The Indiana Electrical Workers Pension Trust Fund and the Service Employees International Union, both HP investors, filed their lawsuit in U.S. District Court in Northern California late Monday. The plaintiffs allege that HP violated its own policy of restricting CEO severance payouts to two and a half times an executive's base salary and targeted bonus, unless shareholders approve a higher sum.
Fiorina, who was ousted last year, had a combined base salary and targeted bonus of $5.6 million prior to her termination, the lawsuit states. Under HP's severance-cap policy for CEOs, Fiorina's severance would be restricted to $14 million, without shareholder approval.
But the company not only awarded Fiorina approximately $14 million for her base salary and targeted bonus of the previous year it also paid her an additional $7 million under a long-term incentive compensation program, the lawsuit states. The issue of Fiorina's $21.4 million severance was a hot topic at HP's annual shareholders meeting last year.
"During HP's annual shareholder meeting last year, (HP Director Patricia) Dunn said the $21 million was negotiated as part of her severance agreement, so it was all severance. Anything that is negotiated as part of a termination agreement is severance, and if it exceeds (the cap), it has to be approved by shareholders," said Michael Barry, an attorney for law firm Grant & Eisenhofer, which is representing the plaintiffs.
HP declined to comment.
Fiorina received other forms of compensation, such as stock options, as she departed the company. However, it has yet to be determined whether those were subject to severance negotiations, Barry said. Fiorina's total payout was an estimated $42 million, the suit states.
The plaintiffs not only named HP's directors as defendants, but listed Fiorina as a defendant, as well. The lawsuit seeks to put Fiorina's $21.4 million severance in a trust until the courts rule on the case.
The issue of a severance cap for HP executives arose following the $14.4 million payout to former HP President Michael Capellas, who resigned to lead MCI Communications.
Capellas' severance package ignited a firestorm among investors, who succeeded in passing a shareholder resolution to put a cap on executive compensation that also called for shareholder approval to exceed it.