, not when they quit. If the company is doing good, they should get the benefit of that. If not, the reverse....

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