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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Piotr Koziol who wrote (96203)	3/18/2002 4:25:03 PM
From: John F.	Respond to of 97611

02/05 Hewlett-Packard, Compaq Pay Plenty for `Claque' By Graef Crystal Las Vegas, Feb. 5 (Bloomberg) -- Carly Fiorina, the embattled chief executive officer of Hewlett-Packard Company and Michael Capellas, her counterpart at Compaq Computer Corp., have just hired a claque. That's ``an organized body of hired applauders'' and ``a body of subservient followers always ready to applaud their leader,'' according to the Oxford English Dictionary. Major singers at the La Scala opera house in Milan routinely hire claques to cheer wildly at the conclusion of each aria and, for good measure, to boo any rivals heartily. Fiorina and Capellas want their claque to cheer the planned merger of their personal-computer companies, which may come to a shareholder vote as early as March, and to boo opponents such as the Hewlett and Packard families. The only differences between the CEOs and the opera singers are: -- The size of the claque, which would overfill La Scala and spill into the surrounding streets, -- The cost, a staggering $635 million-plus during the two years following completion of the merger, and -- The source of all the money. Fiorina and Capellas aren't footing the bill themselves. Their companies' already beleaguered shareholders will pay. . Pay to Stay Eight top Hewlett-Packard executives stand to receive three times the sum of their salaries and target bonuses, or the bonus payments they might normally expect to get, according to filings with the U.S. Securities and Exchange Commission. Two others are scheduled to receive twice their combined salary and bonus. Half of that money would be paid this September, and the rest would follow in September 2003. If these executives keep their jobs, they get to pocket years of extra pay -- and for what? Staying with the company? I thought Hewlett-Packard's regular compensation programs were designed to aid in executive retention. The Palo Alto, California-based company tries to justify this largesse by saying that in the event the executives' employment is later terminated, these up-front payments will be subtracted from any severance pay they later receive. That's fine for a while. But pretty soon, the ``What have you have done for me lately?'' syndrome will emerge big time. Then the company will have to set up new severance packages to bind executives to the company. Face it, there aren't many glues that last forever. . Right to Know The payments to those 10 executives will total $33 million. Another $22 million will go to seven senior executives of Compaq, based in Houston. Then some 6,000 other Hewlett-Packard employees will receive an amount equal to half their salary and bonus, on average, for a total cost of $337 million. Compaq has promised $242 million of payments to employees. The SEC filing didn't mention how many people would receive them and spokesman Arch Currid declined to furnish the number, though he said they would ``reach across the company.'' Fiorina and Capellas have, graciously it seems, exempted themselves from the goodies. But they and other senior executives will receive brand-new employment agreements, no doubt stuffed with delicious morsels of pay. Walter Hewlett, the son of a co-founder of Hewlett-Packard and the person leading the charge against the merger, sits on the compensation committee. He advocates letting shareholders know in advance of their vote on the merger just what senior executives will be getting. . Poor Performers Hewlett's right, of course. Designing employment agreements isn't exactly rocket science, and shareholders ought not to be kept in the dark about potentially vast post-merger costs. He has raised all sorts of business-oriented objections to the merger as well. I'm not technically competent to judge the merits of his arguments. Looking at the performance of the two CEOs involved, though, the proposed merger seems to be a union of the lame and the blind. Both got their positions in July 1999, and both performed terribly between their start dates and last Friday Fiorina delivered a negative 49 percent return for shareholders during her tenure. The return on the Nasdaq-100 index, a benchmark for companies similar to Hewlett-Packard, was negative 33 percent during the period. For the Standard & Poor's 500 Index, the comparable figure was negative 18 percent. Capellas did even worse, with a negative 53 percent return. The decline compares with returns of negative 30 percent for the Nasdaq-100 and negative 16 percent for the S&P 500. . Shares for Free In earlier articles about the two, I noted the emphasis in their employment agreements on shares of free stock, rather than more traditional grants of stock options. After analyzing the numbers and considering that free shares are a lot safer than a larger number of option shares, I predicted that the two executives weren't very bullish about their prospects for success. What has happened since they took their jobs shows that they had a realistic impression of their abilities. It's little wonder that they decided to go the route of opera singers and pay people to cheer their plan to combine. quote.bloomberg.com.