HP 2009 Annual Report Download - page 103

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Stock-Based Compensation (Continued)
Cash received from option exercises and purchases under the ESPP in fiscal 2009 was $1.8 billion.
The actual tax benefit realized for the tax deduction from option exercises of the share-based payment
awards in fiscal 2009 totaled $252 million. Cash received from option exercises and purchases under the
ESPP in fiscal 2008 was $1.8 billion. The actual tax benefit realized for the tax deduction from option
exercises of the share-based payment awards in fiscal 2008 totaled $412 million.
Incentive Compensation Plans
HP’s incentive compensation plans include principal option plans adopted in 2004, 2000, 1995 and
1990 (‘‘principal option plans’’), as well as various stock option plans assumed through acquisitions
under which stock-based awards are outstanding. Stock-based awards granted from the principal option
plans include performance-based restricted units (‘‘PRUs’’), stock options and restricted stock awards.
Employees meeting certain employment qualifications were eligible to receive stock-based awards in
fiscal 2009. There were approximately 91,000 employees holding stock-based awards under one or more
of the option plans as of October 31, 2009.
In fiscal 2008, HP implemented a program that provides for the issuance of PRUs representing
hypothetical shares of HP common stock that may be issued under the Hewlett-Packard Company 2004
Stock Incentive Plan. PRU awards may be granted to eligible employees, including HP’s principal
executive officer, principal financial officer and other executive officers. Each PRU award reflects a
target number of shares that may be issued to the award recipient. The actual number of shares the
recipient receives is determined at the end of a three-year performance period based on results
achieved versus company performance goals. Those goals are based on HP’s annual cash flow from
operations as a percentage of revenue and average total shareholder return (‘‘TSR’’) relative to the
S&P 500 over the performance period. Depending on HP’s results during the three-year performance
period, the actual number of shares that a grant recipient receives at the end of the period may range
from 0% to 200% of the targeted shares granted, based on the calculations described below.
Cash flow performance goals are established at the beginning of each year. At the end of each
year, a portion of the target number of shares may be credited in the award recipient’s name
depending on the achievement of the cash flow performance goal for that year. The number of shares
credited varies between 0% if performance is below the minimum level and 150% if performance is at
or above the maximum level. For performance between the minimum level and the maximum level, a
proportionate percentage between 30% and 150% is applied based on relative performance between
the minimum and the maximum levels.
Following the expiration of the three-year performance period, the number of shares credited to
the award recipient during the performance period is adjusted by a TSR modifier. The TSR modifier,
which is determined at the beginning of each performance period, varies between 0%, if the minimum
level is not met, resulting in no payout under the PRU award, and 133%, if performance is at or above
the maximum level. For performance between the minimum level and the maximum level, a
proportionate TSR modifier between 66% and 133% is applied based on relative performance between
the minimum and the maximum levels. The number of shares, if any, received by the PRU award
recipient equals the number of shares credited to the award recipient during the performance period
multiplied by the TSR modifier.
Recipients of PRU awards generally must remain employed by HP on a continuous basis through
the end of the applicable three-year performance period in order to receive any portion of the shares
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