This Compensation Discussion and Analysis describes our executive compensation philosophy and program, the compensation decisions the HRC Committee has made under the program, and the considerations in making those decisions in fiscal 2021.
Named Executive Officers (NEOs)
Our NEOs for fiscal 2021 are:
Enrique J. Lores
President and CEO
Chief Financial Officer*
Former Chief Commercial Officer**
President, Personal Systems
President, Imaging Printing & Solutions
Ms. Myers was appointed as Chief Financial Officer on February 17, 2021. Prior to such time, she served as Acting Chief Financial Officer since October 1, 2020.
Mr. Schell stepped down as Chief Commercial Officer, effective February 18, 2022. Since stepping down from such position, Mr. Schell has continued to be employed by the Company in a non-executive officer role.
As illustrated below for the three key financial measures used to fund our annual incentive awards, we exceeded two of our three goals reflected in our business plan in fiscal 2021.
GAAP Net Revenue
(as defined on page 51) compared to a target goal of $58.3 billion under our annual incentive plan.
Adjusted Non-GAAP Operating Profit
(as defined on page 51) compared to a target goal of $4.6 billion under our annual incentive plan.
Non-GAAP Free Cash Flow
as a percentage of revenue; (as defined on page 51) compared to a target goal of 6.7% under our annual incentive plan.
We provided competitive target pay opportunities, with amounts and mix consistent with peers and stable year over year.
Target Total Direct Compensation (“TDC”) consists of base salary, target annual incentives expressed as a percentage of base salary and earned based on attainment of our annual performance objectives, and the grant-date value of long-term incentives. TDC is set within a competitive range of the market but varies based on experience, individual performance, advancement potential and internal equitability.
In response to the Covid-19 pandemic most of our executives did not receive salary increases.
In response to the impact of the COVID-19 pandemic, Mr. Lores and most of the members of the Executive Leadership Team, did not receive an increase in their base salaries in fiscal 2021. Mr. Lores and members of the Executive Leadership Team’s salaries were reinstated November 1, 2020 after a 25% reduction in the salary of Mr. Lores, and a 15% reduction in the base salaries of the members of the Executive Leadership Team during fiscal 2020.
We modified our short-term incentive plan in fiscal 2021 to align with value drivers of our long-term strategic and financial plans.
For fiscal 2021, the metric of “Net Earnings” under the annual incentive plan was replaced by “Operating Profit”. “Operating Profit” is one of the key critical value drivers of the long-term commitment that we have made to stockholders in our Value Plan.
Also, business unit revenue and operating profit weighting have each been reduced to 7.5% for a total of 15% (compared to 25% under the annual incentive plan for fiscal 2020) thereby increasing each total enterprise metric to 17.5% for a total of 35% (compared to 25% under the annual incentive plan for fiscal 2020). This shift towards increasing the weighting of each enterprise metric also serves to further strengthen alignment across our various business units.
NEOs earned annual incentives averaging 194% of target for fiscal 2021. Individual bonuses varied from 185.0% to 200.0% of target with HP’s President & CEO’s individual bonus equal to 185.0% of target. The Company achieved substantially above target results with respect to HP adjusted non-GAAP operating profit and GAAP net revenue. Non-GAAP free cash flow as a percentage of revenue result was slightly below target. In addition, 25% of our target annual incentives are contingent upon the achievement of qualitative objectives that we believe will contribute to our long-term success including Innovation/Growth, Digital Transformation, People and Sustainable Impact. NEOs successfully delivered against their MBOs as detailed on pages 52-53.
We also modified our long-term incentive plan to further align actual pay with performance, putting more variable compensation at risk to support our more growth-oriented strategy.
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 (“PARSUs”).
The grant of PCSOs further aligns the interests of our executives with stockholders by driving long-term sustained stock growth. The PCSOs tranches will vest only if both the service and stock price hurdle conditions are met. Stock price hurdle will need to be met over a consecutive 20-day trading period within the respective performance period.
- Tranche 1: first anniversary service condition and 110% of grant price within two years stock price hurdle
- Tranche 2: second anniversary service condition and 120% of grant price within four years stock price hurdle
- Tranche 3: third anniversary service condition and 130% of grant price within five years stock price hurdle
The PARSU relative TSR payout modifier has been adjusted for a wider payout range from +/-25% to +/-50%. The broadened range strengthens the relationship between payouts and stockholder value creation.
Also, the EPS impact on PARSU payout funding for achievement of our maximum stretch goals has been increased to 300%. This change further calibrates payout outcomes from long-term financial goals to stockholder value creation.
The remaining portion of 40% of regular annual long-term incentive grant value was in the form of Restricted Stock Units (“RSUs”) primarily intended to increase stock ownership among our NEOs, while also serving a retentive purpose and incentivizing our NEOs to maximize value for our stockholders. The value of such RSUs is tied to stock price and reinvested dividend equivalents.
NEOs received payout for Segment 2 FY19 PARSUs (measurement period ending in fiscal 2021). EPS FY20 and EPS FY21 were above target. Fiscal 2019-2021 relative TSR approximated the 32nd percentile of the S&P 500.
We regularly engaged with and listened to stockholders, practiced strong governance, and mitigated potential compensation-related risks.
