Mark Hurd's Excesses Were in Plain Sight

PALO ALTO, Calif. (TheStreet) -- Almost one year ago, I wrote here that former Hewlett-Packard (HPQ) CEO Mark Hurd was the emperor with no clothes. Most on Wall Street have revered Hurd as the consummate guy who would execute and meet Wall Street's expectations. He sounded good -- always in control -- and he certainly seemed much more together than his predecessor, Carly Fiorina.

In my article, I laid out the case for why Hurd was not as dazzling a CEO as many thought and also why he was a risky asset for Hewlett-Packard moving forward.

Although most observers seemed to agree that Hurd did a great job turning around Hewlett-Packard, I pointed out that Hurd's magic really ran out after his first two and a half years on the job. In those early years, HP's stock went up 137%. Over the last two and a half years, however, H-P's shares are down 20%. Although that performance beats the S&P 500, it badly trails rival IBM ( IBM), where shares are up 20% over the same period.

The media kept showering Hurd with the "halo effect" reputation of being a turnaround genius long after his actual performance had stopped keeping up with what he accomplished at the start of his tenure with the company.

There are lots of good CEOs who suddenly lose their touch. What alarmed me about Hurd last year was the piggish behavior he and his executive team were exhibiting at the expense of H-P shareholders.

What was worse, they were gorging at the trough of lavish compensation and excess perks at the same time that they were hypocritically turning the screws on H-P employees (who remained after a series of layoffs) to accept pay cuts and reduced benefits.

HP's Securities and Exchange Commission filings of the past few years have -- in plain sight of investors and journalists -- detailed this excess:
  • Mark Hurd's total compensation for 2008 (when the global economic crisis reached its nadir) was $43 million, making him the fourth-highest-paid CEO that year, even though H-P's shares lost 29% that year.
  • CIO Randy Mott's total compensation jumped 400% that year to $28 million.
  • Imaging executive vice president Vyomesh (VJ) Joshi's total compensation increased 83% in 2008 to $22 million.
  • Personal Systems EVP Todd Bradley's total compensation went up 263% that year to $21 million.
  • Technology Solutions' EVP Ann Livermore's compensation went up 31% that year to $21 million.
  • Now-interim CEO Cathie Lesjak got a 49% bump in total compensation in 2008 to $6 million.
  • This management team mandated that year that all Hewlett-Packard staffers would take a 5% pay cut for the year, and they boasted that they -- as executives -- would stand shoulder to shoulder with the staff by taking 10% pay cuts. They forgot to say that the executive cuts would be only on base salary and that they would more than make up for that on options, restricted stock units and other bonus goodies.
  • In 2008, H-P shareholders paid $7,472 for travel expenses for Mark Hurd's family to accompany him on business meetings. They paid $256,000 for Mark Hurd's personal security detail that year. And each executive was able to use $18,000 worth of financial advice that year on the shareholders' dime.
  • Where it gets really interesting is that shareholders paid $136,000 for Mark Hurd's personal use of the H-P private plane fleet in 2008. Furthermore, H-P "grosses up" this taxable benefit, so that Hurd -- the guy who made $43 million in 2008 alone -- didn't have to pay any taxes for that private aircraft use. The filings also show that Hurd could take his spouse on the H-P aircraft whenever it was "requested by H-P" and that she got "grossed up" for that too.
  • Michelle Leder of Footnoted also first reported in 2008 that Hurd had been "grossed up" $79,814 for taxes he had to pay as a benefit on meals with his family that were paid for by HP. Leder estimated that, in order to be "grossed up" by such a high amount, Hurd would have had total restaurant bills paid for by HP shareholders of more than $243,000.

Now, we find out that H-P's board uncovered a pattern where Mark Hurd inflated his personal expenses that involved a series of trips involving him and a female contractor, who worked for the company between fall of 2007 and fall of 2009.

Although I cheer anytime I see a corporate board wake up from a deep slumber and take action where it suspects a violation of ethics, I have to emphasize that this is -- by and large -- the same board of directors that approved all of the egregious compensation and perks laid out above. And those are only the ones relevant for 2008.

We are now hearing that Hurd will receive $40 million to $50 million in compensation as part of his exit because he voluntarily resigned, instead of the $27 million he would have gotten had the board fired him for cause.

It sure seems like the board had plenty of ammunition to fire Hurd. Instead, it chickened out and the played the "it's not you, it's me" golden handshake game to make it all go away as quickly and quietly as possible. H-P's board of directors is getting good at that game: It played it with Carly as well.

The warning signs of Mark Hurd having an entitlement issue have been around for some time. It's just that most people didn't want to believe they mattered. Nothing matters to most investors as long as the guy or gal is delivering the numbers.

Sometimes charisma and tough talk isn't enough. Mark Hurd did good work in getting Hewlett-Packard back on the rails. Yet we were all blinded by that initial success, and we stopped asking tough questions.

Ironically for the H-P shareholders who loved Hurd's execution skills, he's not going to be around to integrate EDS, 3Com or Palm. That could spell "one-time" charges in the future.

In my books, if you're piggish about the small stuff like expense reimbursements, you're going to be piggish about the big stuff. Mark Hurd flashed us warning signs predicting Friday's debacle. Most of us decided to ignore them.

-- At the time of publication, Jackson held no positions in the stocks mentioned.

Eric Jackson is founder and Managing Member of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. In January 2007, Jackson started the world's first Internet-based campaign to increase shareholder value at Yahoo!, leading to a change in CEOs in 2007. He also spoke out in favor of Yahoo!'s accepting Microsoft's buyout offer in 2008. Global Proxy Watch named Jackson as one of its 10 "Stars" who positively influenced international corporate governance and shareowner value in 2007.

Prior to founding Ironfire Capital, Jackson was President and CEO of Jackson Leadership Systems, Inc., a leadership, strategy, and governance consulting firm. He completed his Ph.D. in the Management Department at the Columbia University Graduate School of Business in New York, with a specialization in Strategic Management and Corporate Governance, and holds a B.A. from McGill University.

He was previously Vice President of Strategy and Business Development at VoiceGenie Technologies, a software firm now owned by Alcatel-Lucent. In 2004, Jackson founded the Young Patrons' Circle at the Royal Ontario Museum in Toronto, which is now the second-largest social and philanthropic group of its kind in North America, raising $500,000 annually for the museum. You can follow Jackson on Twitter at www.twitter.com/ericjackson or @ericjackson.

You can contact Eric by emailing him at eric.jackson@thestreet.com.

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