By Eleanor Bloxham
February 11, 2012

By Eleanor Bloxham, CEO of The Value Alliance and Corporate Governance Alliance

FORTUNE — Last proxy season, HP achieved the dubious distinction of receiving a majority no vote from its shareholders on its executive compensation programs.  According to a Council of Institutional Investors study, investors bestowed that distinction on less than 1.6% of companies, those deemed to be the worst pay offenders.

Last year, too, HP’s (HPQ) board nominations process (which removed four board members and added five more) came under fire because the process did not conform to stated board policy guidelines. In the run up to the proxy filing, HP provided varying explanations about the process, which had been headed by chair Ray Lane. As a result, proxy advisory firm Institutional Shareholder Services (ISS) recommended against the election of some HP board members.

It is a new year and HP issued its new proxy last week. But the more things seem to change at the tech giant, the more they stay the same.

HP sports a different CEO this year for the third year running (Meg Whitman replaced Leo Apotheker who replaced Mark Hurd who left in August 2010). HP, yet again, is proposing a new board slate to shareholders (with two new board members and four, including the former CEO, having exited). And the proxy this year reveals the same shortcomings as it did last year: misguided compensation and board nominations.

Maybe HP has good intentions, but it’s falling down on execution.

Plenty of pay, but where’s the performance?

To keep things simple, let’s not even get into the issue of former CEO Leo Apotheker’s $25 million exit pay for failure last year. Let’s focus on what’s to come. HP has made some changes in its compensation policies, which it outlines in the Compensation Discussion and Analysis section of the proxy in hopes this may satisfy investors. “HP has a ‘pay-for-performance’ philosophy which forms the foundation of all of the HR and Compensation Committee’s decisions regarding compensation,” an HP spokesperson says.

But if we look into what Whitman and Lane were actually awarded following the shareholder rebuke last March, HP seems to be itching for a no vote on “say on pay” yet again.

During Whitman’s tenure as an HP board member (before she was appointed CEO on September 22), HP’s stock dropped by over 50%, in part related to a board-approved strategy. After becoming CEO, she was awarded stock options on September 27 enabling her to buy 1.9 million shares. Under the terms of her award, the stock price must close at 20% above the exercise price (for 20 consecutive trading days) for a portion of the stock options to vest and 40% above for another portion to vest. That may sound like pay for performance, but is it?

By almost any measure, it turns out, 20% and 40% aren’t high hurdles at all. First, the stock was 50% higher when she joined the board. Second, prior to the stock’s abrupt drop at the end of August (on her watch as a board member), the stock price hadn’t closed as low as the option’s exercise price since August 16, 2005. Third, the average closing price of the stock in the five years preceding the award was 77% higher than the exercise price. And without even announcing a new strategy, the stock price was already up 23% on February 3, 2012.

How much is this payday worth? Once the 40% hurdle is cleared, this bonanza will be worth $18 million. If the stock price rises to the average five-year price, it will be worth over $34 million.

That’s pay. But where’s the performance? Was this stock option arrangement really necessary to entice Whitman to the CEO spot and motivate her to perform her job? Other than a motivation to not sink the stock again, how does it motivate her to make a real difference over that which she can control?

Timing is everything — and Lane has suffered similar good fortune. HP’s stock price was down by 45% during Lane’s tenure as a board member (and as chair) before he assumed the executive chair position.  Yet despite HP’s poor performance during his earlier tenure, he was awarded an option to purchase 1 million shares when he became executive chair, with similar vesting requirements as Whitman’s. What does this mean? He’ll get a haul that is more than half of Whitman’s. Such pay can only be described as stratospheric for an executive chair.

Some shareholders, who are voting again on executive pay this year, will be considering whether a director “say on pay” proposal (as appears on Apple’s (aapl) 2012 proxy) could address these concerns in future years.

A board that’s spread too thin

HP has had significant turnover on its board, and this year is no exception. For any board, selecting the right members with the time and talent to do the job well is critically important.  Directors’ “service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties,” the HP proxy says.

What are the general guidelines good boards follow? At most, sitting CEOs should sit on one outside board and board members who have retired from full time executive duties should sit on a maximum of four boards. If the director is the chair or lead independent director, or if the director runs a company or sits on the board of a company that needs particular attention, they should sit on even fewer boards.

HP would, by most any measure, fit in the “needs attention” category. HP’s board did not turn in a stellar performance last year and the company is in need of a clearly articulated strategy that the board has adequately vetted and approved. But taking into account the stated HP policy and the attention HP needs from its board, some members up for election don’t appear to qualify.

Whitman sits on three outside boards — P&G (PG), Zipcar (zip), and Zaarly — all of which “she committed to serve on … before she agreed to become HP’s president and CEO,” according to an HP spokesperson. But Whitman didn’t actually join Zaarly’s board until over a month after her tenure as CEO had already begun.

Whitman finds her outside board service to be of value and “plans to honor all of her outside board commitments as long as they do not interfere with her obligations to lead HP,” HP’s spokesperson says.

But many CEOs resign some or all of their board seats when taking on new challenges. According to Spencer Stuart research, there has been a nearly 50% decline in active CEOs serving on boards in the last 10 years and currently less than half of CEOs serve on any outside board.

To address how a CEO may view outside board membership versus how the board and shareholders may view it, many boards today actively limit CEO participation on outside boards (to none or one) as a condition of employment. If Whitman only works the average amount of hours for directors (according to the National Association of Corporate Directors), her outside board service takes up over 51 hours a month. Shareholders will have to decide if three outside boards is too many for a sitting CEO in a company whose stock price has still not fully recovered from the self-induced shocks that have occurred while she was sitting on HP’s board.

Lead director Rajiv Gupta, chairman of Avantor Performance Materials and senior advisor to New Mountain Capital, sits on the HP board plus the boards of Delphi Automotive (DLPH), Tyco, The Vanguard Group “and several private companies.” Pat Russo, who heads the compensation committee, sits on five boards including HP.

Maybe shareholders will decide to send a message on pay and board elections this year. If they don’t, maybe next year, we’ll just see more of the same.

Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (, a board advisory firm.

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