Our executive compensation program is continuously reviewed for peer group alignment and strategic relevance as part of a process that includes ongoing stockholder engagement. At the annual meeting in 2021, our say-on-pay proposal was approved by over 92% of the voted shares, indicating significant stockholder support. Consequently, we did not make extensive program design changes as a result of the vote.
We updated the stock ownership guidelines for our executive officers.
In fiscal 2021, the HRC Committee reviewed the stock ownership guidelines for our executive officers and removed stock options as being counted towards stock ownership. This change aligns with market practice and provides for a more stringent but still realistic path for continued compliance of our executive officers with our guidelines.
Our executive compensation program primarily comprises performance-based components. The table below shows each major pay component, the role and factors for determining the amount. Percentages are the averages of pay components at target for the NEOs, including the CEO.
|Pay Component||Role||Determination Factors|
Payments to executives for annual incentive purposes are made under the Stock Incentive Plan (the “Plan”)
2021 NEO TDC at a Glance
We regularly engage with our stockholders on a variety of issues, including their views on best practices in executive compensation. The following changes to our executive compensation program, shown here, reflect those conversations with stockholders and our commitment to a compensation program that aligns pay to performance and drives stockholder value.
- Starting with new grants in fiscal 2020, to ensure alignment with our three-year financial plan, we moved our performance-adjusted restricted stock units (PARSUs) to incorporate a three-year average EPS performance with full vesting only after three years of service and achievement of financial goals for that timeframe. We changed relative TSR from a standalone measure to a “payout modifier” determined based on cumulative three-year performance. We determined that this change increased focus on line-of-sight strategic performance while continuing close alignment between stockholder value creation and real pay delivery.
- For fiscal 2021, we incorporated performance-contingent stock options (PCSOs) into our long-term incentive compensation. The grant of PCSOs will further align the interests of our executives with our stockholders since a stock option will only realize value if the underlying share price appreciates and the PCSOs do not vest until specific stock-price growth hurdles have been achieved. It further provides substantial “skin in the game” incentives for our senior executives toward long-term sustained stock growth that aligns with the transformational growth strategy we have committed to our stockholders.
- Additional changes made in the recent past that reflect conversations with stockholders include increased focus on enterprise-wide GAAP net revenue and adjusted non-GAAP net earnings in our annual incentive plan to encourage greater collaboration and teamwork among business leaders. To further address commitments to stockholders articulated in the Value Plan, beginning in fiscal 2021, adjusted non-GAAP net earnings was replaced with non-GAAP operating profit in the annual incentive plan. This change provides stronger alignment with our long-term strategic and financial plans.
Role of the HRC Committee and its Advisor
The HRC Committee continued to retain FW Cook as its independent consultant during fiscal 2021, and to work with them and management on all aspects of our pay program for senior executives. The HRC Committee makes recommendations regarding the CEO’s compensation to the independent members of the Board for approval, and 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 expertise in executive compensation matters.
FW Cook provides analyses and recommendations that inform the HRC Committee’s decisions; identifies peer group companies for competitive market comparisons; evaluates market pay data and competitive-position benchmarking; provides analyses and inputs on program structure, performance measures, and goals; 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 and Director compensation; and works with the HRC Committee to validate and strengthen the pay-for-performance relationship and alignment with stockholder interests. FW Cook does not perform other services for HP and will not 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 seven times in fiscal 2021, and all seven of these meetings included an executive session. FW Cook participated in all 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
The CEO recommends compensation for Section 16 officers, including NEOs other than himself, for approval by the HRC Committee. The HRC considered market competitiveness, business results, experience, and individual performance when evaluating fiscal 2021 NEO compensation and the overall compensation structure. The Chief People Officer and other members of our executive compensation team, 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, develop 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 2021, 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 2021, Mr. Lores provided input to the HRC Committee regarding performance metrics and the setting of appropriate performance targets for his direct reports. Mr. Lores also recommended MBOs for the NEOs (other than himself) and the other senior executives who report directly to him. Mr. Lores is subject to the same financial performance goals as the executives who lead global functions, and Mr. Lores MBOs and compensation are established by the HRC Committee and recommended to the independent members of the Board for approval.
The HRC Committee reviews the compensation of our Section 16 officers in comparison 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 uses this information to evaluate how our pay levels and practices compare to market practices.
When determining the peer group, the following characteristics were considered with exceptions made at the HRC Committee’s determination for labor-market relevance:
- Direct talent market peers.
- US-based companies in the technology sector (excluding distributors, contract manufacturers and outsourced services/IT consulting) with revenues between ~$12 billion and $290 billion and market cap between ~$6 billion and $140 billion.
- Select general industry companies (industrials, consumer products and telecom) generally meeting size and business criteria that are top-brands, and considering continuity.
- Review of the peer companies chosen by companies within our proposed peer group and peer business similarity, to evaluate relevance.
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. For fiscal 2021, the HRC Committee removed Apple from the peer group due to the market cap difference between Apple and HP. The HP peer group for fiscal 2021, as approved by HRC Committee, consisted of the following companies:
Fiscal 2021 Peer Group
Represents fiscal 2021 reported revenue, except fiscal 2020 reported revenue is provided for General Electric, Honeywell, IBM, Intel, PepsiCo, Texas Instruments and Xerox
The primary factors considered when determining pay opportunities for our NEOs are market competitiveness, experience, individual performance, advancement potential and internal equitability. The weight given to each factor is not formulaic and may differ from year to year or by individual NEO.
