Hewlett-Packard (HPQ)

Oversight and Authority Over Executive Compensation

Role of the HR and Compensation Committee and its Advisors

        The Committee oversees and provides strategic direction to management regarding HP's Total Rewards Program generally. It makes recommendations regarding the CEO's compensation to the independent members of the Board, and it approves the compensation of the remaining Section 16 officers. Each Committee member is an independent non-employee director with significant experience in managing employee-related issues and making executive compensation decisions. The Committee employs its own independent compensation consultant, Frederic W. Cook & Co., Inc. ("Cook"), as well as its own independent counsel, Sonnenschein Nath & Rosenthal LLP.

        Cook provides analyses and recommendations that inform the Committee's decisions, but it does not decide or approve any compensation actions. During fiscal 2009, Cook advised the Committee chair on setting agenda items for Committee meetings; developed criteria used to identify peer companies for executive compensation and performance comparisons; evaluated market data and competitive position benchmarking compiled by management's consultants; and reviewed various proposals presented to the Committee by management. The Committee's independent counsel advises on legal matters that come before the Committee, including proxy statements, Committee resolutions and employment matters involving Section 16 officers. Neither Cook nor the independent counsel performs other services for HP, and neither will do so without the prior consent of the Committee chair.

        The Committee met nine times in fiscal 2009, including six times in executive session. The Committee's independent advisors participated in all of the Committee's meetings and, when requested by the Committee chair, in the preparatory meetings and the executive sessions. HP's CEO attended some of the Committee's meetings but none of its executive sessions.

Role of Management and the Chief Executive Officer in Setting Executive Compensation

        On an annual basis, management considers market competitiveness, business results, experience and individual performance in evaluating NEO compensation. The Executive Vice President, Human Resources and other members of HP's Human Resources department, together with members of the Finance and Legal departments, work with the CEO to design and develop compensation programs, to recommend changes to existing plans and programs applicable to NEOs and other senior executives, to recommend financial and other targets to be achieved under those programs, to prepare analyses of financial data, peer comparisons and other briefing materials to assist the Committee in making its decisions, and, ultimately, to implement the decisions of the Committee.

        The Executive Vice President, Human Resources has engaged Mercer LLC as management's compensation consultant. Mercer provides information and analyses that inform management's recommendations. During fiscal 2009, Mercer gathered market and performance data on HP's peer group companies and analyzed the compensation of HP's Section 16 officers against that data. Mercer provides other consulting services to HP as well.

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        The CEO is actively engaged in setting compensation for other executives through a variety of means, including recommending for Committee approval the financial performance goals and the annual variable pay amounts for his executive team. He works closely with other members of executive management in analyzing relevant market data to determine base salary and annual target bonus opportunities for senior management and to develop targets for the short- and long-term incentive plans. Financial targets are set to drive both annual performance and long-term value creation for stockholders. The CEO is subject to the same financial performance goals as the other NEOs, all of which are approved by the Committee.

Oversight and Authority over Executive Compensation

Operation of the HR and Compensation Committee; Role of Its Advisers

        The HR and Compensation Committee of the Board of Directors (the "Committee") oversees and provides strategic direction to management regarding HP's Total Rewards Program generally. It also determines CEO compensation and reviews and approves the compensation of the other Section 16 officers. Each Committee member is an independent non-employee director with significant experience in managing employee-related issues and making executive compensation decisions. The Committee employs its own independent compensation consultant, Frederic W. Cook & Co., Inc. ("Cook"), as well as its own independent counsel, Sonnenschein Nath & Rosenthal LLP.

        Cook provides analyses and recommendations that inform the Committee's decisions, but it does not decide or approve any compensation actions. During fiscal 2007, Cook advised the Committee Chair on setting agenda items for Committee meetings; developed criteria used to identify peer companies for executive compensation and performance comparisons; evaluated market data compiled by management's consultants; worked with management's consultants on design changes to the short- and long-term incentive compensation plans for future years; and reviewed various proposals presented to the Committee by management and management's consultants. The Committee's independent counsel advises on legal

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matters that come before the Committee, including reviewing employment contracts, proxy statements and Committee resolutions. Neither Cook nor the independent counsel performs other services for HP, and neither will do so without the prior consent of the Chair of the Committee.

        The Committee met seven times in fiscal 2007, including four times in executive session. The Committee's independent advisors participated in all of the Committee's meetings, and in the executive sessions and the preparatory meetings, as requested by the Committee chairman. HP's CEO attended most of the Committee's meetings but none of its executive sessions.

