Six Years Later, The Problem at HP is Still the Board

The HP board in 2012 is just as dysfunctional as it was in 2006.  Here's a reflection of how bad they were back then.

Read the full Forbes post

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The Problem With Hewlett-Packard's Board

"May I have your attention please?
Will the real Slim Shady please stand up?
I repeat, will the real Slim Shady please stand up?
We're gonna have a problem here.."

- Eminem

Last week, I said that investors should give new Hewlett-Packard (HPQ - commentary - Trade Now) CEO Leo Apotheker a chance. I stand by that statement. But one group that doesn't deserve a second chance is the company's board of directors.

Within the past few weeks, Hewlett-Packard's board has been criticized by Oracle (ORCL -commentary - Trade Now) CEO Larry Ellison, former General Electric (GE - commentary -Trade Now) CEO Jack Welch and New York Times columnist Joe Nocera. On Friday, Ben Horowitz responded to the critics with a long blog post. Who is Ben Horowitz? He started a company called Loudcloud a couple of years ago with Marc Andreessen of Netscape fame. They later sold this start-up to Hewlett-Packard for $1.6 billion. Horowitz is now partners with Andreessen in an early-stage venture capitalist firm. Andreessen is now on Hewlett-Packard's board and played a central role in removing Mark Hurd and hiring Leo Apotheker.

Half of Horowitz's blog post is spot-on. He goes after critics who have said that the company's board was wrong to fire Mark Hurd for the small infraction of fudging expense reports and lusting after some staffer. Horowitz rightly points out: If you don't fire a CEO for lying about expenses, where do you draw the line?

If Horowitz had left his article at pointing out how silly it is for critics of Hewlett-Packard's board to mock the group for firing Hurd, it would have been fine. So what if he's clearly sticking up for his buddy Andreessen? So what if he's probably sold all his stock in the company and therefore has no skin-in-the-game basis for making this argument? I'd give him a pass, slap him on the back and say Ellison and Welch are clearly wrong on this (although I'd guess Ellison doesn't care given what Hurd's hiring has done for Oracle's stock price).

But Horowtiz didn't stop there. He goes on to pat the board on the back for being ethical, far-sighted and doing what's right for the hard-working men and women at Hewlett-Packard, because Horowitz got to know them so well from doing his time there (the way parolees have to do community service) for a couple of years as a condition of him getting his share of $1.6 billion. (I'm sure Ben really thinks he gets the struggles of the working men and women at the company from his long and protracted tenure.)

It was reading this second half of his blog post that made me immediately want to write this response. Horowitz would do well to remember that Hewlett-Packard's board is a badly governed board, which, in the case of firing Mark Hurd, made a good decision (for the reasons he spells out) but is still one of the most truly awful boards in large-cap corporate America.

Were the "ethical" directors doing right by the employees when they approved a plan to unilaterally cut all workers' pay by 5% a couple of years ago and committed that the senior executives would cut their own base salary by 10% but then doubled the total compensation (and perks) for Mark Hurd, Ann Livermore, Todd Bradley and other senior execs? Was that taking the long view?

And don't try to suggest that the board only knew about Hurd's shenanigans with this woman this past summer.

According to Hewlett-Packard, the board fired Hurd after it hired outside counsel to investigate claims of sexual misconduct. It was during the course of the investigation that the problematic expenses were uncovered that led to the firing. Yet, the company's originally filed 2008 proxy statement (which the board approved, so they either knew about it or were completely asleep when they rubber-stamped it) said that Mark Hurd charged almost $300,000 to shareholders that year for "personal meals" plus an additional $70,000 in tax gross-ups. Hmmm. Did the audit committee really think that Hurd (or even Hurd and his wife) could rack up that much in personal food expenses in a year? Even if they did, why the hell were Hewlett-Packard's shareholders paying for it? Either the members of the audit committee knew about what was going on with Hurd back then and chose to do nothing because (let's face it) Hurd was a popular CEO on Wall Street, or they were completely incompetent at their jobs of making sure all expenses are reasonable and legitimate, especially during a year of turning the screws on remaining employees with a 10% forced pay cut.

It was only after Michelle Leder of Footnoted and I complained publicly about these expenses, that Hewlett-Packard magically edited and refiled its proxy, claiming that the expenses were a clerical error.

Let me tell you, no SEC filing from a large company like Hewlett-Packard gets filed without about 15 levels of lawyers touching it first. There is never a mistake in a filing. Everything is there that's meant to be there. My belief is that this board knew stuff was going on a full two years ago -- that, at the least, warranted further investigation. Yet, they didn't act.

So don't even try to hold this board up as these thoughtful wise men doing right by shareholders.

This is a board in which no one seems to own any stock that they purchased out of their own pockets. They all have token shares that they received from options or grants. It's found money for them. If Hewlett-Packard's stock goes up, great; if it tanks (like it has since Hurd left), what do the directors care? It's not their money they lost.