The HRC Committee spends significant time determining the appropriate goals for our annual and long-term incentive plans, which make up the majority of NEO compensation. Management makes an initial recommendation of the goals, which is then assessed by the HRC Committee’s independent compensation consultant 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, industry performance, conditions or goals specific to a particular business segment, and strategic initiatives. Management by Objectives (“MBOs”) address a range of important topics, including focus areas on Innovation/Growth, Digital Transformation, People and Sustainable Impact.
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 based on performance against the established goals. The HRC Committee meets in executive session to review the MBO performance of the CEO and to determine a recommendation for his annual incentive award to be approved by the independent members of the Board. See “2021 Annual Incentives” below for a further description of our results and corresponding incentive payouts.
Under our Total Rewards Program, executive compensation consists of base salary, annual incentives, long-term incentives, benefits, and perquisites.
The HRC Committee regularly considers ways to improve our executive compensation program by considering stockholder feedback, our current business needs and strategy, and peer group practices.
2021 Base Salary
Our executives receive a small percentage of their overall compensation in the form of base salary, which is consistent with our philosophy of tying the majority of pay to performance. 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 set executive base salaries within a competitive range of the market for comparable positions. In fiscal 2021, salaries generally comprise on average 9% of our NEOs’ overall compensation, consistent with our peers. To decide the CEO’s salary, the HRC Committee reviews analyses and recommendations provided by FW Cook.
For fiscal 2021, the HRC Committee approved changes to the annual base salary for Marie Myers and Tuan Tran.
Changes in Base Salary
2020 Base Salary
2021 Base Salary
In connection with her appointment as Chief Financial Officer, effective February 17, 2021, Ms. Myers’ annual base salary was increased to $700,000. Mr. Tran’s salary was also increased and more closely aligns with market data.
2021 Annual Incentives
The fiscal 2021 annual incentive plan for the Executive Leadership Team consisted of the following three core financial metrics: GAAP net revenue, adjusted non-GAAP operating profit, and non-GAAP free cash flow as a percentage of revenue. As mentioned above, non-GAAP operating profit replaced non-GAAP net earnings in fiscal 2021. Revenue, operating profit and cash flow are critical value drivers of the long-term commitment that we have made to stockholders. The revised annual incentive metrics further support critical drivers of the Value Plan and ensure our executive leadership team’s immediate goals and incentives are aligned with our long-term strategic and financial plans as well as stockholder interests. A fourth component, MBOs, was used to further drive individual performance and achievement of key strategic goals. Each financial metric and the MBOs were weighted at 25% of the target award value. Each individual metric may fund up to 250% of target; however, the maximum annual incentive for each executive is capped at 200% of target.
The target annual incentive awards for fiscal 2021 were set at 200% of salary for the CEO and 135% of salary for the CFO and the other NEOs. The target annual incentive award for the CFO and the other NEOs was at 125% for fiscal 2020. The change in 2021 was made, in part, to better align to market data.
In addition, payment under the annual incentive plan is contingent on an NEO’s service through the end of the fiscal year.
Fiscal 2021 Annual Incentive Plan
|Key Design Elements||GAAP Net
($ in billions)
($ in billions)
Cash Flow as a
% of Revenue(1)
|Global Functions Executives(3)||Corporate||Corporate||Corporate||Individual|
|Business Unit (“BU”) Executives(4)||Corporate/BU||Corporate/BU||Corporate||Individual|
|Corporate Performance Goals|
Maximum funding for non-GAAP free cash flow as a percentage of revenue is capped at 150% of target if adjusted non-GAAP operating profit achievement was below target and is capped at 100% of target if adjusted non-GAAP operating profit achievement was below threshold. If adjusted non-GAAP operating profit achievement was above target, the maximum funding level is 250% for this metric. Maximum and threshold information are not disclosed because such disclosure would result in competitive harm. However, goals are set at levels we believe to be achievable in connection with strong performance.
Interpolated for performance between discrete points. Each individual metric may fund up to 250% of target; however, the maximum annual incentive for each executive is capped at 200% of target. As a general administrative discretionary guideline, the HRC Committee may decide that financial funding for Global Functions Executives, including the CEO, cannot exceed the highest funding for a Business Unit Executive.
The Global Functions Executives include Mr. Lores, Ms. Myers and Mr. Schell.
The Business Unit Executives include Mr. Cho and Mr. Tran. Specific Business Unit GAAP net revenue and adjusted non-GAAP operating profit goals are not disclosed because such disclosure would result in competitive harm. However, goals are set at levels we believe to be achievable in connection with strong performance.
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, enhances value for stockholders, capturing both the top and bottom line, as well as cash and capital efficiency.
- A balanced weighting of metrics limits the likelihood of rewarding executives for excessive risk-taking.
- Different measures avoid paying for the same performance twice.
- MBOs address a range of important topics, including focus areas on Innovation/Growth, Digital Transformation, People and Sustainable Impact, which are important to the long-term success of the Company.
