The bad news: As everyone who pays any attention to the company knows, the company’s stock got hammered. So Hastings’s Netflix holdings did, too.

His 4.4 percent stake in the company was worth around $437 million at the beginning of 2011, when NFLX was trading at $175. By the end of the year, the stock was worth $69, and Hastings was down to a mere $172 million.

Netflix stock has climbed back a bit and is now at $106, and that puts Hastings back at $265 million. But that news has a flip side, too: Late last year, Netflix gave Hastings a pay cut for 2012 and cut his stock awards for the year in half, to $1.5 million.

Turns out it cost CEO Randall Stephenson, as well — $2.08 million in bonuses.

In a new filing with the SEC, AT&T’s board called Stephenson out for the collapse of what would have been a $39 billion merger between the nation’s second-largest and fourth-largest mobile phone operators.

“Although costs incurred in large merger transactions (such as T-Mobile) are to be excluded in calculating final performance attainment, the Committee determined to include the T-Mobile transaction costs in determining payouts for all outstanding executive officer performance share awards, resulting in reduced final award payouts for performance shares with a 2009-2011 performance period,” the board explained in the filing.

And then it took the scalpel to Stephenson’s incentive pay, slashing his short-term bonus to approximately $1,260,000 — a 25 percent cut — and his stock award to about $820,000 — a 6 percent reduction.

End result: A nasty $2 million pay cut that helped drop Stephenson’s total compensation for the year to $22 million, a 19 percent decline from the $27.3 million he received in 2010.

Given the events of the past 18 months or so — two new CEOs, a brief flirtation with a significant spinoff, the failure and then marginalization of an important consumer product and an unpopular and expensive acquisition — it’s probably no surprise that morale among employees at Hewlett-Packard has dropped significantly in recent months.

But now, many employees in HP’s mid-tier management ranks have something new to grumble about. Some 700 to 900 HP employees who have been participants in a three-year-old HP stock bonus plan learned right before the holidays that they would not be receiving the payout of shares they expected.

The program concerns what HP refers to as PRUs, or Performance-based Restricted Units, and is described in detail in HP’s 10-K and proxy filings with the Securities and Exchange Commission. It was created both as a performance-based bonus and also as a retention plan for certain HP management-level employees at the vice president level and higher.

In a Dec. 12 internal HP email obtained by AllThingsD, employees participating in the program were told that they wouldn’t be receiving a payout for 2011, and that shares accrued during HP’s fiscal years 2010 and 2009 would also be lost.

To explain:

Under the terms of the program, employees received grants representing hypothetical shares of HP stock that were to have been paid out at the end of the three-year period ending Oct. 31, 2011. Had HP met the stated cash flow and shareholder return goals, the shares would have been paid out to employees sometime in December.

Instead, employees were told that they would receive no payout from the PRU program at all, not for 2011, nor for 2010 or 2009.

This is, of course, exactly how the PRU program was to work: With HP’s goals not met, there was no payout to give. And while other equity-based bonuses and grant programs remain in force, for employees in the mid-level ranks — not those in the senior ranks already earning half-million-dollar salaries or more — PRUs represented an important benefit.

It’s not clear exactly how much HP would have been required to pay had the company met the PRU program’s requirements. The company’s most recent 10-K filing said that it had “$82 million of unrecognized pre-tax stock-based compensation expense related to PRUs with an assigned fair value,” but now that the payout has been canceled entirely, it no longer has to account for that amount, nor for any previous year’s PRUs.

Whatever the total amount involved, affected employees who stood to receive PRUs are seething about how and when they were told they wouldn’t be receiving them.

The email, delivered to certain managers on Dec. 12, contained instructions on talking with subordinates about their annual performance review and the rewards they could expect. The subject line was: “Deliver the One conversation.”

It reads, in part:

Managers with FY09 Performance-based Restrictued Unit (PRU) Award Holders

We have the final performance results for the FY09 Performance-based Restricted Unit award, which was based on HP’s performance from FY09-FY11. As you will recall, the performance metrics for the FY09 PRUs were:

1. HP’s annual cash flow from operations as a percentage of revenue for each of FY09, FY10 and FY11, and

2. HP’s Total Shareholder Return (TSR) for the FY09-FY11 period relative to the S&P 500

As a result of the change in HP’s stock price over the three-year period, the TSR requirements were not achieved, and no shares will be released from the FY09 PRU award.

Of course, we are very disappointed that there is no payout this year from this program, and you have specific management actions to communicate the final disposition of this grant for FY09 PRU award holders. The actions are:

– During the One Conversation, you will also need to address the outcome of the FY09-11 PRUs with employees on your team who are FY09 PRU Award Holders

– Please review the FY09 PRU Talking Points and PRU FAQs [Here the email contains links to internal HP documents I have not seen. -Ed] to prepare to have this discussion with your affected employees, who are listed below: [Here the printed copy of the email I received has several listed names blacked out.]

For any other questions about FPR, please ask Contact HR.

Regards,
Evan Wittenberg, VP, Global Talent

Stan Dunlap, VP, Global Rewards

And here’s some more detail about how the PRU program worked, taken from HP’s 10-K and proxy filings:

HP employees who participated in the PRU plan could track the accrued amounts of their PRUs on a Merrill Lynch Web site. I talked to two sources, both of whom had accrued PRUs worth between $100,000 and $200,000 for fiscal 2009 and 2010. Other less senior employees who received PRUs would have accrued between $20,000 and $50,000 in their accounts.

One source told me that as rumors began to circulate that PRUs would not be paid for 2011, most people assumed that the accrued amounts for 2009 and 2010 would still be paid. How wrong that assumption was became apparent on Monday, Dec. 11, as the amounts in their Merrill Lynch PRU accounts plummeted to zero. As recently as Dec. 9, the prior Friday, the value of the accrued PRUs for 2009 and 2010 were still displayed.

HP CEO Meg Whitman discussed the decision not to pay out PRUs in a conference call with HP’s top 900 executives days later. According to people who were on the conference call, Whitman primarily blamed the economy.

Despite the fact that HP followed the PRU program’s provisions correctly, affected employees are grumbling that management has “crossed a line.” As one source put it to me, revealing the decision during the weeks leading up to Christmas was “unconscionable.”

“If they will cross this line now, there’s no line they won’t cross later,” said one source, a current HP employee who asked not to be named. “They could have played straight with us and told us this was coming months ago. The way they’ve done this is not in keeping with the HP way.”

The decision is hurting morale at a time when HP needs to hold on to its people. One source, who left HP recently for another company, says he is routinely being peppered with resumes from HP employees looking to jump ship.

Update: An HP spokesman says of the PRU program that compensation is tied to performance and the 2011 fiscal year wasn’t a good one for HP. Still other bonus programs did pay out. “High-performing employees were still eligible for salary, stock and bonus awards that year.”

As to the timing of the decision, he said since HP’s fiscal year ends on Oct. 31, it’s natural that compensation decisions fall in December. “That’s the time every year that we do raises and award bonuses. That is when these things are announced.”

Of course, many of the affected employees are blaming HP’s prior generation of management for not meeting results, as well as its board of directors. HP shares fell considerably during the 11-month period that Léo Apotheker was CEO, and it was on his watch that the company shook the confidence of investors, as it missed quarterly earnings targets three times in a row.

This probably won’t make them feel any better, but Apotheker is affected by the loss of PRUs, too: Under terms of his separation agreement, Apotheker was to have received 424,000 PRUs which on paper would be worth $12 million and change, given Monday’s share price. But according to his contract on file with the SEC, his PRU grants were made under the same rules as those made to other employees. That means they’re gone, just like those of other affected HP employees.

When you base your life on credit
and your loving days are done
checks you signed with love and kisses
later come back signed insufficient funds.
– Funkadelic

Thanks to Ward Cunningham, the metaphor “technical debt” is now a well-understood concept. While you may be able to borrow time by writing quick and dirty code, you will eventually have to pay it back — with interest. Often this trade-off makes sense, but you will run into serious trouble if you fail to keep the trade-off in the front of your mind.

There also exists a less well-understood parallel concept, which I will call management debt.

Like technical debt, management debt is incurred when you make an expedient, short-term management decision with an expensive, long-term consequence. Also like technical debt, the trade-off sometimes makes sense, but often does not. More importantly, if you incur the management debt without accounting for it, then you will eventually go management bankrupt.