Marc Andreessen (Horowitz's buddy) owns zero shares in Hewlett-Packard. Even after he sold his company to Hewlett-Packard for $1.6 billion in cash and stock a few years ago, he sold all his Hewlett-Packard shares. Even after being asked to join the board, he couldn't find the time to buy a few shares for himself. This is a guy who (conservatively) has a net worth over $1 billion. And he can't buy a few lousy shares? This is shameful. And it's not going to stop until Hewlett-Packard's shareholders (of which I am one, by the way) stand up and start screaming bloody murder.

Don't forget that this is a board with Ken Thompson sitting on it, the former CEO of Wachovia who killed his company and will never be able to work in financial services again because of it.

Hey, members of Hewlett-Packard's nominating committee, I hear that Jeff Skilling of Enron got a bad rap and deserves a second shot at being a director. Pay no mind to the fact that he's in jail. Or what about Chuck Prince or Angelo Mozillo or Dick Fuld or Stan O'Neal? So what if they all destroyed their companies? Those were all flukes. There aren't that many qualified directors around. Let's fill the board with such guys. The hard-working employees deserve these paragons of virtue representing their interests on the board. Thanks for taking such a long view for shareholders by nominating the guy who bought Golden West Financial and its mountain of California subprime mortgages for $26 billion.

I am sure that the hard-working Hewlett-Packard employees would feel much more comfortable about their board if each director committed to investing 5% of his/her net worth in open-market Hewlett-Packard stock purchases. If they believe Leo's the guy to take the company forward, great. Let's see them put their money where their mouth is.

I'm sure Horowitz supports his friend. But, next time, Ben, don't try to defend a truly awful board. Investors need investors representing their interests on the board. They don't need impartial rubber-stampers.

At the time of publication, Eric Jackson was long Hewlett-Packard.

...

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Never Discount the Grumbling Workers

By Eric Jackson
RealMoney Contributor
8/17/2010 7:30 AM EDT
Click here for more stories by Eric Jackson

The whole Hewlett-Packard (HPQ -commentary - Trade Now) affair continues to make the business pages look like Us Weekly, with new details having emerged over the weekend. It seems former CEO Mark Hurd settled his sexual harassment case with his one-time dinner companion and HP marketing person the day before HP's outside counsel was set to interview her for the first time. As a result, Hurd lost the trust of the board, which felt as though he was acting to limit what details they could learn from her.

Setting aside these more salacious details, I thought the most interesting new information came from Joe Nocera of The New York TimesFriday. In his column, Nocera suggests the real reason Hurd was shunted aside was that he'd lost the trust and respect of the HP employees, and that charges of sexual harassment and inflated expenses merely masked that fact. Nocera illustrates this with some damning faint praise for Hurd from analysts and HP employees, both former and current:

• "He was a cost-cutter who indulged himself."
• "Mr. Hurd cares about one thing, how much money is in it for him. As an HP employee I see it every day. We don't have the tools to do our job, but he isn't doing without anything and doesn't care."
• "He didn't have the support of his people. . . . he seemed to be the only one benefiting from HP's success"
• "I was delighted [to see Hurd go] ."
• " . . . he lacks the moral character to be CEO."

I believe these latest revelations show board did lose trust in Hurd, thus providing reason to suggest he move on. However, I also believe Nocera has put his finger on a critical point: namely, the depth of HP employees' resentment toward Hurd for well over a year. About a year ago, for instance, I wrote about my belief that Hurd was not such a great CEOas what was portrayed by Wall Street analysts and investors -- and I remember being very surprised at the immediate and strong reaction I got from then-current HP employees. They were all united in their antipathy for Hurd.

They complained about how he'd cut the business to the bone but didn't have any ability to grow the company's revenues. They talked about his hypocrisy in forcing 5% across-the-board paycuts while doubling, tripling, or quadrupling senior executives' total compensation in the same year. Most of all, they complained of Hurd's total inability to connect with HP employees and a disregard for the vaunted "HP Way" of the past.

....

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Steer Clear of HP Until Next CEO

By Eric Jackson, Senior Contributor08/11/10 - 05:11 AM EDT

With Mark Hurd out as the CEO of Hewlett-Packard(HPQ), many are trying to argue that the stock is a great long play here trading at $42. I think you're better off steering clear of it for now until there's greater certainty about what's going to happen with the next CEO.

In the aftermath of the surprising departure of Hurd on Friday, and the 8% drop in the stock on Monday, some HP bulls have been stating that now's the time to get a position in the stock. Their argument goes as follows:

• HP is a great franchise with many solid businesses. It's bigger than Mark Hurd.
• It's cheap. It trades at 8 times current year's earnings and 9 times next year's.
• Since the stock has really performed well in the last few years, you can continue to rely on it being a steady performer in the years to come.

