It’s been a slow week for proxy filings, which has enabled me to catch my breath before the 2020 proxy season really begins in earnest. And, while the filings haven’t been plentiful, it doesn’t mean they haven’t been interesting. Take, for example, the definitive proxy statement of Hewlett-Packard Enterprise Company, which was filed yesterday.
Since it spun off from the original Hewlett-Packard Company back in 2015, HP Enterprise has filed some very sharp proxy statements. Each year, there always seems to be one feature or another that catches my attention (it probably has to do with the latest issue I’m wrestling with). This year, I spent some time going through the company’s director compensation disclosure.
As it has done in each of the past three years, the company begins this portion of its Corporate Governance section with an overview of its director compensation program and the process that it uses to set director pay:
Non-employee director compensation is determined by the Board, acting on the recommendation of the HRC Committee. On an annual basis when determining compensation, the HRC Committee considers market data for our peer group, which is the same peer group used for HPE’s executive compensation benchmarking (see “Fiscal 2019 Peer Companies” in the “Compensation Discussion and Analysis” section) as well as input from Frederic W. Cook & Co., Inc. (“FW Cook”), the independent compensation consultant retained by the HRC Committee. Directors who are employees of the Company or its affiliates do not receive separate compensation for their Board activities.
The HRC Committee intends to set director compensation levels at or near the market median relative to directors at companies of comparable size, industry, and scope of operations in order to ensure directors are paid competitively for their time commitment and responsibilities. A market competitive compensation package is important because it enables us to attract and retain highly qualified directors who are critical to our long-term success. As noted above, during fiscal 2019, FW Cook conducted a review of director compensation levels relative to our peer group. Results of their review indicated HPE’s then-current director compensation program was positioned near the median relative to our peer group. To maintain pace with market trend, the HRC Committee recommended, and the full Board approved, a $10,000 increase to the annual equity retainer and a $5,000 increase to all committee chair fees. The HRC Committee intends to continue to conduct director compensation reviews annually.
From there, the presentation moves to a series of tables, the first of which sets out its director compensation framework (the standard pay arrangements that are provided for Board service). Next comes the Director Compensation Table itself, followed by two supplemental tables – one showing a breakdown of the cash fees paid to directors during the fiscal year and the other providing most (if not all) of the specific information required about director equity awards.
The company then summarizes its stock ownership guidelines for its non-employee directors, and finishes this section with its hedging and pledging policies for its directors:
HPE has a policy prohibiting directors from engaging in any form of hedging transaction (derivatives, equity swaps, forwards, etc.) in HPE stock, including, among other things, short sales and transactions involving publicly traded options. In addition, with limited exceptions, HPE’s directors are prohibited from holding HPE stock in margin accounts and from pledging HPE stock as collateral for loans. These policies further align directors’ interests with those of our stockholders.
I’ve read quite a few hedging disclosures recently, but this is the first time I’ve seen the policy for directors set out separately from a company’s statement about its general hedging practices.
-Mark Borges, CompensationStandards.com February 14, 2020
