Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Blame Home Depot's Board, Not Nardelli

By

It is the board's responsibility to decide how much to pay a CEO.

PrintPRINT

The ousting of Bob Nardelli sent a wrong message to American CEOs: it taught them an incorrect lesson – manage the stock, not the company.

As Herb Greenberg mentioned in his column, if Home Depot's (HD) 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 (not his job), but he did a terrific job managing the company (his job). As I mentioned in the past, from the time Nardelli took over Home Depot in 2000, Home Depot's earnings have grown at an amazing clip of 20% a year, revenues over 15%, net margins have increased and return on capital went 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 lost its way.

Despite the stock prices not moving 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 not to screw up (not to destroy corporate culture, or make dumb acquisitions, or over leverage the company etc…).

His $210 million compensation package is a disgrace – sorry Bob, but you were not worth that much. But the blame for overpaying Bob 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?), but 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! His first responsibility is to feed his family, not to you. 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 a GDP of several Caribbean islands, will do the same thing all over again. If you are unhappy with Bob's going away present, blame Home Depot's board, not Bob. There is a free market at work when it comes to 99.999% of the jobs out there, the free market-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.

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE