Home Depot CEO quits

[jseklund]

I wonder what Nardelli would have been paid if he had actually increased Home Depot's value? Would there be enough money in the world?

If Nardelli actually increased the company's value- he would be worth LESS. They're paying him $210 million to GO AWAY! If they wanted him to stick around he would get his pay and maybe a little bonus (less than $50 Million I'd say....with that being the record recently set).

Jerrye is right if I am reading him right- pay for performance. Most CEOs get more if they DO NOT perform. We are incenting the wrong thing I guess.

I'm a capitalist chauvanist, and freely admit it. I don't have any problem with paying someone $210 Million. If they earn it. This does not appear to be the case here though. It's almost Enronesque. The CEO gets off while the shareholders take the hit. And as Germdoc said- as long as they make the books look respectable it's all good. Being educated and able to spot book problems is more necessary now, as an investor, than ALMOST any other time in history.

[jackellis]

Simple solution. Adopt the compensation plan I am on: COMMISSION. Make everyone's salary dependent on performance. Base + is OK too; many of my mill reps are on this type of plan. Give CEO numbers to hit and a base of 25%-50% of desired salary and give him/her opportunity to earn what they want only if they meet goals. If they hit their goals they have earned the company enough to afford their salary. They have proven their worth. Anything wrong with that?

I think Nardelli's severance is worse than outrageous, but....

Revenues and earnings rose substantially on his watch. I think profits doubled.

The stock price has gone down since he arrived because it was too high to begin with when he came on board.

You can blame him for being exceedingly greedy and you can blame the board for rewarding him too lavishly and we can all note how bad the stores are but there's little a CEO can or should do about talking up the stock price. They need to focus on running their companies and investors need to avoid getting carried away on both extremes.

The CEO of Lowes got a multimillion dollar pay package last year. His salary is about $2.5 million and his bonus is tied to a measure of profitability. Not as enormous as Nardelli's, but certainly enough to live well on.

[jerrye]

IMHO, all jobs/careers can be adapted to performance based compensation. Case in point:

A hotel customer of mine had issues with the quality/quantity of work of his housekeepers. He changed their pay from hourly to performance and here's what happened.

Hourly basis: 8 hrs worked, 10-12 rooms cleaned, mediocre job
Performance basis: avg 6.5 hrs worked, 16-18 rooms cleaned, superior job

I agree with jseklund. If someone performs pay them for it. It does seem as if we now pay people more for who they are than what they do. Seems as though Lowe's has it right.

My .02

[jseklund]

I think Nardelli's severance is worse than outrageous, but....

Revenues and earnings rose substantially on his watch. I think profits doubled.

The stock price has gone down since he arrived because it was too high to begin with when he came on board.

Interesting. I guess I should have done some more reseach before I spoke. If profits are up under his leadership, and he is being criticised for low stock performance- then the story is a little different.

How a stock performs is not a measure of a CEO's performance. How the books REALLY perform are. If a stock is high-priced because people are being overzealous and speculating, that doesn't mean the CEO is doing great any more than it would mean he is doing poorly if the stock tanks because people are being to conservative towards it.

Maybe I was too quick to jump on the bandwagon, just going with the facts as they were presented. I don't know how much the story can change....but it obviously would have an impact on my opinion of the situation.

[25]

IMHO, all jobs/careers can be adapted to performance based compensation. Case in point:

A hotel customer of mine had issues with the quality/quantity of work of his housekeepers. He changed their pay from hourly to performance and here's what happened.

Hourly basis: 8 hrs worked, 10-12 rooms cleaned, mediocre job
Performance basis: avg 6.5 hrs worked, 16-18 rooms cleaned, superior job

I agree with jseklund. If someone performs pay them for it. It does seem as if we now pay people more for who they are than what they do. Seems as though Lowe's has it right.

My .02

It's not that easy. Easiest counter example I can give would be programming. It has been tried in the past to rate programmers on how many bugs they fixed, the programmers all started adding bugs just so they could fix them later to inflate their numbers.

It's not easy for all jobs to have very objective criteria.

[jerrye]

IMveryHO, I know it's not that easy, but I still think it's workable. Using your example, I agree. If you ONLY gauge a programmer's performance as to how many bugs they fix they'll add more. If you make accurate initial programming as an additional criteria, and track bugs viewed against that, I think you can have a performance based compensation plan for programmers. You just can't let the total design of the plan be determined by programmers. And before ya'll jump all over me, I know what your job is like. My wife spent 5+ years as a programmer and now has worked in software QA for 10 years (CQA), so I get to hear about it! So if this scenario were true I'd want all you programmers to code in lots of bugs so my wife could fix them!

I VERY HUMBLY disagree that not all jobs can be performance based by measuring objective criteria. If not all jobs have objective criteria then on what are raises and promotions to be based on? It might take thinking outside the box, and much creativity, but it can be done. Thus my example cited above. The first attempt in my knowledge of such a plan.

Just my .00002

[gabedad]

plus they are paying his medical benefits for 3 years. WTF!! He can't afford COBRA?

[Warren]

I always go back to the thought that people are only worth what others will pay them. I can't fault the CEO or athlete for getting all that the market will bear. If shareholders and board members want to pay high saleries that's between them and their employee.

The people who own Home Depot obviously wanted this guy. And, wanted him bad. So they paid the market price for him. He didn't work out so, having learned a lesson, they will attempt to hire a more competent individual this time around. They will still have to pay the market value for whom ever they engage. I would think that the shareholders would be considering changing the make up of their board.

