Kristen Ludgate, HP’s Chief People Officer, talks with the Chair of our Board’s HR and Compensation Committee (“HRC Committee”), Stephanie Burns, about our executive compensation program and the HRC Committee’s duties in overseeing the program’s design and implementation.
The HRC Committee consists of Ms. Burns and four other independent Directors: Ms. Alvarez, Mr. Banerji, Mr. Bergh and Mr. Broussard. All bring valuable experience and a clear understanding of the role that appropriate executive compensation plays in ensuring company performance and stockholder value.
Kristen Ludgate (KL):
Stephanie, so good to have you with us today. You’ve been a member of the HP Board since 2015 and have chaired the HRC since November 2017. Can you talk about the role the HRC Committee plays in our executive compensation program?
Stephanie Burns (SB):
Certainly. The HRC Committee oversees and provides strategic direction to management regarding our pay-for-performance program. We set the CEO’s compensation and review and approve compensation for the rest of the leadership team. We also review senior management selections and oversee succession planning.
In carrying out these duties, the HRC Committee works with its own independent compensation consultant to help analyze competitive pay practices and market trends, with a focus on providing a competitive pay opportunity for our leadership while strengthening the pay-for-performance relationship and alignment with stockholders.
The HRC Committee also gets regular updates on key people practices and initiatives happening across HP. This includes everything from employee engagement to key hires to company culture, with a special focus on HP’s Diversity, Equity and Inclusion (DEI) agenda, an area where the HRC Committee is fully engaged and committed to driving improvements.
Can you describe HP’s overall philosophy and strategy on executive compensation?
Our compensation program is closely aligned with HP’s business goals. It focuses on driving the right behaviors while helping attract, retain, and reward the executive team for delivering long-term value to stockholders. Our pay-for-performance philosophy is the foundation for all decisions regarding executive compensation, with a strong bias towards variable pay. Our program is also designed to facilitate strong corporate governance.
We align executive compensation with stockholder value through equity-based programs, combined with stockholder value-based performance measures (like relative total shareholder return (TSR)) and financial performance measures that executives can control and are closely correlated with stockholder value over time.
Can you describe how you stay connected with stockholders on compensation?
We regularly engage with our stockholders on a variety of topics, including their views on best practices in executive compensation following our commitment to a compensation program that aligns pay to performance and drives stockholder value.
Based on their feedback, starting in fiscal 2020 we adjusted our long-term performance-based incentives (PARSUs) to incorporate three year average EPS performance with full vesting only after three years of service and achievement of financial goals. We also changed relative TSR from a standalone measure to a “payout modifier” determined based on three-year performance. These changes have increased focus on strategic performance while continuing close alignment between stockholder value creation and real pay delivery.
For fiscal 2021, our performance-based equity remained at 60% weighting but has been split into 30% Performance Contingent Stock Options (“PCSOs”) and 30% Performance Adjusted Restricted Stock Units. The PCSOs only vest if specific stock price growth hurdles are achieved and further align the interest of our executives with our stockholders by driving a focus on long-term sustained stock growth.
To further address commitments to stockholders articulated in the Value Plan, beginning in fiscal 2021, the net earnings metric has been replaced with operating profit in the annual incentive plan.
Are there specific elements of our program that showcase our best practices?
HP’s program incorporates many best practices and we are continuously working to improve. Some specific elements we believe are best-in-class include:
- We target compensation within a competitive range of the market
- We utilize non-discretionary financial metrics and specific management objectives in our annual cash incentive plan that align with value drivers of our long-term strategic and financial plan
- We ensure individual executive performance goals under the Management by Objectives (“MBOs”) program address a range of important topics, including focus areas on Innovation/Growth, Digital Transformation, People and Sustainable Impact
- We do not use fixed-term employment contracts with any of our senior executives, and have consistent and market-aligned severance practices
Thanks for the great overview Stephanie.