Embattled CEO leaves job with $210 million

Home Depot chief had drawn watchdogs' criticism for high pay

January 04, 2007|By Martin Zimmerman and Kathy M. Kristof | Martin Zimmerman and Kathy M. Kristof,LOS ANGELES TIMES

Corporate pay critics were prepared to cheer the abrupt departure of embattled Home Depot Inc. chief Robert Nardelli yesterday - but then they got a look at the bill.

Nardelli, who was one of the nation's best-paid chief executives, will get a severance package valued at $210 million. That dismayed corporate watchdogs who have seen a string of departing CEOs collect high-dollar payouts in recent months.

"This board should be ashamed of themselves," said Nell Minow, an expert on executive compensation at the Corporate Library research firm. "I would like to see several board members leave in acknowledgment of their utter failure."

At the same time, the surprise resignation counts as a win for shareholder advocates who had cited Nardelli repeatedly as an example of runaway executive pay.

Nardelli, 58, made more than $140 million since he took over in December 2000. But during his tenure, the company's stock sank 12 percent.

"It shows how focused shareholder groups can get results," said Ralph Ward, publisher of the Boardroom Insider, an online newsletter that follows corporate pay and related issues. "It may not be quick, but eventually they can wear away a company's leadership by keeping up the pressure."

Daniel Pedrotty, director of the AFL-CIO's office of investment, said he was also distressed by the size of Nardelli's severance, but he agreed that the resignation shows that shareholder activists can have an impact.

"I think the tide is beginning to turn," Pedrotty said. "We are extremely encouraged that boards are beginning to assert their independence, but there are miles to go before we are satisfied."

Atlanta-based Home Depot, the biggest U.S. home improvement retailer, gave no reason for Nardelli's departure, which it said was "mutually agreed" upon. A spokesman declined to comment on the severance package other than to say it was included in the job contract Nardelli signed when he moved to Home Deport from General Electric Co. at the end of 2000.

Some experts said the timing indicated the Home Depot board might have tired of the criticism directed at Nardelli by shareholder activists, union leaders and pension fund managers.

The former CEO was also faulted for what one Wall Street analyst described as an "autocratic" management style. Nardelli was the only director to attend the company's annual meeting last May in Delaware, where he provoked critics by refusing to answer questions about his pay.

As recently as Dec. 18, the Home Depot board expressed full support for Nardelli and his management team, after San Diego investment firm Relational Investors said it planned to submit a shareholder proposal calling for a review of the company's strategic direction.

Nardelli's resignation comes amid a wave of executive departures. Through the end of November, U.S. companies had announced 1,347 CEO changes, more than for all of 2005.

A portion of that increase stems from a stock-options backdating scandal, but it is also a sign that executives are under greater scrutiny, said John A. Challenger of the outplacement firm Challenger, Gray & Christmas, which tracks the trend.

"We will likely see more and more shareholders revolt based on compensation issues, even if the executive is accomplishing his or her goals," Challenger said.

Over the six years that Nardelli was CEO of Home Depot, he took home $143 million in cash, stock and other compensation. In addition, he was granted stock options that would have been worth $469.7 million if the company's stock price had appreciated at the market's historic 10 percent average annual rate.

By comparison, the average compensation for Fortune 500 CEOs was $13.5 million in 2005, according to a study by the Corporate Library.

Lofty executive pay levels have been a target for corporate reformers for several years. But it has been severance packages that have drawn much of the attention recently.

KB Home CEO Bruce Karatz, who resigned under pressure from the Los Angeles homebuilder in November amid questions about stock option grants, could collect as much as $175 million under his severance agreement.

Henry A. McKinnell, the former CEO of drugmaker Pfizer Inc. who was ousted in part because of investor anger about his rich retirement benefits, will get a package totaling more than $180 million.

Nardelli's $210 million deal tops both of those, but it is far from a record. For example, former ExxonMobil CEO Lee Raymond's retirement package was valued at $400 million when he stepped down last year.

A substantial amount of Nardelli's severance pay was included in the employment agreement that he secured before joining the company in 2000. The company promised him at least $4.5 million in annual salary and bonus, plus at least 450,000 stock options each year.

In addition, the company lent Nardelli $10 million when it hired him and forgave $2 million of that loan each year.

To woo him from GE, Home Depot also gave Nardelli an initial option grant of 3.5 million shares, which would have been worth $285 million if the company's stock price had appreciated at 10 percent a year. And it promised a pension equal to 50 percent of his pay and bonus.

Some analysts noted, however, that much of Home Depot's poor stock market performance occurred during Nardelli's first two years, when he was struggling to turn the company around.

Over the past four years, Home Depot's stock price rose more than 67 percent, beating the 61 percent turned in by the benchmark Standard & Poor's 500 index of big U.S. companies during that period.

In addition, the company's annual sales doubled to $81.5 billion during his tenure, and profit nearly doubled as well.

Home Depot has struggled as the housing market slowed - its stock fell almost 1 percent last year - but so has its well-regarded competitor Lowe's Cos.

Martin Zimmerman and Kathy M. Kristof write for the Los Angeles Times.

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