I agree that HP has a good set of businesses that are market-leading. There are several scenarios I could envision in which it will hire a great new CEO who is able to ramp up this company and its stock price in the coming years. We could well look back on this moment in time and say it was a great time to enter the stock.

However, there are way too many question marks and risks hanging over the company at the moment to jump into a long position. The risk/reward -- as of today -- still strikes me as unattractive to get long the stock. If they make a bad hire as CEO, the stock could be an attractive short opportunity.

So, here are the reasons for not touching HP at the moment:

• HP has solid positions in its markets today, but many of those markets (like PCs, printers, and technology services) could well see a drop in business in the next few years if they're managed poorly.

  Now that Hurd is out of HP, the HP bulls are saying the company is bigger than Hurd. Yet, when Hurd was around, they only wanted to talk about HP as if he was the only employee at the company. Hurd is all about execution, we used to hear them say. So, if Hurd is now gone, how will HP execute?

  Companies are more than their leaders but they model themselves to their leaders and they drift with no leaders. We're in a drift-zone until a new CEO is announced and that took seven weeks after Carly was sacked.

• The stock may be cheap relative to others but what is most important for any new investor in the stock is that question about whether it is cheap today relative to where the stock will be a year or two from now. If HP bungles this transition and squanders its lead in several of its businesses, the stock could easily drop another 20%.
• HP's stock actually hasn't performed well recently. Investors only think it's performed well because of the Mark Hurd "halo effect" that's gone on -- think of it like a "Vulcan mind trick."

  As I said in my article on Saturday, HP's stock went up 137% in the first 2.5 years of Hurd's tenure but dropped 20% in the last 2.5 years. Over the same most recent 2.5 years, IBM's (IBM) stock went up 20%. If you think you can always rely on HP to deliver stock growth, you're wrong.

But let me emphasize the top three reasons for not owning HP at the moment:

• We have no clue who the next CEO will be. I'm pretty sure Todd Bradley will be the top internal candidate, although Ann Livermore will get consideration. I'm sure they'll also look at some outside candidates, too. My guess is that they'll pick Bradley as a safe choice but I'm not convinced he'll be a savior for the stock. They could hire another Carly -- heaven forbid. Do you want to put your wealth (in the form of HP stock) in the hands of this board to do the right thing?
• When you cheat on the small stuff, you tend to cheat on the big stuff. Although some Hurd apologists and friends say that HP is making up the whole expense-gate issue to avoid the bad press associated with a sexual harassment, the fact is that he reported charging $243,000 in personal meals to HP shareholders in 2008 and then had the temerity to demand that he be grossed up another $75,000 so that he wouldn't owe any taxes to the IRS on that benefit.

  The current expenses allegations that the board used to unanimously ask him to resign are entirely consistent with those reported facts. What it tells me is that this is a guy who has entitlement issues: $43 million in total comp in 2008 wasn't enough for him. He also needed every last penny of expenses covered for him -- even when they were for personal expenses.

  I've tended to find that people who fib about the small stuff tend to fib about the big stuff -- like all the micro (and legal) decisions that go into managing the numbers every quarter. We might have a few more dead bodies which will soon wash ashore from the EDS, 3Com and Palm acquisitions.

  I smell one-time charges coming from excessive earnings management that might have gone on over the past three years. Usually, when a new CEO comes in, once they get a sense of the books and how the past regime has run those books, they like to put everything into the kitchen sink so they can free themselves from the burdens of how they've done things in the past.

• Who's going to finish the job integrating the EDS, 3Com, and Palm acquisitions? The master integration-and-execution guy is gone. We're going to see if the rest of the team is up to the task. These are all big and complex companies. It will take real work to integrate them successfully and the Palm group might never be able to deliver new products to captivate the market's tastes.

  Is this the new stream-lined HP or the old bureaucratic HP that's never really changed since Carly? I think it's likely there will be more charges ahead.

The HP bulls like to point out that the company raised full-year guidance when it announced Hurd was leaving on Friday. I'm surprised it also didn't announce that it was doing a stock buyback. This upped guidance doesn't do anything to change my view at all. HP's been sandbagging - precisely so it could up the guidance when it needed to (as it did in reaction to this scandal).

In my view, this stock won't trade on rest-of-the-year guidance but as for what its earnings will be in 2011 and 2012, the jury's still out on that.

Do you trust this HP board to be on the ball and hire a great new CEO? Take a wait and see approach.

........

[** This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.**]

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Mark Hurd's Excesses Were in Plain Sight

By Eric Jackson08/07/10 - 10:36 AM EDT

PALO ALTO, Calif. (TheStreet) -- Almost one year ago, I wrote here that former Hewlett-Packard(HPQ) CEO Mark Hurd was the emperor with no clothes. Most on Wall Street have revered Hurd as the consummate guy who would execute and meet Wall Street's expectations. He sounded good -- always in control -- and he certainly seemed much more together than his predecessor, Carly Fiorina.

