Home Depot offers new CEO less pay


Published: Thursday, January 25, 2007 at 6:01 a.m.
Last Modified: Thursday, January 25, 2007 at 12:00 a.m.

ATLANTA — The Home Depot Inc. is paying new Chief Executive Frank Blake a fraction of what it paid his predecessor, Bob Nardelli, and has taken the unusual step of promising Blake no severance package if he leaves.

But executive compensation experts don't expect the decision announced Wednesday by the world's largest home improvement store chain to set a trend in corporate America, despite the ire that hefty salaries have drawn among investors.

"I wish it were a trend," said Lowell Peterson, a New York labor attorney who is familiar with executive compensation issues. "I suspect it's unique to Home Depot because the pay and severance package given to Nardelli was so out of line."

Atlanta-based Home Depot said in a regulatory filing that Blake could earn as much as $8.9 million in total compensation this year.

That's a fraction of the $25.7 million a year on average that Nardelli was earning at Home Depot excluding stock options.

Nardelli resigned earlier this month after six years at the helm of Home Depot amid a furor over his hefty pay and Home Depot's lagging stock price. He was replaced by Blake, who was Home Depot's vice chairman.

Nardelli left with a severance package worth about $210 million. Home Depot said Wednesday that Blake's compensation arrangement does not provide for payment of severance upon termination.

There are examples in recent years of other major companies reducing the amount they pay their top official:

· General Electric Co. granted Chief Executive Jeffrey Immelt $3.4 million in total annual compensation in 2005, far less than the $16.25 million his predecessor, Jack Welch, earned in 2001, the year Immelt replaced Welch. Immelt earned about $8.5 million in total annual compensation at GE in 2004 and $7.6 million in 2003, according to regulatory filings.

· The New York Stock Exchange, which faced an uproar over former CEO Richard Grasso's $187.5 million pay package, offered John Thain $4 million-a-year in compensation when he took over as CEO in 2004. That was a pay cut from what Thain received as a Goldman Sachs Group Inc. executive. The NYSE also said Thain would serve without an employment contract.

Steven Hall, an executive compensation expert, said such examples are likely the exception, not the rule.

"I don't anticipate it being across the board," Hall said. "The problem that you have is that people that have the background to be CEOs, proven or not, are very limited in supply."

There's a lot of competition for them."

According to Wednesday's filing with the Securities and Exchange Commission, Blake will earn a base salary at Home Depot this year of $975,000.

He also could be entitled to a management incentive plan award equal to double his base salary and a long-term incentive award equal to his base salary. Blake and the company must meet certain performance targets for Blake to get those awards.

The filing says Blake's compensation for 2007 also includes up to $5 million in equity in the company based on how Home Depot's share price performs and the amount of total shareholder return.

A Superior Court judge on Monday denied a request by a group of shareholders of Home Depot to temporarily block the company from paying Nardelli any more of his severance package.

Judge Craig Schwall denied the request for a restraining order but did rule that several current and former senior officers and directors of the company, including Nardelli, will be subject to depositions.

The request for a temporary restraining order was made in Fulton County Superior Court by the shareholders as part of a previously filed lawsuit alleging that Home Depot overpaid senior executives and backdated stock options in violation of their fiduciary duties.

From December 2000 when Nardelli joined Home Depot to the end of 2005, the last year for which figures have been released, Nardelli was granted $154.2 million in compensation from Home Depot. The total figure includes a $30.6 million restricted stock award that Nardelli was granted for 2000, though he was only with the company less than a month in that calendar year.

The total figure excludes the potential value of stock options awarded to Nardelli. The average over the six calendar years for which he earned compensation was, therefore, $25.7 million. Nardelli's compensation for 2006 has not yet been released.

Home Depot shares gained 21 cents to $40.64 in afternoon trading on the New York Stock Exchange.

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