CEO Pay: Home Depot, MassMutual, and AEI

Here we go again. Yet another failed CEO is going to collect $$$Hundreds of Millions of $$$ for running his company into the ground. This is happening so often it’s not even news any more.

Robert L. Nardelli has abruptly resigned as chairman and chief executive of Home Depot, pocketing a lavish severance package and leaving shareholders with a stock that has languished even as sales have nearly doubled during his six-year tenure.In a statement released yesterday, Home Depot’s board of directors and Nardelli said they “mutually agreed” to the resignation, which took effect Tuesday. Under the terms of a separation agreement negotiated when he joined the company in 2000, Nardelli, 58, is to receive about $210 million in cash and stock options, including a $20 million severance payment and retirement benefits of $32 million.


Nardelli replaced several top executives with former GE colleagues and implemented top-down management. At the same time, he expanded Home Depot’s wholesale business to attract professional contractors. He also expanded the company outside the United States.

Yet Nardelli failed to have much effect on Home Depot’s stock price, plagued by slowed store expansion, a cooling housing market and increased competition from rival Lowe’s, several analysts said. On Dec. 4, 2000, the day before he was named chief executive, shares of the company closed at $40.75. On Friday, the last day of trading before Nardelli announced his resignation, the stock closed at $40.16. Last year, the stock’s price ranged from a low of $32.85 to a high of $43.95, finishing down 0.8 percent.

So under his tenure, HD’s profits doubled but Lowe’s took away a lot of HD’s market share and its stock remained flat, meaning that investors lost money even though the company appeared to be doing well. That’s a pretty neat trick. Not many CEO’s could pull that off. No wonder the BOD was unhappy with him.

Except that that isn’t entirely why they were unhappy. The precipitating cause for his firing (calling it a “resignation” isn’t fooling anybody) was – wait for it – the size of his paycheck.

Some company observers speculated that the smoking gun may have been a dispute over a possible cut in his future compensation. The board has been reviewing Nardelli’s pay.

Despite making significant improvements to Home Depot’s financial operations, Nardelli became a focal point for criticism during his six years at the helm. Primarily, the General Electric veteran was lambasted by corporate governance groups and shareholder activists for a hefty pay package that far surpassed his retail peers — and ballooned as the stock price lagged.

By the end of 2005, Nardelli had received compensation worth $154.3 million, not counting the value of stock options, since becoming CEO.

So the reason the HD Board is paying him an outrageous amount of $$$ in severance pay is because he was demanding an outrageous bonus. The dispute between him and the Board boils down to this: his bonus package last year was $7Mil; this year the Board offered him only $3Mil. Nardelli considered that a “pay cut” and hit the roof.

Don’t you love the way these guys think? BTW, this morning, when Wall Street heard Nardelli was out, HD’s stock jumped almost a dollar – and the day ain’t over yet.

MassMutual Exec Gets $$$50Mil$$$ Severance Package

Granted that’s chump change compared to Nardelli’s $$$200Mil+$$$, $$$50Mil$$$ is a helluva lot of money to the rest of us. To MassMutual, too, who fired their CEO, Robert O’Connell for shady business practices and refused to pay him that much in salary and benefits.

A Boston judge has upheld an arbitration finding that MassMutual Financial Group fired chief executive Robert O’Connell without cause and owes him about $50 million in salary and benefits.


O’Connell was fired by MassMutual’s board of directors in June 2005. The board accused him among other things of artificially inflating the value of a shadow retirement account to $30 million, buying a company-owned condominium at below-market prices and using policyholder assets for his personal use of company aircraft.

The independent arbitration panel found that O’Connell did not violate a term in his contract that he could be terminated for cause if he engaged in “willful gross misconduct … resulting in material harm to the company.”

For all the noise being generated by Nardelli’s ouster, this story is a lot more significant. Here’s a company that caught its CEO ripping it off and probably breaking the law in the process. Instead of looking the other way, as many do, it fires him. He then takes them to court, claiming he was fired for no reason (???) and the judge makes them pay him the severance package they agreed to before they discovered he was a thief.

Although the article doesn’t explain this, I suspect that the key to the judge’s decision lies in the phrase “resulting in material harm to the company”. MassMutual probably couldn’t show that O’Connell’s thievery had hurt them in any appreciable way – after all, for a multi-$$$Billion$$$ company, $50Mil is a drop in the bucket. Without that “material harm”, the clause doesn’t kick in. They can fire him but they still have to pay him for stealing from them.