In my article, I laid out the case for why Hurd was not as dazzling a CEO as many thought and also why he was a risky asset for Hewlett-Packard moving forward.

Although most observers seemed to agree that Hurd did a great job turning around Hewlett-Packard, I pointed out that Hurd's magic really ran out after his first two and a half years on the job. In those early years, HP's stock went up 137%. Over the last two and a half years, however, H-P's shares are down 20%. Although that performance beats the S&P 500, it badly trails rival IBM(IBM), where shares are up 20% over the same period.

The media kept showering Hurd with the "halo effect" reputation of being a turnaround genius long after his actual performance had stopped keeping up with what he accomplished at the start of his tenure with the company.

There are lots of good CEOs who suddenly lose their touch. What alarmed me about Hurd last year was the piggish behavior he and his executive team were exhibiting at the expense of H-P shareholders.

What was worse, they were gorging at the trough of lavish compensation and excess perks at the same time that they were hypocritically turning the screws on H-P employees (who remained after a series of layoffs) to accept pay cuts and reduced benefits.

HP's Securities and Exchange Commission filings of the past few years have -- in plain sight of investors and journalists -- detailed this excess:

• Mark Hurd's total compensation for 2008 (when the global economic crisis reached its nadir) was $43 million, making him the fourth-highest-paid CEO that year, even though H-P's shares lost 29% that year.
• CIO Randy Mott's total compensation jumped 400% that year to $28 million.
• Imaging executive vice president Vyomesh (VJ) Joshi's total compensation increased 83% in 2008 to $22 million.
• Personal Systems EVP Todd Bradley's total compensation went up 263% that year to $21 million.
• Technology Solutions' EVP Ann Livermore's compensation went up 31% that year to $21 million.
• Now-interim CEO Cathie Lesjak got a 49% bump in total compensation in 2008 to $6 million.
• This management team mandated that year that all Hewlett-Packard staffers would take a 5% pay cut for the year, and they boasted that they -- as executives -- would stand shoulder to shoulder with the staff by taking 10% pay cuts. They forgot to say that the executive cuts would be only on base salary and that they would more than make up for that on options, restricted stock units and other bonus goodies.
• In 2008, H-P shareholders paid $7,472 for travel expenses for Mark Hurd's family to accompany him on business meetings. They paid $256,000 for Mark Hurd's personal security detail that year. And each executive was able to use $18,000 worth of financial advice that year on the shareholders' dime.
• Where it gets really interesting is that shareholders paid $136,000 for Mark Hurd's personal use of the H-P private plane fleet in 2008. Furthermore, H-P "grosses up" this taxable benefit, so that Hurd -- the guy who made $43 million in 2008 alone -- didn't have to pay any taxes for that private aircraft use. The filings also show that Hurd could take his spouse on the H-P aircraft whenever it was "requested by H-P" and that she got "grossed up" for that too.
• Michelle Leder of Footnoted also first reported in 2008 that Hurd had been "grossed up" $79,814 for taxes he had to pay as a benefit on meals with his family that were paid for by HP. Leder estimated that, in order to be "grossed up" by such a high amount, Hurd would have had total restaurant bills paid for by HP shareholders of more than $243,000.

Now, we find out that H-P's board uncovered a pattern where Mark Hurd inflated his personal expenses that involved a series of trips involving him and a female contractor, who worked for the company between fall of 2007 and fall of 2009.

Although I cheer anytime I see a corporate board wake up from a deep slumber and take action where it suspects a violation of ethics, I have to emphasize that this is -- by and large -- the same board of directors that approved all of the egregious compensation and perks laid out above. And those are only the ones relevant for 2008.

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[** This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.**]

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The Race to Replace HP's Hurd

By Eric Jackson
RealMoney Contributor
8/9/2010 10:00 AM EDT
Click here for more stories by Eric Jackson

After Friday's shocking revelation that Mark Hurd would be stepping down as Hewlett-Packard (HPQ -commentary - Trade Now) CEO after failing to uphold the company's standards of business conduct, the handicapping started for who would replace him.

Cathie Lesjak, the company's current CFO, has stepped up as interim CEO while the board initiates a search for a permanent replacement. She was quick to point out that she is not in the running to become CEO full time.

The board said it would consider both inside and outside candidates.

To understand who HP's board might pick as Hurd's successor, you need to look at the backgrounds of those on the newly created search committee. They are:

Marc Andreesen
One of the best-known and admired young execs in the Valley, Marc Andreesen co-founded Netscape. He runs his own venture-capital fund now and sits on the boards of eBay (EBAY - commentary -Trade Now) and Facebook, in addition to that of HP. Andreesen sold his former business, Opsware, to HP in 2006 for $1.6 billion, so he is familiar with the post-Carly HP and only joined the board last year. In an article for TheStreet about a year ago, I expressed concern about Mark Hurd's excessive compensation and perks and wondered whether Andreesen would be sufficiently independent to stand up to a guy who gave him a lot of money for his company. Andreesen, though, was the first HP director talking publicly with the media on Friday about Hurd's departure, indicating he played a key role in that decision. This means he'll likely also be critical in his role on the search committee.

