Introduction

This Compensation Discussion and Analysis describes our executive compensation philosophy and programs, the compensation decisions the HRC Committee has made under those programs, and the considerations in making those decisions.

Named Executive Officers

Our NEOs for fiscal 2016, are as follows:

  • Dion J. Weisler, President and CEO;
  • Catherine A. Lesjak, Chief Financial Officer;
  • Kim M. Rivera, Chief Legal Officer and General Counsel;
  • Tracy S. Keogh, Chief Human Resources Officer; and
  • Jon E. Flaxman, Chief Operating Officer.

Executive Summary

Fiscal 2016 was the first full year for HP as a standalone organization, which was created as the successor company when HPE was separated from Hewlett-Packard Company in November 2015. The separation resulted in two ongoing entities, HP and HPE, each ranked among the 100-largest US companies in revenues.

This Compensation Discussion and Analysis provides details on HP's executive compensation program structure, policies, and practices as related to NEOs during the fiscal 2016 "start-up" year. HP's HRC Committee oversees the program and highlights the following four major aspects of the program for readers of the Compensation Discussion and Analysis:

First, HP's regular ongoing target compensation opportunities are reasonable versus peers with a strong emphasis on performance-contingent pay.

Amounts shown in the Summary Compensation Table on page 47 include all cash, equity, and other reportable compensation value for NEOs that are attributable to fiscal 2016. For HP, these amounts include two significant items that are unique to the Company's initial year of operations and are not part of regular ongoing compensation:

  • First, due to the extraordinary circumstances of the company, one-time "Launch Grants" were awarded at the successful completion of the separation. These one-time performance-based awards were made to selected NEOs for retention, ownership and incentive over the critical new-company formation period. The Launch Grants are discussed in detail on page 42.
  • Second, the incremental accounting value in connection with the modification and adjustment of stock-based awards outstanding at the time of the separation. The adjustments were made with the additional intention of preserving the intrinsic value of the awards prior to the separation.

The following table shows reported compensation for the CEO and other NEOs on average, breaking-out these two non-recurring components. Based on extensive review of peer-group data, the HRC Committee concluded that the regular ongoing cash and equity compensation structure is within a competitive range of the market median for our NEOs, with individual differences related to incumbent-specific performance and additional relevant considerations explained more fully in the subsequent narrative:

  CEO
($)
Avg. Other NEOs
($)
Summary Compensation Table Reported Total $28,696,267 $8,355,437
Less: One-Time Launch Grants $13,213,435 $2,007,425
Less: The accounting-related value due to adjustments of stock-based compensation awards in connection with separation $541,630 $230,386
Equals Regular Earned Cash, Equity and Other $14,941,202 $6,117,625
Second, special "Launch Grants" are equity and performance related, and effectively serve a unique one-time purpose for the new Company.

As previously mentioned, the HRC Committee's rationale for making the Launch Grants combined objectives related to performance focus, stockholder alignment, ownership, and talent retention, which are discussed in further detail on page 42. To balance these objectives, half of the Launch Grants are comprised of Performance Contingent Stock Options ("PCSOs") that will be forfeited if certain stock price targets are not met within specified time periods. The remaining half is in time-based RSUs. The Launch Grants vest ratably over three years (contingent on achievement of performance conditions for the PCSOs) and require continued employment at each vesting.

For the PCSOs, real pay delivery from the grants is intended to align with future stockholder value creation. Subject to continued employment, vesting of the PCSOs in one-third installments is contingent on our stock price increasing (for 20 consecutive trading days) 10% within two years after the grant date, 20% within four years after the grant date and 30% within five years after the grant date. Any portion not earned at the end of the performance period is forfeited, and cannot subsequently be re-earned by cumulative price growth over the longer periods. As illustrated below for grants made to NEOs during fiscal 2016, none of the price hurdles had been achieved as of fiscal year-end and there was no earned or realizable compensation as of that time:

  Price Hurdle Growth from $13.83 Grant Price Forfeited if Not Achieved Within Status at End of Fiscal 2016
Tranche 1 $15.21 10% 2 years Unearned
Tranche 2 $16.60 20% 4 years Unearned
Tranche 3 $17.98 30% 5 years Unearned
Third, fiscal 2016 compensation decisions related to the NEOs reflect the market and align with performance.

In addition to making the Launch Grants at the outset of the year as described above, the HRC Committee made three primary compensation decisions regarding NEOs during fiscal 2016, which are summarized below along with the HRC Committee's rationale:

Fiscal 2016 NEO Pay Action HRC Committee Decision HRC Committee Rationale
Adjust base salaries Due to the separation, there was extensive personnel restructuring, including a number of promotions. Salary changes ranged from -14% to 45%, with the CEO at 45% due to his promotion into his current leadership role. Reflect peer group market positioning, individual experience, performance, advancement potential, and internal equity.
Determine earned annual bonuses for fiscal 2016 performance Annual bonuses for fiscal 2016 were earned, ranging from 94.7% to 100% of target, with the CEO at 95.9% of target and the average for other NEOs at 96.3%. At the beginning of the year, target awards were set at competitive levels versus peers. Earned awards reflected performance against applicable enterprise-wide, business, and individual goals. Goals were set for the overall Company and businesses against internal budgets for revenues, net earnings/profits, and free cash flow. Non-financial individual performance goals under the Management by Objective program ("MBOs") were set for individuals. While the company did deliver on external EPS targets, overall performance fell short of target for revenues and net earnings, and exceeded target for free cash flow and MBOs. As a gauge of goal-setting rigor, HP's initial year TSR of 11.1% was more than double the S&P 500 return of 4.9%.
Make regular long-term incentive grants Fiscal 2016 long-term incentives were granted in an approximate mix of 60% PARSUs and 40% time-based RSUs. Grant values were set at competitive levels versus peers with appropriate incumbent-specific variability for performance, experience, and internal equity. Grants for Ms. Lesjak and Ms. Keogh were reduced while grants for Mr. Weisler and Mr. Flaxman were increased vs. fiscal 2015 grants to better align with market data for the new company. PARSUs continued to be based on equally weighted two- and three-year goals for return on invested capital ("ROIC") and relative TSR compared to the S&P 500. The intent was to align pay delivery with stockholder returns. RSUs were time-based in annual installments over three years to reward and reinforce ownership and support retention.
Fourth, the HRC Committee continues to review the overall executive compensation program to maintain support of HP's evolving business strategy without potential material risk to the organization.

