DIRECTOR COMPENSATION AND STOCK OWNERSHIP GUIDELINES

        Employee directors do not receive any separate compensation for their Board activities. Non-employee directors receive the compensation described below.

        Each non-employee director is entitled to receive an annual cash retainer of $50,000 but may elect to receive an equivalent amount of securities in lieu of the cash retainer. In addition, each non-employee director is entitled to receive an annual retainer of $150,000 in the form of restricted stock or stock options. Under special circumstances, the securities portion of the annual retainer may be paid in cash, but no such exceptions were made during fiscal 2007. The restricted stock awards are determined based on the fair market value of HP common stock on the grant date, and stock options are determined based on a Black-Scholes option valuation model. The restricted stock and options generally vest after one year from the date of grant. Non-employee directors may elect to defer the cash portion of their annual retainer under the Hewlett-Packard Company 2005 Executive Deferred Compensation Plan. Under that plan, investment earnings are credited based on investment choices that are available to employees under the HP 401(k) Plan, and there is no formula that would result in above-market earnings or a preferential interest rate. None of the non-employee directors made any cash deferrals in fiscal 2007.

        In addition to the annual retainer, non-employee directors who serve as chairs of standing committees receive a retainer for such service in the amount of $15,000 for the chair of the Audit Committee and $10,000 for the chair of other Board committees. In addition, effective in February 2007, the lead independent director receives an additional retainer of $75,000 per year. Non-employee directors also receive $2,000 for each Board meeting attended in excess of six per year, and $2,000 for each committee meeting attended in excess of six per year for each standing committee on which the non-employee director serves. Non-employee directors are reimbursed for their expenses in connection with attending Board meetings (including expenses related to spouses when spouses are invited to attend Board events), and non-employee directors may use the company aircraft for travel to and from HP events. Each non-employee director also may receive up to $2,500 worth of HP equipment each year. In addition, each non-employee director is eligible to participate in the product matching portion of the HP Employee Giving Program. Under this program, each non-employee director may contribute up to $20,000 worth of HP products each year to a school or qualified charity by paying 25% of the list price of those products, with HP paying the remaining 75%.

(1)

For purposes of determining director compensation, the term of office for directors begins in March and ends the following February, which does not coincide with HP's November through October fiscal year. Cash amounts included in the table above represent the portion of the annual retainers elected to be received in cash, committee chair fees, lead independent director

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fees and additional meeting fees earned with respect to service during HP's 2007 fiscal year. See "Additional Information About Fees Earned or Paid in Cash in Fiscal 2007" below.

(2)

The dollar amounts shown for stock awards and option awards represents the dollar amount of those awards recognized for financial statement reporting purposes with respect to fiscal 2007 in compliance with Statement of Financial Accounting Standards No. 123 (revised 2004) "Share-Based Payment" ("SFAS 123R") for stock options and restricted stock awards that vested in fiscal 2007. These amounts reflect HP's accounting expense for these awards and do not correspond to the actual value that may be recognized by the directors with respect to these awards. For information on the assumptions used to calculate the value of the awards, refer to Note 2 to HP's consolidated financial statements in its Annual Report on Form 10-K for the fiscal year ended October 31, 2007, as filed with the SEC on December 18, 2007. In accordance with SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. See "Additional Information About Non-Employee Director Equity Awards" below.

(3)

Amounts in this column represent the dollar value of dividends paid on stock awards and the cost to HP of product donations made on behalf of non-employee directors pursuant to the product matching portion of the HP Employee Giving Program.

(1)

The $15,000 paid to Mr. Babbio for committee chair/lead independent director fees includes a $5,000 fee paid for his service as chair of the former Acquisitions Committee, which was prorated to reflect the dissolution of that committee in May 2007.

(2)

The $33,333 annual retainer paid to Ms. Baldauf represents the portion of Ms. Baldauf's $50,000 cash annual retainer for the March 2007 through February 2008 Board term that was earned during fiscal 2007. Ms. Baldauf did not elect to receive in cash any portion of her annual retainer for the March 2006 through February 2007 Board term.

(3)

The $55,000 paid to Mr. Hackborn for committee chair/lead independent director fees represents a prorated amount of $50,000 paid for his service as lead independent director from February 2007, the effective date of the Board's approval of the $75,000 annual retainer paid to the lead independent director, through the end of fiscal 2007 and a $5,000 fee paid for his service as chair of the Technology Committee, which was prorated to reflect the reconstitution of that committee in May 2007.