The following chart sets forth the definition of and rationale for each of the financial performance metrics that was used for the Fiscal 2021 Annual Incentive Plan:
|Financial Performance Metrics||Definition||Rationale for Metric|
|GAAP Net Revenue||Net revenue as reported in our Annual Report on Form 10-K for fiscal 2021||Reflects top line financial performance, which is a strong indicator of our long-term ability to drive stockholder value|
|GAAP Business Revenue||Segment net revenue as reported in our Annual Report on Form 10-K for fiscal 2021|
|Adjusted Non-GAAP Operating Profit(1)||Non-GAAP operating profit, as defined and reported in our fourth quarter fiscal 2021 earnings press release (of $5.8 billion in fiscal 2021) and summarized in footnote (1) below, further adjusted by excluding bonus.||Reflects operational financial performance, which is directly tied to stockholder value on a short-term basis. Provides stronger alignment with our long-term strategic and financial plans|
|Non-GAAP Business Operating Profit||Business operating profit, excluding bonus|
|Non-GAAP Free Cash Flow as a Percentage of Revenue(2)||Net cash provided by operating activities adjusted for net investments in leases, net investments in property, plant and equipment, and the net impact of the one-time Oracle litigation proceeds received, as reported in our fourth quarter fiscal 2021 earnings press release and summarized in footnote (2) below divided by net revenue as reported in our Annual Report on Form 10-K for fiscal 2021 (expressed as a percentage of revenue)||Reflects efficiency of cash management practices, including working capital and capital expenditures|
As summarized above, adjusted non-GAAP operating profit is a non-GAAP measure that is defined as GAAP operating profit (of $5.3 billion in fiscal 2021), which excludes (i) costs of $467 million related to restructuring and other charges, acquisition-related charges, amortization of intangible assets as well as (ii) bonus. Management uses adjusted non-GAAP operating profit 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 adjusted non-GAAP operating profit 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 operating profit.
As summarized above, non-GAAP free cash flow is a non-GAAP measure that is defined as net cash provided by operating activities ($6.4 billion in fiscal 2021) adjusted for net investments in leases ($111 million in fiscal 2021) and net investments in property, plant and equipment ($582 million in fiscal 2021) and net Oracle litigation proceeds ($1.8 billion in fiscal 2021). HP’s management uses non-GAAP free cash flow for the purpose of determining the amount of cash available for investment in HP’s businesses, repurchasing stock and other purposes. HP’s management also uses non-GAAP free cash flow to evaluate HP’s historical and prospective liquidity.
Following fiscal 2021, the HRC Committee reviewed performance against the financial metrics and certified the results as follows:
Fiscal 2021 Annual Incentive Performance Against Financial Metrics(1)(2)
($ in billions)
($ in billions)
|Percentage of Target
Annual Incentive Funded
|GAAP Net Revenue||25.0%||$||58.3||$||63.5||62.5%|
|Adjusted Non-GAAP Operating Profit||25.0%||$||4.6||$||6.6||62.5%|
|Non-GAAP Free Cash Flow (% of revenue)||25.0%||6.7%||6.6%||21.8%|
Mr. Lores, Ms. Myers, and Mr. Schell received annual incentive payments based on corporate financial metrics. Mr. Cho and Mr. Tran received an annual incentive payment based on corporate and business financial metrics.
As a general administrative discretionary guideline, the HRC Committee may decide that financial funding for Global Functions Executives, including the CEO, cannot exceed the highest funding for a Business Unit Executive. Governors also include that HP Adjusted Non-GAAP Operating Profit Before Bonus will need to be achieved at minimum to be eligible for any award related to the HP GAAP revenue component. Also, Non-GAAP Free Cash Flow (% of revenue) is capped at 150% of target if HP Adjusted non- GAAP operating profit achievement is below target. Non-GAAP Free Cash Flow (% of revenue) is capped at 100% of target if HP Adjusted non- GAAP operating profit is below minimum.
The financial metrics were equally weighted to account for 75% of the target annual incentive.
Fiscal 2021 Annual Incentive Performance Against Non-Financial Component (MBOs)
MR. LORES. The HRC Committee determined that Mr. Lores’ MBO performance was achieved above target. Mr. Lores’ fiscal 2021 MBOs included but were not limited to: executing the strategy to position HP for long term success; achieving all fiscal 2021 business goals; advancing HP’s leadership position in Personal Systems and Print; continuing to scale innovation businesses; enhancing HP’s sustainability vision; ensuring HP has an effective talent program; and driving employee commitment and engagement while strengthening the HP culture and continuing to drive diversity throughout the organization.
Mr. Lores had strong accomplishments, including the following:
- Delivered excellent financial results including revenues of $63.5B (+12.1% increase vs. prior year), Non-GAAP operating profit of $5.8 billion (+42% vs. prior year), Non-GAAP EPS at $3.79 (+66% vs. prior year), generated $4.2 billion of free cash flow and returned a record $7.2 billion to stockholders in the form of dividends and share
- Successfully navigated a complex and dynamic environment characterized by pandemic uncertainties, component shortages and supply chain disruptions, with HP emerging as a stronger company
- Achieved fiscal 2021 business goals and exceeded value-plan commitments despite significant operational challenges, delivering exceptional performance with strong top and bottom-line growth and substantial EPS expansion
- Advanced HP’s leadership in Personal Systems and Print by driving innovation, expanding into adjacencies, evolving our business models, and strengthening our value propositions
- Accelerated shift to Contractual and New Business Models (Instant Ink, HP+, workforce services, etc.)
