Magazine article Workforce Management

Suit over Fiorina Severance a Wake-Up on Pay Practices

Magazine article Workforce Management

Suit over Fiorina Severance a Wake-Up on Pay Practices

Article excerpt

News & trends in workforce management

EXECUTIVE COMPENSATION

Companies may now have yet another reason to make sure they are clear about how they pay their top executives. Four union pension funds have filed a lawsuit alleging that Hewlett-Packard breached its company policy to seek shareholder approval before authorizing the payment of severance benefits in excess of 2.99 times the sum of an executive's annual base salary and target bonus.

The suit, which was brought by the Indiana Electrical Workers Pension Trust Fund and pension funds administered by the Service Employees International Union, claims that HP paid former CEO Carly Fiorina $21.4 million in severance, plus stock options and other benefits that increased her total compensation to $42 million.

Under the company's 2.99-times rule, however, Fiorina shouldn't have received more than $15 million, says Michael Barry, a partner at Grant & Eisenhofer, the New York law firm that field the suit.

"What it looks like is that Hewlett-Packard has been maintaining publicly that they are committing to limiting severance payments to 2.99 times annual salary and bonus, but when push comes to shove they feel that they can disregard it and characterize the payments as something else," he says.

The suit was filed March 6 in U.S. District Court for the Northern District of California. HP spokesman Ryan Donovan says that the company believes the lawsuit to be without merit.

The suit highlights the very common disconnect between shareholders and management, says Ira Kay, global director of executive compensation at Watson Wyatt Worldwide. …

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