Featured: Meg Whitman, CEO, Hewlett-Packard
Originally published: Feb. 17, 2012
How would you like to land a new job and earn $16.5 million in the first four weeks?
That's a crazy fantasy. Unless you're former eBay ( EBAY ) CEO Meg Whitman.
Earlier this month, we learned that computer-maker Hewlett-Packard ( HPQ ) granted her $16.5 million in pay for the company's last fiscal year, virtually all of it in options, at the end of September when she signed on as CEO.
Because there were only four weeks left in the fiscal year, that works out to annualized pay of $198 million. This de facto "signing bonus" earns Whitman a spot as my latest "One-Percenter of the Week."
Perhaps it was just great timing. Since HP's year finishes at the end of October, her September hire meant she was going to be due another dollop of pay after Nov. 1, to cover her work for the next year. In the middle of December, she got a fresh round of options and restricted stock. I estimate these new grants are worth $9.4 million, and there's probably more to come.
In fairness to Whitman and HP, she won't realize the full value of her incredibly rich four-week pay package any time soon, said CEO pay expert Paul Hodgson of GMI. The options vest in two pieces, over several years. And the stock has to go up 20%, and then 40%, for her to be able to cash out two groups of options. An additional 20% has no performance hurdle.
Now, it is refreshing to see this pay delayed by performance metric in a CEO's options, and it's true she won't realize it for a while. But it is also customary to consider the value of the options at the grant date as part of the overall pay for a CEO for a given year -- last year in this case.
We can also credit HP for capping her cash salary at $1 a year, because CEO salary at a company this size can typically run $1 million or more. But as I have pointed out (in " The myth of the $1 CEO "), the number is something of a ruse. The real largesse for CEOs often comes in the form of stock and options.
Despite these nods to HP, it's important to remember that Whitman's four-week reward comes from a company that has a history of overpaying CEOs.
Former CEO Mark Hurd got an average of $34.6 million a year in realized pay for 2007 through 2010, according to GMI, which considers total compensation for a CEO rather than company-estimated pay. That's more than triple the median CEO pay at large companies. Hurd also got $12.2 million in cash severance as he left the company in the summer of 2010, even though he departed under a cloud after the company determined he had misrepresented expenses.
Hurd's big payout was part of "the company's history of abrupt CEO exits that have proved costly to investors," says the shareholder-advocacy group ISS Proxy Advisory Services. Léo Apotheker got $16.3 million in realized pay and $12 million in severance for serving as the CEO for only about a year before Whitman came in last September.
Is pointing out these rich pay levels just a matter of envy? Not really. Studies show there's a hollowing-out of the middle class, as the top 1% have garnered an outsize share of the wealth created by our country over the past 10 years. Payouts like these to HP CEOs show us how this money gets doled out.
Such compensation also raises questions about whether the HP board is too close to management. Boards are supposed to look out for shareholders -- in part by not overpaying executives. ISS has questioned the independence of HP's board in recent years, and GMI has issued red flags against HP's board in four of the last seven years, in part because of these rich pay levels.
The lasting benefits to shareholders from this largesse are also hard to spot. Shares peaked briefly above $52 in 2007, the fell sharply to the $27 range. They popped back up to near $54 in 2010, but again dropped into the $20s before Whitman took over. They're up since, but still below $30.
HP declined to comment. But in filings, HP says Whitman is worth her pay because she brings "unique experience in developing transformative business models, building global brands and driving sustained growth and expansion," as well as "strong operational and strategic expertise."
Time will tell. But she has experience at the prestigious Bain & Co., the consulting firm where Republican presidential candidate Mitt Romney made his wealth. More importantly, while serving as CEO of eBay from 1998 to 2008, she oversaw impressive growth and became a billionaire.
Whitman went on to spend $140 million to try to get elected as governor of California in 2010. She failed. But the pay is a lot better at HP, anyway.
