This excerpt taken from the HPQ DEF 14A filed Jan 29, 2008.
Grants of Stock Options and Restricted Stock
Through fiscal 2007, awards of both stock options and restricted stock were an important component of NEO long-term incentive pay awarded as part of the annual performance cycle. As described above, a portion of an executive's target long-term incentive amount was delivered under the HP Long-Term Performance Cash Program, with the remaining value allocated between grants of stock options and restricted stock.
Grants of nonqualified stock options to the NEOs during fiscal 2007 were made under the HP 2004 Stock Incentive Plan. These grants allow the executive to acquire shares of HP's common stock at a fixed price, subject to the completion of a four-year vesting period (25% vesting each year). Option grants have an eight-year term and are made at fair market value on the grant date, and, as such, will only deliver a financial value if HP's stock price appreciates between the date of grant and the expiration date of the option.
The NEOs also were awarded grants of restricted stock during fiscal 2007 under the HP 2004 Stock Incentive Plan. These awards have restrictions that lapse as to one-third of the number of shares on each anniversary of the date of grant.
In addition to making grants of restricted stock during the annual review cycle as part of long-term incentive compensation, the Committee makes grants of restricted stock at other times, primarily for in-hire and retention purposes. The Committee approved a grant of restricted stock to Ms. Lesjak in July of 2007 primarily for retention purposes. This grant vests 100% on October 31, 2009.
For information on stock options and restricted stock granted to the NEOs during fiscal 2007, see "Executive CompensationGrants of Plan-Based Awards in Fiscal 2007."