- Drove Peripherals growth in Personal Systems and closed HyperX acquisition in June 2021
- Shifted the focus for innovation businesses—specifically 3D printing—to creating integrated high-value end-to-end applications
- Introduced a new 10-year vision for HP to become the world’s most sustainable and just technology company, incorporating measurable goals across Climate Action, Human Rights and Digital Equity to be achieved by 2030
- Filled all openings on the Executive Leadership Team with a strong and diverse set of candidates
- Drove continued progress against aggressive diversity goals for women, US ethnicity, and US Veterans
MS. MYERS. The HRC Committee determined that Ms. Myers’ MBO performance was achieved above target. Ms. Myers did a remarkable job serving in two critical roles on the Executive Leadership Team as both Chief Transformation Officer and Chief Financial Officer. As Chief Transformation Officer, Ms. Myers delivered structural savings and major transformation programs, streamlining processes and advancing sustainability frameworks. Ms. Myers also did an excellent job as CFO, executing the fiscal 2021 Investor Relations plan, accelerating Finance transformation efforts and advancing the Finance team’s leadership and capabilities. Ms. Myers is a highly valued member of the Executive Leadership Team and an exemplary leader to our HP community.
MR. SCHELL. The HRC Committee determined that Mr. Schell’s MBO performance was achieved above target. Mr. Schell did an excellent job exceeding financial performance and long-term saving targets, at the same time resetting pricing and pivoting the business to growth opportunities. Mr. Schell successfully designed and implemented innovative channel simplification initiatives that were a first in the industry. Mr. Schell also did a remarkable job leading the COVID-19 project management office, working on the front line with customers and solving location specific issues. Mr. Schell is an outstanding global leader and his skills and experience enhance our leadership.
MR. CHO. The HRC Committee determined that Mr. Cho’s MBO performance was achieved above target. Mr. Cho did an excellent job growing the business through a successful and creative combination of organic and inorganic strategies, launching new products and platforms and completing two successful acquisitions. Mr. Cho’s leadership helped address operational challenges while supporting strong external partnerships with critical leaders. Mr. Cho also brought an exceptionally strong focus to people and sustainability initiatives in the Personal Systems organization. Mr. Cho is a thoughtful and well-respected leader in the organization with a strong team to drive the business forward.
MR. TRAN. The HRC Committee determined that Mr. Tran’s MBO performance was achieved above target. Mr. Tran successfully navigated a number of complex challenges in Print while making progress on more strategic, future focused priorities such as HP+ and Instant Ink enrollments. Mr. Tran also did an excellent job maintaining operations at the Malaysia factory and addressing privacy challenges in Europe. Mr. Tran is a knowledgeable and experienced leader with strong credibility internally and with external stakeholders to help drive HP’s enterprise goals.
Based on the findings of these performance evaluations, the HRC Committee (and, in the case of the CEO, the independent members of the Board) determined performance against MBO metrics for the NEOs as follows:
|Named Executive Officer||Target MBO
|Enrique J. Lores||25.0||38.2|
Based on the level of performance described above on both the financial metrics and MBOs for fiscal 2021, the payouts to the NEOs under the annual incentive were as follows:
Fiscal 2021 Annual Incentive Payout
Total payouts were determined by adding the weighted performance against financial metrics to the weighted performance against the non-financial metrics to determine a total payout as a percentage of the target opportunity for each executive:
|Percentage of Target
Annual Incentive Funded
|Named Executive Officer||Financial
|As % of Target
|Enrique J. Lores||146.8||38.2||185.0||4,440,000|
Long-term Incentive Compensation – Awards from Fiscal 2021
In order to motivate and reward our NEOs for their contributions towards achieving our business objectives, long-term incentives comprise the majority of each NEO’s total target compensation opportunity with a total long-term incentive target value for each NEO established by the HRC Committee in early fiscal 2021. The long-term incentives consist of a mix of 30% PARSUs, 30% PCSOs and 40% time-based RSUs and are linked to EPS, relative TSR and stock price performance. The high proportion of performance-based awards (60%) reflects our pay-for-performance philosophy. The time-based awards support retention and are linked to stockholder value and ownership, which are important goals of our executive compensation program.
The fiscal 2021 PARSUs cliff-vest following the end of a three-year performance period in 2023. Vesting of the PARSUs is based on achievement of an EPS goal with a TSR “payout modifier”. The EPS goal consists of three annual goals that roll up into our three-year annual average EPS. A TSR “payout modifier” is then applied to the EPS average payout at the end of year three to ensure alignment with our stockholders’ experience and stockholder value creation. TSR is measured over the full three-year period based on performance against the S&P 500. The relative TSR is a market-based payout modifier that adjusts payout (-50%, 0% or +50%) so there is alignment with stockholder results. Final payout is subject to an overall maximum of 300% of the target number of shares. This structure is summarized in the charts below:
|PARSU Measurement Periods||
|PARSU Goal Scoring||
EPS for PARSU measurement is calculated using non-GAAP Net Earnings adjusted to include bonus at target.
Performance measurement occurs at the end of the year one, year two, and year three performance periods.
Interpolate for performance between discrete points.
In November of 2021, the HRC Committee determined that fiscal 2021 EPS for fiscal 2021 PARSUs was achieved at 300% based on actual PARSU EPS performance of $4.08 (target of $2.74). The final payout will also depend on performance in fiscal 2022 and 2023 along with the three-year relative TSR performance.
EPS for PARSU measurement is calculated using non-GAAP Net Earnings adjusted to include bonus at target.