Lawrence Babbio Jr.
Formerly President of Verizon (VZ - commentary - Trade Now), Babbio joined the HP board in 2002 after Compaq merged with HP. He had been on Compaq's board since 1995, so he's familiar with the PC part of the business (headed by internal candidate Todd Bradley).

John Hammergren
Hammergren is Chairman and CEO of McKesson (MCK - commentary - Trade Now) and joined HP's board in 2005, when Hurd was hired. Hammergren joined McKesson 11 years ago -- three years before he was appointed CEO. So, he might look at someone like Todd Bradley (who came over from Palm (PALM -commentary - Trade Now) five years ago) as a "mini-me" suited to taking the reins.

....

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H-P's Hurd's Expenses Have Been Troubling for 3 Years Now

Last September, I wrote about how Mark Hurd had consistently racked up high personal expenses he was charging off to HP shareholders. It was a warning-sign then and today his actions caught up to him. Here is that September article from TheStreet.com:

By Eric Jackson, Senior Contributor09/23/09 - 06:00 AM EDT

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Stock quotes in this article: HPQ , DELL

NEW YORK (TheStreet) -- Mark Hurd was brought in to take the helm at Hewlett-Packard(HPQ) in 2005.

He's well regarded by Wall Street for turning the company from a bureaucratic has-been to a market leader again. In the first 2 1/2 years of Hurd's tenure as leader, H-P's stock increased 137%. For the last two years, however, H-P's stock performance has been mediocre, dropping 5%. Although that was better than the Nasdaq, it tracked that index very closely over that period.

While Hurd deserves credit for turning this company around in the early part of his tenure by slashing costs and increasing focus, there are some very troubling aspects about how he, his management team and his board approach executive compensation and governance that suggest investors should steer clear of this Silicon Valley icon until it gets its act together.

Although H-P's performance has hit the wall in the past two years, Hurd's pay -- and the pay of his management team members -- has dramatically increased. For 2008, Hurd's total compensationreached $43 million, which made him the fourth highest paid CEO in America for 2008. Hurd's total compensation increased 73% from his $25 million in 2007, even though H-P's stock price declined 29% in 2008.

On his senior management team, the sharp compensation increases in 2008 were also noteworthy. CIO Randy Mott's total compensation went up 400% last year to $28 million. Imaging EVP VJ Joshi's total compensation jumped 83% to $22 million. Personal Systems EVP Todd Bradley's total compensation jumped 263% to $21 million. Technology Solutions' EVP Ann Livermore enjoyed a 31% bump in total compensation to $21 million. And CFO Catherine Lesjak got a 49% increase in total compensation to a more modest $6 million.

What also raises eyebrows about these sharp executive raises, aside from it happening in the face of a sharp stock price drop for the year (and the general market uncertainty which remained at the end of the year), is that 2008 was also a year in which these same leaders imposed mandatory 10% pay cuts for other executives and 5% cuts for the rest of H-P's workforce. It hardly seems like this select group is shouldering the pain like the rest of the employees.

At Dell(DELL), the magnitude and the general direction of total compensation were far different than H-P for 2008. Michael Dell's total comp dropped 9% in 2008 from the previous year to $2 million. Other senior executives on Dell's management team decreased or modestly increased to an average total compensation for the year of $9.5 million -- or less than half of what their H-P counter-parts took home for the year.

But what should be most rankling to H-P shareholders -- and a very good reason to avoid the stock in the near term, as it speaks to the values by which this board and management team operate -- are the perks these executives are asking for and receiving from the board.

For example, last year H-P shareholders paid $7,472 for travel expenses related to Mark Hurd's family accompanying him to business meetings. Expenses for Hurd's security service roughly doubled to $256,000. Shareholders paid $500,000 combined in 2007 and 2008 for legal fees associated with bringing over CIO Randy Mott from arch-rival Dell. All senior executives availed themselves of about $18,000 worth of financial advice in 2008 (about four times the amount Dell senior executives received that same year).

Perhaps the biggest bonus for being an H-P senior executive is getting access to the fleet of corporate jets for personal use. Shareholders forked over $136,000 for Mark Hurd's personal use of the aircraft in 2008. Todd Bradley's personal use of the aircraft cost $128,000 in 2008, which was actually down from $327,000 worth of personal travel in 2007.

H-P explains in its proxy filing that for "purposes of reporting the value of such personal usage in this table, H-P uses data provided by an outside firm to calculate the hourly cost of operating each type of aircraft. These costs include the cost of fuel, maintenance, landing and parking fees, crew and catering and supplies."

