Excessive executive pay lands on front burner again

SAN FRANCISCO — Hewlett-Packard and the New York Stock Exchange both faced criticism Tuesday for big payouts to former chairmen — invigorating concerns over excessive executive compensation.

• In California, computer giant HP was sued by a shareholder group headed by the Service Employees International Union, which sponsors several pension funds. The group says HP shareholders should have gotten to vote on a $42 million severance package given to former chairman and CEO Carly Fiorina when she was ousted by the board last year.

Under HP's governance policies, shareholders get to vote on severance payments larger than 2.99 times the executive's salary and bonus. Fiorina's severance was technically less than that, so there was no vote. But she also received pension benefits and other payments as part of her package. "The company violated its own policy and the expressed wishes of its shareholders when it gave its outgoing CEO one last big payday," said Steve Abrecht, an executive director at SEIU.

HP said the lawsuit has no merit. But pay expert Frank Glassner, CEO of the Compensation Design Group, points out that Fiorina's generous package "certainly raised some eyebrows in Silicon Valley."

• In New York, former NYSE chairman Richard Grasso gave a deposition in a lawsuit over his nine-year, $193 million pay package.

New York Attorney General Eliot Spitzer filed the lawsuit in 2004, saying Grasso's lucrative deal violated New York's non-profit law. (The NYSE was a non-profit when Grasso headed it. Today, it will begin trading as a public company.)

Spitzer wants Grasso, who was ousted in 2003 amid concerns over his pay, to give some of the money back. The trial is expected to begin Oct. 30.

Compensation experts say the two cases are part of growing shareholder interest in executive pay. "In the past four years, there's been a definite increase in shareholder activism," says Paul Hodgson, senior research associate at The Corporate Library, a research firm. That's because executive pay grew while profits dropped after the dot-com bust, he says.

Also drawing attention: rich compensation packages for very-short-term CEOs, says James McElligott, a partner at law firm McGuireWoods.

Some shareholder protests have been successful. Software maker Siebel Systems changed the way it disclosed executive stock-option grants and canceled some grants to its CEO after being sued in 2002. (Siebel has since been acquired by rival Oracle.)

But others have failed. Last year, a group of Disney shareholders lost a key court case over the hiring and firing of former president Michael Ovitz. He held the job for only 14 months but got a $130 million severance package.

Glassner says many executives deserve high pay for a difficult job. Still, Hodgson expects oversight to increase — especially if the Securities and Exchange Commission adopts a pending proposal that could make compensation packages easier to understand.

Contributing: Reuters, The Associated Press