HP Says Post-Merger Pay Terms Not Binding

Walter Hewlett, the director leading opposition to the $22 billion merger, announced on Tuesday that HP's compensation committee had considered two-year deals for HP CEO Carly Fiorina and Compaq CEO 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's board committee say 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. We are stunned by your blatant mischaracterizations of the actions of our committee."

Compaq's board in a separate statement said there are no employment contracts or agreements with Compaq and that the board stands 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 percent since the merger was announced, while those of rival IBM are down just 2 percent.

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 say the $70 million package for Fiorina is excessive. Hewlett says 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 percent of HP and has marshaled the founding families' 18 percent stake against the merger, on Thursday released minutes of the compensation committee, 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."

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