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Mark Hurd and HP, economic opportunism and greed, one year on.

by Damian Saunders on January 30, 2010 · View Comments

Mark Hurd’s tenure as HP’s CEO continues to raise a passionate response. It’s almost one year since I wrote my original post about HP under Mark Hurd called HP Pay Cuts – an unfair act of economic opportunism and greed so with that, and approximately 1300 comments later, I think its fitting to round out the conversation with a look at HP’s SEC filing for 2009.

I have no intention of continuing to write about HP or Mark Hurd from this point on, all I’ve wanted to say has been said in previous articles, and I want to write about more interesting subjects. The HP, Mark Hurd situation is not an isolated issue, it’s symptomatic of a bigger problem with Corporations in general, and it will take a lot more than a few blogs from me to make any difference.

Lets have a look at the salient points of the SEC filing.

  • Mark Hurd, Chairman of the Board, Chief Executive Officer and President (the guy that makes the decisions, approves them and, supposedly, keeps them honest, all rolled into one), earned total compensation of $32, 332, 527 in 2009. When you look at it further it’s interesting to note this includes over $400,000 for 401k company matching, personal use of HP’s corporate jet, and security. Update: Also check out
  • Catherine Lesjak, Executive Vice President and Chief Financial Officer, earned total compensation of $7,585,775, including over $200,000 in 401k matching, security, and personal use of the HP Corporate Jet.
  • Ann Livermore, Executive Vice President, HP Enterprise Business, took home $13,424,406 in including around $184,000 in 401k matching, security and personal use of the corporate jet.
  • R. Todd Bradley, Executive Vice President, Personal Systems Group, $12,538,329 in his personal coffers including about $248,000 in 401k matching, relocation expenses, personal use of the company jet, and security.
  • Vyomesh I. Joshi, Executive Vice President, Imaging and Printing Group, a package of $11,644,691 including $183,000 odd of 401k matching, security services and use of the corporate jet.

Update: Mark Hurd also cashed in aproximately $11m in share options during 2009, check out Yahoo Finance HPQ Insider Transactions for the specifics. (thanks to a comenter on this post).

There we have it, Mark Hurd and four other people in HP took home $75,525,728 in 2009. Admittedly it was significantly less than the previous year, but if you consider the circumstances, and what they stooped to to "earn" it, it’s still questionable, which ever way you slice and dice it.

I invite you to read the SEC filing, it makes interesting reading in terms of the executive compensation in HP’s peer group of companies, and the "performance" based compensation scheme.

When I look at it I can’t see any real top line "performance" at all, just, in my opinion, a company that’s exploiting it’s employees, compromising Customer service through its best shoring program, and that has sold out on it’s corporate values, all for the sake of putting shareholders first.

I think it’s only a matter of time before people more significant than me start asking Mark Hurd hard questions about real growth, rather than the illusion caused by acquiring and consuming other companies. In the meantime we, as consumers and/or employees can vote with the two most tangible things we have, our labor, and our chequebooks.

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Mark Hurd, could he be America’s most toxic CEO?

by Damian Saunders on October 31, 2009 · View Comments

Mark Hurd, could he be America’s most toxic CEO?

I read a post titled The Campaign against Mark Hurd, a somewhat tongue in cheek article, with serious undertones, and I was thinking just that.

If you′ve read my previous two articles on HP Pay Cuts and HP′s contribution to the GFC, you′ll know I′m no fan of Mark Hurd, though you′d think there would be any number of CEOs who exhibited the worst kind of unbridled greed, a lack of compassion, or concern for others over the last year, who would qualify for the title.

I think that Mark Hurd, in all the noise associated with the Global Financial Crisis, has been flying under the radar. One of my main concerns with him is his seemingly deft application of spin (a careful and contrived manipulation of the truth), which probably comes hand and hand with the job, but it shouldn′t.

Why single out Mark Hurd? Why bother to write about this at all, and what gives us the right anyway?

It goes beyond HP, or any previous experience I had with the company, it′s actually an issue that seems endemic in corporate America today, the deliberate undermining of middle and working class standards of living and getting paid obscene amounts to do it. We could, and probably should be singling out more CEO′s for the same treatment. We have a powerful force for change in Social Media. For the first time in history, that I know of anyway, we have a two way means of communication that is independent of the news media, who are hopelessly compromised by their corporate owners (Mark Hurd is on the board of Directors at News Corp. what does that tell you?), giving us control of the message, at least for the time being. We should use it.

