|
<< Previous Story | Next Story >> |
||
|
|
CompaniesHome Depot works to avoid future pay criticism
The US home improvement retailer, Home Depot, was forced to respond after it faced criticism over the $210m severance package for departing chairman and chief executive, Robert Nardelli.
After the outcry the company amended its bylaws to require that any compensation granted to a chief executive should require approval of at least two-thirds of the company’s independent directors.
Nardelli's successor, Frank Blake, has a 2007 compensation package which, though worth approximately $8.9m, does not provide for a severance payment on termination of his contract and 89% of it is based on the performance of the company. Blake, who joined Home Depot in 2002 and has served as vice chairman and executive vice president, will earn a base salary of $975,000.
The Guardian's Nils Pratley (4 January) called Nardelli’s payoff “a reward for failure on a scale that is impossible to imagine here”. Home Depot has underperformed for years, said Pratley, and during his time at the company’s helm Nardelli showed astonishing contempt for investors, last year even refusing to take questions at the AGM.
The Lex Column in the Financial Times (FT, 4 January) said Nardelli serves as a warning that exorbitant pay packages can ultimately cost chief executives their jobs, with his outlandish remuneration ultimately provoking shareholders’ fury. Lex added that by taking his full entitlement on leaving the company, Nardelli may have unwittingly done a final service to the cause of reining in reward for failure.
The FT’s editorial (6/7 January) argued that it might be in chief executives’ own interests to show some self-control: Jeff Immelt of General Electric has not produced substantially better returns than Nardelli, but with a restrained pay package has won more friends and respect. The FT said that, as it is shareholders who pay chief executive salaries, it should be they who make a stand against reward for failure. Shareholders can make a difference, said the FT as Nardelli appears to have stood down as a result of shareholder lobbying.
Meanwhile, US proxy advisory firm, Proxy Governance, published steps that boards and compensation committees can take if they want to avoid a Home Depot-like public relations problem.
Among the advice for those negotiating a new chief executive employment contract is to hire an independent compensation consultant; completely understand the dollar value of the benefits the prospective CEO is giving up at their current company; don’t fall in love with the candidate and agree to all their demands however outrageous and retain the ability to revisit their compensation terms after a reasonable period if that becomes in the shareholders’ best interests.
Links
February, 2007 |
|
|
<< Previous Story | Next Story >> |