Role of Management and the Chief Executive Officer in Setting Executive Compensation

        On an annual basis, management considers market competitiveness, business results, experience and individual performance in evaluating NEO compensation. The Executive Vice President, Human Resources and other members of HP's Human Resources Department, together with members of the Finance and Legal Departments, work with the CEO to design and develop compensation programs, to recommend changes to existing plans and programs applicable to NEOs and other senior executives, to recommend financial and other targets to be achieved under those programs, to prepare analyses of financial data, peer comparisons and other briefing materials to assist the Committee in making its decisions, and ultimately, to implement the decisions of the Committee.

        The Executive Vice President, Human Resources has engaged Mercer as management's compensation consultant. Mercer provides analyses and recommendations that inform management's recommendations and the Committee's decisions. During fiscal 2007, Mercer gathered market and performance data on our peer companies and worked with management on design changes to the long-term incentive compensation plan.

        The CEO is actively engaged in setting compensation for other executives through a variety of means, including recommending for Committee approval the financial performance goals for his executive team. He works closely with other members of executive management in analyzing relevant market data to determine base salary and annual target bonus opportunities for senior management and to develop targets for the short- and long-term incentive plans. Targets are set to drive both annual performance and long-term value creation for stockholders. The CEO is subject to the same financial performance goals as the other NEOs, all of which are approved by the Committee.

Use of Benchmarking Data

        During each fiscal year, management presents the Committee with an analysis of the compensation of Section 16 officers compared to that of HP's peer companies. This analysis is then discussed and reviewed by the Committee with its independent advisors. The comparative data is useful in setting and adjusting executive compensation. In general, the aim is to set target compensation levels between market median and the 75^th percentile, with an opportunity to earn above-market rewards when stockholders have achieved above-market returns. In some cases, the Committee has determined that setting and paying target compensation above this range is justified due to a number of factors, including the relative size and complexity of HP and its business segments and the unique circumstances associated with any individual candidate.

        The companies used for the compensation peer group analysis are within the S&P 500 in the Information Technology, Industrial, Telecom or Consumer Staples sectors; have market capitalizations greater than $45 billion and revenue in excess of $10 billion; and participate in the Towers Perrin executive compensation database. The peer group, approved by the Committee and identified below, remains unchanged from last year. It includes both technology companies against which HP competes directly or

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indirectly in the market, as well as large industrial companies that are similar to HP in terms of market capitalization, complexity of business model, breadth of product offering and/or global presence.

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Represents fiscal 2006 reported revenue, except fiscal 2007 reported revenue is provided for Apple, Cisco, Dell, Microsoft, Oracle, Procter & Gamble and HP.

Analysis of Executive Compensation

        A broad range of facts and circumstances is considered in setting executive compensation. Among the factors considered for HP's executives generally, and for the NEOs in particular, are market competitiveness, company results, internal equity, past practice, experience and individual performance. The weight given each factor may differ from year to year, and may differ among individual NEOs in any given year. For example, when HP recruits externally, market competitiveness, experience, as well as the circumstances unique to a particular candidate may weigh more heavily in the compensation analysis. In contrast, when determining year-over-year compensation for current NEOs, peer company metrics, business results and internal equity generally factor more heavily into the analysis.

        Business results from the most recently completed fiscal year factor heavily in setting executive compensation. These results are reviewed and discussed by the Committee and its independent advisors. The financial results against the targets approved by the Committee under HP's incentive compensation plans generally determine payouts under those plans for the fiscal year just ended. In addition, these results typically form the basis for setting performance targets for the next fiscal year. Based on the financial results presented by management, the Committee reviews the individual performance of the NEOs (other than the CEO) as reported by the CEO and approves their compensation for the current fiscal year.

        In evaluating the performance of the CEO and setting his compensation, the Committee takes into account corporate financial performance, as well as performance on a range of non-financial factors, including accomplishment of strategic goals, workforce development and succession planning, and the working relationship with the Board. Overall, the Committee and the Board believe that HP, under the CEO's leadership in fiscal 2007, achieved superior financial results, as well as significant achievement on a

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broad range of non-financial goals, including strategic acquisitions, talent management and succession planning.

        We generally do not consider the effect of past changes in stock price, or expected payouts or earnings under other plans, in setting future awards of NEO compensation. In addition, incentive compensation decisions are made without regard to length of service or prior awards. For example, NEOs with longer service at HP or who may be eligible for retirement do not receive greater or lesser awards, or larger or smaller target amounts, in a given year, than NEOs with shorter service.