Much of HP's 2016 program structure was continued from the pre-separation HP, where there was 95.3% approval of the say-on-pay proposal for 2015. Meanwhile, the HRC Committee continually considers feedback from stockholders and the potential executive-compensation implications of evolving business and strategic objectives. These considerations led to the following refinements for fiscal 2017:

  • In annual incentives, there will be an increased focus on enterprise-wide revenues and net income for teamwork among business leaders.
  • For PARSUs, the ROIC measure will be replaced by Earnings Per Share ("EPS") for improved stockholder alignment. This change is discussed in further detail on page 43 "Fiscal 2017 Compensation Program."

Oversight and Authority over Executive Compensation

Role of the HRC Committee and its Advisors

The HRC Committee oversees and provides strategic direction to management regarding all aspects of our pay program for senior executives. It makes recommendations regarding the CEO's compensation to the independent members of the Board for approval, and it reviews and approves the compensation of the remaining Section 16 officers, including our NEOs. Each HRC Committee member is an independent non-employee director with significant experience in executive compensation matters.

During fiscal 2016, the HRC Committee engaged Frederick W. Cook and Co. ("FW Cook") as its independent compensation consultant beginning in January 2016. In addition, during fiscal 2016, the HRC Committee continued to retain Dentons US LLP ("Dentons") as its independent legal counsel. FW Cook provides analyses and recommendations that inform the HRC Committee's decisions, evaluates market pay data and competitive-position benchmarking, provides analysis and input on performance measures and goals, provides analysis and input on program structure, provides updates on market trends and the regulatory environment as it relates to executive compensation, reviews various management proposals presented to the HRC Committee related to executive compensation, and works with the HRC Committee to validate and strengthen the pay-for-performance relationship and alignment with stockholders. Prior to fiscal 2016, the HRC Committee engaged Farient Advisors LLC ("Farient") as its independent compensation consultant. Although Farient did not provide any recommendations during fiscal 2016, it did provide guidance on the fiscal 2016 peer group and compensation decisions. Pursuant to SEC rules the HRC Committee has assessed the independence of FW Cook, Farient and Dentons, and concluded each is independent and that no conflict of interest exists that would prevent FW Cook, Farient or Dentons from independently providing service to the HRC Committee. FW Cook, Farient and Dentons do not currently perform other services for HP Inc., and none will do so without the prior consent of the HRC Committee chair. FW Cook meets with the HRC Committee chair and the HRC Committee outside the presence of management while in executive session.

The HRC Committee met five times in fiscal 2016, and all five of these meetings included an executive session. FW Cook participated in most of the meetings and, when requested by the HRC Committee chair, in the preparatory meetings and the executive sessions.

Role of Management and the CEO in Setting Executive Compensation

On an annual basis, management considers market competitiveness, business results, experience and individual performance in evaluating NEO compensation and our compensation structure. The Chief Human Resources Officer and other members of our human resources organization, together with members of our finance and legal organizations, work with the CEO to design and develop the compensation program, to recommend changes to existing program provisions applicable to NEOs and other senior executives, as well as financial and other targets to be achieved under those programs, prepare analyses of financial data, peer comparisons and other briefing materials to assist the HRC Committee in making its decisions, and implement the decisions of the HRC Committee. During fiscal 2016, management continued to engage Meridian Compensation Partners, LLC ("Meridian") as its compensation consultant. The HRC Committee took into consideration that Meridian provided executive compensation-related services to management when it evaluated any information and analyses provided by Meridian, all of which were also independently reviewed by FW Cook, as applicable, on the HRC Committee's behalf.

During fiscal 2016, Mr. Weisler provided input to the HRC Committee regarding performance metrics and the setting of appropriate performance targets. Mr. Weisler also recommended MBOs for the NEOs (other than himself) and the other senior executives who report directly to him. Mr. Weisler is subject to the same financial performance goals as the executives who lead global functions and Mr. Weisler's MBOs and compensation are established by the HRC Committee and recommended to the independent members of the Board for approval.

Use of Comparative Compensation Data and Compensation Philosophy

Each year, the HRC Committee reviews the compensation levels and structure of our Section 16 officers and compares it to that of executives in similar positions at our peer group companies. Our peer group includes companies we compete with for executive talent due to our geographical proximity and technology industry overlap. The HRC Committee takes any notable size differentiations into consideration when reviewing the results of market data analysis. The HRC Committee finds this information useful in evaluating whether our pay practices are reasonable versus market practice and appropriate to support our strategic objectives. The HRC Committee continues to employ this method post-separation, but has made significant changes to its peer group to account for the separation of HPE and HP Inc.

The process for fiscal 2016 started with the proposal of a peer group by Farient, which was reviewed by HP. When determining the peer group, Farient and HP considered the following characteristics:

  • Companies that are U.S.-based, listed on a major U.S. exchange, and with executives primarily living in the U.S.
  • Companies in the information technology industry sector, as well as non-technology peers in industrial, consumer discretionary, consumer staples and telecommunications services
  • Companies with revenue between $12 billion and $200 billion for the most recent fiscal year-end
  • Companies with international revenue greater than or equal to 40% of total revenue
  • Companies with comparable organizational complexity (i.e., at least two operating segments and products and services components)
  • Companies with R&D greater than or equal to 2.5% of total revenue
  • Companies with primarily B2B, or business-to-business, focus

We believe the resulting peer group provides HP and the HRC Committee with a valid comparison and benchmark for the Company's executive compensation program and governance practices. There were many changes to the peer group for fiscal 2016 once the screening process was applied to the newly separated HP Inc., which was to be expected due to the significant changes to HP Inc. in connection with the separation. The following companies were removed: Accenture, AT&T Inc., The Boeing Company, Caterpillar, Chevron Corporation, Ford Motor Company, Johnson & Johnson and United Technologies Corporation. The following companies were added: Amazon.com, Inc., Honeywell International, Inc., Nike, Inc., Seagate Technology PLC, Texas Instruments Inc., Western Digital Corporation, and Xerox Corporation.

The peer group for fiscal 2016 consisted of the following companies:

Company Name   Revenue ($ in billions)*
Apple Inc. 215.6
Verizon Communications Inc. 131.6
General Electric Company 117.4
Amazon.com, Inc. 107.0
Microsoft Corporation 85.3
International Business Machines Corporation 81.7
Alphabet Inc. 75.0
The Procter & Gamble Company 65.3
PepsiCo, Inc. 63.1
Intel Corporation 55.4
Cisco Systems, Inc. 49.2
HP Inc. 48.2
Honeywell International, Inc. 38.6
Oracle Corporation 37.0
Nike, Inc. 32.4
Qualcomm 23.6
EMC Corporation 24.7
Xerox Corporation 18.0
Western Digital Corporation 13.0
Seagate Technology PLC 11.2
Texas Instruments Inc. 13.0

* Represents fiscal 2015 reported revenue, except fiscal 2016 reported revenue is provided for Apple, HP, Microsoft, Procter & Gamble, Cisco Systems, Oracle, Nike, Qualcomm, Western Digital and Seagate.

