So Bob Nardelli has resigned as Chief Executive Officer of The Home Depot Inc. after six years in the top spot of the world’s leading home improvement retailer. But Bob wasn’t content to leave with a handshake or even a golden watch. No, Bob and his supporters (enablers?) at The Home Depot decided that his less than stellar performance and termination was worth a severance package worth about $210 million. Although I feel that this is outragious and disgusting, I do not feel that this type of conduct should be illegal. The Home Depot is a public company and its managers and Board of Directors should be just as free to make these terrible business decisions as their stockholders are to dump the stock. Oh, wait, they’ve already been doing that almost since the day Bob started as the CEO. Gee, what a coincidence.
I do not feel that this type of behavior should be illegal because there’s no dishonesty going on here. The only people who are getting hurt are the stockholders and they have a very easy remedy: sell the stock. If enough do, and they have, The Home Depot’s leaders will wake up and realize that their terrible compensation decisions are significantly increasing the cost of them doing business both because of the $210 million being paid to dear old Bob and also because the low stock price makes it far more expensive for the retailer to raise capital.
Yet here to the rescue rides Representative Barney Frank, Massachusetts Democrat and the incoming chairman of the House Financial Services Committee. Frank is in favor of legislating against such stupidity, apparently using the heretofore unknown “angry meter” as an alternative to scales of justice. “They don’t understand the extent to which they make the American public angry,” reasons Frank. Frank has gone on record as saying that we should have laws that require public companies to allow shareholders to have a say in compensation and severance for senior executives. Uh, don’t they already? Don’t they elect the Board of Directors and can’t they also vote with their feet — by selling their stock? Since Bob started as CEO six years ago, The Home Depot’s stock price has fallen by three percent BEFORE adjusting for inflation. If we throw inflation in there, we’re looking at a stock price that has fallen by over 20 percent. Kind of makes you wonder how much The Home Depot would have paid to a CEO who did a good job, doesn’t it?
What really ticks me about this whole stinking mess isn’t Barney Frank. His heart is in the right place even if his head isn’t. The real problem here is that dearest Bob’s compensation package of $210 million (did someone say “ransom”?) is seven times the $30 million Home Depot set aside last June for stores and employees that provide good customer service. With 355,000 employees in the United States, Canada, Mexico, and China, The Home Depot set aside less than $100 per employee for helping to ensure that its customers are treated properly while setting aside $210 million for a failed CEO that they didn’t have the guts to fire a long time ago.
The next time that I’m in The Home Depot and I can’t find anyone to help me, it won’t be hard for me to connect the dots.
— Steven Rothberg is the President and Founder of CollegeRecruiter.com at http://www.CollegeRecruiter.com, a leading career site used by college students who are searching for internships and recent graduates who are hunting for entry level jobs and other career opportunities
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Just to play Devil’s advocate here… Many people in the recruitosphere advocate “paying what it takes to get the top talent.” In the Fortune 500 CEO game that almost invariably includes severance packages that become stratospheric.
Presumably they thought that Mr. Nardelli was the best man they could find when they hired him, and they paid the price necessary to get him. Shame on them? Plenty of people complain about “short-sighted management” so wouldn’t firing the CEO after 1 year of bad results be just that?
Just to be fair, let’s go to the videotape as they say and look at that stock chart:
http://finance.yahoo.com/q/bc?s=HD&t=5y
This is only 5 years but I don’t think it leaves out anything important. When would *you* have kicked Bob to the curb? 2002-2003 a lot of companies had charts like that. 2003-2005 it doubled back. If muddling for two years 2005-07 is a hanging offense then we need to get a lot more rope. A lot of decent companies have not and maybe never will again see their valuations circar 1999-2000.
Now I’m coming at this from a distance–I haven’t watched the company closely, and to the extent that I have, Lowe’s has eaten their lunch from a client experience perspective. Still, I think the characterization of this being a steady downhill slide is not entirely supported by the stock price.
The Board of Director’s of the Home Depot should be accountable and responsible for all the strategic results of those six years positive and negative. But have they been? Or are they now? Or will they be? As they say . . . “You make the call.â€