Cute, ay? Think about what this decision means: even if a corporate board finds out its CEO has been routinely breaking all sorts of laws and has stolen $$$Millions$$$ from the company accounts, they still have to pay him mucho dinero if his contract doesn’t specifically state otherwise. IOW, in order to protect themselves boards will now have to include language in the contracts it signs with the CEO’s it hires that stipulates the contract is null and void if the CEO turns out to be a thief or breaks the law.

Interesting that we’ve come to this pass – a corporate environment so corrupt that companies now have to protect themselves from from the lawless behavior of their own executives.

Don’t Worry. Be Happy. Greed Is Good.

But not surprising, not if you’ve been following the growth of conservative rationalizations for anything corporations do. For 30 years, conservative “thinkers” (yes, I know – an oxymoron) trained by Milton “Free Market” Friedman have been selling the old and discredited idea (we thought we’d put this to bed in 1929) that Big Business should be completely unregulated, that absolutely NOTHING should be allowed to limit its ability to make more and more and more and more $$$$, that no consideration is more important than that, not the environment or the good of society or the democratic process. NOTHING. Friedman, the first Social Darwinist economist and a darling of the New Right, preached a doctrine of untrammeled, unfettered capitalism. “Free market” to him meant free from restraints, free from oversight, free from limits, free from responsibility for anything other than making money, and his acolytes have continued to spread and defend his message.

One of the most active of these apologists is the American Enterprise Institute, which never saw a corporate depredation it couldn’t excuse (it defended Enron right up to the moment of its collapse). Now that excessive CEO pay is finally under fire, AEI is popping its head above the ooze it normally lives in to provide the usual rationalization: Greed Is Good. Greed Works. From David Sirota via The Wege comes this:

Yes, CEO pay — including the record bonuses paid this year to heads of Wall Street firms such as Morgan Stanley and Goldman Sachs — is attention-grabbing and has increased sixfold over the past 25 years.

But, as economists Xavier Gabaix of MIT and Augustin Landier of NYU concluded in a study in July, that increase “can be fully attributed to the sixfold increase in market capitalization of large U.S. companies during that period.” CEOs get paid more because they run bigger, more valuable companies.


Then we get the standard “Pinochet isn’t Castro” Defense:

Sure, they command high pay. Too high? The Yankees’ Alex Rodriguez earned $29 million from June 2005 to this summer. Jeff Immelt of General Electric makes less than Dr. Phil does. If a good CEO can boost profits by $200 million, he’s easily worth $10 million, or more.

And if he can’t, obviously he’s still worth it because at least he’s not making as much as Alex Rodriguez.

But Mr Glassman, in true Friedman style, sees a much greater threat to our economy: “The bigger problem, as we show in The American, the magazine I edit, is that publicly traded companies — because of pressure from politicians, the media and unions — could be underpaying CEOs.” Underpaying? CEO pay in the US has jumped 1200% just in the last 5 years. They now make more than 400 times what the average worker makes. How could Glassman possibly justify this disparity? Easy.

With 5% of the world’s population, the USA is home to half the world’s largest companies. Our system of compensating CEOs has served the nation well. Let’s not let politicians mangle it.

No, by all means let’s not. It’s served Wall Street well, but then, at AEI that’s virtually the same thing. This country is, let’s face it, useless except as a playground for corporations to make money on and we’re lucky they let us stay. One of these days they may decide we’re too much of a burden for them and ship us overseas.

CEO Pay v Worker Pay

Via the Wege again, a startling comparison (this is from Canada but they have the same problem and the numbers are probably similar; if anything, it would be even more extreme here):

By the time most Canadians drag themselves into work on Tuesday after the holidays, the country’s highest-paid CEOs will already have earned the average employee’s annual salary.

By 9:46 a.m. Tuesday, the 100 highest-paid private-sector executives will have earned an average Canadian’s salary of $38,010, says a new study by the Canadian Centre for Policy Alternatives.

For minimum-wage workers, the country’s top earners made their entire salary average of $15,931 by New Year’s Day.


According to the figures, by the end of the workday Tuesday, the average CEO will have pocketed a staggering $70,000. (emphasis added)

Makes you think, don’t it?


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