I am a Capitalist, but I don′t believe that capitalism implies the complete absence of altruism, there′s more than enough wealth to go around. Prosperity begets prosperity, especially when it comes to employees. As a business owner I believe I have a responsibility to contribute jobs, and the ensuing prosperity that comes with them, to our society. I think what we currently know as Capitalism, where it′s only about returning ever increasing profits to shareholders at all costs, is unsustainable, wrong, and is probably called something else.

The founding fathers of HP, Bill Hewlett and Dave Packard, from all accounts, had an altruistic view of Capitalism, which brings me to the point of the post. The HP way.

A full discussion of the HP Way is beyond the scope of this post, you can read all about it in the book titled; The HP Way: How Bill Hewlett and I Built Our Company, however it as been said that the pair′s greatest innovation was managerial, not technical 1 , the HP Way was an egalitarian, decentralized, form of management that had, as it′s core foundation, the idea that employee′s brainpower was HP′s most important resource.

Hewlett and Packard backed up this philosophy with pioneering practices such as company wide productivity bonuses, profit sharing, share ownership plans, tuition assistance, flexible work hours and job sharing, matched contributions to 401k (superannuation) plans, and more. At the peak in early 2000 HP′s share price was almost $80, the company was regarded as one of the best places to work, and the company bonus plan was paying lucrative bonuses. Granted that was the end of the IT boom at the time, but the HP Way had seen the company through previous tough times without being discarded.

You don′t have to look far today to know that the HP of today is a disappointing contrast to the HP of Bill and Dave. See HP by HP Employees it′s a good place to start, and there′s plenty more to back that up.

The HP of today is characterized by;

  • A centralized, autocratic management where Mark Hurd is the CEO and Chairman of the Board of Directors, so he, for all intents and purposes, reports to himself.
  • Ten′s of thousands of jobs lost (conservative estimate would be 40-60,000) or moved to developing countries, consequently undermining the very brainpower (and I′m talking about the accumulated skill and experience that these people had, not the capability of people in developing countries) that Hewlett and Packard valued so highly, not to mention completely compromising support quality by replacing skilled and experienced Customer facing people with Support personnel who know nothing more than to follow a flow chart, and who loose the plot the moment something doesn′t follow the script.
  • An alleged environment of fear and intimidation – apparent in many of the comments from my previous post.
  • Has disappeared completely off the Fortune Magazine top 100 companies to work for list.
  • Savage slashing of wages and benefits at a time when the company is highly profitable and HP executive remuneration is not only excessive, but rising.
  • Unpaid sales commissions due to an inaccurate tracking system, which raises doubts about other reported numbers.
  • A vague and uninspiring strategy for the future that seems focused on competing for market share in niches that are already saturated and being undermined by emerging technologies not invented by HP.

What happened to the HP Way?

I′m not asking the question because I have some sentimental attachment to the "good old days" of Bill and Dave, I′m asking the question because it′s stated quite clearly here on the HP corporate website under Business Ethics;

The values that Bill Hewlett and Dave Packard established nearly 70 years ago are as relevant today as they′ve ever been.

Are they?

It′s not an isolated statement. Mark Hurd stated, in his opening (and I presume sworn) remarks during the Congress′ investigation into the pretexting scandal at Hewlett–Packard in the early days of his tenure, and while the rest of the HP board was scurrying to assert their 5th amendment rights to silence;

Our culture, our core, which we call the H-P Way, remains strong and ethical

Does it?

A full .pdf transcript of his remarks is available here. 2 The question is; can you take this Guy on his word?

HP overall product quality and service, meanwhile, are regularly leaving consumers infuriated. PCWorld magazine, after surveying 44,000 readers, earlier this month rated Hewlett–Packard dead last among 10 computer makers, on reliability and service for laptops, dead last for printers, and next to dead last for desktops.

How can HP revenues and profits be rising in the midst of so much consumer angst? Easy. To be "successful" in Corporate America today, a CEO doesn′t have to run a company that delivers quality at reasonable prices. Today’s most "successful" CEOs can take a far less demanding approach to "growing" their companies. They can simply gobble up other companies.

Contemporary top execs acquire these other enterprises, usually by taking on huge quantities of corporate debt, and then claim the revenues of these other enterprises as their own. Instant success.

To pay off the subsequent debt, and keep their bottom lines sweet, these CEOs then lop off "redundant" workers in their newly merged operations. This merge–and–purge cycle, predictably enough, creates chaos in the workplace, and more frustration for consumers.

As Hewlett Packard CEO, Mark Hurd has wheeled and dealed his way to 31 mergers in just 46 months on the job…

Too Much, Weekly, Jan. 26 2009

Does that sound familiar to you? Is that what′s become of the HP Way?

