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01 December 2011

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Bruce,

Excellent juxtaposition of two different strategies for equity compensation. I personally would have liked to have seen both companies use a more balanced approach of using multiple instruments, but can understand their motivation for the plans designed.

The truly long-term nature of the Apple awards is unique. I believe it can be justified given their current position. Sometimes retention of people who have been proven to be great is more important than finding a way to motivate the motivated.

I would caution companies when they wish to use stock price as a sole performance goal. With markets being historically volatile over the past decade, stock prices often move faster than expected with less link to individual company performance than can be justified. Strong upward movement in the market that us caused by other factors may result in HP stock options vesting far sooner than planned or is prudent. This has happened to other companies multiple times in the past.

While these types of awards look great when initially rolled out, they can be attacked when they do, or do not, vest in the future. It would have been nice to have seen a goals that included metrics based on explicit corporate performance combined Relative Total Shareholder Return and/or Stock Price. That being said performance-based options are a fairly unique solution that many companies avoid due to their nature to never fall into the money.

I am very glad to see companies moving away from the follow-the-leader approach that plagued equity compensation for so long. Perhaps Say on Pay is having more impact that some thought it would.

Dan Walter
President and CEO
Performensation
415-625-3406
dwalter@performensation.com

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