Process for Setting and Awarding Executive Compensation

A broad range of facts and circumstances is considered in setting our overall executive compensation levels. In fiscal 2016 the HRC Committee continued to set target compensation levels within a competitive level of the market median, although in some cases lower or higher based on each executive's situation (e.g., attraction and retention purposes). The Board maintains a total CEO target compensation package that approximates the competitive median of our market and is consistent with our pay positioning strategy and pay for performance philosophy.

Among the factors considered for our executives generally, and for the NEOs in particular, are market competitiveness, internal equity and individual performance. The weight given to each factor may differ from year to year, is not formulaic and may differ among individual NEOs in any given year. For example, when we recruit externally, market competitiveness, experience and the candidate-specific circumstances may weigh more heavily in the compensation analysis. In contrast, when determining year-over- year compensation for current NEOs, internal equity and individual performance may factor more heavily in the analysis. Length of service and prior awards generally are not considered.

Because such a large percentage of NEO pay is performance- based, the HRC Committee spends significant time determining the appropriate goals for our annual- and long-term incentive plans. In general, management makes an initial recommendation of the goals, which is then assessed by the HRC Committee's independent compensation advisor, and discussed and approved by the HRC Committee. Major factors considered in setting financial goals for each fiscal year are business results from the most recently completed fiscal year, budgets and strategic plans, macroeconomic factors, guidance and analyst expectations, competitive performance results and goals, conditions or goals specific to a particular business segment and strategic initiatives. To permit eligible compensation to qualify as "performance-based" under Section 162(m) of the U.S. tax code, the HRC Committee sets the overall funding target under the "umbrella" structure created for the annual incentives, and sets performance goals for annual incentives and equity awards within the first 90 days of the fiscal year. MBOs are set based on major shared and individual strategic, operating and tactical initiatives.

Following the close of the fiscal year, the HRC Committee reviews actual financial results and MBO performance against the goals that it had set for the applicable plans for that year, with payouts under the plans determined by reference to performance against the established goals. The HRC Committee meets in executive session to review the MBO results for the CEO and to determine a recommendation for his annual incentive award to be approved by the independent members of the Board. See section '2016 Annual Incentives' below for a further description of our results and corresponding incentive payouts.

In setting compensation for fiscal 2016, the HRC Committee took into consideration the new roles and responsibilities, as applicable, each NEO had taken or was expected to take on in connection with the separation, as discussed in further detail throughout this Compensation Discussion and Analysis.

Listening to our Stockholders on Compensation

We engage with our stockholders on a variety of issues on an ongoing basis, including discussing their views on best practices in executive compensation. Some recent changes to our executive compensation program, shown here, have reflected those conversations with stockholders. HP believes in aligning our compensation with our stockholders in order to deliver better value to all our stakeholders.

  • Reduction in cap within our Pay-for-Results ("PfR") plan to 200% of target
  • Simplification of long-term incentive program to include only two equity elements
  • The HRC Committee conducted full talent review of executives

Determination of Fiscal 2016 Executive Compensation

Under our Total Rewards Program, executive compensation consists of: base salary, annual incentives, long-term incentives, benefits and perquisites.

Fiscal 2016 Compensation Highlights

Prior to and following the separation, the HRC Committee regularly explored and continues to explore ways to improve our executive compensation program. In making changes for fiscal 2016, the HRC Committee considered our current business needs and strategy, and the impact of the separation. The objectives were to achieve a successful transition following the separation, support the business strategy, continue to align pay with stockholder interests, and maintain best-in-class governance standards. While many elements of the fiscal 2016 executive compensation program remained consistent with prior years, some changes were made that reflect strategy and market considerations, and take into account feedback from stockholders.

What we Did Rationale
Reduced the maximum payout under the PfR Plan from 250% of target to 200% of target To further support stockholder alignment and align with market practices, updated PfR Plan to reduce potential maximum payout.
Increased the portion of PARSUs to 60% of the total long-term incentive value (previously 40%) To simplify the long-term incentive program and further support stockholder alignment.
Increased the portion of RSUs to 40% from 30% and correspondingly discontinued the use of PCSOs To incorporate appropriate upside potential and risk/reward tradeoff and provide additional retention opportunities we changed allocation of long-term equity.

2016 Base Salary

Consistent with our philosophy of tying pay to performance, our executives receive a small percentage of their overall compensation in the form of base salary. The NEOs are paid an amount in the form of base salary sufficient to attract qualified executive talent and maintain a stable management team. The HRC Committee aims to have executive base salaries set at or near the market median for comparable positions and comprise 10% to 20% of the NEOs' overall compensation, which is consistent with the practice of our peer group companies. The HRC Committee typically establishes executive base salaries at the beginning of the fiscal year.

For fiscal 2016, Mr Weisler's salary was increased to $1.2 million, consistent with the median of our peer group. This increase reflects Mr. Weisler's promotion to CEO.

The HRC Committee did not change Ms. Lesjak's base salary. Ms. Keogh's base salary was reduced from $700,000 to $600,000 to better align with market data for the new Company. Mr. Flaxman's salary was increased from $535,000 to $700,000 due to an increase in responsibilities as Chief Operating Officer for the Company. Ms. Rivera's salary was set at $625,000 when she was hired as Chief Legal Officer and General Counsel.

2016 Annual Incentives

The NEOs are eligible to earn an annual incentive under the PfR Plan. For fiscal 2016 and purposes of 162(m) deductibility, the HRC Committee again established an "umbrella" formula governing the maximum bonus and then exercised negative discretion in setting actual bonuses. Under the umbrella formula, each Section 16 officer was allocated a pro rata share of 0.75% of net earnings based on his or her target annual incentive award, subject to a maximum bonus of 200% of the NEO's target bonus, and the maximum $10 million cap under the PfR Plan. Below this umbrella funding structure, actual payouts were determined based upon financial metrics and MBOs established and evaluated by the HRC Committee for Section 16 officers and by the independent members of the Board for the CEO.

After the end of the fiscal year, the actual funding for the umbrella pool was certified, and it exceeded the maximum potential bonus for the combined covered officers. The actual awards, based on financial metrics and MBOs, were then determined.

The fiscal 2016 annual incentive plan consisted of three core financial metrics (i.e., revenue, net earnings/profit, and free cash flow as a percentage of revenue) and a fourth metric, MBOs, with each metric weighted equally at 25% of the target award value. Each individual metric may fund up to 250% of target; however, the maximum annual incentive for each executive will be capped at 200% of target.

The target annual incentive awards for fiscal 2016 were set at 200% of salary for the CEO and 125% of salary for the other NEOs.