I think Mark Hurd has swapped "Invent" for "Illusion", he′s quoted somewhere as saying "vision without execution is fantasy" I would suggest that execution without vision, is short term thinking fueled by greed.

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HP Pay Cuts – an unfair act of economic opportunism and greed.

by Damian Saunders on February 26, 2009 · View Comments

HP’s CEO, Mark Hurd announced, on the 20th February that he would be implementing a company wide cut in pay for all employees. Starting with a reduction in his own salary by 20%, followed by senior executives who would take a drop between ten and fifteen percent, regular employees 5 percent and exempt employees 2.5 percent. All this in reaction to a 13.5 percent fall in the company’s first quarter profit.

Now, before I’m accused of making disparaging comments about HP let me just state that I have no issue with HP products and services which are top notch, largely due to the quality of HP people (their most valuable asset). This post is my opinion only, and one I’m entitled to.

Let’s look at this in a little more detail. On face value it would seem that Mark Hurd’s decision was an expedient one and he’s backed it up with the kind of corporate eloquence (read smoke and mirrors) that we’ve become used to from him, it’s anything but that, to me it smacks of opportunism, pandering to investors and market analysts, and cold hard manipulation at a time when we need CEO’s to have the courage to do the exact opposite, and, when we are demanding as much social accountability for their action as they have to investors and Wall Street (now a dirty word) for profit.

Since when has making 1.9 Billion dollars nett profit in a little over 12 weeks been a legitimate excuse to cut the salaries of hundreds of thousands of people world wide? I would suggest never in a million years, Mark Hurd has revealed his true colors with this one.

First we need to put Mark Hurd’s 20% salary cut into perspective, remember he is only taking a cut to his base salary ($1,450,000) which amounts to a $290,000 drop. Seems quite reasonable until you examine the following, publicly available, information.

  • Mark Hurd’s total compensation in 2008 was $42,514,524
  • His compensation in fiscal year 2007 was $25,253,461 – so, by my calculations a 68% increase in the total package from 2007 to 2008.
  • He also exercised $10 million worth of stock options and had $15.7 million worth of HP stock vest during the 2008 period
  • His compensation package includes approximately $738,000 worth of additional compensation;
  • Personal and home security – $256,000
  • Personal use of HP’s corporate jet – $135,734 (you have to love that don’t you?)
  • $71,000 in mortgage subsidy he is guaranteed for relocation expenses under his employment agreement.

So, the question is; what’s the significance of his stated 20% cut in base salary? I would suggest next to nothing.

You would have to assume that this situation is not much different for the senior executives who are taking smaller cuts

  • Ann M. Livermore, Executive Vice President, Technology Solutions Group. Total compensation of $15,675,274 in 2007, $20,551,493 in 2008, a 31% increase in total compensation. For her a 15% cut in base pay ($820,000) would be $123,000 or 0.59 % of her total package.
  • R. Todd Bradley, Executive Vice President, Personal Systems Group. Total Compensation of $7,674,083 in 2007, $21,058,092 in 2008, a 174% increase in total compensation. For him a 15% cut in base pay ($820,000) would be $123,000 or 0.58% of his total package.
  • Vyomesh I. Joshi, Executive Vice President, Imaging and Printing Group. Total compensation of $12,032,204 in 2007, $21,804,726 in 2008, an 81% increase in total compensation. For him a 15% cut in base pay ($820,000) would be $123,000 or 0.56% of his total package
  • Randall D. Mott, Executive Vice President and Chief Information Officer. Total compensation of $7,390,948 in 2007, $28,293,134 in 2008, a 282% increase in total compensation. For him a 15% cut in base pay ($690,000) would be $103,500 or 0.36% of his total package.
  • Catherine A. Lesjak, Executive Vice President and Chief Financial Officer. total compensation of $3,741,201 in 2007, $5,552,356 in 2008, a 48% increase in total compensation. Fo her a 15% cut in base pay ($625,000) would be $93,750 or 1.68% of her total package.

Put bluntly, 6 people at the top of the HP pyramid accounted for $142,774,325 in compensation in 2008 alone. That is an obscene amount of money.

To be fair, and before we contrast this with the HP employee, we have to acknowledge that HP has, under Mark Hurd’s leadership and at least fiscally, performed very well. In his three years on the job sales have increased by $30 billion and profits have tripled. 2008 was a stellar year for the company. HP is now the world’s biggest computer manufacturer. But, at what cost?

