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Tuesday, May 23, 2006

Home Depot CEO Builds Huge Nest Egg

I own some Home Depot stock, so I'll be casting 30 of the 2.1 billion votes at the 2006 annual meeting Thursday. The proposals are usually dull, but there's a nice snarky one this year about excessive executive compensation that blasts company CEO Robert Nardelli:
 
In our view, senior executive compensation at Home Depot has been excessive in recent years. In each of the last three years, CEO Robert Nardelli has been paid a base salary of more than $1,800,000, well in excess of the IRS cap for deductibility of non-performance-based compensation. His bonus in each of those years has been at least $4,000,000, and he was awarded restricted stock valued at over $8,000,000 in 2002, 2003 and 2004. Mr. Nardelli has also received a disturbingly large amount of compensation in form of "loan forgiveness" and tax gross-ups related to that forgiveness, which totaled over $3,000,000 in each of the past three years.
 
We believe that the current rules governing senior executive compensation do not give stockholders enough influence over pay practices. In the United Kingdom, public companies allow stockholders to cast an advisory vote on the "directors remuneration report." Such a vote isn't binding, but allows stockholders a clear voice which could help reduce excessive pay. U.S. stock exchange listing standards do require shareholder approval of equity-based compensation plans; those plans, however, set general parameters and accord the compensation committee substantial discretion in making awards and establishing performance thresholds for a particular year. Stockholders do not have any mechanism for providing ongoing input on the application of those general standards to individual pay packages. (See Lucian Bebchuk & Jesse Fried, Pay Without Performance 49 (2004))
 
During the six years Nardelli has led Home Depot, he's earned $154.3 million plus millions more in stock options. The company's stock price dropped 6 percent last year and is lower than when he arrived in 2000, while in the same period, Lowe's delivered 200 percent return for its shareholders. "The board at Home Depot has rewarded Nardelli for mediocre to poor performance," Paul Lapides, director of the corporate governance center at Kennesaw State University, told the Atlanta Journal-Constitution. "The pay for Lowe's former chairman is a quarter of Nardelli's annual pay, and Lowe's has outperformed Home Depot in the last six years."
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