Fiscal 2016 Annual Incentive Plan

Key Design Elements Corporate Goals MBOs % Payout Metric(3)
(%)
Revenue(1)
($ in billions)
Net Earnings/Profit
($ in billions)
Free Cash Flow as a % of Revenue(2)
(%)
Weight 25% 25% 25% 25%  
Linkage          
Global Function Executives(4) Corporate Corporate Corporate Individual  
Corporate Performance Goals          
Maximum N/A Various 250
Target $52.5 $3.1 5.2% Various 100
Threshold Various 0

(1) For revenue above target, weight is moved to net earnings/profit if net earnings/profit is also above target; otherwise, it is capped at target.

(2) Maximum funding for corporate free cash flow as a percentage of revenue is capped at 150% of target if corporate net earnings/profit achievement was below target and is capped at 100% of target if corporate net earnings/profit achievement was below threshold. If corporate net earnings/profit achievement was above target, the maximum funding level is 250% for this metric.

(3) Interpolate for performance between discrete points. Maximum payout is equal to 200% of target.

(4) All NEOs are Global Function Executives. As such, we have not included information regarding business unit goals.

The specific metrics, their linkage to corporate results, and the weighting that was placed on each were chosen because the HRC Committee believed that:

  • performance against these metrics, in combination, would link to enhanced value for stockholders, capturing both the top and bottom line, as well as cash and capital efficiency;
  • requiring both revenue and profitability above target in order to achieve an above-target payout on these two measures would encourage the pursuit of profitable revenue;
  • a balanced weighting and various caps would limit the likelihood of rewarding executives for excessive risk-taking;
  • different measures would avoid paying for the same performance twice; and
  • MBOs would enhance focus on business objectives, such as operational objectives, strategic initiatives, succession planning, and people development, which will be important to the long-term success of the Company.

The definition of and rationale for each of the financial performance metrics that was used is described in greater detail below:

Fiscal 2016 PfR

Financial Performance Metrics(1) Definition Rationale for Metric
Corporate Revenue Net revenue as reported in our Annual Report on Form 10-K for fiscal 2016 Reflects top line financial performance, which is a strong indicator of our long-term ability to drive stockholder value
Business Revenue Segment net revenue as reported in our Annual Report on Form 10-K for fiscal 2016
Corporate Net Earnings Non-GAAP net earnings, as defined and reported in
our fourth quarter fiscal 2016 earnings press release,
excluding bonus net of income tax(2)
Reflects bottom line financial performance, which is directly tied to stockholder value on a short-term basis
Business Net Profit ("BNP") Business net profit, excluding bonus net of income tax
Corporate Free Cash Flow Cash flow from operations less net capital expenditures (gross purchases less retirements) divided by net revenue (expressed as a percentage of revenue) Reflects efficiency of cash management practices, including working capital and
capital expenditures

(1) While we report our financial results in accordance with generally accepted accounting principles ("GAAP"), our financial performance targets and results under our incentive plans are sometimes based on non-GAAP financial measures. The financial results, whether GAAP or non-GAAP, may be further adjusted as permitted by those plans and approved by the HRC Committee. We review GAAP to non-GAAP adjustments and any other adjustments with the HRC Committee to ensure performance takes into account the way the goals were set and executive accountability for performance. These metrics and the related performance targets are relevant only to our executive compensation program and should not be used or applied in other contexts.

(2) Fiscal year 2016 non-GAAP net earnings of $2.8 billion excludes after-tax costs of $0.16 billion related to the amortization of intangible assets, restructuring charges, and acquisition-related charges. Management uses non-GAAP net earnings to evaluate and forecast our performance before gains, losses, or other charges that are considered by management to be outside of our core business segment operating results. We believe that presenting non-GAAP net earnings provides investors with greater visibility with respect to the information used by management in its financial and operational decision making. We further believe that providing this additional non-GAAP information helps investors understand our operating performance and evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance. This additional non-GAAP information is not intended to be considered in isolation or as a substitute for GAAP diluted net earnings.

Following fiscal 2016, the HRC Committee reviewed performance against the financial metrics and certified the results as follows:

Fiscal 2016 PfR Plan Performance Against Financial Metrics(1)

Metric Weight(3) Target
($ in billions)
Result
($ in billions)
Percentage of Target Annual Incentive Funded
Corporate Revenue 25.0% $52.5 $48.2 0.0%
Corporate Net Earnings 25.0% $3.1 $3.0 17.7%
Corporate Free Cash Flow (% of revenue)(2) 25.0% 5.2% 6.6% 37.5%
Total 75.0% 55.2%
Adjusted Total 75.0% 38.4%

(1) Mr. Weisler, Ms. Lesjak, Ms. Rivera, Ms. Keogh, and Mr. Flaxman received PfR Plan payments based on corporate financial metrics. As a general guideline, financial funding for Global Functions Executives cannot exceed the highest funding for a Business Group Executive. Financial funding for Global Function Executives (i.e., all our NEOs) has been adjusted downward from 55.2% to 38.4% since it exceeds the highest Business Group Executive.

(2) In fiscal 2016, management reinvested the gains from software divestitures, which negatively impacted fiscal 2016 free cash flow. The HRC Committee approved an upward adjustment to the fiscal 2016 FCF performance results because the Company believes the reinvestment was in the best longterm interests of our stockholders and our preference to encourage management to continue to make the right business decisions without negatively impacting their payout. The percentage of target annual incentive funded was the same before and after the adjustment.

(3) The financial metrics were equally weighted to account for 75% of the target annual incentive.

With respect to performance against the MBOs, the independent members of the Board evaluated the CEO's performance at fiscal year-end. The evaluation included an analysis of Mr. Weisler's performance against all of his MBOs, which included, but were not limited to: successfully launch HP Inc., deliver against 2016 financials, with an effective currency hedging strategy and focus on cash flow, support the turnaround of the print business, drive continued progress in the personal systems business unit, invest in a robust innovation pipeline, ensure the Company is optimally managed, continue to make progress in 3D product release and ensure we have a people and labor strategy that reflects current and future needs. After conducting a thorough review of Mr. Weisler's performance, the independent members of the HP Board determined that Mr. Weisler did an extraordinary job in launching the new company and that his MBO performance had been achieved substantially above target. Mr. Weisler's accomplishments included:

  • Delivered EPS and Free Cash Flow within the consensus range for the year
  • Successfully launched the A3 portfolio, one of the key growth areas in printing
  • Delivered a year of share growth in commercial personal systems and in key areas such as gaming and premium with a strong product portfolio that included award-winning devices such as the Spectre13, EliteBook Folio, X3 and Omen
  • Completed Samsung commercial agreement (integration is underway to add Samsung's A3 offerings to our print portfolio)
  • Achieved substantial cost reductions
  • Executed a robust plan to engage with channel partners and customers
  • Articulated and delivered on the HP strategy. Rolled out "Keep Reinventing", our highly acclaimed mission, vision and brand
  • Worked with the Board chair, Lead Independent Director and HR to recruit the most diverse board in the technology industry
  • Recruited and assembled a diverse team of highly capable leaders at the executive leadership team level

As CEO, Mr. Weisler evaluated the performance of each of the other Section 16 officers and presented the results of those evaluations to the HRC Committee at its November 2016 meeting. The evaluations included an analysis of the officers' performance against all of their MBOs. The HRC Committee reviewed in the CEO's assessment of the degree of attainment of the MBOs of the other Section 16 officers and set their MBO scores. The results of these evaluations and selected MBOs for the other NEOs are summarized below.


