On Tuesday, two shareholders sued Hewlett-Packard (HP), alleging that the company violated its policy on executive compensation when it doled out some $21.4 million for former chief executive Carleton S. Fiorina’s severance package, The New York Times reports.
Fiorina was forced to resign in February 2005, after the company accused her of failing to boost its stock following a merger with Compaq.
The Indiana Electrical Workers union and the Service Employees International Union filed the suit in San Francisco’s Federal District Court, and it marks the most recent demonstration of shareholders attempting to put a cap on executive pay, according to The Times.
The lawsuit says HP violated company policy when it paid Fiorina more than a shareholder-approved limit restricting severance to 2.99 times the executive’s base pay, plus a bonus, The Times reports.
The groups want Fiorina to repay the money she was given, according to The Times.
HP believes the suit is groundless, but didn’t provide further comment, The Times reports, and a Fiorina spokesperson did not comment because they hadn’t reviewed the suit.
Gary Lutin, an investment banker with New York-based Lutin & Co., told The Times that the suit is a sign that owners of public companies are paying increased attention to executive compensation.
“The lawsuit indicates a growing sense of shareholder responsibility for controlling the diversion of corporate assets by the property managers, especially by the ones who failed,” Lutin told The Times.
The suit says Fiorina’s package of $21.4 million was nearly four times her $5.6 million annual salary and bonus, according to The Times. It also alleges that when all Fiorina’s stocks, options and pension funds are accounted for, that sum could be closer to $42 million, nearly double her base severance pay, The Times reports.
At the heart of the case is the definition of the bonus that Fiorina received under a “long term performance cash program,” meant to compensate executives for attaining specific financial targets, according to The Times. That program allegedly specified that executives who were fired would not receive additional compensation under it, which Fiorina did, The Times reports, but the suit says HP secretly changed that after her ouster.
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