The addition of PCSOs in fiscal 2021 supports our more growth-oriented portfolio and strategy and aligns the interests of our executives with our stockholders by driving long-term sustained stock price growth and reflecting the time-horizon and risk to investors. The fiscal 2021 PCSO awards will vest in three tranches provided certain stock price requirements are met as follows:
- one-third of the PCSO award will vest upon continued service of one year and achievement of a closing stock price that is at least 10% over the grant date stock price for at least 20 consecutive trading days within two years from the date of grant;
- one-third will vest upon continued service for two years and achievement of a closing stock price that is at least 20% over the grant date stock price for at least 20 consecutive trading days within four years from the date of grant; and
- one-third will vest upon continued service of three years and achievement of a closing stock price that is at least 30% over the grant date stock price for at least 20 consecutive trading days within five years from the date of grant.
As of the end of fiscal 2021, all stock price appreciation conditions were met meaning that the vesting of the PCSOs only remains subject to the continued service requirements.
|Stock Price Hurdle
(Grant Price: $23.68)
|Time to Achieve Hurdle||Service Condition||Status as of 10/31/21|
|First Tranche||110% of grant price ($26.05)||2 years||1 year||Stock price hurdle met; subject to continued service|
|Second Tranche||120% of grant price ($28.42)||4 years||2 years||Stock price hurdle met; subject to continued service|
|Third Tranche||130% of grant price ($30.78)||5 years||3 years||Stock price hurdle met; subject to continued service|
2021 RSUs and related dividend equivalent units vest ratably on an annual basis over three years from the grant date. Three-year vesting is common in our industry and supports executive retention and alignment with stockholder value.
Fiscal 2021 Long-term Incentive Compensation at Target
The following table shows combined total target grant values for annual grants attributable to fiscal 2021. These values represent target opportunities to earn future value-based compensation and are not actual earned amounts, which will be determined after the end of the three-year performance period based on continued employment, stock price growth and performance against pre-established PCSO and PARSU performance goals.
|Named Executive Officer||PARSUs||PCSOs||RSUs||Total Fiscal 2021
|Enrique J. Lores||$||4,050,000||$||4,050,000||$||5,400,000||$||13,500,000|
In addition to her annual grant, Ms. Myers also received a one-time equity award with a February 17, 2021 grant date fair value of $1,000,000, consisting of restricted stock units that vest ratably over three years, beginning on the first anniversary of the grant date. The grant was made in connection with her appointment as our Chief Financial Officer on February 17, 2021 after serving as our Acting Chief Financial Officer and to reward her continuing leadership of our Transformation and IT organization through May 2021 while she was also serving as CFO.
Values in the Summary Compensation Table are different than the target values described in the table above. In the Summary Compensation Table, amounts reflect the grant date fair value for the EPS component for Year 1 (2021), for which goals were approved in January 2021, and the grant date fair value for the TSR modifier, consistent with accounting standards. Grant date fair values for the EPS component for Year 2 (2022) and Year 3 (2023) are not included in the Summary Compensation Table since EPS goals for those years are approved in their respective fiscal year.
The Summary Compensation Table for fiscal 2021 also includes a portion of the fiscal 2020 PARSUs Year 2 EPS (2021) and 2019 PARSUs Year 3 EPS (2021) for which goals were approved in January 2021.
For more information on grants to the NEOs during fiscal 2021, see “Executive Compensation—Grants of Plan-Based Awards in Fiscal 2021.”
Long-term Incentive Compensation – Continuing Performance Awards from Prior Fiscal Years
The fiscal 2020 PARSUs cliff-vest following the end of a three-year performance period in 2022. The metrics for such PARSUs are based on achievement of EPS goal with a TSR “payout modifier”, similar to the fiscal 2021 PARSUs. The EPS goal consists of three annual goals that roll up into our three-year average annual EPS. A TSR “payout modifier” will then be applied to the EPS average payout at the end of year three to ensure alignment with our stockholders’ experience and stockholder value creation. TSR will be measured over the full three-year period based on performance against the S&P 500. The relative TSR is a market-based payout modifier that adjusts payout (-25%, 0% or +25%) so there is alignment with stockholder results. Maximum final payout may not exceed 200% of target shares. This structure is summarized in the charts below:
|PARSU Measurement Periods||
|PARSU Goal Scoring||
EPS for PARSU measurement is calculated using non-GAAP Net Earnings adjusted to include bonus at target.
Performance measurement occurs at the end of the year one, year two, and year three performance periods .
Interpolate for performance between discrete points.
The EPS performance target for fiscal 2021 is the same for both the fiscal 2020 and 2021 PARSU awards. As a result, the Year 2 performance level was 200% (the maximum for the 2020 PARSUs) based on PARSU EPS performance of $4.08 in fiscal 2021 (target of $2.74), as determined by the HRC Committee in November of 2021. The final payout for fiscal 2020 PARSUs will also depend on performance in fiscal 2022 along with the three-year relative TSR performance.