Ms. Lesjak. The HRC Committee determined that Ms. Lesjak's MBOs performance had been achieved above target. Ms. Lesjak is a highly experienced leader who was vital in setting up the Company for success. Ms. Lesjak worked on critical projects such as the finance organization redesign, Samsung printing business acquisition, and cash flow management. Her knowledge of the business and vast experience with investors, analysts and boards was critical to the successful launch of the Company.

Ms. Rivera. The HRC Committee determined that Ms. Rivera's MBOs performance had been achieved at target. She led all legal and intellectual property aspects during the Samsung acquisition and acted as a driver to close the deal. She helped design and implement an updated enterprise intellectual property strategy. She supported the Board, helped integrate all the new members and ensured the right governance and cadence was implemented.

Ms. Keogh. The HRC Committee determined that Ms. Keogh's MBO performance had been achieved above target. She redesigned key people processes across the organization that aligned with the new Company, launched a new employee engagement survey, implemented our new culture focus and reworked our performance management and compensation systems. She drove a robust talent agenda across the company, focusing on succession planning, development and talent acquisition.

Mr. Flaxman. The HRC Committee determined that Mr. Flaxman's MBO performance had been achieved above target. He was critical in getting the Company up and running. He successfully managed customer support, sales operations, IT, real estate and strategy. Further, he delivered significant cost reductions across the Company while driving internal efficiencies within his organization.

Based on the findings of these performance evaluations, the HRC Committee (and, in the case of the CEO, the independent members of the Board) evaluated performance against the non-financial metrics for the NEOs as follows:

Fiscal 2016 PfR Plan Performance Against Non-Financial Metrics (MBOs)

Named Executive Officer Weight
(%)
Percentage of Target Annual Incentive Funded
(%)
Dion J. Weisler 25 57.5
Catherine A. Lesjak 25 56.3
Kim M. Rivera 25 25.0
Tracy S. Keogh 25 56.3
Jon E. Flaxman 25 57.5

Based on the level of performance described above on both the financial and non-financial metrics for fiscal 2016, the payouts to the NEOs under the PfR Plan were as follows:

Fiscal 2016 PfR Plan Annual Incentive Payout

Named Executive Officer Percentage of Target Annual Incentive Funded Total Annual Incentive Payout
Financial Metrics
(%)
Non-Financial Metrics
(%)
As % of Target Annual Incentive
(%)
Payout
($)
Dion J. Weisler 38.4% 57.5% 95.9% 2,302,585
Catherine A. Lesjak 38.4% 56.3% 94.7% 1,006,092
Kim M. Rivera* 38.4% 25.0% 100.0% 781,250
Tracy S. Keogh 38.4% 56.3% 94.7% 710,182
Jon E. Flaxman 38.4% 57.5% 95.9% 839,484

* Fiscal 2016 bonus payout for Ms. Rivera was guaranteed to be no less than 100% of target as a condition of her employment letter with the company and as a transition from a former employer. This was a one-time guaranteed bonus due to her status as a newly hired executive.

Long-Term Incentive Compensation

The HRC Committee established a total long-term incentive target value for each NEO in early fiscal 2016 that was 60% weighted in the form of PARSUs and 40% weighted in the form of time-based RSUs. The high proportion of performance-based awards reflects our pay-for-performance philosophy. The time-based awards encourage retention, and are linked to stockholder value and ownership, which are also important goals of our executive compensation program.

2016 PARSUs

The fiscal 2016-2018 PARSUs have a two- and three-year performance period that began at the start of fiscal 2016 and continue through the end of fiscal 2017 and 2018, respectively. Under this program, 50% of the PARSUs (including dividend equivalent units) are eligible for vesting based on performance over two years with continued service, and 50% are eligible for vesting based on performance over three years with continued service. The two- and three-year awards are equally weighted between relative TSR and ROIC. This structure is depicted in the chart below:

2016-2018 PARSUs
Key Design Elements ROIC vs. Internal Goals Relative TSR vs. S&P 500 Payout
Weight 25% 25% 25% 25% % of Target(2)
Performance/Vesting Periods(1) 2 years 3 years 2 years 3 years
Performance Levels:
Max Target to be disclosed after the end of the performance periods only, out of concern for competitive harm > 90th percentile 200%
> Target 70th percentile 150%
Target 50th percentile 100%
Threshold 25th percentile 50%
< Threshold < 25th percentile 0%

(1) Performance measurement and vesting occur at the end of the two- and three-year periods, subject to continued service.

(2) Interpolate for performance between discrete points.

Internal ROIC goals were set after consideration of historical performance, internal budgets, external expectations, and peer group performance.

Relative TSR was chosen as a performance measure because it is a direct measure of stockholder value. ROIC was chosen because it measures capital allocation and efficiency, which is a key driver of stockholder value.

For more information on grants of PARSUs to the NEOs during fiscal 2016, see "Executive Compensation—Grants of Plan-Based Awards in Fiscal 2016."

2016 RSUs

2016 RSUs and related dividend equivalent units vest ratably on an annual basis over three years from the grant date. Three-year vesting is common in our industry and supports executive retention and stockholder alignment.

For more information on grants of RSUs to the NEOs during fiscal 2016, see "Executive Compensation—Grants of Plan-Based Awards in Fiscal 2016."

Fiscal 2015 PARSUs

In addition to regular 2016 PARSUs, Mr. Weisler, Ms. Lesjak and Ms. Keogh, who continued with the Company after the separation, also received PARSUs in 2016 that replaced grants they had received at HP during fiscal 2015, prior to the separation (FY15 PARSUs). The HRC Committee determined that it would be appropriate and desirable to cancel the FY15 PARSUs and replace them with PARSUs denominated in shares of HP stock. Originally, the FY15 PARSUs had a two and a three-year performance period, such that one-half the FY15 PARSUs was eligible for vesting based on performance over two years with continued service and one half was eligible for vesting based on performance over three years with continued service. The FY15 PARSUs were equally weighted between relative TSR and ROIC. The chart below shows the structure of the FY15 PARSUs when initially granted.