Like technical debt, management debt comes in too many different forms to elaborate entirely, but a few salient examples will help explain the concept. For this post, I chose three of the more popular types among start-ups:

• Putting two in the box
• Overcompensating a key employee because she gets another job offer
• No performance management or employee feedback process

Putting two in the box
What do you do when you have two outstanding employees who logically both fit in the exact same place on the organizational chart? Perhaps you have a world-class architect who is running engineering, but she does not have the experience to scale the organization to the next level. You also have an outstanding operational person who is not great technically. You want to keep both in the company, but you only have one position. So, you get the bright idea to put “two in the box” and take on a little management debt. The short-term benefits are clear: a) you keep both employees, b) you don’t have to develop either because they will theoretically help each other develop and c) you instantly close the skill set gap. Unfortunately, you will pay for those benefits at a very high rate of interest.

For starters, by doing this you will make every engineer’s job more difficult. If an engineer needs a decision made, which boss should she go to? If that boss decides, will the other boss be able to override it? If it’s a complex decision that requires a meeting, does she have to schedule both heads of engineering for the meeting? Who sets the direction for the organization? Will the direction actually get set if doing so requires a series of meetings?

In addition, you have removed all accountability. If schedules slip, who is accountable? If engineering throughput becomes uncompetitive, who is responsible? If the operational head is responsible for the schedule slip and the technical head is responsible for throughput, what happens if the operational head thrashes the engineers to make the schedule and kills throughput? How would you know that she did that? The really expensive part about both of these things is that they tend to get worse over time. In the very short term, you might mitigate these effects with extra meetings or by attempting to carve up the job in a clear way. However, as things get busy the mitigation will fade and the organization will degenerate. Eventually, you’ll either make a lump sum payment by making the hard decision and putting one in the box or your engineering organization will suck forever.

Overcompensating a key employee because she gets another job offer
An excellent engineer decides to leave the company because she gets a better offer. For various reasons, you were undercompensating her, but the offer from the other company pays more than any engineer in your company, and the employee in question is not your best engineer. Still, she is working on a critical project and you cannot afford to lose her. So you match the offer. You save the project, but you pile on the debt.

Here’s how the payment will come due. You probably think that your counteroffer was confidential because you’d sworn her to secrecy. Let me explain why it was not. She has friends in the company. When she got the offer from the other company, she consulted with her friends. One of her best friends advised her to take the offer. When she decided to stay, she had to explain to him why she disregarded his advice or lose personal credibility. So she told him and swore him to secrecy. He agreed to honor the secret, but was incensed that she had to threaten to quit in order to get a proper raise. Furthermore, he was furious that you overcompensated her. So, he told the story, but kept her name confidential to preserve the secret. And now everyone in engineering knows that the best way to get a raise is to generate an offer from another company then threaten to quit. It’s going to take awhile to pay off that debt.

No performance management or employee feedback process
Your company is now 25 people and you know that you should formalize the performance management process, but you don’t want to pay the price. You worry that doing so will make it feel like a “big company.” Plus, you do not want your employees to be offended by the feedback, because you can’t afford to lose anyone right now. And people are happy, so why rock the boat? Why not take on a little management debt?

The first noticeable payments will be due when somebody performs below expectations:

CEO: “He was good when we hired him, what happened?”
Manager: “He’s not doing the things that we need him to do.”
CEO: “Did we clearly tell him that?”
Manager: “Maybe not clearly …”

However, the larger payment will be a silent tax. Companies execute well when everybody is on the same page and everybody is constantly improving. In a vacuum of feedback, there is almost no chance that your company will perform optimally across either dimension. Directions with no corrections will seem fuzzy and obtuse. People rarely improve weaknesses that they are unaware of. The ultimate price you will pay for not giving feedback: systematically crappy company performance.

In the end
Every really good, really experienced CEO I know shares one important characteristic: they tend to opt for the hard answer to organizational issues. Faced with giving everyone the same bonus to make things easy or sharply rewarding performance and ruffling many feathers, they’ll ruffle the feathers. Given the choice of cutting a popular project today because it’s not in the long-term plans or keeping it around for morale purposes and to appear consistent, they’ll cut it today. Why? Because they’ve paid the price of management debt and they would rather not do it again.

Special thanks to my friend Joanne Bradford who came up with the idea for this post and coined the term “management debt.”

It turns out there were some subtle signals that the company was on the block. Theo Francis of Footnoted, the Morningstar-owned blog that follows the nitty-gritty details of SEC filings, notes a classic sign of a pending deal — increases in executive compensation and an apparent preoccupation with change-of-control provisions.

Senior executives often work these provisions into their compensation deals to ensure they don’t leave any money on the table or lose their equity in case a company is sold, merged or acquired. Often any unvested equity or options vest fully.

Francis notes that in July 2010, SucccessFactors added change-of-control provisions to its compensation plans without ever having given a thought to the subject before. Also, severance provisions were revised. For example: CEO Lars Dalgaard’s contract grants him double his annual salary and a target bonus should he lose his job after an acquisition. This comes on top of a $90,000 boost in his annual base salary to $540,000, plus an annual bonus that maxes out at twice that and a pot of restricted stock awards, worth about $6 million, all of which vest in the event of a deal.

All told, Dalgaard could walk away with almost $17 million when the deal closes. You can read more about all this in the original April 22 filing here.

Excluding charges for compensation and other items, Salesforce reported earnings of 34 cents on sales of $584 million, up 36 percent. The problem was the quarter’s billings — the sum of revenue plus the change in deferred revenue was $567 million; 3 percent, or nearly $20 million, off the consensus.

But never fear, says CEO Marc Benioff. The company is well on its way to breaking the $2.3 billion revenue barrier, and it would be the first cloud software company to do so. The company also said it expects fourth-quarter sales in the range of $620 million to $624 million, which would be ahead of the consensus of $610 million. And it said that its expects earnings of 39 to 40 cents, which is lower than analysts had expected by a penny. One the brighter side, guidance for the 2013 fiscal year, which starts in February, was ahead of the consensus by 4 percent.

The larger question is the size of the cloud opportunity, for which Benioff is the ultimate salesman, spokesman and advocate. As successful as Salesforce has been in disrupting the traditional software model and giving companies like Oracle and SAP the occasional headache, what remains unclear is how much new services like Chatter.com — the social enterprise and collaboration features that Benioff can’t seem to stop talking about — are contributing to the top line, and whether they will justify the cost to build them.

Then there’s the valuation. Salesforce finished the regular session trading at a valuation of 615 times its trailing earnings, and it has been in sky-high territory for some time. Last month, Salesforce stock nose-dived after comments from hedge fund manager Whitney Tilson on CNBC that Salesforce might be due for a 75 percent drop, a la Netflix. Salesforce shares fell nearly 5 percent that day, to $123.

As I write these words, it’s trading six dollars lower than that, at $117. Tough day.

Ballmer takes home a base salary of $682,000, and his bonus doubled it to just shy of $1.4 million. But it could have been higher. The board had the authority to award Ballmer a bonus worth up to 200 percent of his base salary and decided not to, opting instead to keep it at 100 percent.

But see, it’s not about the money. This is all the equivalent of change found under a couch cushion when compared to the worth of Ballmer’s holdings of Microsoft shares, which are worth about $14 billion or so. It’s about what Microsoft’s board thinks, especially at a time when some people have started to argue that it’s time for a change at Microsoft’s top.

There is, for instance, the issue of Windows Mobile, which Ballmer readily admits isn’t selling “as well as we would have liked.” And what about that 2 percent decline in Windows revenue?

The board’s verdict:

For fiscal year 2011, the Compensation Committee recommended and the independent members of our Board of Directors approved an Incentive Plan award of $682,500, which was 100% of his target award. The award was based on his performance appraisal and other relevant information considered by the independent members of the Board, including: Mr. Ballmer’s performance against his individual commitments; the operating income performance of the Company relative to 25 large technology companies (a group that includes most of our Technology Peers); successful product launches including Kinect for Xbox and Office 365, enhancements to Windows Azure and Bing; continued progress positioning the company as a leader in the cloud and cloud-based infrastructure; key partnerships with Facebook and Nokia; significant progress in development of the next generation of Windows; work toward the successful acquisition of Skype; lower than expected initial sales of Windows Phone 7; the 2% decline in revenue for the Windows and Windows Live Division; the need for further progress in new form factors; and an overall strong financial year in which Microsoft reported record revenue of $69.9 billion, record operating income of $27.1 billion, and record earnings per share of $2.69 representing 12%, 13%, and 28% growth, respectively.

Yay Ballmer. So how did the rest of the senior management team do? Here’s what the board says in the proxy filing.