Let’s look at the plight of the HP employee. The first thing we have to consider is that, unlike Mark Hurd, a 5% cut in salary is in fact a 5% cut in total compensation. Someone on a salary of $65,000 would be losing $3250 per year before tax, or $270.00 per month. Some would say this is a small price to pay for keeping your job but I think holding that gun to an employee’s head is outright exploitation and can not be condoned, especially when they have already been exploited enough for the sake of high profit margins and Mark Hurd’s stellar career performance. Ask a majority of HP employees about their current remuneration and you will be lifting a rock that you don’t want to look under, specifically;

  • Employees have seen the real value of their salaries diminishing with the rising cost of living since Mark Hurd came on board and even under his predecessor. There are no automatic adjustments for cost of living in HP’s yearly remuneration review (even though the smoke and mirrors will be employed amazingly to suggest HP is paying market competitive salaries).
  • With few exceptions most HP employees have not had a pay rise, or anything other than a measly token gesture, in the past three years despite their workload, and the company profit, increasing significantly.
  • HP Employees who are promoted into new roles with higher accountability, more work and more stress do not receive an immediate remuneration increase in line with the new position. Instead they have to wait for the yearly review which more often than not sees them bitterly disappointed. If you are employed into a new role in February you will wait until the end of the year for your remuneration review, the company will exploit you for nine months at least prior to that and then your remuneration will be determined by a simple algorithm on a spreadsheet that coldly spits out a figure you will definitely be unhappy with.
  • The much touted company performance bonus has the bar set just high enough that it’s only had two significant payouts in more than 5 years. It never makes up for the HP employee’s loss in real wages.

Am I the only one who thinks it’s time for this to stop? Aren’t the employees the public face of the company, the ones who deliver the services, the ingenious inventors and developers?

In his address to the company Mark Hurd said;

In an environment like this, there’s no margin for error and no tolerance for inaction. To give you a little insight into my world, after we report our earnings, we engage in a dialogue with analysts and investors. They’re going to ask what we’re doing in light of the current environment to right-size these businesses.

Well Mark Hurd, we’ve already had an insight into your $42 million dollar per anum, private use of the corporate jet, overpaid to a vulgar extreme world and frankly, something smells funny. In case you hadn’t noticed it the whole world is in recession. Governments all over the globe, and especially yours, are going into massive deficit to try and kick start their economies and preserve jobs. They are providing handouts of cash to stimulate spending and help us climb the ladder out of recession, the problem is people like you, and your MBA textbook approach to an “environment like this” (one I bet you’ve never seen), your totally myopic view that it’s all about analysts and investors, are simultaneously lowering the ladder down from the top. I’d suggest that there’s no longer any tolerance for the type of action you are taking.

The way I see it you have two possible answers to the question about right-sizing the business.

  1. The courageous option, the one that takes guts. You stand up and tell the investors “you know what, we’ve had an amazing period of growth, we’ve reaped billions of dollars profit out of the economy over the past few years, we’ve delivered a strong performance to our shareholders, and we’ve become the biggest computer company on the planet, but now it’s time to show some respect, to our employees, the lifeblood of the company, and the society’s around the world, who have allowed us the privilege to operate and become the company we are. To ensure that no HP employee finds his, or her, way on to the unemployment lines, has their home foreclosed, or has their capacity to contribute to the economy diminished in any way, as a result of company action, until such time as the economic cycle turns for the better. We know we can afford it (hell, we just made 1.9 billion profit in 12 weeks), it will just mean lowering our profit expectations for a short time.”
  2. The cowardly option, the one that puts you squarely at the bottom with the worst of the worst, your snout in the trough, and your pants down around your ankles. You cut headcount and reduce salaries.

Mr Hurd also said in his address;

I’ll be asked by investors, “Where’s the job action, where are you taking out this roughly, 20,000 positions?” Well, I don’t want to do that.

We’ll of course not, since you’ve come on board you’ve taken over 40,000 people out of the HP workforce already (and I’m sure that doesn’t account for the thousands of jobs you moved offshore, or the thousands of long term contractors you’ve shafted), you’re still right in the middle of taking 24,600 of those positions out from the EDS merger you started in September 2008. The HP workforce reduction machine rolls on, you probably don’t even have another 20,000 you can drop right now. More smoke and mirrors.

I’m willing to bet though that, 12 weeks from now, when the recession that will get worse before it gets better is biting harder into your massive profits (and your bonus), you’ll be marching those people out the door.

I wouldn’t be worried about questions about headcount from analysts and investors if I was you, I’d be more concerned about the astute investor who asks you “what are you going to do when your employees stand up and say enough is enough?” People power has toppled Governments, a disgruntled employee base has the potential to bring HP to it’s knees in days, surely that time bomb’s ticking.

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