Hewlett-Packard (HPQ)

Annual Incentive Pay

        The NEOs are eligible to receive annual incentive pay under the Hewlett-Packard Company 2005 Pay-for-Results Plan ("the PfR Plan"). In the discretion of the Committee (or, in the case of the CEO, in the discretion of the independent Board members), HP executives may receive additional annual incentive pay outside the PfR Plan. Annual incentive pay under the PfR Plan is awarded based on achievement against the key financial metrics of revenue and net profit, each of which is equally weighted under the plan for performance from threshold to target. For performance above target, additional funding is driven by performance on net profit. These metrics address both "top line" (revenue) and "bottom line" (net profit) corporate financial goals.

        The combination of these two metrics limits the ability of an executive to be rewarded for taking excessive risk on behalf of HP by, for example, seeking revenue-enhancing opportunities at the expense of profitability, since performance is required on both metrics to achieve payout under the PfR Plan.

        At the beginning of each fiscal year, PfR Plan revenue and net profit targets are set for each of HP's business units. For PfR Plan participants in most business units, including Messrs. Bradley and Joshi and Ms. Livermore, payouts are determined based 50% on the performance of their respective business units and 50% on HP's overall performance. For PfR participants in corporate functions, including Mr. Hurd and Ms. Lesjak, payouts under the plan are made based 100% on HP's overall performance. HP's overall performance is determined by aggregating the performance of all eight business units.

        The targeted short-term bonus percentages for the NEOs in fiscal 2009 have remained unchanged since fiscal 2007 at 200% of base pay for Mr. Hurd and 125% of base pay for the remaining NEOs.

        The fiscal 2009 targets were recommended by management and set by the Committee at its meeting in January 2009, at a time when the full extent of the economic downturn that had begun in the fall of 2008 was not known. As in prior years, the 2009 targets were set primarily based on expected improvement over prior year achievements.

        At its November 2009 meeting, the Committee reviewed and certified HP's annual performance against the targets under the PfR Plan for fiscal 2009. All business units achieved financial performance above threshold but below target based on their fiscal 2009 revenue. Net profit was above threshold but below target in some business units (including the Personal Systems Group headed by Mr. Bradley and some segments within the HP Enterprise Business headed by Ms. Livermore) and above target in other business units (including the Imaging and Printing Group headed by Mr. Joshi and one segment within the HP Enterprise Business headed by Ms. Livermore). These levels of achievement resulted in the PfR Plan payouts to the NEOs identified in footnote (5) to the Summary Compensation Table, with variations among the NEOs determined based on differences in business unit performance against these financial metrics. The fact that targets were set aggressively for fiscal 2009 was demonstrated by the fact that most business units did not meet their fiscal 2009 targets, although all business units achieved at least threshold performance levels. In addition, for fiscal 2008, performance was below

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target in one business unit, at or slightly above target in some business units, and well above target in other business units. For fiscal 2007, performance was above target in all business units, reflecting superior performance across the company. For the five fiscal years preceding fiscal 2007, annual incentive payments under the PfR Plan in some years were minimal, including no payments for some of the then-NEOs in some of those years.

        In addition to approving PfR Plan awards, the Committee approved discretionary cash awards to the NEOs based on their achievement of solid financial performance in fiscal 2009 and their contributions to business results, which the Committee believed were not fully rewarded through the payouts under the PfR Plan, especially given that the performance and contributions were delivered in such a difficult economic environment. These awards are included in the "Bonus" column of the Summary Compensation Table on page 55. In making this determination, the Committee considered HP's performance relative to its competitors and the S&P 500. Compared to its peers, HP performed in the 81^st percentile based on growth in earnings per share and produced total shareholder return ("TSR") in the 70^th percentile on a one-year basis and in the 87^th percentile based on the compound annual rate of return for the three-year period from November 2006 through October 2009. In addition, the Committee considered the difficulty of achieving the fiscal 2009 targets set under the PfR Plan, the fact that the targets were set at a time when the full effect of the economic downturn was not known, and the challenging economic environment in which the performance was delivered. The Committee also considered that the aggregate amount being made available to fund bonuses for all HP employees with respect to fiscal 2009 performance, including the discretionary portion awarded to the NEOs, was approximately equal as a percentage of pre-tax earnings to the amount used to fund bonuses paid with respect to fiscal 2008 performance. The Committee further considered that, as discussed under "Base Pay" above, the NEOs as well as many other HP employees experienced base pay reductions in fiscal 2009, and the Committee determined to allocate all or a portion of the discretionary cash awards granted to the NEOs and those other HP employees in recognition of the cost savings generated by those base pay reductions and the resulting impact on HP's fiscal 2009 financial results.