I think it's completely unacceptable for shareholders to pay for this personal use perk. However, this explanation left me with more questions about these numbers. Who is this outside firm that provided this estimated hourly cost? What in fact was the hourly cost? How do shareholders know that the hourly cost was a fair market rate? Finally, what were these personal trips?

I'm not even sure how it's possible for Todd Bradley to have racked up $327,000 worth of personal travel in 2007. Did he have time to show up for work that year? Call me a conspiracy theorist but isn't it possible that this outside firm vastly under-stated the actual (fair market) hourly cost of using these aircraft for personal use? How will shareholders actually know unless the company releases the flight logs and numbers?

Dell and his senior executives charged no personal use of their aircraft to its shareholders.

A later footnote in the proxy filing for Hurd's personal travel says that the first 25 hours of personal travel are included and are "grossed up." Hurd owes taxes on the value of that perk, but H-P's board has decided that HP shareholders should pay Hurd's taxes instead of Hurd.

The same footnote later says that if Hurd's spouse is "requested by H-P" to travel with Hurd, then the company "grosses up" that amount, too. The internal process that goes on in determining the company request is not described. It could be as simple as Mark Hurd leaning over and saying to his assistant: "I'd like to go play golf in Hawaii this weekend with the CEO of one of our clients on business. Can you write me a quick email saying that, on behalf of H-P, you're requesting that my wife fly with me?"

And don't forget the minor scandal the erupted last January, when blogger Michelle Leder of Footnoted noticed that H-P had "grossed up" Hurd $79,814 for taxes he paid on meals involving his family. (Ann Livermore and VJ Joshi also got "grossed up" $10,000 apiece for meals with their families.)

Michelle estimated that, to receive a "gross-up" of this amount, Hurd and his family would have had to run up food bills during the year of more than $243,000.

H-P protested, saying it had made an error in its calculations and even refiled its proxy with the SEC. Magically, Hurd's "gross-ups" for his family meals shrunk to $3,285.

H-P's error and refiling could have simply been a decision on its part, based on the angry reaction of employees and shareholders, for Hurd and all executives to simply cover these meals and their taxes themselves. Let's face it: It wouldn't have been a hardship for any of them based on their compensation last year.

I don't mind pay for performance. I do mind pay for non-performance and I mind perks for breakfast, lunch, and dinner. And in a year of across the board pay cuts? Where is their shame?

The board is equally or more to blame of course. After all, they approved all this. I was particularly surprised to note that Ken Thompson has served on the HP board for three years now. Thompson is one of the most disgraced CEOs coming out of the financial crisis.

He ended up destroying the fifth largest bank in America, Wachovia, by pushing it heavily into the area of subprime mortgages. When you destroy a company with $8 billion in annual profits, you shouldn't have the right to continue serving as a director and get $300,000 a year for doing so.

It was announced last week that Web pioneer Marc Andreesen would join H-P's board. I hope he can help reform the company's governance, but I don't think it's likely. In 2006, Andreesen sold his company Opsware to H-P for $1.6 billion -- making him indirectly beholden to Hurd and the rest of the board for his payday. That means Andreesen will likely be another voice around the table tacitly approving whatever Hurd wants to do and pay himself.

-- Written by Eric Jackson in Naples, Fla.

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The HP Horse Doesn't Want to Run for this Jockey

My post a few weeks ago on Mark Hurd's perks at HP has generated a lot of traffic and email comments -- especially from current or former HP/EDS employees.

Here is a link from one ex-EDS'er in Germany upset at the way things have played out.

Of course, every business needs to find a way to cut costs and save -- especially in the current environment -- but there's clearly a large portion of HP employees who feel very upset at the way Hurd and HP management have gone about their cost-savings drive. Preaching cost cuts to the troops, and then turning around and living high off the hog themselves at the expense of shareholders.

I remember one time going to an HP meeting when I worked for a software company while Carly was still CEO. The meeting was at an old DEC facility in Nashua, NH. I remember it took about 10 minutes to walk from the guest entrance desk to the meeting room. Along the way, I passed dozens and dozens of empty cubicles, as jobs had been "rationalized" away elsewhere. When I finally got to the meeting room, the HP folks were all very smart and friendly, but I remember being amazed that we spent a good 15 minutes or so of small talk time discussing what an embarrassment Carly was as a CEO. I remember leaving the meeting thinking: "great people but that company is in trouble if that's how all the employees feel about their boss."

These recent comments I've received back from employees about Hurd remind me of that meeting again.

I'm sure Hurd would say these are disgruntled employees who don't get the need for "cost cutting." They don't understand the new competitive global environment we operate in, etc. etc. He probably would also say all this employee grousing will go away when the stock starts going back up again. In fact, at a recent analysts' day, he touted that HP was going to grow "faster than the market" in 2010.