(4)

The $5,000 paid to Mr. Hammergren for committee chair/lead independent director fees represents a fee for his service as chair of the Finance and Investment Committee, which was prorated to reflect the re-formation of that committee in May 2007.

(5)

Mr. Joyce was elected to the Board effective May 17, 2007. Mr. Joyce received a prorated retainer of $166,667 for service from May 2007 through February 2008, $41,667 of which he elected to receive in cash. The $22,917 cash annual retainer paid to Mr. Joyce represents the portion of that $41,667 that was earned during fiscal 2007.

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(1)

Represents the fair value of stock options and stock awards granted in fiscal 2007, calculated in accordance with SFAS 123R. For stock awards, that number is calculated by multiplying the fair market value of HP's common stock on the date of grant by the number of shares awarded. For option awards, that number is calculated by multiplying the Black-Scholes value determined as of the date of grant by the number of options awarded.

(2)

Mr. Hyatt was elected to the Board effective May 17, 2007. Mr. Hyatt received a prorated annual retainer of $166,667 that he elected to receive in the form of 3,650 shares of restricted stock for service from May 2007 through February 2008.

(3)

Mr. Joyce was elected to the Board effective May 17, 2007. Mr. Joyce received a prorated retainer of $166,667 for service from May 2007 through February 2008, $125,000 of which he elected to receive in the form of 2,738 shares of restricted stock.

(4)

Mr. Thompson was elected to the Board effective November 16, 2006. Mr. Thompson received a prorated retainer of $50,000 that he elected to receive in the form of 1,172 shares of restricted stock for service from November 2006 through February 2007 in addition to an annual retainer that he elected to receive in the form of 4,837 shares of restricted stock for service from March 2007 through February 2008.

Non-Employee Director Stock Ownership Guidelines

        Under HP's stock ownership guidelines, non-employee directors are required to accumulate over time shares of HP common stock equal in value to at least three times the value of the regular annual cash and equity retainers. Shares counted toward these guidelines include:

•

any shares held by the director directly or through a broker, including shares received under restricted stock grants;



•

restricted stock; and



•

vested but unexercised stock options (50% of the in-the-money value of such options is used for the calculation).

        All non-employee directors with more than two years of service have met HP's stock ownership guidelines. See "Common Stock Ownership of Certain Beneficial Owners and Management" on page 26.

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PROPOSALS TO BE VOTED ON

PROPOSAL NO. 1

ELECTION OF DIRECTORS

        There are ten nominees for election to our Board this year. All of the nominees except Joel G. Hyatt and John R. Joyce have served as directors since the last annual meeting. Messrs. Hyatt and Joyce were elected by the Board to serve as directors effective May 17, 2007. Each director is elected annually to serve until the next annual meeting or until his or her successor is elected. There are no family relationships among our executive officers and directors.

        Each director nominee who receives more "FOR" votes than "AGAINST" votes representing shares of HP common stock present in person or represented by proxy and entitled to be voted at the annual meeting will be elected.

        If you sign your proxy or voting instruction card but do not give instructions with respect to voting for directors, your shares will be voted for the ten persons recommended by the Board. If you wish to give specific instructions with respect to voting for directors, you may do so by indicating your instructions on your proxy or voting instruction card.

        You may cumulate your votes in favor of one or more directors. If you wish to cumulate your votes, you will need to indicate explicitly your intent to cumulate your votes among the ten persons who will be voted upon at the annual meeting. See "Questions and Answers—Voting Information—Is cumulative voting permitted for the election of directors?" for further information about how to cumulate your votes. Mark V. Hurd and Michael J. Holston, as proxy holders, reserve the right to cumulate votes and cast such votes in favor of the election of some or all of the applicable nominees in their sole discretion, except that a stockholder's votes will not be cast for a nominee as to whom such stockholder instructs that such votes be cast "AGAINST" or "ABSTAIN."

        All of the nominees have indicated to HP that they will be available to serve as directors. In the event that any nominee should become unavailable, however, the proxy holders, Mr. Hurd and Mr. Holston, will vote for a nominee or nominees designated by the Board.

        If an incumbent director nominee receives a greater number of votes against his or her election than votes for such election, he or she is required to tender his or her resignation for consideration by the Nominating and Governance Committee in accordance with Section V of HP's Corporate Governance Guidelines and as described on page 18.

Our Board recommends a vote FOR the election to the Board of the each of the following nominees.

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