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Savings Experiment: Snow RemovalHome Depot's Board of Directors will soon renovate CEO Bob Nardelli's rather large compensation package. Mr. Nardelli took over as Home Depot CEO in December 2000. His compensation since then has averaged about $50 million per year. When Mr. Nardelli took over, Home Depot stock was at $40.19; and the stock closed at $36.58 on 18 September 2006. During Mr. Nardelli's tenure as CEO, the share price of Lowe's, its main competitor, has gained 178%.
According to Bonnie Hill, Home Depot's compensation committee chair, Mr. Nardelli's pay package will be reconfigured if only to quiet shareholder outrage that the CEO continues to profit handsomely while investors do not. At Home Depot's annual meeting in May, shareholders withheld 30% of their votes, including votes for Mr. Nardelli.
Currently, the bulk of Mr. Nardelli's pay package is tied to the financial performance of Home Depot, NOT stock performance. Fair is fair. On Mr. Nardelli's watch, Home Depot's sales have increased from $45.7 billion in 2000 to $81.5 billion in 2005.
As difficult as it is for investors to tolerate, tying a significant portion of Mr. Nardelli's compensation package to stock performance is exactly the wrong message to send. Warren Buffett's Rule #1 is that investors should want management to mange for long term growth, not manage for short term earnings. Tying the CEO's pay package to quarterly earnings simply introduces a conflict of interest into senior management decision-making. It forces a CEO, consciously or not, to decide between acting on self-interest or acting on behalf of the corporation. Wall Street will reward or punish CEOs based solely on quarterly earnings figures. This is NOT the way to run a company the size of Home Depot.
If the Board and Mr. Nardelli are serious about sharing investor pain, then perhaps Mr. Nardelli could agree to forgo a portion of his guaranteed $6.5 million annual salary or accept less in his severance pay and pension packages.
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Reader Comments (Page 1 of 1)
9-19-2006 @ 3:11PM
douglas mcintyre said...
While Nardelli's pay package is disliked by the company's shareholders, the figures that have been used to describe his compensation have often been misleading. The company proxy shows that he was granted 590,000 options in fiscal 2005. Those are all currently "out of the money". He also received about $30 million in restricted stock. But, those shares vest over time. If the stock continues to drop, the value in the proxy will be too high.
10-30-2006 @ 12:34PM
J.P.Heffner said...
Home Depot CEO to take a pay cut?
Posted Sep 19th 2006 2:42PM
Home Depot's Board of Directors will soon renovate CEO Bob Nardelli's rather large compensation package. Mr. Nardelli took over as Home Depot CEO in December 2000. His compensation since then has averaged about $50 million per year. When Mr. Nardelli took over, Home Depot stock was at $40.19; and the stock closed at $36.58 on 18 September 2006. During Mr. Nardelli's tenure as CEO, the share price of Lowe's, its main competitor, has gained 178%.
According to Bonnie Hill, Home Depot's compensation committee chair, Mr. Nardelli's pay package will be reconfigured if only to quiet shareholder outrage that the CEO continues to profit handsomely while investors do not. At Home Depot's annual meeting in May, shareholders withheld 30% of their votes, including votes for Mr. Nardelli.
Currently, the bulk of Mr. Nardelli's pay package is tied to the financial performance of Home Depot, NOT stock performance. ???????????????
Fair is fair.
On Mr. Nardelli's watch, Home Depot's sales have increased from $45.7 billion in 2000 to $81.5 billion in 2005.
BUT.....................................same stores ? .......or MANY MORE figured in ??! ........................... PLUS INCREASE IN PRICES OVER 5 YEARS would be an ADDITIONAL 20% and a natural increase in market expansion of about 20% .......
....SO ....... $45.7 billion x 140% SHOULD BE A MIN. OF ABOUT $64 billion
SO .......... adding the NEW STORES which have come on line over the last 5 years ....................THIS SHOULD TOTAL OUT TO ABOUT $90-100 billion
Now the math says the $81.5 billion in 2005....................................
...... as compared to the $90-100 billion that share holders SHOULD have expected ............ less the RIP of excessive
compensation like $50 million or more.......................????!!!!!!!!
Nardelli's got to go ............. who needs him ......he's all but ruined Home Depot!!!!!