A group of Hewlett-Packard Co. shareholders are suing the company, alleging its board broke its own rules by awarding more than $42 million in cash, stock and other benefits to Carly Fiorina after she was dumped as CEO last year.
The complaint, filed late Monday in U.S. District Court in San Jose, depicts the payments to Fiorina as a blatant violation of a board policy adopted in 2003 so the company’s severance payments would be limited to 2.99 times an executive’s combined salary and annual bonus.
Based on that formula, the suit contends Fiorina’s severance package should not have exceeded $16.7 million when HP ousted her 13 months ago after nearly six years in the job. HP paid Fiorina $21.4 million in cash, plus stock worth about $19 million and pension benefits valued at about $2 million, the suit said.
The four pension plans that filed the suit hope to force Fiorina to pay back millions of dollars by proving HP’s board improperly approved her severance package.
HP believes the suit is meritless, spokesman Ryan Donovan said Tuesday.
Besides Fiorina, the suit names eight other current or former HP directors: Patricia Dunn, Lawrence Babbio, Richard Hackborn, George Keyworth II, Robert Knowling Jr., Thomas Perkins, Robert Ryan and Lucille Salhany.
The suit threatens to put HP in the uncomfortable position of defending the lucrative package given to Fiorina as its new CEO, Mark Hurd, strives to cut more than 15,000 jobs to help boost the Palo Alto-based company’s profits.
Since Hurd took over, HP’s stock has surged by more than 60 percent to reverse a downturn that occurred under Fiorina — a flashy leader who defied intense shareholder opposition to engineer a $19 billion takeover of Compaq Computer Corp. in 2002.
Michael Barry, a Wilmington, Del. attorney representing shareholder interests in the case, described Fiorina’s severance package as a prime example of corporate America’s penchant for overindulging top executives at its owners’ expense.
“We are trying to make the point that HP and other major companies have got to get some control on these outrageous compensation practices,” said Barry, a partner at Grant & Eisenhofer. The same law firm filed a 2002 lawsuit that prompted another Silicon Valley company, Siebel Systems Inc., to reform its executive compensation practices before its recent sale to Oracle Corp.