Hewlett-Packard (HPQ)

CEO Compensation

        Mr. Hurd's compensation is reviewed annually by the Committee based on overall performance, as well as in conjunction with competitive data to determine future targeted compensation. Factors considered in evaluating Mr. Hurd's performance include strategic leadership, financial performance, operational excellence, people development, management of external relationships and effectiveness in working with the Board. In reviewing Mr. Hurd's compensation this year, the Committee considered these factors, as well as his broad range of accomplishments during fiscal 2006, including establishment of strategic priorities and programs to deliver results, implementation of targeted cost reductions against industry benchmarks, completion of a significant number of acquisitions resulting in a sizable increase in

55

incremental annual revenue, and a significant increase in cash flow from operations. Furthermore, Mr. Hurd has implemented a clear approach to strategy and execution across the organization, based on the strategic initiatives of growth, efficiency and capital.

        Since Mr. Hurd's appointment as HP's CEO was first reported in late March of 2005 through early January 2007, total HP stockholder return was 115% compared to S&P 500 performance of 24% during the same period.

        Consistent with HP's philosophy of providing a large percentage of targeted compensation for its executives in the form of variable compensation, Mr. Hurd received no increase in the amount of his base pay during fiscal 2006, but his target short-term bonus under the PfR Plan was increased during fiscal 2006 from 200% to 220% of base pay. In addition, Mr. Hurd received amounts under the PfR Plan consistent with achievement of performance in excess of target. Mr. Hurd's long-term incentive payout was also in accordance with achievement of significant financial metrics. Because of the significant performance achievements, neither the PfR payment nor the long-term performance payment to Mr. Hurd required adjustment to satisfy the minimums guaranteed under his employment agreement.

        Based on HP's achievement of significant financial and restructuring goals during fiscal 2006, Mr. Hurd's role in leading HP to these strong financial results, and Mr. Hurd's attainment of non-financial performance goals, the Committee believes that the Mr. Hurd's compensation is appropriate relative to HP's performance, as well as in comparison to external market data.

CEO Compensation

        On February 8, 2005, Carleton S. Fiorina terminated as CEO of HP, and Robert P. Wayman was appointed as interim CEO until the hiring of Mark Hurd effective April 1, 2005. The Committee and full Board were actively involved in the compensation and severance arrangements relating to these decisions.

⁴

The HP Retirement Plan and the HP Excess Benefit Retirement Plan were generally available to eligible U.S. employees, including executive officers, who were employees of HP as of December 31, 2002.

⁵

The HP Cash Account Pension Plan and the related HP Cash Account Restoration Plan provided benefits to eligible employees of HP who were hired or rehired on or after January 1, 2003.

66

The Committee believes that HP maintained stability during this transition period and put in place the right senior management team to improve HP results going forward. As previously described, non-GAAP profits were significantly higher in the third and fourth quarters of fiscal 2005 compared to the prior-year periods, and from April 1, 2005 through the end of HP's fourth fiscal quarter, HP's stock price increased by 29.2%. The compensation decisions that were made with respect to each of the individuals who served as CEO during fiscal 2005 as well as the process for determining such amounts are described below.