January 14, 2007
The San Fransisco Chronicle
Here's one lawsuit you have to root for: A group of stockholders have filed a restraining-order request to stop Home Depot from paying a $210 million golden parachute to reward exiting CEO Bob Nardelli for not working there anymore. If more shareholders did more to curb cushy compensation packages, the American public would have more faith in the marketplace.
The American dream used to be: Work hard, make good and get rich. In this economy, make that: Work hard, make good, then don't make good, get richer. Nardelli's example shows that the real money comes when you're so underwhelming as a CEO (at least in relationship to your pay grade) that the company will pay big bucks to have you leave.
The story shows the rot behind excessive executive pay: Board members tend to be executives who think that paying other executives top dollar is the key to success in business. Hence a compensation package on steroids for Nardelli -- even as Home Depot moved to get rid of skilled, experienced employees and replace them with cheaper, less-skilled part-timers.
MarketWatch reported that Nardelli's severance deal -- the parting purse for one man -- was seven times the $30 million that Home Depot set aside last June to reward productive stores and employees for good customer service.
As The Wall Street Journal reported, Nardelli's excessive pay led to his excessive exit pay. In the six years he worked at Home Depot, Nardelli was compensated about $240 million, including stock options. Last year, the "You can do it, we can help" board awarded Nardelli with a $7 million bonus and $14.7 million in stock -- when his contract didn't require it.
That's an odd reward for a CEO, considering the company stock price declined 8 percent during his tenure, while the stock for its big, bad competitor, Lowe's, the Journal reported, rose by 188 percent. As Rep. Barney Frank, D-Mass., new chair for the House Financial Services Committee, noted, the argument used to be that CEOs enjoyed mega-pay for boosting their stock sales.
In this case, Nardelli's compensation doesn't even make market sense.
Which is why the Do-It-Yourself giant's board members had begun to bristle, and Nardelli's gravy train was heading toward its final destination. Home Depot hired a consultant that found Nardelli was making more than his industry peers. As the Journal reported, the board asked Nardelli to give up some perks. He was willing to give up use of six corporate jets, but reportedly didn't want a reduction in bonuses, so he relinquished his orange apron.
The big irony is that, as The New York Times revealed, the contract Nardelli signed with Home Depot when the company recruited him in 2000 is the reason he walked away with a $210 million goodbye kiss. The CEO cut a good deal when he was hot, and cashed in when he was not.
You know you've arrived in America when you get paid more not to work than to work.
Too bad some creative corporate lawyer didn't figure out a way to pay Nardelli his excessive salary only, while making him the CEO of coffee and doughnuts or something.
Frank wants the U.S. House of Representatives to get into the act, but there are elements to this story that show the problem is taking care of itself.
Last year, shareholders revolted. Nardelli didn't help himself when, at a shareholder meeting, he stonewalled questions that malcontents directed toward his pay package. Angry shareholders fought back -- 30 percent withheld their votes for 10 of the 11 Home Depot board directors. The love was gone.
As The Associated Press reported, a group of shareholders is suing Home Depot to pull the cord on the golden parachute -- arguing that the company "will suffer additional irreparable harm if Nardelli" gets the whole package. Already, the Home Depot board voted to require that hereafter two-thirds of its independent directors -- instead of a majority -- approve a chief executive's compensation.
New Securities and Exchange Commission rules will make it harder for boards to hide what they are paying their top guns. As Martha Stewart would say, that's a "good thing." If you believe in the free market, you should be rooting for an end to the welfare state for CEOs.
dsaunders@sfchronicle.com
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