March 7, 2006 12:33 PM PST

HP investors sue over Fiorina payout

Two large institutional investors have filed suit against Hewlett-Packard, alleging that the computer maker violated its own severance cap when it doled out a multimillion-dollar payment to ousted CEO Carly Fiorina.

The Indiana Electrical Workers Pension Trust Fund and the Service Employees International Union, both HP investors, filed their lawsuit in U.S. District Court in Northern California late Monday. The plaintiffs allege that HP violated its own policy of restricting CEO severance payouts to two and a half times an executive's base salary and targeted bonus, unless shareholders approve a higher sum.

Fiorina, who was ousted last year, had a combined base salary and targeted bonus of $5.6 million prior to her termination, the lawsuit states. Under HP's severance-cap policy for CEOs, Fiorina's severance would be restricted to $14 million, without shareholder approval.

But the company not only awarded Fiorina approximately $14 million for her base salary and targeted bonus of the previous year it also paid her an additional $7 million under a long-term incentive compensation program, the lawsuit states. The issue of Fiorina's $21.4 million severance was a hot topic at HP's annual shareholders meeting last year.

"During HP's annual shareholder meeting last year, (HP Director Patricia) Dunn said the $21 million was negotiated as part of her severance agreement, so it was all severance. Anything that is negotiated as part of a termination agreement is severance, and if it exceeds (the cap), it has to be approved by shareholders," said Michael Barry, an attorney for law firm Grant & Eisenhofer, which is representing the plaintiffs.

HP declined to comment.

Fiorina received other forms of compensation, such as stock options, as she departed the company. However, it has yet to be determined whether those were subject to severance negotiations, Barry said. Fiorina's total payout was an estimated $42 million, the suit states.

The plaintiffs not only named HP's directors as defendants, but listed Fiorina as a defendant, as well. The lawsuit seeks to put Fiorina's $21.4 million severance in a trust until the courts rule on the case.

The issue of a severance cap for HP executives arose following the $14.4 million payout to former HP President Michael Capellas, who resigned to lead MCI Communications.

Capellas' severance package ignited a firestorm among investors, who succeeded in passing a shareholder resolution to put a cap on executive compensation that also called for shareholder approval to exceed it.

See more CNET content tagged:
Carly Fiorina, shareholder, payout, Michael Capellas, plaintiff

7 comments

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Overpaid
Corporate leaders are grossly overpaid and need to start policing themselves and showing some common sense restraint. How can anyone justify millions of dollars for severence payments? It's absurd and anyone who makes attempts to bring this problem under control should be applauded. Just think how many jobs are lost through lay-offs that could be avoided if top management would take sizable (and long overdue) pay cuts.
Posted by corporate_radical (4 comments )
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HP Employees
This pissed off HP employees as well.
Posted by hedred (20 comments )
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Try Getting It Back Suckers
The money's probably sitting in a Cayman Islands bank already, so good luck getting it back. I guess HP will just have to cancel the Holiday Party this year, and for the the next 100 years, to make up the difference. After all, everyone should have to share the pain equally.
Posted by Stating (869 comments )
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They won't get it back..
The lawsuit is for putting a cap on all executive severance packages, especially after Capellas quit.. In effect they would be restricting it to a few million..
Posted by thedevilbegone (139 comments )
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HP Investors Sue Over Fiorina Payout
It's about time. No one person is worth $42M in payouts.
Posted by (1 comment )
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Pay for what you get and get what you pay for!
Oh well, you pay for what you get, and get what you pay for!

Amusingly, you now get to pay for her truisms, on the old boy network tour lecture circuit!

Sadly, the organizations she has left behind are now performing better than when she was the CEO!

Question is was she value for money or the corollary!

It does proove one concept though, hindsight is an excellent teacher!, and those that fail to learn the lessons in history, are forever doomed to repeat them!, such is life!
Posted by heystoopid (691 comments )
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Pay for what you get ... and pay and pay and pay...
for what the policy is. Politically correct ... it is expensive isn't it. Amazing, only in America will we pay millions to get rid of a CEO so that a company can do better. Insitutional investors (mutual funds et al.) don't give a damn ... there in the same bed (that's why the SEC has considered rule changes allowing MF investors to demand a vote on CEO pay comp packages) ... but Wall Street doesn't like private and public retirement account investors exercising their muscle on their respective substantial hioldings by demanding accountability for executive comp packages. Oh well ... only in America do reward incompetence so highly ... what does that say about the rest of us?
Posted by jesdog (66 comments )
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