Two institutional investors Tuesday filed a lawsuit against Hewlett-Packard Co.'s board of directors, charging that the US$42 million severance package paid last year to departing CEO Carly Fiorina was excessive and violated corporate policy.
The suit was filed in U.S. District Court in Northern California by the Indiana Electrical Workers Pension Trust Fund and pension funds administered by the Service Employees International Union (SEIU). The lawsuit was filed on behalf of the company and other HP investors, according to a statement by Grant & Eisenhofer PA, the law firm representing the investors.
It contends that the severance package breached an HP policy that such packages not exceed 2.99 times the sum of an executive's annual base salary, plus target bonuses, without seeking shareholder approval, according to the statement.
HP shareholders adopted the policy in 2003 following widespread shareholder discord over a US$16 million payout to former HP President Michael Capellas.
Fiorina, who joined HP in 2002 and directed its merger with Compaq Computer, was terminated in February 2005.
Her severance package included US$21.4 million in cash, plus stock options and other benefits that raised the total to an estimated US$42 million, the investors said. Although the package exceeded the 2.99 formula, no vote was sought authorizing the payout, the investors said.
The Indiana Electrical Workers and the SEIU are asking for compensatory damages for what they called the HP board's breach of fiduciary duty. They are also asking the court to impose a constructive trust on the US$21.4 million cash payment.