CFO Peter Klein: He got $3.6 million, which was 120 percent of his target award, and credit for focusing on operating expenses and on the capital allocation plan, which resulted in $16.9 billion of cash returned to shareholders by way of share buybacks and dividends. He also did the due diligence on the Skype acquisition.

Kurt DelBene, president of the Microsoft Office Division: Annual revenue from the division increased 17 percent to $20 billion; Office 2010 was the fastest-selling version in the product’s history; and Office 365 got out the door. Plus Sharepoint, Exchange and Lync had “double digit growth.” Based on his fiscal year 2011 performance, DelBene received an incentive plan award of $7.25 million, 132 percent of his target award.

Steven Sinofsky, president Windows and Windows Live: Revenue is falling slightly in this group because of the decline in consumer PC sales, but Windows 8 is on the way. For all this Sinofsky, got $6.3 million or 90 percent of his target award.

Kevin Turner, COO: With Microsoft reporting annual revenue of $70 billion and operating income of $27 billion, up 13 percent, Turner earned an incentive plan award of $9.63 million, 110 percent of his target.

• A base salary of $1 per year. In doing so she’s following the example of another well-known CEO who just stepped down from his job: Former Apple CEO and now Chairman Steve Jobs.
• An option to purchase 1.9 million shares of HP under its 2004 stock incentive plan. The exercise price would be equal to the market value of the share price on the grant date. The options will vest over eight years, but are considered fully vested only if HP’s share price rises by 40 percent or more. As of today that number of shares is worth $45.2 million.
• 100,000 of those shares will vest on each of the first three anniversaries of Whitman’s anniversary of service, provided she’s still on the job.
• An additional 800,000 of those 1.9 million shares will vest after one year, provided HP’s share price has risen by 120 percent and stayed that high for at least 20 days.
• Yet another 800,000 of those shares vest on the second anniversary of her date of service, provided the share price is up 140 percent or better for 20 consecutive days.
• Whitman will also get the same annual cash bonus of $2.4 million each year, with a maximum equal to 2.5 times the target of HP’s existing incentive plan, which is tied to cash flow performance.
• If she’s fired, she receives a severance benefit payment equal to 1.5 times the sum of her annual base salary — a whole $1.50 — plus the average of her bonuses paid during the preceding three years.

Today, Fortune magazine released its annual “50 Most Powerful Women in Business” and, as usual, it had its share of tech execs on the list.

And off it, too — first and foremost being ousted Yahoo CEO Carol Bartz, who was jacked completely from her 2010 No. 10 rank. She was No. 8 in 2009.

In her place: Newly designated Hewlett-Packard CEO and former eBay CEO Meg Whitman grabbed the No. 9 spot.

Also on the list: fast-rising IBM sales, marketing and strategy exec Ginni Rometty at No. 7; Xerox CEO Ursula Burns at No. 8; Oracle President and CFO Safra Catz at No. 11; Facebook COO Sheryl Sandberg at No. 12; Google execs Susan Wojcicki and Marissa Mayer at No. 28 and No. 38, respectively; IBM North America GM Bridget Van Kralingen at No. 39; and Best Buy Americas President Shari Ballard.

Catz was the highest paid of the group, with $42.1 million in total 2010 compensation.

And also taken off this year: 2010 No. 14, HP’s Ann Livermore, who left her top job there, but still is on the tech giant’s board; 2010 No. 28 Cathie Lesjak, CFO of HP; 2010 No. 44 Lorrie Norrington, a former president at eBay; and Apple’s communications head Katie Cotton (she was robbed!), who was No. 50 in 2010.

The new list will be in the magazine on Monday, which is when a related conference will take place in Southern California. (I will also be in attendance there, along with other less powerful ladies.)

Whitman is scheduled to speak at the conference in the afternoon on Tuesday, October 4.

In an unusual appointment for the longtime public servant, former U.S. Treasury Secretary Larry Summers will join Silicon Valley venture powerhouse Andreessen Horowitz as a part-time “Special Advisor.”

Summers got to know the firm with an assist from Facebook COO Sheryl Sandberg, who was a student of his when he was a professor at Harvard University.

Summers was later president of Harvard, as well as director of the White House National Economic Council in the Obama administration until late last year.

“I am doing this because I feel technology in general and information technology in particular is now having a real pervasive macroeconomic impact in our time,” said Summers in a phone interview this afternoon from his home in Boston. “Long after people have lost their memory of the dramatic financial crisis in recent years, they will remember what technology has done to transform our economy in these same years.”

Summers said he increasingly wanted to become closer to this important trend and thought he could contribute to the innovation in Silicon Valley by helping its portfolio companies better understand the global economy.

He was introduced to Andreessen Horowitz at first by Sandberg, who was also Summers’ chief of staff while at the Treasury Department, and was attracted to its investment philosophy.

“They have distinctive elements of strategy that seemed to be a good fit, such as their emphasis on market disruption,” said Summers. “They also have an audacity of the vision and were really supporting transformation.”

Summers said he would serve as an advisor to Andreessen Horowitz companies, focusing on global opportunities they should take advantage of.

He will not become a VC, though. “My life to date has been as a professor and public servant, so I am not in a position to be a major investor,” said Summers.

That said, Marc Andreessen quickly noted in the interview that “if Larry brings in a company, we are going to take a serious look at it.”

While he was not a partner, Andreessen said Summers’ compensation would be linked to the long-term performance of the firm.

Summers will travel between Massachusetts and the West coast, but will also continue to work on outside projects.

What he will not be doing is giving any long-winded economic lessons to entrepreneurs in Silicon Valley.

“I am not sure there is the attention span for some of my lectures out there,” he joked.

Here is Andreessen’s blog post about the Summers appointment:

Meet Larry Summers, Our New Special Advisor

By Marc Andreessen

Today I’m delighted to announce that economist and former US Treasury Secretary Larry Summers is joining our team as a part-time Special Advisor.

A lot of people already know who Larry is, but here are the highlights of a remarkable career to date:

* Admitted to MIT at age 16, originally to study physics — clearly our kind of nerd.

* Became tenured professor of economics at Harvard at age 28, where he first started mentoring a young undergraduate named Sheryl Sandberg, who ultimately became his chief of staff at the US Treasury.

* Received John Bates Clark Medal for his research at age 38, one of the two most prestigious awards in the field of economics (the other is the Nobel).

* On the staff of President Reagan’s Council of Economic Advisors in 1982-1983. (For those of you too young to remember, Reagan was a noted Republican.)

* Undersecretary for International Affairs and then Deputy Treasury Secretary for President Clinton between 1993 and 1999. Intimately involved in resolving major macroeconomic crises in Mexico, Russia, and elsewhere. Became US Treasury Secretary in 1999.

* President of Harvard from 2001 to 2006.

* Until late 2010, served as President Obama’s director of the White House National Economic Council.

* And, most importantly, a pivotal character in the recent movie “The Social Network”.

Larry will be an advisor to our firm and our entrepreneurs on several topics:

First, as technology continues its relentless colonization of broad swaths of the global economy, Larry will help us understand the scope and nature of the opportunities in front of us and our industry.

Second, many of our companies are seeking to restructure and revolutionize various markets — such as telecommunications, advertising, entertainment, education, health care, and financial services — and Larry will help us and our entrepreneurs analyze and understand the economics and dynamics of those markets.

Third, Larry’s deep insight into global economics and geopolitics will be highly useful to our companies that intend to expand globally — which is to say, all of them.

According to the New York Times, “Years ago, Henry Kissinger suggested that Mr. Summers be given a White House post in which he was charged with shooting down or fixing bad ideas.” We can’t arrange that, but we are excited to have him on our team, both to do that and to contribute lots of new ideas to us and to our companies.

Some employees are alleging they were duped via complicated legalese and double-talk in employment contracts about how their shares would be handled upon termination or voluntary departure from the Internet telephony giant.

That matters, since Skype was recently sold to Microsoft for $8.5 billion, well above previous valuations. Thus, those who were, as a Skype PR person said, not in it to win it, um, lost.

Dramatic stuff, to be sure. But, even with all the fervor around the employment contract issue, the handwringing about what it means for compensation issues in Silicon Valley and a whole big dose of how private equity companies (in this case, a firm that had bought Skype called Silver Lake) are evil, it’s struck me as little more than an insider read-the-legally-obtuse-contract dispute.

And, although I love Reuters’ Felix Salmon’s epic tsk-tsking posts, that’s why I like to see real documents as proof of what people knew and when.

Apparently, a lot and rather clearly from this PowerPoint that was given to employees of Skype as of December 2009 as part of its changing ownership, after Silver Lake and other investors bought it from eBay.