2015 – 2017 HP PARSUs (Pre-separation)
Key Design Elements HP ROIC vs. Internal Goals HP Relative TSR vs. S&P 500 Payout
Weight 25% 25% 25% 25% % of Target(2)
Performance/Vesting Periods(1) 2 years 3 years 2 years 3 years
Performance Levels:
Max Target to be disclosed at end of the performance periods > 90th percentile 200%
> Target 70th percentile 150%
Target 50th percentile 100%
Threshold 25th percentile 50%
< Threshold < 25th percentile 0%

(1) Performance measurement and vesting occur at the end of the two- and three-year periods, subject to continued service.

(2) Interpolate for performance between discrete points.

The replacement grant was made in early fiscal 2016. The replacement ratio was set so the intrinsic value of the HP target replacement PARSUs ("HP PARSUs") equaled the intrinsic value of the cancelled target number of FY15 PARSUs immediately prior to the separation. HP PARSUs maintain the original service-vesting requirements. HP PARSUs use the same performance metrics as the replaced FY15 PARSUs and the performance goals were established by the HRC Committee after the separation. The chart below shows the structure of the HP PARSUs after the separation.

HP PARSUs (Post-separation)
Key Design Elements HP ROIC vs. Internal Goals HP Relative TSR vs. S&P 500 Payout
Weight 25% 25% 25% 25% % of Target(3)
Adjusted Performance Periods(1) 1 year 2 years 1 year 2 years
Vesting Periods(2) 2 years 3 years 2 years 3 years
Performance Levels:
Max Target to be disclosed at end of the performance periods > 90th percentile 200%
> Target 70th percentile 150%
Target 50th percentile 100%
Threshold 25th percentile 50%
< Threshold < 25th percentile 0%

(1) Performance measurement occurs at the end of the one-and two-year periods, measured from the date of the separation.

(2) Vesting occurs at the end of the two- and three-year periods, measured from the original grant date.

(3) Interpolate for performance between discrete points.

Under accounting rules, the fair value of HP PARSUs exceeded the fair value of the replaced FY15 PARSUs as of November 1, 2015. This additional value is reflected in the Summary Compensation Table and Grants of Plan-Based Awards Table for affected NEOs.

The actual performance achievement for the one-year period post separation as a percent of target for the HP PARSUs as of October 31, 2016 is summarized in the table below:

Fiscal 2015 PARSUs (Actual Performance)
Segment ROIC vs. Internal Goals(1)
(% of target earned)
  Relative TSR vs. S&P 500(2)
(% of target earned)
  Percent of Target Vested
(Segment 1)
Fiscal 2016 Results Payout   Fiscal 2016 Results Payout  
Segment 1 (50%) 106.1% 76.8%   65th percentile 137.0%   106.9%

(1) In connection with the separation, HP entered into a Tax Matters Agreement ("TMA") with HPE that governs the rights and obligations of HP and HPE for certain pre-separation tax liabilities. The TMA provides that HP and HPE will share certain pre-separation income tax liabilities through indemnification accounting. The actual amount that HP may be obligated to HPE could vary depending upon the outcome of certain unresolved tax matters, which may not be resolved for several years. Based on the perspective of our independent auditor, HP changed its accounting methodology to account for the change recommended by auditors. Please see our 8-K filed on April 27, 2016 for further information on this change. Because this change was recommended by our auditor after our FY16 goals were set, it was determined to adjust the FY16 ROIC results upward. As a result, the calculation of our performance and goals are aligned and provide a more accurate representation of Company performance.

(2) Through October 2016, HP's actual TSR performance was at the 65th percentile of the S&P 500 which corresponds to a payout of 137.0% of target.

Launch Grants at Time of Separation

In November 2015, in conjunction with our successful separation, certain NEOs and key talent received special one-time equity grants ("Launch Grants"). HP's compensation consultants performed a market analysis of merger and spin-off transactions valued over $1BN that occurred between two and three years prior to HP's separation date, and found that in many of the relevant cases, Launch Grants (sometimes called "Founder's Grants") were made to key personnel. The HRC Committee determined that such grants were appropriate to ensure retention and senior management continuity during this critical time in the company's evolution and to strengthen alignment with stockholders' interests by focusing management's efforts on successfully launching the independent company and driving increased stockholder value. Additionally, some NEOs took reductions in their compensation as they transitioned from HP Co. to HP Inc.

Unlike the vast majority of other companies, where Launch Grants were made solely in the form of time based awards, HP's Launch Grants were structured to align with company performance and are denominated 50% in PCSOs and 50% in RSUs, vesting ratably over three years (contingent on achievement of significant performance conditions for the PCSOs), and subject to continued employment at each vesting date. Vesting of the PCSOs is contingent on our stock price increasing (for 20 consecutive trading days) 10% within two years after the grant date, 20% within four years after the grant date and 30% within five years after the grant date.

For Launch Grants made to NEOs during fiscal 2016, the price hurdle had not been achieved as fiscal year-end and there was no earned or realizable compensation as of that time.

Launch Grants will not vest upon voluntary retirement, voluntary termination, or termination for cause (including neglect, lack of fulfillment of duties, or harm to HP) to ensure that employees will not experience a windfall if they do not remain with the company. In determining the size of the Launch Grants the HRC Committee considered, among other factors, unvested equity at the time of grant, value of grants vesting in the next few months, compensation reductions and potential retention concerns. Based on the analysis performed by HP's compensation consultants, in other situations where launch grants were made to NEOs, the launch grant value as a multiple of annual long-term incentive awards ranged between 0.5x to 4.5x, and our approach was at the lower end of that range. The Launch Grants were allocated as follows:

Fiscal 2016 Launch Grants at Target

Named Executive Officer PCSOs RSUs Total Launch Grant
Dion J. Weisler $6,500,000 $6,500,000 $13,000,000
Catherine A. Lesjak $2,500,000 $2,500,000 $  5,000,000
Tracy S. Keogh $1,450,000 $1,450,000 $  2,900,000

Sign-on Bonus and New Hire Equity Award

Ms. Rivera received a one-time sign-on bonus in connection with her hiring as Chief Legal Officer and General Counsel, equal to $500,000. She also received a guaranteed annual incentive bonus for fiscal 2016 of no less than target ($781,250), as a condition of her employment letter with the company and as a transition from a prior employer. This was a one-time guaranteed bonus due to her status as a newly hired executive.

In addition, Ms. Rivera received a one-time new hire equity award valued at $3,300,000 in the form of RSUs that vest one-third a year for three years, subject to her continued employment. Also, HP assisted Ms. Rivera in her relocation from Cherry Hills Village, Colorado to Palo Alto, California. HP provided a relocation package pursuant to its Standard Relocation Program with Housing for Executives. For additional information, see the Summary Compensation Table on page 47.


