HP Nixes Direct-Sales Plan

Late Wednesday, HP said that a preliminary tally of the March 19 proxy vote showed that shareholders approved the Compaq Computer merger by 45 million votes, exceeding the 17 million votes challenged in a lawsuit by dissident HP director Walter Hewlett.

But even before the results of the proxy vote count were released, solution providers and HP channel managers were blindsided by a proposed change in HP's direct-sales force compensation that would have discouraged sales through channel partners. Sources said it was unclear who at HP proposed the change.

"An internal memo was sent to a limited distribution concerning possible changes [regarding sales compensation, but the decision was reversed," said Kevin Gilroy, HP's vice president and general manager of North America commercial channels.

Early in the week, some HP channel sales representatives alerted solution providers that beginning May 1, HP's direct-sales force would be compensated about 18 percent less for product sales through channel partners. Under HP's current compensation plan, HP's direct-sales force receives about the same and, in some cases, more compensation for channel sales. Solution providers said the net effect of the change would be to dramatically shift sales to HP direct sales.

But by Wednesday afternoon, a firestorm of protest from solution providers and HP channel managers prompted HP to reverse the decision and preserve the status quo, said channel executives and HP sources familiar with the situation.

"This would have destroyed Hard Deck," said one solution provider who requested anonymity. "The merger wasn't even in place, and they were already set to change their strategy."

John Sheaffer, president of solution provider Sysix Technologies, Westmont, Ill., said reversal of the decision "was a good move. Cooler heads prevailed."

Still, some solution providers said last week's drama is an ominous sign. While HP hasn't announced channel managers for the new Enterprise Systems Group and Personal Systems Group, Dan Vertrees, Compaq's current vice president of partner sales and marketing for North America, is the odds-on favorite to run the enterprise business with fellow Compaq executives.

"That means you'll have people who didn't design or implement Hard Deck now entrusted to enforce it," another channel executive said. "This sales compensation episode shows that even when you're committed to a strategy, it takes someone with brass knuckles to enforce it. I hope the Compaq people are up to the task."

The trial to hear Hewlett's lawsuit is scheduled to begin next week.