With HP's (HPQ) stock seeing happy times, capped by Tuesday's upgrade by JPMorgan from neutral to overweight (essentially advice to buy) and $5 boost in target price, the company seems on more solid ground. That's likely why the board of directors just boosted CEO Meg Whitman's salary from a symbolic $1 per year to $1.5 million, not counting stock awards or other perks.
The rationale in the SEC filing was "to bring Ms. Whitman's salary to a competitive level among the salaries of the chief executive officers of HP's peer companies." The raise is retroactive to Nov. 1.
Originally, Whitman took on the position at $1 a year. In the tech industry, it isn't unusual. Steve Jobs worked for $1 a year at Apple, as have Sergey Brin, Larry Page, and Eric Schmidt at Google. However, all these people saw significant income from stock.
And so did Whitman. Her total pay last year was actually $15 million, when you count a $1.7 million bonus and $13.7 million in stock grants, stock options, and other compensation.
The theory is that the CEO has a stronger self-interest in directing the company to better performance if he or she is dependent on its performance for compensation. Critics say that too much stock dependence increases chances that chief executives could boost the appearance of short term success -- and stock price as a result -- at the expense of long term company health.
Although he didn't work for $1 a year, former HP CEO Mark Hurd had significant stock compensation and was initially praised as a great turnaround leader at the company. After a scandal ultimately forced him out, a reassessment was less kind. Salary cuts helped torpedo morale (especially when Hurd's own cut was backfilled with additional bonus money), cut-backs in R&D hurt innovation and competitiveness, and financial performance was hurt.In Whitman's case, trailing 12-month revenue, an ongoing extended picture of company performance, has dropped one quarter after another since January 2011, according to data from YCharts. Although not in quite so straight a line, the trailing 12-month gross profit has also been dropping for the last couple of years. The stock may be going up, but it will eventually need a strong enough change in the direction of performance to justify the optimism.