The fault, if there is any, lies not with the employee, but the employer(s). I personaly, wouldn't pay A-Rod more than ten dollars an hour, but I don't need a ballplayer I need a person to clean. I think A-Rod would only warrant entry level pay in that job. If I needed an A-Rod for my ball team, I'd have to pay his asking price.

I have no shares of Home Depot therefore, I really don't care who they hire. Of course after this latest fiasco, Home Depot is very low on my list of watched stocks. They need to hire a CEO who can get the company focused on service and not simply growing the number of stores. The old axiom, it is easier to get new customers than it is to get old, disgruntled customers back, is very true. HD has made a hash of it and needs a reformatted business model to regain market share.

[JR]

I
Revenues and earnings rose substantially on his watch. I think profits doubled.

The stock price has gone down since he arrived because it was too high to begin with when he came on board.

IIRC, when this came up a few months ago, a little diving into the balance sheet revealed a substantial increase in debt. Yeah, looking it up now, long-term debt went from $890M three years ago to $2.67B one year ago, to $6.67B(!) intra-year last year.

Receivables and inventory are also up substantially. These show as assets on the balance sheet, but increases are potential signs of bad management.

As to your point on stock price - that is the single most important measure of executive performance. The CEO reports to the shareholders in terms of stock price. The stock may well have been inflated before, but it sure doesn't excuse the CEO from the responsiblity to move it forward, particularly with the kind of money this guy was bringing down.

I'm usually pretty tolerant of options-based packages. If the price goes up the CEO and his bosses, the shareholders, are happy. A CEO who oversees a decline, then cashes in for >$200M is undeserving, IMV.


JR

[backpacker85]

OK, let's see..... $240M over 6 years, with a $210 "buyout" and 3 years of continued health plan? Not a bad gig if you can get it.

I have formally submitted my resume to HD to fill the vacancy, and am asking for ONLY $1M per year, with a 5 year contract. (I don't think anyone's performance can be fairly evaluated during the first year).

If they want to get rid of me after 2 years, the max payout is still only $5M.

Look.....I haven't even walked through the door yet, and I've already saved the company $39M a year and a $207M buyout savings!! (and with $5M in my pocket, YES, I can afford the COBRA).

Heck, at $1M a year, they can even keep their 10% employee discount

[gerti]

Did Michael Schumacher need $50 million plus per year.

He may not have needed it, but was worth every penny (and actually puts quite a bit back into charity). Now, Tiger Woods makes more for walking in a park and hitting little balls with a stick...

[paintandbodtman]

[QUOTE=Warren;233509]I always go back to the thought that people are only worth what others will pay them. I can't fault the CEO or athlete for getting all that the market will bear. If shareholders and board members want to pay high saleries that's between them and their employee.

My understanding congress is looking into how CEO are compensated because the shareholder does'nt have as much say so as everyone thinks. They may have say so over board of directers but from my understanding other than getting rid of directors they really don't have as much control over CEO compensation packages as everyone thinks.

[430752]

Good riddance

Can anyone tell me what he did for the company?

I mean I can see no difference in the appearance of stores, product mix, or service, of any of the 7 or 8 BORG's I frequent. They're the same, and likely always will be. Yet this guy got a BusinessWeek cover, $240 million earned and like $210 million severance. for what? Hiring ex-military? that should be done anyway, not get paid a gagillion dollars for hiring vets.

where do I buy that wrench, you know, the one used to unscrew people's heads from their rear ends?

curt j.

[Warren]

Judging from his severance package, he wasn't required to do anything for the company in order to collect. A failure of the contract?

[Tree Farmer]

IIRC, when this came up a few months ago, a little diving into the balance sheet revealed a substantial increase in debt. Yeah, looking it up now, long-term debt went from $890M three years ago to $2.67B one year ago, to $6.67B(!) intra-year last year.

Receivables and inventory are also up substantially. These show as assets on the balance sheet, but increases are potential signs of bad management.

As to your point on stock price - that is the single most important measure of executive performance. The CEO reports to the shareholders in terms of stock price. The stock may well have been inflated before, but it sure doesn't excuse the CEO from the responsiblity to move it forward, particularly with the kind of money this guy was bringing down.

I'm usually pretty tolerant of options-based packages. If the price goes up the CEO and his bosses, the shareholders, are happy. A CEO who oversees a decline, then cashes in for >$200M is undeserving, IMV.


JR

JR's right. I teach corporate finance at a local college, and Nardelli's tenure at HD is a classic case of a guy making one strategic error after another, each having dire financial consequences. Think an increase in $ revenues and $ profits mean much? Think again! A deeper analysis of HD reveals several problems, one of which is the increased use of debt (high financial leverage), which does several things: 1. increases default risk, 2. raises the cost of future borrowing, 3. artificially inflates EPS, 4. pushes the debt ratio into thin-ice territory, and 5. wreaks havoc with stock price as investors get jittery.

NOt to mention that some of this debt was used to diversify into quasi-related, thin-margin businesses. In other words, he invested tons in (bet on) businesses that have shown little or no promise to earn a decent return. This behavior almost reminds me of Jacques Nasser at Ford several years ago.

The whole autocratic, military management-style culture was destined to flop. It was obvious some better controls were needed in supply chain managment and inventory management, but the pendulum swung almost completely around.

My parting shot at Nardelli: Like the military style, Bob? Go enlist, spend a few weeks in basic and AIT, and then pack up for a couple of tours in sunny Iraq!