Hp board of directors compensation: approving ceo pay

Hewlett Packard (HP) is a multinational technology company that specializes in providing hardware and software solutions to businesses and consumers. As a publicly traded company, HP is governed by a board of directors that is responsible for overseeing the company's operations and making decisions on behalf of the shareholders.

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Does the board of directors approve CEO compensation?

Yes, the board of directors is responsible for approving the compensation of the CEO. This includes determining the salary, bonuses, and other benefits that the CEO will receive. The board's goal is to establish compensation that is reasonable and not excessive, while also attracting and retaining top talent to lead the company.

To ensure that the CEO's compensation is fair and reasonable, the board of directors follows a recommended process. This process involves adopting a written policy that outlines how the board will review and approve the CEO's compensation. One important step in this process is conducting a comparison of compensation paid by similarly-sized peer organizations in the same geographic location. By documenting this comparison, the board creates a rebuttable presumption that the CEO's compensation is reasonable and not excessive.

Nonprofits filing IRS Form 990, which includes HP, must describe the process they use to approve executive compensation as part of their annual return. This ensures transparency and accountability in the decision-making process.

What is reasonable compensation according to the IRS?

The IRS provides guidance on determining reasonable compensation for executives of charitable nonprofits, like HP. The IRS recommends a three-step process to ensure that compensation is fair and not excessive.

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The first step is to arrange for an independent body to conduct a comparability review. This means that the person receiving the compensation should not be involved in the review process. Many nonprofits, including HP, have a compensation committee or use a sub-group/task force of board members for this purpose. The independent body should compare the CEO's salary and benefits to those of similar organizations with similar missions, budgets, and geographic locations.

The second step is to document the process used to conduct the review and the full board's decision to approve the compensation. This documentation should demonstrate that the board considered the comparable data when making their decision. Nonprofits filing Form 990 must describe this process on Schedule O.

The third step is to ensure that the compensation includes all salary and benefits, such as insurance, car allowances, housing allowances, and other fringe benefits. The IRS provides instructions on how and where to report these types of compensation on Form 990.

Practice Pointers

  • Repeat the process every year: It is important for the board of directors to review and approve the CEO's compensation on an annual basis. This can be done in conjunction with the annual budget process or at a designated time each year.
  • Find comparability data: State associations of nonprofits and outside compensation consultants may conduct salary surveys and offer compensation reports. Candid, an organization that collects executive salary data from IRS 990 filings, also provides this information for a fee.
  • Have a robust conflict of interest policy: To ensure fair and reasonable compensation, it is essential for nonprofits to have a conflict of interest policy in place. This policy helps prevent any conflicts of interest that may influence the decision-making process.

Tools for Boards

There are several resources available to boards of directors to help them navigate the process of determining executive compensation. State associations of nonprofits often provide guidance and resources specific to their state. Additionally, Candid offers executive salary data and other resources for a fee.

Additional Resources

For more information on executive compensation and best practices for boards of directors, the following resources may be helpful:

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Q: Who is responsible for determining the CEO's compensation?

A: The board of directors is responsible for approving the CEO's compensation.

Q: How does the board ensure that the CEO's compensation is reasonable?

A: The board follows a recommended process that includes conducting a comparison of compensation paid by similar organizations and documenting the decision-making process.

Q: What is included in reasonable compensation?

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A: reasonable compensation includes salary and benefits, such as insurance, car allowances, housing allowances, and other fringe benefits.

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