This excerpt taken from the HPQ DEF 14A filed Jan 29, 2008.
Narrative to the Fiscal 2007 Summary Compensation Table
The amounts reported in the Fiscal 2007 Summary Compensation Table include base pay, annual and long-term incentive amounts, benefits and perquisites as described more fully in "Compensation Discussion and Analysis."
The amounts reported in the column entitled "Non-Equity Incentive Plan Compensation" include amounts earned under both the Pay-for-Results Plan (the "PfR Plan") for fiscal 2007 (and paid in fiscal 2008) and the Long-Term Performance Cash Program (the "LTPC Program") for the three-year period May 1, 2004 through April 30, 2007 (and paid in fiscal 2007). The narrative description of the other information in the Fiscal 2007 Summary Compensation Table is provided in the remaining tables.
The PfR Plan is HP's annual incentive compensation program that pays out if the performance metrics of revenue and net profit are met during the fiscal year. During its meeting in November 2006, the HR and Compensation Committee (the "Committee") approved target awards (expressed as a percentage of annual base salary) and performance metrics for fiscal 2007. Target awards for the NEOs for fiscal 2007 are displayed below under "Grants of Plan-Based Awards in Fiscal Year 2007." In setting targets for the coming year, the Committee generally looks to the actual performance for the year just ended.
Following the close of the fiscal year, the Committee assessed and certified HP's performance against the revenue and net profit metrics it approved in November of 2006 and approved awards to the NEOs ranging from 115% to 192.4% of target.
Long-Term Performance Cash Program
The LTPC Program is HP's long-term incentive compensation program that pays out if certain performance metrics are achieved over a three-year period. The performance metrics are cash flow from operations as a percentage of revenue, as modified by Total Shareholder Return relative to the S&P 500 over the three-year period. As noted above, no further grants will be made under this program after fiscal 2007, as this program has been replaced by the new Performance-based Restricted Unit Program beginning in fiscal 2008.
For the three-year performance period ending April 2007, the cash flow metric was not achieved during the first six-month period, was achieved above target for the May 2005 through October 2005 and November 2005 through October 2006 performance periods, and was achieved slightly below target for the November 2006 through April 2007 performance period. HP's performance against the S&P 500 over the entire three-year performance period was at the 83rd percentile. The combination of these factors resulted in the fiscal 2007 payouts noted above.