By Rick Moss
Ongoing complaints by Home Depot shareholders and poor ratings by watchdog groups may finally be pressuring Home Depot's compensation review committee to make changes in the way Chairman and Chief Exec Bob Nardelli is paid, according to a BusinessWeek article. Although industry analysts see a reduction in Nardelli's package as being but a drop in the bucket within the overall financial picture, the issue appears to carry considerable psychological baggage and many are insistent that the former GE exec's pay be aligned more with shareholder expectations.
Mr. Nardelli ranks among the highest paid CEOs, taking home around $38 million last year, during a time when stock prices have fallen sharply. Presently, based on changes to his package made between 2003 and 2004, Nardelli's pay is tied to diluted earnings-per-share vs. total shareholder return, as it was previously. And by those measures, the D-I-Y retailer is performing quite well, with per-share earnings 147 percent from 2000 to 2005.
Bonnie Hill, the chair of Home Depot's compensation committee, told Bloomberg News that "it's a given there will be some changes," although she failed to provide any details.
If there is a substantial restructuring of Mr. Nardelli's package, some see it as a possible harbinger of change in many other companies where executive compensation has been a sore point for investors. At the center of the controversy is the philosophical approach to the way executive performance is measured.
"He is getting entrepreneurial returns for effectively managerial results," says Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. "Something is wrong in the philosophy of the package that creates those kinds of returns."
Discussion Questions: Do you predict a big change in Nardelli's compensation package? If so, could it prompt widespread changes in corporate executive pay?