Sunday, January 07, 2007

The Home Depot severance package

Off-topic a bit for a TPM blog, but I can’t resist commenting on the $200+ million severance package Home Depot just gave Bob Nardelli, the CEO who spent the past six years driving down the stock price, for which he was handsomely remunerated.

Nardelli and Home Depot have agreed to terms of a separation agreement that would provide for payment of the amounts he is entitled to receive under his pre-existing employment contract entered into in 2000. Under this agreement, Nardelli will receive consideration currently valued at about $210 million.

The package includes a cash severance payment of $20 million, the acceleration of unvested deferred stock awards currently valued at approximately $77 million and unvested options with an intrinsic value of approximately $7 million. It also includes payments of earned bonuses and long-term incentive awards of approximately $9 million, account balances under the Company's 401(k) plan and other benefit programs currently valued at approximately $2 million, previously earned and vested deferred shares with an approximate value of $44 million, the present value of retirement benefits currently valued at approximately $32 million and $18 million for other entitlements under his contract which will be paid over a four-year period and will be forfeited if he does not honor his contractual obligations.

I’ve never really agreed too much with the critics of “excessive” compensation for top executives (nor excessive compensation for movie stars or athletes). I figure if people achieve their goals in terms of creating income/profits/share price increases, they should be compensated accordingly.

Nardelli’s case (and it’s not unique, except in its size) is reminiscent, though, of a baseball owner (it may have been George Steinbrenner) who was asked if he resented the high price of baseball talent. He replied that it wasn’t the price of talent he objected to, it was the high price of mediocrity.

CEOs who produce should be paid plenty. Those who don’t should be booted out the door. Giving a failure $210 million to go away is wrong.

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