January 29 2007 by Chief Executive
In an online commentary, “Time Out Between Nardelli Meltdowns,” CE ventured that in the rush to score Home Depot and its board for its generous severance of deposed chief Bob Nardelli, the fact that these arrangements were contractually set back in 2000 when he was hired seems to have been forgotten along with the fact that much of the payout is money that he negotiated at the outset and earned for years of service but hadn’t collected for tax-planning purposes. Every time a prominent CEO takes a hit and walks away with a pile of cash we see the same movie of surprise, shock and anger by the same people. It’s time we called “severance” what it really is-a hiring cost- and declare it up front for all to see. Maybe then we can hope the script will change.
With regard to Bob Nardelli and his troubles at Home Depot, you can’t run a company like the Marines these days. In fact, the Marines don’t even run that way anymore, and I say that from the vantage point of a retired Navy Intelligence Captain (0- 6). If you have time, you discuss the objectives and ways to accomplish them, and the troops go off and execute. The Marines’ genius is that they give their battlefield officers a lot of latitude in how they accomplish the objective. Nardelli should have looked at Lowe’s and seen that they don’t run the way he was running Home Depot. The board was right to toss him out; the pay package should be renegotiated.
John Heinrich II, president
The Solution Forum
You wrote, “Placing limits on CEO pay in terms of multiples of the average worker is also a nonstarter. Can you imagine setting Tiger Woods’ earnings on a multiple of what the average duffer takes in?”
Tiger Woods does not earn prize money or promotional fees by applying his leadership skills to maximize the productivity of other golfers. I agree that setting Tiger Woods’ earnings based on those of “the average duffer” does not make sense. However, limiting a corporate CEO’s compensation to a reasonable multiple of the lowest-paid worker in the company would go a substantial way towards redressing the serious injustice that results from viewing low-paid employees as costs rather than as value-producing assets worthy of compensation calculated on terms similar to those considered for CEOs and other high-paid executives.
Safos & Thusat
CEO Liberatarian Business Network
It would be nice if we could somehow separate the baby from the bathwater before making that big toss out the window. I’m CEO of a private, family-owned company. A great story, told by a family business consultant: He was asked by a non employee family company shareholder, “Do you know how much my brother is paid?” The answer: “Yeah, about half of open-market salary expectations for the job.”
It has frustrated me for years that corporate critics always look at multiyear compensation as though it was all paid for one year. And your point is well taken that private equity would “overpay” in a heartbeat for talent like Nardelli. But if we can run multinational enterprises with thousands of suppliers, tens of thousands of employees and millions of customers, does it make sense that we can’t come up with CEO compensation that stands the test of public scrutiny? Both CEO pay and public opinion need to be managed better. As you noted, a starting point is to more clearly identify hiring costs.
Jeff Wick, CEO