While it’s not proof of what employees got it — typically, it is standard HR policy to hand this stuff out to everyone — and who read it (no accounting for slaggards!), it is pretty clear on what happens upon leaving Skype, either by a firing or quitting.

On the eighth slide, as you can see above, it says, in part:

“Good Leaver”: someone who gets fired without “Cause”

* Gets the fair-market value of their currently vested options

“Bad Leaver”: someone who resigns, or is fired for “Cause”

* Skype buys back their options at the lower of fair-market value or strike price

* This provision lapses post-IPO

It seems pretty buyer-beware clear, but check it out for yourself:

Skype – Employee Presentation

Demand Media handily beat Wall Street expectations in its first quarter results today, released after the market closed.

The company reported revenue of $79.5 million and six cents a share in adjusted net income.

Investors were expecting the company to report about $69.6 million in revenue for the three months, with four cents a share in adjusted profits.

On a GAAP basis, the net loss per share was 13 cents compared to 94 cents a year ago.

The decent results could boost Demand’s stock, which has been hit hard since Google launched “Panda,” an overhaul of its search algorithm to improve results and remove poor quality content.

In a conference call at 2 pm PT today, which BoomTown will be liveblogging, most will be paying more mind to what the online content company’s top execs–especially CEO Richard Rosenblatt–have to say about the impact of the updates from Google to Demand’s various Web offerings.

As a first strike, some of Demand’s execs briefed the media earlier today on efforts to improve the quality of its content–you can read the official press releases here on that and also here.

In them, Demand said it will remove some online posts that were substandard and created under a now-suspended writers’ compensation system. It said it is also improving reader feedback tools and adding more substantive stories to its sites.

Those are all good ideas, since Google’s tweaks have been chewing away at a range of Web sites–such as those owned by Demand–which rely heavily on search engine optimization to bring in huge traffic.

One big hit for Demand, due to Panda, has been to its flagship eHow site.

All the mishegas has hurt the Santa Monica, Calif., company’s stock. It’s down just over 30 percent since Demand’s IPO in late January, as bearish investors fret over the implications of Panda.

Still, in its report, Demand said its content and media revenue was up 72 percent to $51.9 million, compared to $30.2 million last year.

“While the exact number is not known, it is reasonable to assume that there were approximately 10,000 Microsoft millionaires created by the year 2000.”

–Economist Richard S. Conway Jr.

Remember the Microsoft millionaires? The Redmond rank-and-file who were catapulted into heady tax brackets when Microsoft’s stock spiked more than a hundredfold in the late ’80s?

Neither does the company’s workforce.

Or the IT talent pool.

Which is likely why Microsoft is rolling out a new compensation plan, one that stresses cash up front over stock awards bled of their retention incentive by Microsoft’s stagnant share price. It can’t be easy recruiting and retaining top talent these days with Google shares trading north of $524 and obscene valuations being given to Twitter and Facebook. And the rejiggering of Microsoft’s compensation plan with an across-the-board salary increase is an implicit recognition of that.

“Through our history, we have been THE place people came when they wanted to make a difference in the world through software, hardware and services,” Microsoft CEO Steve Ballmer said in a companywide memo Thursday morning. “This is as true today as it has been at any time in our history, and the changes we’re rolling out today will help ensure Microsoft continues to be the place that top talent comes to change the world.”

Ballmer’s memo in full, below.

There are many things that are true about Microsoft. We have big goals, big dreams and big aspirations for the future. We have great products and services. We have great people. We are competitive both with our products and in the way we attract and retain talent. For me, the most important factor is competition for talent, because I know our success comes from the people who work here.

Attracting and retaining great talent has at least three critical components: enabling and supporting people doing exciting and innovative work, creating a great environment where people can grow and be recognized, and providing the right overall compensation. In the same way we continuously improve our products and services, we must also improve the ways we support and reward our talented people. In line with that, today we’re announcing changes that will benefit our employees by sharpening the clarity of our performance review process and increasing compensation. These changes represent the most significant investment in overall compensation we have ever made.

Reviews. We are retiring our current system (commitment rating and contribution ranking) and moving to a single performance rating with clear rewards. We are making this change so all employees see a clear, simple, and predictable link between their performance, their rating, and their compensation. Each rating at each level will now have set compensation tied to the rating.

These ratings will be based on the results you accomplished during the review period (assessed against your commitments), how you accomplished them, and your proven capability. Ratings will be a simple 1-5 system with relative performance being assessed across common peer groups.

Compensation. We are increasing our investment in compensation across the board.

The following changes will take place at review this September:

For all employees, we will have merit increase opportunities aligned with local market dynamics and performance rating.
• We will make important increases in compensation for specific populations where the market has moved the most – early and mid-level R&D, mid-level company-wide and certain geographies.
• For all employees, we will shift a portion of stock award targets into base salary, providing more cash up front and obvious incremental employee value. Senior leaders will continue to have a large portion of their overall compensation in stock to ensure their compensation is heavily tied to the financial performance of the company.
• We are increasing funding for our bonus and stock awards so we can deliver 100% or more of target bonus and stock awards to 80% of our eligible employees. This is up from about 50% in prior years. The additional funding ensures our approach continues to support higher payouts to top performers.

The easiest way to understand these changes is to look at how you could be affected here.

There is a lot of information available about these changes on HRWeb and via conversations with your manager.

But I’ll finish how I started. Our ability to deliver great value to our billions of customers is driven by the ideas and passions of our employees. Through our history, we have been THE place people came when they wanted to make a difference in the world through software, hardware and services. This is as true today as it has been at any time in our history, and the changes we’re rolling out today will help ensure Microsoft continues to be the place that top talent comes to change the world.

Thanks,
Steve

Online real-estate brokerage Redfin Corp. is feeling the fallout. The 200-person company, which is based in Seattle and has offices in San Francisco, typically hires new engineers fresh out of college, relying on competitive compensation and the allure of working at a profitable start-up.

Redfin said it has recently been up against salary-and-bonus offers of $100,000 to $150,000 a year for new college grads from social-gaming start-up Zynga, among others—far above the $80,000 or so a year Redfin would normally offer.

Read the rest of this post on the original site

Financial markets have sent Nokia shares lower, workers have been up in arms and earlier on Tuesday a group of young Nokia investors posted an open letter on the Web calling for the Nokia chief executive to rethink his plans and instead opt for a “Plan B” that would have Nokia maintain ownership of the software layer of its phones.

But Elop said he is not surprised there has been some negative reaction. Elop noted that he has had months to weigh all the options and grow comfortable with the Windows Phone-led strategy, while others are still digesting it.

“There is both an intellectual journey and an emotional journey through which we all need to go,” Elop told Mobilized during a chat on the sidelines of the Mobile World Congress event in Barcelona. “I’ve had four and a half months to go through the journey.”

As for workers walking off the job last Friday, Elop also seemed to take that in stride. “To the extent that workers need time to go through that emotional journey, that’s something I completely understand.”

While Elop said the main reason he went with Windows Phone was the opportunity for sustainable differentiation, he noted that the billions of dollars from Microsoft doesn’t hurt.

Elop said that the value of the deal reflects not just the standard business terms, but also the fact that Nokia was a “swing vote” in the mobile market and could have gone to Google and Android.

“That, by itself, has substantial value,” Elop said. “In addition to revenue streams one would normally calculate into a deal, there is a clear recognition of a special value that we are providing for which we are receiving compensation–value, money, however you want to describe it–measured in the ‘B’s not ‘M’s.”

The revenue, which was euphemistically referred to during last week’s investor event as “marketing support” will show up over the life of the deal, Elop said, and allow the company to invest more or flow through to its bottom line.

“To be clear it’s not about the money,” Elop said. “If we can be no different than anybody else, then at end of the day margins erode.”

Elop also noted that Nokia is committing fully to Windows Phone, where as Microsoft’s other partners are largely doing products for Google’s operating system as well.

“Some of the other OEMs do their best work for Android right now,” he said.

Although Nokia hasn’t committed to releasing a Windows Phone this year, Smart Devices head Jo Harlow said onstage at Nokia’s press conference that she is feeling the heat to do so.

Elop clarified where that heat was coming from. “From me,” he said. “From me.”

Update: Asked for comment on the Plan B letter, Nokia offered a brief statement.

“We are aware of the letter being posted, but have not been directly contacted,” the company said. “Nokia’s new strategy has full approval of the Board of Directors and the Nokia Leadership Team, and our focus now is on the execution of this new strategy.”