        With respect to the variations among NEOs, the Committee took into consideration other quantitative and qualitative factors, including changes in market share, changes in margins, operational discipline and the progress made towards completing the integration of the businesses acquired as part of HP's acquisition of Electronic Data Systems Corporation ("EDS") in August 2008. These factors resulted in higher discretionary bonuses for certain NEOs, as well as increased discretionary funding of bonuses for other eligible employees in these business units, rewarding the solid financial performance delivered during a challenging economic period.

Annual Incentive Pay

        The NEOs receive annual incentive pay under the HP Pay-for-Results Plan ("the PfR Plan") and, in the discretion of the Committee, may receive additional annual awards outside the PfR Plan at the recommendation of the CEO. Annual incentive pay under the PfR Plan is awarded based on achievement against the key financial metrics of revenue and net profit, each of which is equally weighted under the plan. These metrics address both "top line" (revenue) and "bottom line" (net profit) corporate financial goals. The combination of these two metrics limits the ability of an executive to be rewarded for taking excessive risk on behalf of HP by seeking revenue-enhancing opportunities without regard to profitability, since performance on both metrics is required to achieve payout under the PfR Plan.

        The targeted short-term bonus percentages for the NEOs in fiscal 2008 remained unchanged from 2007 at 200% of base pay for Mr. Hurd and 125% of base pay for the remaining NEOs.

        At the beginning of each fiscal year, PfR Plan revenue and net profit targets are set for each of HP's business units. For PfR Plan participants in these business units, including Messrs. Bradley and Joshi and Ms. Livermore, payouts are determined based 50% on the performance of their respective business units and 50% on overall corporate performance. For the CEO and PfR participants in corporate functions, including Mr. Mott and Ms. Lesjak, payouts under the plan are made based 100%

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on HP's overall performance. HP's overall performance is determined by aggregating results from all of the business units.

        The fiscal 2008 targets recommended by management and set by the Committee at its meeting in January 2008 were based on the financial performance achieved in the prior year, and payout for fiscal 2008 required achievement above the levels achieved in fiscal 2007. As fiscal 2007 had been a year of significant financial achievement by HP, the fiscal 2008 targets required sustained and superior performance in each business segment and across the company. At its meeting in November 2008, the Committee reviewed and certified HP's annual performance against the targets under the PfR Plan for fiscal 2008. The company's achievement against the fiscal 2008 metrics was below target in one business segment, at or slightly above target in some segments (including the Imaging and Printing Group headed by Mr. Joshi), and well above target in other segments (including the Personal Systems Group headed by Mr. Bradley and two of the segments within the Technology Solutions Group headed by Ms. Livermore). This level of achievement resulted in the PfR Plan payouts to the NEOs identified in footnote (6) to the Summary Compensation Table, with variations among the NEOs who head business segments primarily based on business results. That targets are set aggressively and require achievement of significant financial performance is demonstrated by the fact that targets were not met or were exceeded only slightly by several of HP's business units; business units where targets were significantly exceeded achieved superior year-over-year financial results. In addition, over the past five years, payouts under the PfR Plan in some periods have been minimal, including no payout for some of HP's then-NEOs.

