SAN FRANCISCO: Hewlett-Packard Co. board members, seeking to stem concerns,
said HP and Compaq Computer Corp. chiefs had negotiated lavish post-merger
employment deals in secret. They said on Thursday that previously discussed
terms were not binding in any way.
Walter Hewlett, the director leading opposition to the $22 billion merger,
announced two days ago that HP's compensation committee had considered two-year
deals for HP chief executive Carly Fiorina and Compaq chief Michael Capellas
worth more than $115 million over two years.
Compensation experts have called those deals lavish.
Hewlett, who sits on the compensation committee, argues the company wanted to
cover up an understanding that it would be obliged to use as a benchmark for
future pay talks, denying investors crucial information related to the
controversial merger.
But other members of HP board committee said Hewlett had misstated the record
of their confidential talks. "The Compensation Committee has overtly
rejected the executive employment terms previously discussed. As such, they are
irrelevant," Phil Condit and Sam Ginn, Hewlett's two colleagues on the HP
board committee, said in an open letter.
"We all agreed that we needed to do a better job of aligning management
compensation with shareowner interests," they wrote. "We are stunned
by your blatant mischaracterizations of the actions of our committee," they
said.
Compaq's board in a separate statement said that there were no employment
contracts or agreements with Compaq and that the board stood by the disclosed
terms for the merger. The matter is partly important since the divisive merger
battle -- headed for a March 19 shareholder vote seen as too close to call --
has been fought on increasingly personal terms between the two sides.
HP's shares have fallen 13 per cent since the merger was announced while
those of rival IBM are down just 2 per cent.
HP argues the deal would create a computer powerhouse and Hewlett says
Compaq's PC-centric business is not worth buying. Each side has sought to
undermine the other's credibility, and Fiorina and Hewlett are closely
identified with their causes.
Compensation specialists said the $70 million package for Fiorina was
excessive. Hewlett said the terms of the proposed package should be made public,
even though the compensation committee, on which he sits, rejected them.
Hewlett, who controls about 5 per cent of HP and has marshaled the founding
families' 18 per cent stake against the merger, released on Thursday minutes of
the compensation committee on which he sits, as well as detailed term sheets for
Fiorina and Capellas's compensation.
The merger agreement calls for good faith negotiations with executives based
on "previously discussed" employment terms. The agreement goes on to
say that the terms are not part of the agreement but are "statements of
intent."
Since the agreement was not binding, Ginn and Condit argued in their Thursday
letter, it did not obligate the HP board to "agree to any specific terms or
consider any terms as benchmarks for future terms."