03 January 2007
Home Depot & Bob Nardelli
I sent the following letter to the FT on 3rd January 2007. It was not published.
Dear Sir,
I find it ironic that the departure of Bob Nardelli from Home Depot is being described as a victory for shareholder activists, who thought he was overpaid. Your report (Home Depot chief Nardelli steps down – ft.com, 3/1/07) suggests that Mr Nardelli will receive a severance package worth $210m, in addition to the more than $120m that he has received in compensation since joining the company. The problem of overpayment is therefore even greater now that Mr Nardelli is not running the company!
Home Depot’s share price rose 3% on this announcement, suggesting that shareholders value the potential improvements in performance far more than the $210m.
The traditional argument for high executive pay is that shareholders have to pay high to attract the best performers. However, in this case, shareholders are paying even more to get rid of a perceived poor performer, than they were paying to attract a perceived good performer. This is surely conclusive proof of Professor Bebchuk’s contention that high executive pay in the US is far better explained by the power of CEOs than by considerations of markets or performance. (Pay Without Performance by Lucian Bebchuk and Jesse Fried, Harvard University Press, 2004).
Yours faithfully,
Revd. Patrick H Gerard
Dear Sir,
I find it ironic that the departure of Bob Nardelli from Home Depot is being described as a victory for shareholder activists, who thought he was overpaid. Your report (Home Depot chief Nardelli steps down – ft.com, 3/1/07) suggests that Mr Nardelli will receive a severance package worth $210m, in addition to the more than $120m that he has received in compensation since joining the company. The problem of overpayment is therefore even greater now that Mr Nardelli is not running the company!
Home Depot’s share price rose 3% on this announcement, suggesting that shareholders value the potential improvements in performance far more than the $210m.
The traditional argument for high executive pay is that shareholders have to pay high to attract the best performers. However, in this case, shareholders are paying even more to get rid of a perceived poor performer, than they were paying to attract a perceived good performer. This is surely conclusive proof of Professor Bebchuk’s contention that high executive pay in the US is far better explained by the power of CEOs than by considerations of markets or performance. (Pay Without Performance by Lucian Bebchuk and Jesse Fried, Harvard University Press, 2004).
Yours faithfully,
Revd. Patrick H Gerard
Labels: Bebchuk, failure, Nardelli, power