Maybe. But I don't buy it. I sense deep anger and lack of trust among the rank and file with Hurd and his team. I get a sense of Hurd being the jockey on a horse that's decided it doesn't want to run any more for this jockey. He can whip it all he wants, but that horse is not going to run.

Let's see how HP's stock does next year and if it does grow faster than the market.

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eBay Must Wring Out CEOs' Excess

By Eric Jackson 09/30/09 - 06:00 AM EDT

Stock quotes in this article: EBAY , HPQ , YHOO , MSFT , AAPL , CSCO

NEW YORK (TheStreet) -- I've recently criticized Yahoo!'s (YHOO Quote) Carol Bartz and Hewlett-Packard's (HPQ Quote) Mark Hurd for excessive pay and perks, given their companies' performances.

My focus on Silicon Valley gluttony would be incomplete without discussing the perks at eBay(EBAY Quote).

After founding eBay in September 1995 and overseeing all aspects of the business for the first three years, Pierre Omidyar decided he had a tiger by the tail and needed some professional management. He hired Meg Whitman, a Harvard MBA with stints at Bain, Hasbro(HAS Quote), FTD, Walt Disney(DIS Quote), Procter & Gamble(PG Quote) and Stride Rite, as CEO in March 1998. The company went public six months later and has been a runaway success.

eBay is an incredible entrepreneurial story. Omidyar and his first employee, Jeff Skoll, deserve countless wealth for creating a multibillion dollar company from nothing. Along the way, Skoll -- who no longer holds any eBay stock -- cashed out equity worth $5.3 billion. Omidyar, still chairman, has cashed out about $3.5 billion to date, but his remaining equity stake is worth another $3.8 billion at current market prices. He now lives in Hawaii and is a philanthropist. And with as much wealth as they've created for themselves, Omidyar and Skoll have created more for others and should be celebrated for this success.

Whitman, who stepped down as CEO last year and now has ambitions to become governor in California in 2010, had a net positive record overseeing eBay. She rode a rocket ship of growth -- getting through the early days of frequent Web site crashes -- and ultimately got it to be a $60 billion company in late 2004; it's about half that valuation today.

Yet Whitman's final years at eBay leave her open to criticism. She promoted a drunken-sailor approach to acquisitions, always overpaying and making little effort to stitch them together. A culmination was the $4.1 billion purchase of Skype in 2005 (including all payouts), in which she took an auction and e-commerce site into the phone business.

Potentially more damaging in the long-run for eBay than overpaying was that Whitman didn't get the intellectual property associated with Skype. This has allowed Skype's founders to now come back and sue eBay for trying to unload the property recently at a valuation of $2.75 billion.

Although Whitman hasn't done as well as Omidyar and Skoll, she's been well-compensated for her time as CEO. According to filings with the Securities and Exchange Commission, Whitman was paid $47 million in total compensation between 1998 and 2008. Additionally, she sold eBay stock during that time worth about $732 million. She still owns stock in the company as of the end of last year worth another $500 million at today's valuation, as well as additional stock options that will have renewed value if eBay's stock gets above $31.

I believe Whitman deserves every nickel of compensation and stock sale proceeds she got between her joining the company in 1998 and Jan. 1, 2005. Since then, however, eBay has been in a tailspin with the stock down 59% vs. a Nasdaq decline of 3% over the same period. eBay's new CEO John Donahoe was hand-picked by Whitman because he used to work with her at Bain. He has spent the first two years on the job trying to give the company some sense of focus and direction, which it lacked under his predecessor.

Something happened in Whitman's last four years on the job in which her pay became dramatically disconnected with eBay's stock price and her perks started to go through the roof.

Based on my review of the company's SEC proxy filings, it appears that there were two big clues for investors that suggested, between 2005 and 2008, Whitman's interest had drifted away from increasing the stock price of eBay to increasing her cash compensation and perks. Had anyone seen these clues -- and, interestingly, perhaps Skoll did as he liquidated his entire eBay stake in 2006 -- they might have pulled the ripcord on owning the stock in 2006 or 2007 when it was trading at $35, before the bottom fell out in the stock and it hit its nadir below $10 this past March.

The first big clue that Whitman's eye was no longer on the ball as CEO had to do with her total annual compensation spiking in the last two full years of her tenure, even as eBay's stock price continued to decline. Peaking at $58 at the start of 2005, eBay's stock price dropped 43% over the next three years. Over that same period, Whitman's total annual compensation almost quintupled to $13.9 million from $2.9 million.

Meg Whitman's Total Annual Compensation
	SEC Filings

One of the interesting coincidences, and perhaps not a coincidence at all, about the above figure is that Whitman's annual compensation is remarkably modest from 1998 through 2002. Over that time period, she averaged total annual pay of $412,000. During that time, there were three members of eBay's compensation committee: Philippe Bourguignon, ex-CEO of EuroDisney; Bob Kagle, general partner of Benchmark Capital and early eBay investor; and Howard Schultz, the Starbucks(SBUX Quote) founder who also is a venture partner in Maveron, an early eBay backer.