I don’t have the deal terms, but my hunch is that no cash is involved, and that AOL’s compensation could come in the form of equity in privately held Outbrain, or a tax benefit, or both.

“In keeping with the AOL strategy, any place where we are not a leader in the category or profitable, we are going to look at partnerships or other alternatives. This is one of those businesses. We are pleased we found a great home for the Surphace technology and its employees,” AOL venture and local head Jon Brod said in a statement.

Outbrain CEO Yaron Galai declined to comment.

AOL acquired Surphace for something north of  $25 million in 2008, when it was called Sphere, and Armstrong was still running ad sales at Google. Co-founder Tony Conrad left AOL in 2009, but has since come back as part of the About.me acquisition late last year.

Both Surphace and Outbrain do roughly the same thing: They allow publishers to automatically present related pieces of content to Web surfers, based on the very straightforward theory that a visitor interested in a certain kind of story would stick around if offered similar stuff. (All Things D is a Surphace customer, so you can see it in action at the bottom of this post).

AOL reports earnings early tomorrow morning.

Pichai, who is Google’s VP of product management in charge of Chrome and Chrome OS, had been Twitter’s top pick after longtime VP of product Jason Goldman stepped down last month, as NetworkEffect reported last week.

Suffering from employee departures for companies like Facebook or their own start-up efforts, the search giant seems to have been able in this instance to persuade its talent to stay put.

While I haven’t been able to nail down what exactly Google paid to keep Pichai, it was apparently a significant increase to his previous compensation package. Google declined to comment on the matter.

Stories of Google paying millions of dollars to keep key employees are not uncommon these days. And Pichai is said to be particularly valued by Google CEO Eric Schmidt and SVP of Product Management Jonathan Rosenberg.

Meanwhile, Twitter–which has many product leaders within the company, including co-founder and former CEO Evan Williams–will continue its search for one product VP to rule them all.

Offline instant messages and group video chat services remain offline, he said.

Bates said Skype now knows what caused the crash, but he didn’t disclose it. He ruled out the possibility of some kind of malicious attack, and said it’s conducting a detailed postmortem.

This would probably be the worst time for Skype to experience a high-profile outage. Though the Skype service is working today, lots of people who might have used it to call family members heading into Christmas may have made alternate plans.

However, the failure, whatever its cause, is also a reminder that Skype isn’t always in charge of its own ability to stay online. In 2007 an otherwise routine Windows security update issued by Microsoft forced an abnormally high number of PCs running Skype around the world to restart at roughly the same time. A software flaw prevented the Skype peer-to-peer network from compensating properly and the service crashed for two days.

This incident will also hurt its reputation with two key constituencies: Prospective business customers and potential investors. Business customers will rethink plans to deploy Skype. And potential investors will question whether this company has its act together, hurting the potential benefit from its forthcoming IPO.

To its credit, Skype did manage to restore service much faster than it did in 2007, as SkypeJournal notes here.

System failure is one of the risks that Skype admits to in its S-1 filing with the U.S. Securities and Exchange Commission. Of the 2007 failure, Skype says in its filing:

“We experienced significant adverse publicity and lost net revenues as a result of this outage, and any similar outage in the future would likely harm our business. As we increasingly introduce products particularly targeted at business customers, any system failures could have a significant impact on our ability to attract or maintain our relationships with business customers.”

Bates’s video message to customers is below.

In court papers filed Friday, the company demanded SAP pay it $212 million in interest on top of the $1.3 billion in damages it was awarded in the TomorrowNow lawsuit. Should Oracle’s demand be approved, SAP’s total penalties would rise to $1.63 billion.

SAP, which argued in court that it should be held liable for no more than $28 million, clearly has no plans to pay Oracle the interest to which it says it’s entitled.

Said an SAP spokesman, “We don’t believe that Oracle is entitled to any additional compensation beyond the final judgement in this case.” 

Reached for comment, Oracle declined to give one.

PREVIOUSLY:

• Oracle-SAP Verdict: SAP Owes Oracle $1.3 Billion
• Oracle-SAP: Closing Statements Followed by Closing Insults
• Oracle-SAP Case Closes With $1.67 Billion Difference of Opinion
• LOLCatz: Safra on The Stand Again in Oracle-SAP Trial
• Plattner and White No-Shows at Oracle-SAP Trial
• Damages Expert to SAP: You Owe Me $14 Million and Oracle Four Times That
• Oracle, SAP and the Apotheker Sideshow
• Better Late: SAP Co-CEO Apologizes for Oracle IP Theft
• SAP Co-CEO Expected to Testify in Oracle Trial Today
• HP to Oracle: Leave Léo Alone
• Oracle Still Hoping to Snag HP’s Apotheker for SAP Trial
• HP CEO to Oracle: Here’s Looking at You, Kid–Suntory Time!
• Ellison to Self: Damn, Damn. I Knew I Should Have Said $4.5 Billion
• SAP Attorney: Board Knew TomorrowNow Was Infringing at Time of Acquisition
• Oracle Co-President on SAP’s Damages Offer: “It’s Crazy”
• Oracle Enlists Process Servers, Not PIs, to Find HP CEO
• Oracle-SAP Trial: Ellison Swaps Katana for Poison Darts
• Objection: Mr. Ellison Is Referring to the Defendant as “Choleric of Temper” Again
• Oracle Lands Early Shots in SAP Trial
• Your Honor, We Object to Mr. Ellison’s Repeated Use of the Term “Slimy Weasels”
• Oracle to HP CEO: Chicken!
• Oracle Vs. SAP: We Got a Right to Pick a Little Fight–Bonanza!
• SAP’s Tab in Oracle Case: $120 Million and Counting
• Gag Order Denied in Oracle, SAP Trial
• Ellison Taunts HP CEO a Second Time
• SAP to Ellison: Save the Drama for Your Mama
• Ellison to HP CEO: “Warrior, Come Out to Plaaeeay!
• SAP: Please Gag Oracle
• HP Scandal Sucks in New York Times Columnist Over Conflict of Interest
• Welch to HP Board: You Don’t Know Jack!
• Insiders Criticize Ellison For HP CEO Slam
• Was Apotheker HP’s First Choice of CEO?
• HP Names Ex-SAP Chief Apotheker as CEO

And SAP finds all the histrionics between the two companies a bit much. And as far as Oracle CEO Larry Ellison’s goading of former SAP CEO Léo Apotheker, well, SAP says Larry needs to get his facts straight.

This morning, the company took issue with Ellison’s claim that Apotheker “allowed the theft of Oracle property to continue for 8 months after he was made sole CEO of SAP.”

“This is more of the sideshow and clearly shows that Ellison’s true motivation is his personal vendetta against Apotheker and the HP board,” a spokesperson told me. “SAP remains focused on the core issues of the case–determining fair and accurate levels of compensation. These personal tirades are a distraction and, sadly, not even factually accurate.”

Which is true to a point, though I’d argue that Ellison’s tirades are more entertainment than distraction. Apotheker didn’t become SAP’s sole CEO until June of 2009–seven months after SAP shuttered the TomorrowNow division at the center of Oracle’s suit.

So SAP is right. Ellison’s rant isn’t quite factually accurate. That said, were one to swap in “co-CEO” for “sole CEO,” it would be.

So as a parry to Ellison’s broadside, this is pretty weak stuff. If it’s the best SAP’s got, it doesn’t stand a chance in this developing war of words.

PREVIOUSLY:

• Ellison to HP CEO: “Warrior, Come Out to Plaaeeay!
• SAP: Please Gag Oracle
• HP Scandal Sucks in New York Times Columnist Over Conflict of Interest
• Welch to HP Board: You Don’t Know Jack!
• Insiders Criticize Ellison For HP CEO Slam
• Was Apotheker HP’s First Choice of CEO?
• HP Names Ex-SAP Chief Apotheker as CEO

With all the noisy swirl around Yahoo of late–from its executive turmoil to its flat growth to its dashed partnerships in Asia to its brash CEO–its board has been unusually quiet of late.

Comatose, some might say.

In fact, many do say exactly that, pointing to the trauma of their disastrous performance when they fended off a hostile takeover attempt by Microsoft (MSFT) for above $30 a share as the cause.

Since then, the stock price of Yahoo (YHOO) has been mired in the low teens.

That is, until yesterday, when even more rumors of new plots emerged in the media, with private equity firms, media companies, Web rivals, big shareholders, Wall Street and others all machinating about trying to grab all or some of the Internet giant.

Now, it will be interesting to see if its directors will shake themselves out of their typical comfort zone of inactivity to actually do their job.