Fiscal 2017 Compensation Program

The HRC Committee regularly identifies and evaluates ways to improve our executive compensation program. We engage with our stockholders to elicit their feedback, and we take this feedback very seriously. In 2016, our "say-on-pay" proposal was approved by 95% of the voted shares. We did not make any specific program changes because of this support and determined that it would be appropriate to maintain the same overall program structure for 2017.

However, as we plan to discuss in further detail in the fiscal 2017 proxy statement, we made the following fine-tuning changes that we believe are in our stockholders' interests and appropriate to the characteristics and business strategy of the post-separation Company:

  • Annual Incentives. For fiscal 2017, we removed the revenue cap and replaced it with discrete revenue metrics. Further, we included HP enterprise-wide revenue and net profit metrics for business group leaders. These adjustments were made to further support stockholder alignment.
  • Long-Term Incentive Compensation. The Compensation Committee has approved changing from ROIC to EPS as a primary financial metric of our PARSU awards. Starting with awards made in fiscal 2017, EPS will be weighted equally with relative total shareholder return in determining earned PARSUs. The Committee believes that EPS is a more-relevant driver of long-term shareholder value than ROIC given the Company's post-separation capital structure and balance sheet, as well as our focus on bottom-line profitability in the business-transformation strategy. EPS is also a common measure for performancebased long-term incentives among our peer companies.

In fiscal 2017, the HRC Committee plans to continue to carefully review our talent needs, and compensation programs and actions to:

  • support the current and long-term business strategy;
  • continue to align pay with stockholder interests; and
  • maintain good governance standards.

Benefits

We do not provide our executives, including the NEOs, with special or supplemental U.S. defined benefit pension or health benefits. Our NEOs receive health and welfare benefits (including retiree medical benefits, if eligibility conditions are met) under the same programs and subject to the same eligibility requirements that apply to our employees generally.

Benefits under all U.S. pension plans were frozen effective December 31, 2007. Benefits under the Electronic Data Systems ("EDS") Pension Plan ceased upon HP's acquisition of EDS in 2009. As a result, no NEO or any other HP employee accrued a benefit under any HP U.S. defined benefit pension plan during fiscal 2016. The amounts reported as an increase in pension benefits are for those NEOs who previously accrued a benefit in a defined benefit pension plan prior to the cessation of accruals and reflect changes in actuarial values only, not additional benefit accruals.

The NEOs, along with other executives who earn base pay or an annual incentive in excess of certain limits of the U.S. tax code, are eligible to participate in the Executive Deferred Compensation Plan (the "EDCP"). This plan is maintained to permit executives to defer some of their compensation in order to also defer taxation on such amounts. This is a standard benefit plan also offered by most of our peer group companies. The EDCP permits deferral of base pay in excess of the amount taken into account under the qualified HP 401(k) Plan ($10,600 in fiscal 2016) and up to 95% of the annual incentive payable under the PfR and Variable Performance Bonus ("VPB") Plans. In addition, we make a 4% matching contribution to the plan on base pay contributions in excess of IRS limits up to a maximum of two times that limit. This is the same percentage as that which those executives are eligible to receive under the 401(k) Plan. In effect, the EDCP permits these executives and all eligible employees to receive a 401(k)-type matching contribution on a portion of base-pay deferrals in excess of IRS limits. Amounts deferred or matched under the EDCP are credited with investment earnings based on investment options selected by the participant from among nearly all of the proprietary funds available to employees under the 401(k) Plan. No amounts earn above-market returns.

Executives are also eligible to have a yearly HP-paid medical exam as part of the HP U.S. executive physical program. This includes a comprehensive exam, thorough health assessment and personalized health advice. This benefit is also offered by our peer group companies.

Consistent with its practice of not providing any special or supplemental executive defined benefit programs, including arrangements that would otherwise provide special benefits to the family of a deceased executive, in 2011 the HRC Committee adopted a policy that, unless approved by our stockholders pursuant to an advisory vote, we will not enter into a new plan, program or agreement or modify an existing plan, program or agreement with a Section 16 officer that provides for payments, grants or awards following the death of the officer in the form of unearned salary or unearned annual incentives, accelerated vesting or the continuation in force of unvested equity grants, perquisites, and other payments or awards made in lieu of compensation, except to the extent that such payments, grants or awards are provided or made available to our employees generally.


Perquisites

Consistent with the practices of many of our peer group companies, we provide a small number of perquisites to our senior executives, including the NEOs, as discussed below.

We provide our NEOs with financial counseling services to assist them in obtaining professional financial advice, which is a common benefit among our peer group companies, for convenience and to increase the understanding and effectiveness of our executive compensation program.

Due to our global presence, we maintain one corporate aircraft. In the event an NEO is accompanied by a guest or family member on the aircraft for personal reasons, as approved by the CEO, the NEO is taxed on the value of this usage according to the relevant U.S. tax code rules. There is no tax gross-up paid on the income attributable to this value. None of our NEOs used the corporate aircraft for personal use during fiscal 2016, either personally or for a guest or family member.

Our Audit Committee periodically conducts global risk management reviews, which include reviewing home security services of NEOs. Services considered necessary by the Audit Committee may be paid for by HP, due to the range of security issues that may be encountered by key executives of any large, multinational corporation. Prior to October 2015, Mr. Weisler's home location was Singapore and he was on international assignment in Palo Alto, California. In connection with his appointment as CEO of HP Inc. effective at the separation, Mr. Weisler relocated to Palo Alto in October 2015. While most relocations costs were incurred in fiscal 2015, there were some trailing costs in connection with Mr. Weisler's relocation to Palo Alto that were paid in fiscal 2016.

Severance and Long-term Incentive Change in Control Plan for Executive Officers

In fiscal 2016, our Section 16 officers (including all of the NEOs) were covered by the Severance and Long-term Incentive Change in Control Plan for Executive Officers ("SPEO"), which is intended to protect us and our stockholders, and provide a level of transition assistance in the event of an involuntary termination of employment. Under the SPEO, participants who incur an involuntary termination (i.e., a termination not for cause), and who execute a full and effective release of claims following such termination, are eligible to receive severance benefits in an amount determined as a multiple of base pay, plus the average of the actual annual incentives paid for the preceding three years. In the case of the NEOs other than the CEO, the multiplier is 1.5. In the case of the CEO, the multiplier is 2.0. In all cases, this benefit will not exceed 2.99 times the sum of the executive's base pay plus target annual incentive as in effect immediately prior to the termination of employment. Although the majority of compensation for our executives is performance-based and largely contingent upon achievement of financial goals, the HRC Committee continues to believe that the SPEO is appropriate for the attraction and retention of executive talent. In addition, we find it more equitable to offer severance benefits based on a standard formula for the Section 16 officers because severance often serves as a bridge when employment is involuntarily terminated, and should therefore not be affected by other, longer-term accumulations. As a result, and consistent with the practice of our peer group companies, other compensation decisions are not generally based on the existence of this severance protection.