At the end of 2002, Schultz left eBay's board and compensation committee. He was replaced by Tom Tierney. Tierney was formerly the CEO of Bain Consulting and, indirectly, Whitman's old boss. Tierney would pass any stock exchange definition of an "independent" director. But for those of us who live in the real world, it is obvious that Whitman had a new friend on the small group deciding how she would be paid.

It should come as no surprise then that this committee immediately started loosening the purse strings, and for the years 2003 to 2007, just before she resigned, Whitman's total annual compensation averaged $7.6 million.

The second big clue that Whitman was no longer as focused on eBay's fortunes in her final four years as CEO was the amount of time she spent flying around the world on personal business in eBay's corporate jet, which was paid for by eBay shareholders.

As the chart below illustrates, eBay's compensation committee (again perhaps indirectly linked to Tierney's arrival) went from a practice of not granting Whitman any personal air travel on the corporate jet paid by the shareholders to almost $1 million a year in her final two full years on the job.

That $1 million includes tax gross-ups, meaning shareholders also paid Whitman's taxes on the benefit she received of making all those flights instead of the billionaire paying her taxes herself. These two years of lavish perks coincided with a time when eBay's stock dropped 22%, even though Nasdaq was up 17% in the same period.

Meg Whitman's Personal Aircraft Costs Paid by EBAY Shareholders
	SEC filings

I took H-P's Hurd to task last week for spending almost $150,000 last year on personal air travel in H-P's jet and charging it to his shareholders.

So, I'm just flabbergasted seeing that Whitman spent more than $1 million on personal air travel in 2006. How do you do that? And how does Whitman and eBay's compensation committee justify trying to brazenly sneak that large expense report past shareholders, especially when the stock is tanking during the ginned-up, credit-fueled boom of 2006?

I don't follow California politics -- although I'm a fervent supporter of free market capitalism as advocated by Milton Friedman -- but I find it highly ironic and disingenuous of Whitman to portray herself now as a populist based on her time at eBay. According to a glowing Fortune profile of her political ambitions last March, the only "dirt" her critics have been able to dig up on her is that she voted in only half the elections for which she was eligible in the last decade. She explained it this way: "I was head down, building eBay, with two teenage sons and a neurosurgeon husband, and traveling half the time."

She was certainly traveling half the time -- for personal vacation jaunts, all paid by eBay shareholders.

In the last two years, perhaps self-conscious at just how embarrassing these numbers were, eBay decided to break up the personal air travel perks into two categories: purely personal travel and travel to outside board meetings. Whitman was on the boards of Procter & Gamble and DreamWorks Animation (DWA Quote) in the last two years of her tenure. So some of her million-dollar expense went to shuttling her to L.A. and Cincinnati several times a year for these meetings.

I can understand why eBay burnished Whitman's personal network to serve on those boards and rub shoulders with Steven Spielberg and other luminaries, but how did serving on those boards help eBay shareholders? They say that While Rome burned, Nero fiddled. At eBay in 2006, while the stock dropped and the Skype merger was a mess, Whitman flew to Hawaii and other locales on a private jet paid for from the shareholders' bank account.

So, a question to the eBay compensation committee: Who do you think you are? With the exception of H-P, no other tech company foists off this extravagant perk on its shareholders. Microsoft(MSFT Quote), Cisco(CSCO Quote), Intel(INTC Quote) and Apple(AAPL Quote) don't do it. Even Yahoo! -- the king of excessive compensation -- doesn't do this. What makes eBay so special?

Most troubling about this "CEO entitlement mentality" that Whitman adopted in her final years on the job is that she's passed the habit on to her successor. Donahoe racked up almost $280,000 worth of personal aircraft expenses in his first nine months on the job in 2008. I can't wait to see what he can do this year with a full 12 months.

I doubt he's ever had to answer to why he's indulging himself in this ridiculous expense. If asked, I suspect he'd look blankly ahead and say something like, "Well, Meg said it was OK."

It's time for eBay to grow up and stamp out these excesses. Just because you've always done something dumb doesn't mean you should keep doing it. Make your well-compensated execs pay their own way on personal trips using the corporate jet, and start linking pay for performance. Donahoe made $13.1 million last year for his nine months as CEO, while eBay's stock dropped 55%, far wider than Nasdaq's 30% loss in that same period.

eBay's board, particularly its compensation committee, needs to turn the page on the Meg Whitman era and get its executives focused on the tough task at hand in turning around the company instead of worrying about their next tee time.

-- Written by Eric Jackson in Naples, Fla.

t the time of publication, Jackson had no positions in the stocks mentioned.

Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

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