Depot logic has screw loose
By Al Lewis, Staff Columnist
Sunday, January 7, 2007
When my son was 4 years old, he went to Home Depot with some
neighbors and learned to build a squirrel feeder.
The home improvement store chain can feed the humblest of
creatures. And despite its low prices, it also can feed the
least humble, including the CEO.
That's because one of the company's founders is Kenneth
Langone, a 70-year-old investment banker who will pay just
about anything for a top executive, as long as it's the
shareholders' money he's spending.
Langone was on the compensation committee responsible for
former New York Stock Exchange chief Dick Grasso's
scandalous $190 million compensation package. So the
announcement last week that Home Depot would pay CEO Bob
Nardelli $210 million just to quit his job should not be a
Nor should it tax the imagination that Home Depot spent
nearly a half a billion dollars over six years for a CEO who
took a regular hammering from its main competitor, Lowe's,
and who did nothing to improve his company's stock price.
This is business as usual for Langone, who has served on the
compensation committee of General Electric, which spares no
expense for top executives.
Many people in charge of big businesses seem to believe that
GE executives can run anything, no matter how dissimilar
from GE. This is just some of the thinking that maintains
the artificially high compensation of the professional
Don't bother promoting in-house middle managers who've spent
their careers getting intimate with particular operations.
Better to pay a premium for some guy from GE.
Nardelli, 58, was one of three finalists to replace GE's
iconic CEO Jack Welch. He didn't get the job, but GE
lavished him with incentives to stay.
For Home Depot to lure a guy like Nardelli from GE, it had
to provide an attractive compensation package, including an
outrageous golden parachute.
Why would a guy with Nardelli's alleged management talents
leave a sure thing like GE unless there was an even surer
thing at Home Depot?
Unfortunately, nobody really realized the kind of money
involved until Home Depot actually opened Nardelli's golden
parachute last week.
I wonder what it's going to cost when the new CEO, Frank
Blake, a Home Depot executive also formerly from GE, gets
Home Depot's board parted ways with Nardelli, not only
because of the company's mediocre stock performance, but
because they are under fire from unions and investors, upset
about everything from the direction of the company to a
stock-options inquiry to executive pay.
"Langone has been associated with executive pay abuses at
multiple institutions, most notoriously the Grasso pay
scandal at the New York Stock Exchange," said Richard Trumka,
secretary-treasurer at the AFL-CIO, which has called for
Meanwhile, Ralph Whitworth of San Diego-based Relational
Investors is agitating for two director's seats. He's not
as upset about Nardelli's pay as he is about the fact that
the company isn't performing.
The board members responded to these challenges by getting
rid of Nardelli and entrenching themselves deeper.
The board announced last week that it had temporarily waived
the retirement age of 72 for directors so John Clendenin,
Claudio Gonzales and Milledge Hart III could stand for
re-election at the 2007 annual shareholders meeting.
"This action was taken to retain these directors'
experience, and deep knowledge of the company's business and
key personnel to help ensure a smooth management
transition," the company said in a statement.
As if it's so tricky moving from one overpaid GE guy to
Clendenin and Hart were on the board when Home Depot hired
Nardelli. They share responsibility, along with Langone,
for Nardelli's absurd compensation.
Does Home Depot really need more of their experience?
Next time my son goes to Home Depot, I may ask him to build
a weasel feeder.
Al Lewis' column appears
Sundays, Tuesdays and Fridays. Respond to Lewis at
denverpostbloghouse.com/lewis, 303-954-1967 or