Hewlett-Packard (HPQ)

Equity Programs

        HP's equity programs are designed to encourage creation of long-term value for our stockholders, employee retention and stock ownership. The programs consist of stock option grants, the Share Ownership Plan (an employee stock purchase program), and restricted stock awards. Many of our employees participate in one or more equity programs, which we believe promote a long-term focus on results and align employee and stockholder interests. At the same time, the Committee has carefully considered the impact of equity expensing, actions taken by HP's peers to reduce the use of options, and HP's dilution and overhang levels, and made certain changes to HP's equity programs in order to strike an appropriate balance between promoting HP's cost competitiveness and maintaining employee incentives.

        Executive officers receive a relatively large proportion of their overall targeted compensation in the form of equity, in order to align interests of management and stockholders and promote a focus on long-term results. During the fiscal 2006 annual grant cycle, our executive officers received options and targeted long-term performance cash awards. Most fiscal 2006 stock option grants to executive officers were made under HP's 2000 Stock Plan and 2004 Stock Incentive Plan. Each such grant allows the executive officer to acquire shares of HP's common stock, subject to the completion of a four-year vesting period (25% vesting each year). These shares may be acquired at a fixed price per share (the fair market value on the grant date) and have an eight-year term. For information on options granted to named executive officers during fiscal 2006, see "Option Grants in Last Fiscal Year" on page 37.

        From time to time, we also grant restricted stock to encourage retention and reward performance. In fiscal 2006, we authorized the grant of restricted stock (or restricted stock units in certain countries outside of the United States) to certain executive officers, including Messrs. Hurd, Joshi and Robison and Ms. Livermore, and other key employees on a case-by-case basis. In general, half of the restricted stock granted to executive officers vested in one year, and the remainder after three years, subject to continued employment. Ms. Livermore also received restricted stock grants that vest 100% after one year.

Equity Programs

        HP's equity programs are designed to encourage creation of long-term value for our stockholders, employee retention and stock ownership. The programs consist of stock option grants, the Share Ownership Plan (an employee stock purchase program), and restricted stock awards. A majority of our employees participate in one or more equity programs, which we believe promote a long-term focus on results and align employee and stockholder interests. At the same time, the Committee has carefully considered the impact of equity expensing, actions taken by HP's peers to reduce the use of options, and HP's dilution and overhang levels, and made certain changes to HP's equity programs in order to strike an appropriate balance between promoting HP's cost competitiveness and maintaining employee incentives.

        Executive officers receive a relatively large proportion of their overall targeted compensation in the form of equity, in order to align interests of management and stockholders and promote a focus on long-term results. During the fiscal 2005 annual grant cycle, our executive officers received an equivalent value (at the time of grant) of options and targeted long-term performance cash. Most fiscal 2005 stock option grants to executive officers were made under HP's 2000 Stock Plan and 2004 Stock Incentive Plan. Each such grant allows the executive officer to acquire shares of HP's common stock, subject to the completion of a four-year vesting period (25% vesting each year). These shares may be acquired at a fixed price per share (the fair market value on the grant date) and have an eight-year term. For information on options granted to named executive officers during fiscal 2005, see "Option Grants in Last Fiscal Year" on page 41.

        From time to time, we also grant restricted stock to encourage retention and reward performance. In fiscal 2005, we authorized the grant of restricted stock (or restricted stock units in certain countries outside of the United States) to certain executive officers, including Mr. Joshi and Ms. Livermore, and other key employees on a case-by-case basis. Half of the restricted stock granted to executive officers vested in one year, and the remainder after three years, subject to continued employment.

        We also granted restricted stock and options to certain new hires on a case-by-case basis, including Messrs. Hurd, Bradley and Mott, as described under "Employment Contracts, Termination of Employment and Change-in-Control Arrangements" beginning on page 49. These grants were, in part, to compensate these executives for long-term incentives they would forfeit by joining HP.