As Herb Greenberg mentioned in his column, if Home Depot’s stock went up while he was in charge he would still have a job, though he’d be $210 million poorer.
Bob Nardelli was a terrible stock promoter, but he did a terrific job managing the company. As I've mentioned in the past, from the time Nardelli took over Home Depot in 2000, the company’s earnings have grown at an amazing clip of 20% a year and revenues over 15%, net margins have increased, and return on capital has gone up every single year. The stock has not gone anywhere during his leadership because it was grossly overpriced in 2000.
Did he do a job worthy of $210 million? He came to manage an already successful company, an industry leader, a well-oiled, money-making machine, not a startup that had lost its way.
Despite the stock price's stagnation since he came on board, he created a lot of shareholder value (when measured in operating performance). But in many ways his main job was simply not to screw up (not to destroy corporate culture, or make dumb acquisitions, or over-leverage the company, and so on).
His $210 million compensation package is a disgrace. Sorry, Bob, but you were not worth that much. But the blame for overpaying him should not go to Bob, but should instead land on Home Depot’s board of directors. Bob is as greedy as any human being, and if I were him I’d ask for a billion dollars (why not?). It is the board’s responsibility to decide how much to pay a CEO.
If you invite a plumber to your house to fix a sink and he asks for $10,000, that is his right! Your right is to find another plumber who’ll do the same job for $100. And if you decided to pay the plumber $10,000 for a job that somebody else would do for $100, don’t blame the plumber. Point the finger at yourself.
Unfortunately, the same board that just paid a “failed CEO” (he was fired after all) the equivalent of the GDP of several Caribbean islands will do the same thing all over again. There is a free market at work when it comes to 99.999% of the jobs out there. Messrs. Supply and Demand decide how much to pay a computer programmer, an accountant, a store clerk. But when it comes to top executive jobs, Mr. Supply takes a vacation and Mr. Demand (the soon to be hired CEO) decides, with the board’s rubber stamp, his/her own compensation.
HD 1-year chart:
This article originally appeared on Minyanville.