Home Depot makes the right moves

Corporate America received a dose of common sense when The Home Depot Inc. said that its new chief executive, Frank Blake, would be paid a fraction of what his predecessor was taking home.
FEB 05, 2007
By  ewilliams
Corporate America received a dose of common sense when The Home Depot Inc. said that its new chief executive, Frank Blake, would be paid a fraction of what his predecessor was taking home. The biggest news out of the new compensation plan for Mr. Blake is that most of his pay has to be earned through the company’s performance. That is truly a refreshing concept, one which Corporate America should embrace if it wants to win back the confidence of shareholders. With executive compensation and corporate-governance practices coming under increasing scrutiny, the timing also would be right for other publicly traded companies to follow Atlanta-based Home Depot’s example. Case in point: Many big businesses recently have been targeted by investors calling for a non- binding vote on how top executives are paid. Additionally, a group of 13 institutional investors recently sent a letter to the Securities and Exchange Commission asking it to consider requiring an advisory vote on how top executives are paid in the United States. Clearly, it is time for Corporate America to get with the program. Corporate boards need to make tactical business decisions to ensure that executive pay isn’t continuously out of whack. Executive compensation has even caught the attention of President Bush. In his “State of the Economy” speech delivered last week, he called on corporate boards to “step up to their responsibilities” by paying more attention to the executive compensation packages they are approving. Although the president rejected a government role in setting executive pay, he said: “The salaries and bonuses of CEOs should be based on their success at improving their companies and bringing value to their shareholders.” Corporate board members “need to show the world that America’s businesses are a model of transparency and good corporate governance,” Mr. Bush said. Mr. Blake’s compensation package sends a great message to Home Depot shareholders. It is comforting to find that the board members at the home-improvement retail giant understand that its previous CEO compensation was a disaster and that they figured out how to fix the problem. It remains to be seen whether more companies will follow Home Depot’s lead and shell out the big bucks only when the boss actually does the work and delivers solid performance. Compensation alternative For the good of investors, one can only hope the Home Depot executive compensation plan becomes a rule rather than an exception among big businesses. If common sense prevails in other corporate boardrooms, this could be a key step in creating an alternative to super-sized executive payouts. Mr. Blake, who took over at the firm Jan. 2, gets a base salary of $975,000. He will receive his bonus money, which is about $8 million, only if he meets the board’s profit and stock performance goals. Additionally, a percentage of Mr. Blake’s bonus is based on the firm’s stock performance compared with that of other companies in the Standard & Poor’s 500 stock index. What’s more, his contract doesn’t include a severance package. Mr. Blake’s compensation obviously is a great deal different from that of his predecessor, Robert Nardelli, who resigned recently. Mr. Nardelli had a base salary of $2.25 million and a $7 million cash bonus, neither of which was tied to performance. Additionally, he walked away with a mind-boggling $210 million retirement package. Mr. Nardelli was paid $225 million during his six years with Home Depot, while the stock consistently had a poor performance compared with that of its top competitor, Lowe’s Cos. Inc. of Mooresville, N.C. Home Depot had lost market share to Lowe’s since Mr. Nardelli took the reins in December 2000. And while Home Depot’s shares declined, Lowe’s shares tripled during that period. The directors at Home Depot reacted to the shareholder outcry that followed their wild spending with Mr. Nardelli. They extended an olive branch in a concerted effort to win back shareholder trust and confidence. Kudos to the Home Depot board members for using their heads and for constructing a compensation plan that more closely links the chief executive’s success to that of the shareholders. The move is a first step on the road to control executive compensation. Here’s hoping it is a trend in boardrooms all across this country.

Latest News

SEC bars ex-broker who sold clients phony private equity fund
SEC bars ex-broker who sold clients phony private equity fund

Rajesh Markan earlier this year pleaded guilty to one count of criminal fraud related to his sale of fake investments to 10 clients totaling $2.9 million.

The key to attracting and retaining the next generation of advisors? Client-focused training
The key to attracting and retaining the next generation of advisors? Client-focused training

From building trust to steering through emotions and responding to client challenges, new advisors need human skills to shape the future of the advice industry.

Chuck Roberts, ex-star at Stifel, barred from the securities industry
Chuck Roberts, ex-star at Stifel, barred from the securities industry

"The outcome is correct, but it's disappointing that FINRA had ample opportunity to investigate the merits of clients' allegations in these claims, including the testimony in the three investor arbitrations with hearings," Jeff Erez, a plaintiff's attorney representing a large portion of the Stifel clients, said.

SEC to weigh ‘innovation exception’ tied to crypto, Atkins says
SEC to weigh ‘innovation exception’ tied to crypto, Atkins says

Chair also praised the passage of stablecoin legislation this week.

Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest
Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest

Maridea Wealth Management's deal in Chicago, Illinois is its first after securing a strategic investment in April.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.