        In addition to approving PfR Plan awards, the Committee approved discretionary cash awards to most of the NEOs based on the achievement of strong financial performance in fiscal 2008, which performance the Committee believed was not fully rewarded through the payouts under the PfR Plan. These awards are included in the "Bonus" column of the Summary Compensation Table on page 44. In making this determination, the Committee considered the fact that in fiscal 2008, HP achieved double-digit year-over-year growth on each of the key financial metrics of revenue, pre-tax earnings, net profit, cash-flow and earnings per share. The Committee also considered HP's performance relative to its competitors and the S&P 500, the difficulty of achieving the fiscal 2008 targets set under the PfR Plan, and the economic environment in which the performance was delivered. Further, the Committee considered the bonus funding recommended by management for employees generally under the HP Variable Bonus Plan (for which all employees below director level are generally eligible), as well as under the PfR Plan for non-Section 16 officers (generally covering eligible employees at director level and above), and the fact that the aggregate bonus amount to be paid to all HP employees with respect to fiscal 2008 performance was lower as a percentage of pre-tax earnings than for fiscal 2007 performance. The discretionary cash awards granted to the NEOs were proportionately consistent with the discretionary funding made available to the non-Section 16 officer PfR Plan participants, which reflected the strong financial performance for the period with distinctions among business segments made based primarily on contribution to business results.

Annual Incentive Pay

        The NEOs receive annual incentive pay under the HP Pay-for-Results Plan ("PfR"). Annual incentive pay is awarded based on achievement against the key financial metrics of revenue and net profit, each of which is equally weighted under the plan. These metrics address both "top line" (revenue) and "bottom line" (net profit) corporate financial goals. If the annual financial objectives are not met, no amounts are paid; if targets are exceeded, payouts may be significant, but will not exceed 250% of target.

        At the beginning of each fiscal year, PfR revenue and net profit targets are set at each of HP's business units. For participants in these business segments, including Ms. Livermore and Mr. Joshi, payouts are determined based 50% on the performance of their respective business units and 50% on overall corporate performance. For the CEO and PfR participants in corporate functions, including Ms. Lesjak and Mr. Robison, payouts are made based 100% on HP's overall performance. HP's overall performance is determined by aggregating results from all of the business units.

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        The targeted short-term bonus percentages for the NEOs in fiscal 2007 were 200% of base pay for Mr. Hurd and 125% of base pay for the remaining NEOs. These target percentages were unchanged from fiscal 2006, except that Ms. Lesjak's target bonus percentage was increased to 125% effective February 1, 2007 in connection with her appointment as CFO. These target bonus percentages are generally consistent with those set by our peer companies for annual incentive bonus plans.

        The fiscal 2007 targets recommended by management and set by the Committee were based on the financial performance achieved in the prior year. Payout at threshold for fiscal 2007 required achievement above the levels achieved in fiscal 2006. As fiscal 2006 had been a year of significant financial achievement by HP, the fiscal 2007 targets—requiring performance above fiscal 2006 levels—required sustained and superior performance in each business segment and across the company. The company's fiscal 2007 achievement against the fiscal 2007 metrics was above target at all business segments and company-wide, including achievement of record revenue for the period. This level of achievement resulted in the payouts to the NEOs identified in the Fiscal 2007 Summary Compensation Table. That targets are set aggressively and require achievement of significant financial performance is demonstrated by the fact that over the past five years, payouts under this PfR Plan in some years have been minimal, including no payout for some of HP's then-NEOs.

        In addition to the Committee's approval and certification of annual performance against metrics under PfR for fiscal 2007 at its November 15, 2007 meeting, the Board of Directors approved grants of unrestricted shares of HP common stock to certain NEOs and other senior executives as a reward for the achievement of superior financial performance for the period, which the Board believed was not fully recognized in the payouts under PfR. Specifically, on November 15, 2007, the Board approved grants to Mr. Hurd, Ms. Livermore and Mr. Robison of 100,000 shares, 20,000 shares and 15,000 shares, respectively.