The fiscal 2019 PARSUs have a two-and three-year vesting period, subject to one-, two-, and three-year performance periods that began at the start of fiscal 2019 and continue through the end of fiscal 2019, 2020 and 2021. Under this program, 50% of the PARSUs (including dividend equivalent units) are eligible for vesting based on EPS and 50% are eligible for vesting based on relative TSR performance against the S&P 500. These PARSUs vest as follows: 16.6% of the units are eligible for vesting based on EPS performance of year one with continued service over two years, 16.6% of the units are eligible for vesting based on EPS performance of year two with continued service over three years, 16.6% of the units are eligible for vesting based on EPS performance of year three with continued service over three years, 25% of the units are eligible for vesting based on relative TSR performance over two years with continued service over two years, and 25% of the units are eligible for vesting based on relative TSR performance over three years with continued service over three years. This structure is summarized in the charts below:
|PARSU Measurement Periods(3)||
|PARSU Goal Scoring(4)||
Performance measurement occurs at the end of the year one, year two, and year three performance periods .
Vesting occurs at the end of the two- and three-year periods, subject to continued service.
Interpolate for performance between discrete points.
EPS and relative TSR are weighted equally in determining earned PARSUs. The first segment (42% of total target units) vested at the end of fiscal 2020, subject to Year 1 EPS performance and relative TSR performance for the first two years. The second segment (58% of total target units) vested after the end of fiscal 2021, subject to Year 2 EPS performance, Year 3 EPS performance, and relative TSR performance for the three years.
The actual performance achievement for the one- and two-year period (i.e., fiscal 2019 and fiscal 2019–2020), as a percentage of target for the HP PARSUs as of October 31, 2020, was summarized in our proxy statement for fiscal 2020. The actual performance achievement for the three-year period (i.e., fiscal 2019–2021) as a percentage of target for the HP PARSUs as of October 31, 2021 is summarized in the table below:
Actual Performance – Segment 2
|EPS(1) vs. Internal Goals||Relative TSR vs. S&P 500(2)|
|Segment||2020||Payout||2021||Payout||Fiscal 2019-2021 Results||Payout|
|Segment 2 (58%)||$2.33||104.2%||$4.08||200.0%||32nd percentile||64%|
Through October 2021, HP’s relative TSR performance was at the 32nd percentile of the S&P 500 which corresponds to a payout of 64% of target.
The table below summarizes Fiscal 2019 PARSUs (segment 1 and segment 2). Segment 1 performance was based on performance over fiscal 2019 and 2020 and segment 2 performance was based on performance over fiscal 2019 to 2021.
The HRC Committee regularly identifies and evaluates ways to improve our executive compensation program. We believe that our current compensation structure, as modified in fiscal 2021 to reflect our strategy under new leadership, effectively aligns real pay delivery with critical financial and strategic non-financial goals, reinforces year-over-year improvement and our growth-oriented strategy, offers a stable and consistent message to both stockholders and participants, and provides an attractive pay-for-performance incentive opportunity to encourage retention and leadership engagement. In light of our continued monitoring and evaluation of our executive compensation program, and our engagement with, and feedback from, our stockholders, we believe the structure of our incentive designs as in effect in fiscal 2021 continue to support the Company’s business strategy and align with our compensation philosophy. The introduction of PCSOs further align the interest of our executives with stockholders by driving long-term sustained stock growth.
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 2008. As a result, no NEO or any other HP employee accrued a benefit under any HP U.S. defined benefit pension plan during fiscal 2021. The amounts reported as an increase in pension benefits in the Summary Compensation Table 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 Code or greater than $160,000, are eligible to participate in the 2005 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 allowed under the qualified HP 401(k) Plan (the “HP 401(k) Plan”) (the 401(k) deferral limit for calendar 2021 was $19,500) and up to 95% of the annual incentive payable under the Stock Incentive Plan, the PfR Plan and other eligible plans. In addition, we make a 4% matching contribution to the EDCP on base pay contributions in excess of IRS limits up to a maximum of two times that limit (maximum of $11,600 in calendar 2021). This is the same percentage of matching contributions 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 hypothetical investment earnings based on investment options selected by the participant from among nearly all the proprietary funds available to employees under the 401(k) Plan. No amounts earn above-market returns. Benefits payable under the EDCP are unfunded and unsecured.
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 (including the NEOs) 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.
We provide our executives with financial counseling services to assist them in obtaining professional financial advice, a common benefit among our peer group companies, for convenience and to increase the understanding and effectiveness of our executive compensation program.
We provide a small number of perquisites to our senior executives, including the NEOs. For a list of all perquisites provided to our NEOs for fiscal 2021, please refer to “Fiscal 2021 All Other Compensation Table” on page 63.
HP maintains one corporate aircraft due to our global presence. For security, safety, effectiveness and efficiency purposes, the Company allows executives to use the corporate aircraft for personal reasons. The CEO is required by the Board to use corporate aircraft for all travel. In the event an NEO is accompanied by a guest or family member on the aircraft for personal reasons, as approved by the CEO or CLO, the NEO is taxed on the value of this usage according to the relevant rules of the Internal Revenue Code. We do not provide tax gross-ups for the imputed income attributable to personal use. Among our NEOs, Mr. Lores is the only executive who used the corporate aircraft for personal use during fiscal 2021, which was to provide security and protect his health and safety. During fiscal 2021, Ms. Myers used the corporate aircraft for business travel during which she was accompanied by her family. While the incremental costs associated with such travel were recognized as imputed income by Ms. Myers, such travel by her guests was at no additional cost to HP.
In addition, we cover the costs of financial counseling, tax preparation and estate planning services for certain of our executives. These services provide these executives with a better understanding of their compensation and benefits and allow them to focus their attention on our future success.