Which, as former GE (GE) star exec Jack Welch–in a recent smackdown of a spate of controversial moves by the Hewlett-Packard (HPQ) board–said in a recent interview, is to “pick the CEO, help them shape strategy, make them feel good about themselves, and, if the CEO isn’t doing a good job, to ‘get them the hell out of there.’”

According to sources close to the situation, the Yahoo directors are in a quandary, even as they are on the receiving end of a flood of suggestions and demands from big investors, ranging from merging with AOL (AOL) to aligning with News Corp. (NWS) to selling off the company’s lucrative Asian assets to replacing CEO Carol Bartz.

You get the idea.

But that might not happen as quickly as some want. Sources said that while the eight-person board has some strong personalities on it, there is no one who has emerged as a powerful leader, aside from Bartz.

Yahoo has recently tried to attract two execs who might be able to go toe-to-toe with her–OpenTable (OPEN) CEO Jeff Jordan and Akamai (AKAM) President David Kenny–but was turned down by both.

Neither apparently wanted the headache of dealing with Yahoo’s struggles.

The same goes for some on Yahoo’s board.

Said one person who had spoken to a few board members recently: “Each of them tells me, ‘I’m only one person and I can’t act alone.’”

Indeed not, which is why you have a board. Stone soup, people!

In any case, it is high time to put the spotlight on the Yahoo directors, which I have done in the past in other crisis moments.

Here’s a rundown, with their photos from Yahoo’s shareholder Web site, along with some BoomTown analysis:

Carol Bartz, CEO:

We all know her, the tough-talking longtime Silicon Valley software exec who was brought in to clean up Dodge in the wake of the rocky tenure of former CEO and co-founder Jerry Yang. She is under pressure here for not doing that well enough, of course, despite a very, very big compensation package.

Still, with an aggressive personality and a wimpish board, she might be able to stave off any challenges to her power.

Roy Bostock, Chairman:

The longtime airline board member and advertising exec has been at the top of the Yahoo board since 2008 and on it since 2003.

Which is why I called for his resignation after Yang and former Yahoo President Sue Decker gracefully stepped down, after their management was called into question.

Bostock was right there with them, making all those decisions, which turned out to be disastrous in hindsight. Still, he does not seem to be much for the honorably-falling-on-your-sword thing.

In fact, sources said he has been making the rounds of investors recently trying to gauge the mood. Memo to Roy: It’s bad.

Eric Hippeau

Now the CEO of the Huffington Post, the longtime Web investor and publisher has a lot of online experience and should be one of the leaders on the Yahoo board. Hippeau has certainly been a director long enough to be one–since 1996, as an early investor in the company.

He’s also known as a super-nice guy in Internet circles, which means he is no head-smacker. Too bad.

One idea floated to me by an investor: Yahoo could buy the upstart online media darling and install him as CEO. Pretty please, because the entrance of the fab stylings of Arianna Huffington into this mess would send me into the stratosphere of reporting nirvana.

Vyomesh Joshi

Also a very endearing dude, the top HP exec was one of those on the short list for CEO of the tech giant recently. He runs its gigantically profitable printing and imaging business.

He’s been a Yahoo director since 2005 and should be a key decision maker, since he is an experienced operator. He’s not been, unfortunately.

Arthur Kern

Also a lifer, also having been on the Yahoo board since 1996, the investor and radio exec has also worked in marketing at Digitas.

Among the board members, he seems to be the quietest of the bunch, so I am not sure what to say about him except that he has very white teeth.

Gary Wilson

Another investor–in private equity, he has been on the board of airline companies (what is with this plane stuff on the Yahoo board?), as well as a top financial exec at Disney (DIS) and Marriott (MAR).

Again, a nice résumé, and he should be a leader. He was definitely more involved in the Microsoft situation than others.

Since then? Meh.

Sue James

The accountant. Retired from Ernst & Young. Used to work for Bartz, as lead partner for audit work for Autodesk (ADSK). Joined the Yahoo board early this year.

Probably just figuring out that this whole thing might not be adding up.

Patti Hart

Also new, since June. Worked in the digital video business, and is now the CEO of a “global provider of electronic game equipment and systems products.”

Say what?

Okay, I will go with it, as I am liking that Bartz has brought on two women to the board, which has mostly been stacked full with men.

Brad Smith

The president and CEO of Intuit (INTU), the financial management software powerhouse, also joined in June. This guy should be able to shake the trees, right?

But he is probably still trying to learn everyone’s name. Brad, not to put too much pressure, but everyone is counting on you.

Jerry Yang

Last, but certainly not least, the man who is ultimately the power player here.

The Internet pioneer and industry legend checked out of Yahoo for a bit after he stepped down in early 2009–time to tee off!

But many sources said he has been back at Yahoo for a while–glad-handing advertisers, meeting with entrepreneurs, sussing out trends, piping up in strategy meetings and doing the behind-the-scenes thing that he does so well.

Reports vary on how much he likes Bartz–he expresses support for her to some, but seems to have soured on her to others.

Who knows with the endearingly prickly Yang, whom I have been covering for a dog’s age and who should return my emails once in a while, like in old times when I stalked him.

Dinner is optional, but I will pay this time (see video below of our last semi-enjoyable meal).

Still, here is what I know for sure: Yahoo is Yang’s creation and legacy, and he’s the one who has to make sure that it survives and thrives.

For all the uncertainty surrounding Yahoo once again, that much is true.

]]> http://allthingsd.com/20101014/meet-the-yahoo-board-something-old-something-new-but-will-they-do-something/feed/ 4 http://allthingsd.com/20101012/yahoo-ceos-over-pay-puts-spotlight-on-performance/ http://allthingsd.com/20101012/yahoo-ceos-over-pay-puts-spotlight-on-performance/#comments Tue, 12 Oct 2010 12:12:59 +0000 Kara Swisher http://kara.allthingsd.com/?p=35345

Yahoo’s CEO Carol Bartz has been under pressure of late, due to everything from executive turmoil to flat revenue to lack of vision to, perhaps most importantly, a flaccid stock price.

And, as of yesterday, you can add excessive pay to the pile.

That’s because Bartz just topped the list of 25 overpaid CEOs, which is done annually by proxy adviser Glass, Lewis & Co.

A dubious distinction, to say the least.

The San Francisco-based firm pointed to the $39 million Bartz garnered last year from Yahoo (YHOO), which–to be fair–includes both salary and options she has not yet sold.

Still, the huge sum also recently put her atop Fortune magazine’s list of highest-paid women.

Glass Lewis, of course, was using Yahoo’s top exec to make a point:

“Bartz represents a problem we find at many other firms with poor pay-for-performance grades: excessive compensation awarded to executives to encourage them to join or remain with a company.”

Indeed, this big number–however loaded with options based on some level of performance–is one that is sure to draw shareholder ire, due to the fact that the well-paid Bartz is simply not delivering what had been hoped for when she was brought on to shake up Yahoo.

It will be interesting to see if the board of Yahoo–hands down the weakest and most mistake-prone in Silicon Valley–will act in the same way the Microsoft (MSFT) board did with CEO Steve Ballmer.

Although a small thing, especially given how wealthy Ballmer is, the company pointed to the ill-fated venture that was the Kin phone and the slow response to the Apple (AAPL) iPad juggernaut, when giving him only half his maximum bonus recently.

This was despite record revenues at Microsoft, yet still a tiny but encouraging sign that the board has the courage to say: Not good enough.

Will Yahoo’s mousy board members manage to squeak out any such message to Bartz in the months ahead?

Having seen them in action for many years of stumbles now, which has been like watching someone throw himself continually down a flight of stairs, here’s my educated guess: No.

]]> http://allthingsd.com/20101012/yahoo-ceos-over-pay-puts-spotlight-on-performance/feed/ 4 http://allthingsd.com/20101008/vc-ben-horowitz-takes-aim-at-hp-critics-are-you-listening-larry-and-jack/ http://allthingsd.com/20101008/vc-ben-horowitz-takes-aim-at-hp-critics-are-you-listening-larry-and-jack/#comments Fri, 08 Oct 2010 23:32:43 +0000 Kara Swisher http://kara.allthingsd.com/?p=35225

Today, in a sharply worded post titled “In Defense of Standards, Ethics, and Honest Financial Reporting at Hewlett-Packard,” prominent venture capitalist Ben Horowitz took to his blog to shoot back at the plethora of critics of the Hewlett-Packard board for their conduct related to the controversial jettisoning of CEO Mark Hurd.