In addition to the cash benefit, SPEO participants are eligible to receive (1) a pro-rata annual incentive for the year of termination based on actual performance results, at the discretion of the HRC Committee, (2) pro-rata vesting of unvested equity awards (and for performance-based equity awards, only if any applicable performance conditions have been satisfied), and (3) payment of a lump-sum health-benefit stipend of an amount equal to 18 months' COBRA premiums for continued group medical coverage for the executive and his or her eligible dependents, to the extent those premiums exceed 18 times the monthly premiums for active employees in the same plan with the same level of coverage as of the date of termination.

Benefits in the Event of a Change in Control

Until November 1, 2015, we did not provide specific change in control benefits to our executive officers. While the HRC Committee had broad discretion to accelerate vesting of all stock and option awards upon a change in control, accelerated vesting was not automatic. This approach allowed the Board or the HRC Committee to decide whether to vest equity after taking into consideration the facts and circumstances of a given transaction. As a result, the NEOs could become fully vested in their outstanding equity awards upon a change in control only if the Board or the HRC Committee affirmatively acts to accelerate vesting.

Effective November 1, 2015, the HRC Committee approved the change of control terms in the SPEO. In addition to the benefits provided for involuntary terminations, the SPEO provides for full vesting of outstanding stock options, RSUs, PCSOs, and PARSUs upon involuntary termination not for Cause or voluntary termination for Good Reason (as defined in the plan) within 24 months after a change in control ("double trigger"), and in situations where equity awards are not assumed by the surviving corporation (a "modified double trigger"). The SPEO further provides that under a double trigger, PARSUs will vest based on target performance, whereas under a modified double trigger, PARSUs will vest based upon the greater of the number of PARSUs that would vest based on actual performance and the number of PARSUs that would vest pro-rata based upon target performance.

The HRC Committee approved the change of control provisions in the SPEO as it determined that providing for double trigger and modified double trigger equity acceleration is consistent with market practice, will provide clarity to prospective and current executives and help attract and retain talent.

Other Compensation-Related Matters

Succession Planning

Among the HRC Committee's responsibilities described in its charter is to oversee succession planning and leadership development. The Board plans for succession of the CEO and annually reviews senior management selection and succession planning that is undertaken by the HRC Committee. As part of this process, the independent directors annually review the HRC Committee's recommended candidates for senior management positions to see that qualified candidates are available for all positions and that development plans are being utilized to strengthen the skills and qualifications of the candidates. The criteria used when assessing the qualifications of potential CEO successors include, among others, strategic vision and leadership, operational excellence, financial management, executive officer leadership development, ability to motivate employees, and an ability to develop an effective working relationship with the Board. We also host a Board Buddy program through which each executive officer is aligned to a board member as a mentor to aid the executive's development while giving board members a deeper understanding of the day-to-day operations of the company.

In fiscal 2016, an executive talent review was conducted along with succession plans for each of the executive leaders. Successors were identified to reflect necessary skill sets, performance, potential and diversity. Development plans for successors were also established to ensure readiness and will be managed throughout the year. In addition to the annual succession planning process, the HRC participates in an in-depth performance discussion of each executive officer at the time of the annual compensation review. Further, there is a People Update at each HRC meeting which includes a review of key people processes and developments for that quarter.

In addition, the executive team participated in a robust development process that included individual assessments, interviews with executive coaches, and an individualized development plan that can be leveraged throughout the year. Development themes for the entire executive team will be addressed during quarterly face-to-face meetings for full team development.


Stock Ownership Guidelines

Our stock ownership guidelines are designed to align executives' interests more closely with those of our stockholders and mitigate compensation-related risk. The current guidelines provide that, within five years of assuming a designated position, the CEO should attain an investment position in our stock equal to seven times his base salary and all other Section 16 officers reporting directly to the CEO should attain an investment position equal to five times their base salaries. Shares counted toward these guidelines include any shares held by the executive directly or through a broker, shares held through the 401(k) Plan, shares held as restricted stock, shares underlying time-vested RSUs, and shares underlying vested but unexercised stock options (50% of the in-the-money value of such options is used for this calculation). Ms. Lesjak and Ms. Keogh are the only NEOs who have served in roles covered by our stock ownership guidelines for over five years and they are in compliance with the stock ownership guidelines. In addition, our other NEOs were on track for compliance within the required time or held the required investment position in our stock as of the end of fiscal 2016.

The HRC Committee has adopted a policy prohibiting our executive officers from engaging in any form of hedging transaction (derivatives, equity swaps, forwards, etc.) including, among other things, short sales and transactions involving publicly traded options. In addition, with limited exceptions, our executive officers are prohibited from holding our securities in margin accounts and from pledging our securities as collateral for loans. We believe that these policies further align our executives' interests with those of our stockholders.

Accounting and Tax Effects

The impact of accounting treatment is considered in developing and implementing our compensation programs, including the accounting treatment as it applies to amounts awarded or paid to our executives.

The impact of federal tax laws on our compensation programs is also considered, including the deductibility of compensation paid to the NEOs, as limited by Section 162(m) of the Code. Our compensation program is designed with the intention that compensation paid in various forms may be eligible to qualify for deductibility under Section 162(m), but there may be exceptions for administrative or other reasons with a business justification.

Policy on Recovery of Annual Incentive in Event of Financial Restatement

In fiscal 2006, the Board adopted a "clawback" policy that permits the Board to recover certain annual incentives from senior executives whose fraud or misconduct resulted in a significant restatement of financial results. The policy allows for the recovery of annual incentives paid at or above target from those senior executives whose fraud or misconduct resulted in the restatement where the annual incentives would have been lower absent the fraud or misconduct, to the extent permitted by applicable law. Additionally, our incentive plan document allows for the recoupment of performance-based annual incentives and long-term incentives consistent with applicable law and the clawback policy. Also, in fiscal 2014, we added a provision to our equity grant agreements to clarify that they are subject to the clawback policy.

HR and Compensation Committee Report on Executive Compensation

The HRC Committee of the Board of HP has reviewed and discussed with management this Compensation Discussion and Analysis. Based on this review and discussion, it has recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and in the Annual Report on Form 10-K of HP filed for the fiscal year ended October 31, 2016.

HR and Compensation Committee of the Board of Directors

Rajiv L. Gupta, Chair
Aida Alvarez
Carl Bass
Shumeet Banerji
Charles V. Bergh
Stacey Mobley