We consider specific personal security measures to be appropriate expenses that arise out of the executive’s employment responsibilities and that are necessary to his/her job performance and to ensure the safety of the covered executive and his/her family. The Board and the HRC Committee periodically review and approve the amount and nature of executive officers’ security expenses.
The HRC Committee is focused on ensuring that the severance and change of control protections available to our executives are consistent with market practice, provide clarity to prospective and current executives, and will help attract and retain talent. Consistent with this approach, our Section 16 officers (including all of the NEOs) are covered by the Amended and Restated Severance and Long-term Incentive Change in Control Plan for Executive Officers (“SPEO”), as subsequently amended. The SPEO is intended to protect our executives and our stockholders, and provide a level of transition assistance in the event of an involuntary termination of employment. We have not entered into individual employment agreements or any severance or change in control agreements with our current NEOs.
Severance and Long-term Incentive Change in Control Plan for Executive Officers
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 either the actual annual incentives paid for the preceding three years or target bonus if the executive has received less than three full fiscal year annual cash bonuses at his or her seniority level as of immediately prior to such termination. 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 most of the compensation for our executives is performance-based and largely contingent upon the 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 (including all of the NEOs) 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 tied to 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.
Severance Benefits in the Event of a Change in Control under SPEO
In order to better ensure the retention of our Executive Leadership team in the event of a potentially disruptive corporate transaction, the SPEO also includes change in control terms for our NEOs. The benefits provided for involuntary terminations under the SPEO are also provided in connection with a voluntary termination for Good Reason (as defined in the plan) that occurs within 24 months after a change in control (“double trigger”). In addition, 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 within 24 months after a change in control, and in situations where equity awards are not assumed by the surviving corporation (a “modified double trigger”). The SPEO further provides that under either a double trigger or modified double trigger, PARSUs will vest based on actual performance with respect to the awards for which the applicable performance period has ended or target performance with respect to the awards for which the applicable performance period has not ended. In addition, in the event of any dispute under the SPEO relating to a participant’s termination of employment within 24 months following a change in control, the Company will reimburse all related legal fees and expenses reasonably incurred by the participant if claims are brought in good faith. We do not provide tax gross ups in connection with terminations, including terminations in the event of a change in control.
Among the HRC Committee’s responsibilities described in its charter is to oversee succession planning and leadership development. In addition, the full Board plans for succession of the CEO and annually reviews senior management selection and succession planning. As part of this process, the independent Directors annually review 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 2021, 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 those will be managed throughout the coming year. In addition to the annual succession planning process, the HRC Committee participates in an in-depth performance discussion of each executive officer at the time of the annual compensation review. Further, the HRC Committee receives regular People Updates at HRC Committee meetings throughout the year, which includes a review of key people processes and developments for that quarter.
In addition, the executive team participated in robust team and individual development discussions throughout the year. New external executive team members also completed an assessment and onboarding process to ensure their full integration into the team and maximize their effectiveness.
Stock Ownership Guidelines and Prohibition on Hedging and Pledging
Our stock ownership guidelines are designed to align executives’ interests 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. Our NEOs are on pace to meet the stock ownership guidelines within the allotted time frame.
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 and shares underlying time-vested RSUs. In fiscal 2021 and upon the HRC Committee’s approval, we no longer count stock options toward stock ownership guidelines. We also do not include shares in ongoing PARSU cycles. Our NEOs are on pace to meet the stock ownership guidelines within the allotted time frame.
The HRC Committee has adopted a policy prohibiting all employees, including executive officers, and Directors from engaging in any form of hedging transaction (derivatives, equity swaps, forwards, etc.) involving Company securities, 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.
Policy for Recoupment of Performance-Based Incentives
In fiscal 2006, the Board adopted a “clawback” policy that provides Board discretion to recover certain annual incentives from senior executives (including the NEOs) whose fraud or misconduct resulted in a significant restatement of financial results. The policy specifically 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 (and award agreements) allows for the recoupment of performance-based annual incentives and long-term incentives consistent with applicable law and the clawback policy.
In addition, in fiscal 2014, we added a provision to our grant agreements to clarify that equity awards are subject to the clawback policy. Award agreements also provide the Board discretion to recover certain outstanding cash and equity awards for fraud or misconduct that results in reputational harm to HP even when such fraud or misconduct does not result in a significant restatement of financial results.
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. For prior fiscal years, Section 162(m) included an exception from the deductibility limitation for qualified “performance-based compensation.” This exception, however, has been repealed for tax years beginning in fiscal 2019 under the Tax Cuts and Jobs Act. As such, compensation paid to certain of our executive officers in excess of $1.0 million is not deductible unless it qualifies for certain transition relief applicable for compensation paid pursuant to a written binding contract that was in effect as of November 2, 2017. In addition, the Tax Cuts and Jobs Act increased the scope of individuals subject to the deduction limitation. Thus, compensation originally intended to satisfy the requirements for exemption from Section 162(m) may not be fully deductible. Although our compensation program may take into consideration the Section 162(m) rules as a factor, these considerations will not necessarily limit compensation to amounts deductible under Section 162(m). Despite the modifications to Section 162(m), the HRC Committee intends to continue to implement compensation programs that it believes are competitive and in the best interests of HP and its stockholders.