January 4, 2007
Nardelli Exit Package
Once again we have a mediocre CEO leaving a company and enjoying an obscene severance package. Nardelli was paid $64 a year for six years and did poorly with his company when he should have done well, the market in home improvement was booming while Home Depot languished. On exit he receives another $210 million (another $34 million per year on the job). It is another "Holy Cow, did we vote for that??" moment for the Home Depot outside directors. The outside director who headed the board's compensation committee had multiple other jobs. The insiders, Langone et al., and their counsel, Marty Lipton, know the game and have played it before (both teamed up to get Grasso $140 million severance package from the NYSE). What did the outside directors understand of the deal? Of course, just as in the NYSE and Disney cases, the outside directors will publicly note that they knew what they were doing. As I have noted in my discussion of the Disney case, the compensation committee should be able to show in its minutes a table of projected payments based on potential future terminations for the claim of approval with knowledgeable to be credible. Somewhere in the minutes of the compensation committee, on the date Nardelli's salary package was approved, should have been a calculation of Nardelli exit payments based on a termination in say, five years.
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I think you're right to express some outrage here, both on the numbers, and on the obfuscatory package of procedures that countenance such numbers.
I've posted on this subject myself at http://trustedadvisor.com/trackback.php?id=27
(The Next Big Trust Scandal)
to the effect that we need better disclosure rules to bring into the light of day some of these practices.
Disclosure alone is not enough; Malcolm Gladwell's provocative piece in the early January issue of The New Yorker makes the case that data is not a sufficient condition for ensuring good analysis. But it in nearly all cases a necessary condition.
A clear set of scenario tables such as you suggest would go along way to helping matters, and to increasing trust in business.
Posted by: Charles H. Green | Jan 7, 2007 10:18:04 AM