That came after Hurd admitted to filing inaccurate expense reports related to an outside contractor who worked closely with him, and who later alleged sexual harassment on his part. Those charges were dropped after Hurd settled with the woman, named Jodie Fisher, but before HP could complete an investigation.

Since then, the board has been under fire from Oracle (ORCL) CEO Larry Ellison, who hired Hurd as the database giant’s president, and former GE head Jack Welch, who laid into the HP board this week.

Now Horowitz has fired back and here’s a taste of his ire, which is aimed at execs, the media and more:

If a CEO is prone to compromise for any reason, he will have every reason. This time it was his expense report. Next time will it be a marginal accrued liability? A deal that came in at 12:01 am on the last day of the quarter? This is a slippery slope that a public board simply cannot tolerate.

And:

Who is Jodie Fisher? According to press reports, Fisher is a former Playboy model, reality show contestant, and softcore porn movie actress with no work history relevant to her job with HP. She was hired by Hewlett-Packard and paid up to $5,000 per meeting to meet with Fortune 50 CEOs.

The mainstream press has reported these facts as mundane, ordinary, and hardly worth concern. I disagree. HP employs over 300,000 people. Every single one of HP’s employees is keenly interested in the qualities, skill sets, and behaviors that HP values most. Financial compensation and access to the CEO are the most important ways that HP communicates what it values to its employees. Jodie Fisher had more access to the CEO and was paid more than 99.9% of HP’s workforce, despite having no traditional qualifications.

It’s important to note that this was not Hurd paying for his personal extracurricular activity out of his own pocket. This was the Hewlett-Packard Corporation paying a softcore porn movie star with no relevant work experience more than it pays Harvard graduates with 20 years of industry experience. This was the company spitting in the face of the people who worked hard and sacrificed every day to help the company win in the market. It was completely and categorically unacceptable.

And:

There are many who take the view that business is singular in purpose–to increase shareholder value. They further take the position that constraining that purpose in any way is inefficient and counterproductive. The mainstream press seems to have broadly adopted this position in its attacks on HP. The Wall Street Journal Op Ed page even complained that businesses were being held to an unfair standard when compared to politicians.

I do not subscribe to this view. Running our companies with no moral or ethical standards is bad for society, bad for the country, and ultimately leads to criminal behavior.

So, what do you really think, Ben?

Horowitz does have an interest in the situation, which he discloses clearly at the top of his piece: His longtime business and now venture partner is HP (HPQ) board member Marc Andreessen.

And the Silicon Valley soap opera continues….

]]> http://allthingsd.com/20101008/vc-ben-horowitz-takes-aim-at-hp-critics-are-you-listening-larry-and-jack/feed/ 19 http://allthingsd.com/20101008/in-defense-of-standards-ethic-and-honest-financial-reporting-at-hewlett-packard/ http://allthingsd.com/20101008/in-defense-of-standards-ethic-and-honest-financial-reporting-at-hewlett-packard/#comments Fri, 08 Oct 2010 23:22:29 +0000 Ben Horowitz http://voices.allthingsd.com/?p=30872

“I’m not afraid
To take a stand”
—Eminem

Disclaimer: my business partner, Marc Andreessen, is on the board of directors of Hewlett-Packard (HPQ). I note that I have no inside information, and this blog post is based purely on published material. In 2007, I sold Opsware, the company that I founded and ran to Hewlett-Packard for $1.6B. I worked at Hewlett-Packard from 2007 to 2008 as an executive in the software business.

Recently, my old company Hewlett-Packard has been in the news–and not in a good way. I’ve been watching the coverage from the sidelines up to this point, but felt increasingly compelled to join the conversation and share my point of view. So here goes.

After firing their CEO, Mark Hurd, the HP board has been accused of everything from incompetence to being prudes. The criticism comes from credible, important journalists and bloggers such as Joe Nocera from the New York Times (NYT), prominent economics blogger Felix Salmon, and former GE (GE) CEO Jack Welch. In addition, HP competitor Larry Ellison lambasted the board and even went so far as to hire Mark Hurd to be President of Oracle (ORCL).

So why in the world did the HP board fire such a high performing CEO? Don’t they care about profits and shareholder value? Aren’t those the most important things? Who cares about his personal shenanigans? Did Mark and his marketing contractor even have sex?

While I am pretty sure that there is much more going on behind the scenes than has been broadly reported, as there often is, let’s look at what has been reported:

* Mark Hurd falsified expense reports.

* The false expense reports are related to a contractor named Jodie Fisher, a former softcore porn movie actress and Playboy model with no relevant marketing experience, who HP was paying up to $5,000 per marketing event.

* At the time of his departure from HP, Hurd issued a public statement saying that he’d violated HP’s Standards of Business Conduct:

“As the investigation progressed, I realized there were instances in which I did not live up to the standards and principles of trust, respect and integrity that I have espoused at HP and which have guided me throughout my career. After a number of discussions with members of the board, I will move aside and the board will search for new leadership. This is a painful decision for me to make after five years at HP, but I believe it would be difficult for me to continue as an effective leader at HP and I believe this is the only decision the board and I could make at this time. I want to stress that this in no way reflects on the operating performance or financial integrity of HP.”

Let’s start with the issue of falsifying expense reports. This factor has been largely dismissed in the press with characterizations like this from Joe Nocera of the New York Times:

“When pressed, H.P. said that Mr. Hurd had fudged some expense reports.”

Nocera goes on to argue that there must have been an alternate motivation to dismiss Hurd, because clearly no CEO would be fired simply for “fudging” an expense report.

When I first read of the expense report issue, my reaction was the opposite of Nocera’s. If the Chief Executive Officer of a public company falsifies any official financial statement, he must be fired. In my mind, this is non-negotiable. We are not talking about a low-level employee tossing an extra receipt into his expense report. We are talking about a public company CEO who is paid tens of millions of dollars a year and is responsible for the integrity of the company’s financial statements fraudulently reporting his own expenses. Why is this a problem?

Every person who invests in Hewlett-Packard does so on the basis of HP’s financial statements. Every pension fund, every retiree, every charitable organization, every employee who joins and is compensated via stock options. When they do so, they trust that the statements are true and that the numbers are accurate. The person they trust to ensure accuracy is the CEO.

If the Chief Executive is willing to compromise the integrity of the company’s financials for any reason, then it is impossible to trust any statement. Every day, there are many potential reasons to falsify financial statements. Here are four examples:

* If you miss the quarter, shareholders will lose money.

* If revenues aren’t high enough, you’ll be forced to lay-off hard working, valued employees.

* If you grow slower than a competitor, you may jeopardize your job.

* A shareholder that you’ve been having an illicit affair with doesn’t want the stock price to go down and threatens to tell your wife.

If a CEO is prone to compromise for any reason, he will have every reason. This time it was his expense report. Next time will it be a marginal accrued liability? A deal that came in at 12:01 am on the last day of the quarter? This is a slippery slope that a public board simply cannot tolerate.

What reason was so powerful that it caused Mark Hurd to break his ethical standard, falsify an official financial statement, mislead the board, and ultimately be fired? It seems that this was done to cover up a “close personal relationship” with a woman named Jodie Fisher, who later accused him of sexual harassment, then subsequently withdrew her claim after Hurd personally paid Fisher a large sum of money.

Who is Jodie Fisher? According to press reports, Fisher is a former Playboy model, reality show contestant, and softcore porn movie actress with no work history relevant to her job with HP. She was hired by Hewlett-Packard and paid up to $5,000 per meeting to meet with Fortune 50 CEOs.

The mainstream press has reported these facts as mundane, ordinary, and hardly worth concern. I disagree. HP employs over 300,000 people. Every single one of HP’s employees is keenly interested in the qualities, skill sets, and behaviors that HP values most. Financial compensation and access to the CEO are the most important ways that HP communicates what it values to its employees. Jodie Fisher had more access to the CEO and was paid more than 99.9% of HP’s workforce, despite having no traditional qualifications.

It’s important to note that this was not Hurd paying for his personal extracurricular activity out of his own pocket. This was the Hewlett-Packard Corporation paying a softcore porn movie star with no relevant work experience more than it pays Harvard graduates with 20 years of industry experience. This was the company spitting in the face of the people who worked hard and sacrificed every day to help the company win in the market. It was completely and categorically unacceptable.

Finally, Hurd admitted in a press release to violating the company’s standards of ethics and integrity. So what? Why do companies have standards and ethics anyway? Shouldn’t they just be concerned with profits? Do we want choir boys or shareholder value?

There are many who take the view that business is singular in purpose–to increase shareholder value. They further take the position that constraining that purpose in any way is inefficient and counterproductive. The mainstream press seems to have broadly adopted this position in its attacks on HP. The Wall Street Journal Op Ed page even complained that businesses were being held to an unfair standard when compared to politicians.

I do not subscribe to this view. Running our companies with no moral or ethical standards is bad for society, bad for the country, and ultimately leads to criminal behavior.

Companies should not merely be thought of as money generating machines. Business can represent human society at its best. A business is a group of people working together to deliver value to the world and improve people’s lives. When done ethically, business quite literally changes the world for the better. However, if the dark side of human motivation is not mitigated with standards and ethics, business can destroy.

We saw this unfold at Enron, a company that was, in its time, celebrated for its impressive profits. Underneath the profits was a culture designed from the ground up to completely ignore any ethical standard including a dazzling display of ethically questionable sexual activity among its executives. These activities, such as promoting secretaries to executive positions in exchange for sexual favors, parallel Hurd’s behavior with Jodie Fisher. In Enron’s case, the bad behavior bled over into first line employees who conspired to create blackouts in California in the name of profits and in the absence of ethics. Ultimately, Enron imploded in a swirl of criminal behavior that bankrupted the company, but not before destroying tens of thousands of peoples’ life savings and damaging millions of innocent victims. After the fact, the press bemoaned the culture that lead to the destruction. However, the same reporters instantly forgot the cause as they cavalierly dismissed Hurd’s ethical breach.

In closing, I point out the impressive courage of the HP board of directors to ignore popular opinion and do the right thing. It is not an easy thing to fire a popular, highly successful CEO. It’s even more difficult when you know that you will be roundly criticized for tolerating that same CEO’s failure to develop internal successors. Despite those factors, Hewlett-Packard’s board of directors stood tall and protected the company, its shareholders and all of us from a dark and destructive journey. As a member of the business community and as a citizen, I am extremely proud of and grateful for their actions.

Ben Horowitz is co-founder and general partner of Andreessen Horowitz. He co-founded Loudcloud, later renamed Opsware Inc., in 1999 and served as CEO of the company before it was acquired in 2007 by Hewlett-Packard. He was most recently vice president and general manager of Hewlett-Packard’s Business Technology Organization Unit.

]]> http://allthingsd.com/20101008/in-defense-of-standards-ethic-and-honest-financial-reporting-at-hewlett-packard/feed/ 0 http://allthingsd.com/20100830/the-right-kind-of-ambition/ http://allthingsd.com/20100830/the-right-kind-of-ambition/#comments Mon, 30 Aug 2010 17:50:21 +0000 Ben Horowitz http://voices.allthingsd.com/?p=28972 “Some say that I’m they favorite
But I aint hearing none of that
I’m about my team ho
Young money running back”
—Drake

“Stay in your place
While I sit here and rule
I’m king of a cow
And I’m king of a mule”
—Yertle the Turtle

In my last post, I mentioned that you should strive to hire people with the right kind of ambition. Surprisingly to me, I received a large number of responses from readers questioning whether or not this was good advice. Here’s how one commenter phrased it:

I agree with much of this post but I disagree with the following:
“As defined by Andy Grove, the right kind of ambition is ambition for the company’s success with the executive’s own success only coming as a by-product of the company’s victory.”
That may have worked in the past but I believe today, the company’s success and the executive’s success should go hand in hand, not one coming as a by-product of the other, particularly as described above.
Curious why should an employee be motivated first by a company’s success? Would this work in all departments—i.e. sales?
In addition to comments like the one above, my business partner Marc Andreessen suggested that I write a post on how to screen for the right kind of ambition. In response, this post aims to clarify why you should care about senior managers having the right kind of ambition and give some tips on how to screen for them in an interview.

Why should senior managers have the right kind of ambition?
At a macro level, a company will be most successful if the senior managers optimize for the company’s success (think of this as a global optimization) as opposed to their own personal success (local optimization). No matter how well the CEO designs the personal incentive programs, they will never be perfect. In addition, career incentives like promotions and territory ownership fall outside the scope of bonus plans and other a priori management tools. In an equity-based compensation structure, optimizing for the company’s success should yield better results for individuals as well. As my Opsware head of sales Mark Cranney used to say, “Two percent of zero is zero.”

It is particularly important that managers have the right kind of ambition, because anything else will be exceptionally de-motivating for their employees. As an employee, why would I want to work long hours to advance the career of my manager? If the manager cares about his career more than the company, then that’s what I’d be doing. Nothing motivates a great employee more than a mission that’s so important that it supersedes everyone’s personal ambition. As a result, managers with the right kind of ambition tend to be radically more valuable than those with the wrong kind. For a complete explanation of the dangers of managers with the wrong kind of ambition, I strongly recommend Dr. Suess’s management masterpiece Yertle the Turtle.

Screening for the right kind of ambition
As with any complex character trait, there is no way to perfectly screen for the right kind of ambition in an interview, but hopefully some of these thoughts will prove useful.

At a macro-level, everybody views the world through her own personal prism. When interviewing candidates, it’s helpful to watch for small distinctions that indicate whether they view the world through the “me” prism or the “team” prism.

People who view the world through the me prism might describe a prior company’s failure in an interview as follows: “My last job was my e-commerce play. I felt that it was important to round out my resume.” Note the use of “my” to personalize the company in a way that it’s unlikely that anyone else at the company would agree with. In fact, the other employees in the company might even be offended by this usage. People with the right kind of ambition would not likely use the word “play” to describe their effort to work as a team to build something substantial. Finally, people who use the “me” prism find it natural and obvious to speak in terms of “building out my resume” while people who use the “team” prism find such phrases to be somewhat uncomfortable and awkward, because they clearly indicate an individual goal which is separate from the team goal.

On the other hand, people who view the world purely through the team prism will very seldom use the words “I” or “me” even when answering questions about their accomplishments. Even in an interview, they will deflect credit to others on their previous team. They will tend to be far more interested in how your company will win than how they will be compensated or what their career path will be. When asked about a previously failed company, they will generally feel such great responsibility that they will describe in detail their own misjudgments and bad decisions.

When we hired the head of worldwide sales for Opsware, using this screen proved to be quite valuable. We interviewed over 20 candidates for the position before hiring the aforementioned Mark Cranney. Since this was a sales position, I should mention (in reference to the commenter above) that ambition for the company above ones own goals is particularly important for the head of sales. The reasons are many:

• The local incentives in sales are particularly strong and difficult to balance without the right kind of leadership
• The sales organization is the face of the company to the outside world. If that group optimizes for itself, your company will have a major problem
• In hi-tech companies, fraud generally starts in sales due to managers attempting to perfect the ultimate local optimization

Throughout our interview process, candidates would take sole credit for landing extremely large deals, achieving impressive goals, and generating company success. Invariably, the candidates who claimed the most credit for deals would have the most difficult time describing the details of how the deal was actually won and orchestrated. During reference checks, others involved in the deals would tell a much different story.

When I spoke to Mark, on the other hand, it was difficult to get him to discuss his personal accomplishments. In fact, some of the other interviewers felt that Mark was standoffish and even obnoxious in the way he bristled at certain questions. One interviewer complained: “Ben, I know that he increased the size of the Nike deal from $1M to $5M, because our contact at Nike told me that, but Mark wouldn’t go into any detail on it.” When I interviewed Mark, he really only wanted to discuss how his old company PTC won. He went into great detail about how his team diagnosed weaknesses vs. the competition and how he worked with the CTO Hugh Hempleman to advance the product. He then talked about how he worked with the CEO Dick Harrison to revise the way the sales force was trained and organized.

When the conversation turned to Opsware, Mark had already interviewed sales reps at our number one competitor’s company and knew what deals they were in. He relentlessly questioned me on how we were going to win the deals that they were in and how we planned to get into the deals that we weren’t in. He wanted to know the strengths and weaknesses of everyone else on the team. He wanted to know the game plan for winning. The topics of his potential compensation and career advancement didn’t come up until the very end of the process. And then he only wanted assurances that compensation was performance and not politically based. It was clear that Mark was all about the team.

During Mark’s tenure, sales increased more than tenfold and our market capitalization increased twentyfold. More to the point, voluntary attrition in the sales organization was extremely low, customers were managed fairly and honestly, and our legal and finance teams often commented that first and foremost, Mark protected the company.

Final Thought
While it may work to have individual employees who optimize for their own careers, counting on senior managers to do all the right things for all the wrong reasons is a dangerous idea.

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