Hewlett-Packard (HPQ)

Executive Officer Compensation Within Total Rewards

        As the world's largest technology company with multiple business units of significant size and complexity, the Committee generally targets the total compensation of HP's executive officers to be at or near the 75^th percentile of pay for comparable positions at its peer group companies. The Committee believes this level of pay is necessary to provide appropriate retention and incentives to HP's executive officers and that it is appropriate given HP's size and complexity. It also generally corresponds to HP's percentile ranking of revenue within its peer group companies. In the case of NEOs who head significant business segments, the Committee has determined that setting and paying target compensation above this range is justified due to the fact that these business segments exceed the total size of many of HP's peer group companies.

        At the NEO level, there is the greatest emphasis on linking pay to performance so as to align the interests of the NEOs directly with those of stockholders. Accordingly, compensation is structured so that approximately 80% to 90% of NEO compensation is performance-based depending upon HP's financial results, with the remaining 10% to 20% comprising base pay and benefits. The Committee believes that this percentage of performance-based pay is appropriate for application to the NEOs.

        Within the portion of pay representing performance-based pay, approximately 15% to 35% is tied to achievement of annual incentive goals and 65% to 85% is tied to achievement of financial goals over a longer period of time. This mix of short- and long-term incentives provides sufficient rewards in the short-term to motivate near-term performance, while at the same time providing significant incentives to keep HP's executives focused on longer-term corporate goals that drive stockholder value. This also

42

Table of Contents

mitigates the risk of NEOs focusing solely on short-term or solely on long-term goals. It is also consistent with the practice of HP's peer group companies.

        Under this compensation structure, when business segment or company results do not meet expectations, the total compensation of HP's NEOs may be below market in comparison to HP's peer group companies. Similarly, when superior results are achieved, the NEOs may receive significant above-market rewards. Furthermore, in any one year, because HP is comprised of a number of independent business units, NEOs in high-performing business units may receive significantly more compensation than NEOs in business units that did not perform as well.

Executive Officer Compensation within Total Rewards

        The Total Rewards Program includes base pay, annual variable pay, long-term incentive pay, benefits and perquisites. Within the Total Rewards Program, the percentage of variable pay, or at-risk pay, increases with job responsibility. At the NEO level, there is the greatest emphasis on linking pay to performance so as to align the interests of the NEOs directly with those of stockholders. Accordingly, compensation is structured so that 80 to 90% of NEO compensation is variable and "at risk"

32

Table of Contents

depending upon HP's financial results, with the remaining 10 to 20% comprising base pay and benefits. This percentage of pay at risk is consistent with that of HP's peer companies and is appropriate for application to the NEOs.

        Within the portion of pay representing variable pay, approximately 15 to 35% is tied to achievement of annual incentive goals and 65 to 85% is tied to achievement of financial goals over a longer period of time. This mix of short- and long-term incentives provides sufficient rewards in the short-term to motivate near-term performance, while at the same time providing significant incentives to keep HP's executives focused on longer-term corporate goals that drive stockholder value. It is also consistent with the practice of HP's peer companies.

        Under this compensation structure, when business segment or company results do not meet expectations, HP's NEOs may receive compensation that is below market in comparison to HP's peer companies. Similarly, when superior results are achieved, the NEOs may receive significant above-market rewards.

Executive Officer Compensation within Total Rewards

        The Total Rewards Program includes base pay, annual variable pay, long-term incentive pay, benefits and perquisites. Within the Total Rewards Program, the percentage of variable pay, or at-risk pay, increases with job responsibility. At the NEO level, there is the greatest emphasis on linking pay to performance so as to align the interests of the NEOs directly with those of stockholders. Accordingly, Total Rewards are structured so that 70 to 90% of NEO compensation is variable and "at risk" depending upon HP's financial results, with the remaining 10 to 30% comprising base pay and benefits. This percentage of pay at risk is consistent with that of HP's peer companies and is appropriate for application to the NEOs.

        Within the portion of pay representing variable pay, approximately 20 to 25% is tied to achievement of annual incentive goals, and 75 to 80% is tied to achievement of financial goals over a longer period of time. This mix of long- and short-term incentives provides sufficient rewards in the short-term to motivate near-term performance, while at the same time providing significant incentives to keep our executives focused on longer-term corporate goals that drive increasing stockholder value. It is also consistent with the practice of HP's peer companies.

        Under this pay structure, when business segment or company results do not meet expectations, HP's NEOs may receive compensation that is below HP's peer companies. Similarly, when superior results are achieved, the NEOs may receive significant above-market rewards.