Hewlett-Packard (HPQ)

Introduction

        As the world's largest technology company, Hewlett-Packard requires uniquely talented executives who are able to manage the company in a way that creates both short- and long-term value for stockholders. HP's mission is to invent technologies and deliver services that drive business value, create social benefit and improve the lives of customers—with a focus on positively impacting the greatest number of people possible.

        The HR and Compensation Committee of the Board of Directors (the "Committee") believes that the degree to which HP fulfills its mission is highly dependent upon the long-term retention and effective motivation of its executives. As such, the Committee spends a significant amount of time understanding the market for executive talent, the economic factors that affect HP, and HP's short- and long-term performance within this context. Ultimately, the amount of compensation awarded to HP's executives is determined based on HP's performance and what the Committee believes is in the best interests of stockholders. These decisions are supported by strong corporate governance practices and transparency—areas where HP has long been a leader.

        Like most companies, HP uses a combination of fixed and variable compensation programs to help align the interests of HP's executives with its stockholders. HP's "pay-for-performance" philosophy forms the foundation of all of the Committee's decisions regarding compensation. Underlying these decisions is also the Committee's belief that the labor market for the type of executive talent HP requires is limited and that HP's executives are among the most capable, highest performing executives available regardless of the industry. This compensation philosophy is central to HP's ability to attract and retain the motivated and talented individuals who have driven superior financial results for HP and its stockholders.

        Each year the Committee, along with HP management, establishes aggressive targets that require the achievement of significant financial performance. At the end of each year, the Committee determines compensation by assessing performance against financial targets, relative peer performance and other non-financial goals. This approach has been consistently used over time and has helped to ensure stability within HP's executive leadership through a period of tremendous growth and transformation and an ever-changing economic environment.

        The following pages of this Compensation Discussion and Analysis (this "CD&A") include the following:

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An overview of HP's Total Rewards Program, including our policy on pay positioning and pay for performance, which appears under "HP Total Rewards Program" and "Executive Officer Compensation Within Total Rewards";



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A description of the roles of those responsible for overseeing and implementing the compensation plan, which appears under "Oversight and Authority Over Executive Compensation";



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A description of how we develop our competitive compensation structure, including how we use external data, which appears under "Use of Comparative Compensation Data" and "Analysis of HP's Process for Setting Executive Compensation";



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A discussion of the impact of this analysis on the compensation of the named executive officers, which appears under "Analysis of the Elements of Executive Compensation—Base Pay," "—Annual Incentive Pay" and "—Long Term Incentive Pay";

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Table of Contents

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A summary of the other elements of executive officer compensation under HP's Total Rewards Program, which appears under "Analysis of the Elements of Executive Compensation—Benefits," "—Perquisites," "—Severance Plan for Executive Officers" and "—Benefits in the Event of a Change of Control"; and



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An outline of some other aspects of HP's Total Rewards Program, which appears under "Stock Ownership Guidelines," "Accounting and Tax Effects," "Policy on Recovery of Bonus in Event of Financial Restatement" and "Approval Process for Equity Grants."

The compensation tables appear immediately following this CD&A.