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thatcrazycajunLongtime readers will recall my previous posts about one of the largest Fortune® 500 companies based here in the Big Peach, The Home Depot, and its, um...interesting corporate practices under the controversial reign of Bob Nardelli as chair/CEO. Yesterday it was announced that, in response to massive pressure from shareholders and the business-news media, the board of directors (you remember...the ones who didn't show up at last year's annual stockholders' meeting?) finally shit-canned their hideously overpaid, under-performing leader in favor of a promotion from within, one Frank Blake, about whom little is known except that he came over from General Electric Co. with Nardelli and has never headed a company.
As the Atlanta Journal-Constipation notes, even on his way out, Nardelli is costing Big Orange a bundle: his severance package, between cash, retirement bennies and stock options and so forth, amounts to a whopping $210 million (!!). This is on top of the $154.3 mil he's gotten as of the end of 2005 since taking over from Bernie Marcus eight years ago, all while driving the stock price downward and customers and shareholders batshit. (His 2006 pay has not yet been disclosed.) You do the math to see how much this guy has cost them. The AJC reports on the Bobster's exit here...and has more on his successor here. It also outlines the breakdown of his "platinum parachute" (and the widespread outrage over same) here. Talk about being rewarded for massively screwing the pooch.
Even Rep. Barney Frank (D-MA), soon to be chair of the 110th Congress' House Financial Services Committee, was moved to comment on how exorbitant CEO pay is in this country and how big business then wonders why it can't get Joe and Jane Voter to understand why it hates the notion of raising the minimum wage so much. Unfortunately, there appears not to be terribly much the board can do about it short of a protracted, messy court battle with Nardelli and the high-priced lawyers he can buy with all that cash. (Contractual obligations can be an unholy castrating bitch, can't they?)
But the board might salvage some good out of the experience, according to a key quote from the AJC coverage: The president of the Laborers' Union, which owns 1.7 million Home Depot shares, said the union was renewing its call on the company to adopt a proposal requiring the retailer's board to get shareholder approval for extraordinary retirement benefits. "Had the Home Depot board adopted our proposal before hiring Mr. Nardelli, shareholders would have been able to vote down such extreme and obscene benefits," said Terence M. O'Sullivan, the union's general president. "The board can prevent another Nardelli and adopt this proposal now, protecting the company and its shareholders." One may hope the board will see sense and adopt the proposal; of course, one may also hope that pigs will fly, Hell will freeze over and Bush will bring the troops home from Iraq...
As the Atlanta Journal-Constipation notes, even on his way out, Nardelli is costing Big Orange a bundle: his severance package, between cash, retirement bennies and stock options and so forth, amounts to a whopping $210 million (!!). This is on top of the $154.3 mil he's gotten as of the end of 2005 since taking over from Bernie Marcus eight years ago, all while driving the stock price downward and customers and shareholders batshit. (His 2006 pay has not yet been disclosed.) You do the math to see how much this guy has cost them. The AJC reports on the Bobster's exit here...and has more on his successor here. It also outlines the breakdown of his "platinum parachute" (and the widespread outrage over same) here. Talk about being rewarded for massively screwing the pooch.
Even Rep. Barney Frank (D-MA), soon to be chair of the 110th Congress' House Financial Services Committee, was moved to comment on how exorbitant CEO pay is in this country and how big business then wonders why it can't get Joe and Jane Voter to understand why it hates the notion of raising the minimum wage so much. Unfortunately, there appears not to be terribly much the board can do about it short of a protracted, messy court battle with Nardelli and the high-priced lawyers he can buy with all that cash. (Contractual obligations can be an unholy castrating bitch, can't they?)
But the board might salvage some good out of the experience, according to a key quote from the AJC coverage: The president of the Laborers' Union, which owns 1.7 million Home Depot shares, said the union was renewing its call on the company to adopt a proposal requiring the retailer's board to get shareholder approval for extraordinary retirement benefits. "Had the Home Depot board adopted our proposal before hiring Mr. Nardelli, shareholders would have been able to vote down such extreme and obscene benefits," said Terence M. O'Sullivan, the union's general president. "The board can prevent another Nardelli and adopt this proposal now, protecting the company and its shareholders." One may hope the board will see sense and adopt the proposal; of course, one may also hope that pigs will fly, Hell will freeze over and Bush will bring the troops home from Iraq...
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Date: 2007-01-04 05:21 pm (UTC)Yeah, the guy was paid a mint, but hat's a supply and demand thing. If there were lots of people who could be a CEO of a company that large, they wouldn't be paid that well.
They get the insanely one-sided deals because that's what the market will bear for the people who can do the work. Yeah, it's ludicrious, but it should be a self correcting problem. Overpay for mediocre talent in important jobs and your company will go under... the smart companies won't make those errors. But it seems that everyone does, so whose to say the deals aren't smart when the talent comes through?
The thing nobody is saying is that if Nadelli had done his job better, none of the shareholders would have begrudged the package to him. They certainly didn't scream about it when he was hired.
And without that, this wouldn't have been a story.
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Date: 2007-01-04 06:56 pm (UTC)I don't agree. Most Americans, even those in the business world (aside from a few Republican/conservative free-marketeers I could mention--yes, Jim Glassman, I'm talking to you), recognize truly wretched excess when they see it. Even if Nardelli's performance had been unimpeachably stellar, at least one or two shareholders would surely have piped up, "Um, isn't this a bit much even for having [fill in achievement of your choice here]?" Even the dumbest investor knows that every dollar going into the CEO's, or any officer's, paycheck isn't going into her/his dividend checks.
no subject
Date: 2007-01-04 08:22 pm (UTC)So what if it was one or two? They can dump their stock for a healthier company that doesn't make such stupid decisions. That's the way it's supposed to work. If it's A LOT, then the people in charge will feel the pain of their stupidity.
Ultimately Darwin decides this one.
Even the dumbest investor knows that every dollar going into the CEO's, or any officer's, paycheck isn't going into her/his dividend checks.
Um, I'm an investor of better than average smarts and midling savvy and I KNOW that IS DECIDEDLY NOT TRUE.
The money could be used for any other business activity. That business activity could increase the stock's value (but it could be a debacle too, so there is no guarantee).
Announcing a good CEO hire raises stock price just by itself. Getting rid of a boat anchor like Nardelli's raised Home Depot's.
Want to make an argument that it should be more about the health of the business rather than the stock price reaction and I'll agree with you whole heartedly. But since the board and CEO are beholden to the stockholders (who care about valulation) this isn't often how it works. Stock price isn't a measure of the health of the business. It's a measure of the PERCEPTION of the health of the business.