What Will Léo Apotheker Walk Away With if He’s Fired?
Now that it appears Léo Apotheker’s job as CEO of Hewlett-Packard is in jeopardy, the question quickly turns to what his severance package might be.
Potentially, he could walk away with a lot. His contract, on file with the U.S. Securities and Exchange Commission, grants him a series of cash payments, company shares and other things, some of which he’ll keep, some of which he won’t.
First off is the cash: Apotheker’s base salary was $1.2 million a year and according to my reading of his contract, he’ll be eligible for a severance plan that will pay him that salary for 18 months after termination.
He also received a $4 million cash signing bonus for joining HP. But depending on when and how he’s fired — with or without cause — he may have to give some of it back. The contract says that if he’s terminated within 18 months he has to return some of that signing bonus, specifically: “an amount equal to the Signing Bonus multiplied by a fraction with the numerator equaling 18 less the number of whole months that have elapsed from the Effective Date to the date of Executive’s termination of employment (the “Date of Termination”) and a denominator equal to eighteen (18).” I’m not going to do that math for you because I don’t get what the contract aims to say. Given that it’s been less than 12 months since he joined HP, let’s just assume he’ll be required to return
most about 40 percent of it.
He’s also entitled to an incentive bonus that amounts to between 200 percent and 500 percent of his annual salary, based on HP’s existing incentive plan. The incentive plan isn’t spelled out in the contract, but since these plans are usually tied to stock performance I can’t imagine what payment he’d be entitled to under it. The contract stipulates that he gets at least some of it. More on that below.
Apotheker has also accumulated a fair amount of HP stock. He was granted 76,000 shares of HP stock, half of which vested on Oct. 31, 2010. The next day, HP shares closed at $42.49 a share, making the grant worth $1.6 million. Another grant of 38,000 shares is due to vest on Oct. 31 of this year. This block is worth a lot less: $889,000 as of the price of HP shares at the moment.
There were also one-time grants that were essentially a signing bonus package: 80,000 non-forfeitable shares, half of which are due to vest on Oct. 31, 2011, and the other half due to vest on Oct. 31, 2012. If terminated without cause within three years, these shares become fully vested. That’s another $1.9 million worth of HP shares. However, if terminated “with cause” then all the unvested equity goes poof and isn’t considered vested. This will make the “with cause” and “without cause” portion of the discussion with the board important.
Apotheker also got a lot of cash in relocation benefits, and was said to have purchased a six-bedroom house in Atherton, Calif., for $7 million. His relocation allowance amounted to $4.6 million, of which $2.9 million was to be devoted to the actual, uh, relocation, and $1.7 million of which was to compensate him for the forfeiture of payments and benefits he lost upon leaving his old job at SAP. This payment was fully vested right away and is not subject to repayment.
Update: Many thanks to reader Yogi who in the comments below appears to have done all the math much better than I could. His findings:
- $8.6 million: signing ($4 million) and relocation ($4.6 million) bonus.
- $3.6 million earned for one year of service (base $1.2 million + $2.4 million minimum bonus minimum according to contract).
- 156,000 shares of HP works out to about $3.8 million based on today’s price. Remember that all stock grants vest upon termination.
- $4.8 million severance payment: 2x the base salary plus minimum 2x bonus. This would be paid over 18 months and would stop if he gets a job with a competitor.
- 728,000 PRUs: This one is flexible, and is based on performance of the company, but automatically assuming cash flow has been achieved. Since PRUs are used as incentive for all HP management, Apotheker’s estimated achievement will be the same as for everyone else. Even at 50 percent, this would be worth about $9 million (364,000 shares), and at 75 percent it would be worth $13.5 million.
The range works out to be in the neighborhood of $28 million to $33 million.
See the clear-as-mud contract below.