The departure of Home Depot CEO Bob Nardelli on January 2nd has proven that a golden parachute looks even better in orange. Nardelli left Home Depot wearing a very expensive orange jump suit. Although many Home Depot investors were outraged, Nardelli jumped out strapped to a $210 million parachute to cushion his fall from power. Nardelli lasted at Home Depot for roughly six years. According to the Atlanta Journal, Nardelli was hired with a guaranteed annual bonus of at least $3 million, stock, retirement benefits and a $10 million loan to be written off in five years. According to Home Depot, Nardelli and the Company agreed in principle to the terms of a “separation agreement” which provides for payment of the amounts he was entitled to receive under his pre-existing employment contract entered into in 2000. Under this agreement, Nardelli will receive consideration currently valued at approximately $210 million This includes a cash severance payment of $20 million, the acceleration of unvested deferred stock awards valued at $77 million and unvested options with a value of approximately $7 million, earned bonuses and long-term incentive awards of $9 million, the payment of account balances under his 401(k) plan and other benefit programs currently valued at $2 million, the payment of previously earned and vested deferred shares valued at $44 million, the present value of retirement benefits worth $32 million, and $18 million for other entitlements under his contract which will be paid over a four year period and will be forfeited if he does not honor his contractual obligations. In 2000, Nardelli hired a Chicago attorney to help him nail down one of the largest salary and “orange” parachutes around — the Home Depot version of the golden benefit plan. According to the Journal, about 85% of Nardelli orange parachute was set in place the day he walked through the door. Nardelli was expensive to buy because he was one of the top level executives at General Electric, groomed to take over Jack Welch’s spot when he left. When Nardelli didn’t get the top GE job, Home Depot snatched him up. “Nardelli was paid a ton at GE,” one analyst told the Journal. “It was either pay him the compensation … or go to another candidate.” A man who played a major role in hiring Nardelli, investment banker Ken Langone, sat on GE’s compensation committee when Nardelli lost out on the top job there. Langone was also one of the major financial backers for the start-up of Home Depot, so he was deeply involved with both companies at the same time. It was Langone who also stepped into trouble when he headed up the compensation committee at the New York Stock Exchange, which parachuted NYSE CEO Richard Grasso with a pay package worth more than $140 million. Unhappy shareholders dressed up in chicken costumes at last year’s Home Depot’s annual meeting, charging that directors were afraid to take action against Nardelli — who was the only director that even showed up at that meeting. So Home Depot began the year with the embarassing payout, bleeding orange all over the media headlines.
To claim his payout, Nardelli had to agree not to compete with the Home Depot for one year, not to solicit employees or customers of Home Depot for four years, and other restrictive covenants. Today, there are roughly 355,000 people who must be dismayed at the severance agreement for Nardelli. That’s the number of “orange-blooded” Home Depot workers. The company could have given every single one of those 355,000 workers a $591 Christmas bonus at Nardelli’s expense — but instead, they threw Nardelli out holding a fortune the other workers will have no part of. Put another way, it would take roughly 8,400 Home Depot employees, working full-time for an entire year, to earn what Nardelli got in his one severance package, which was negotiated by a group of friendly insiders. Home Depot has been very generous to the people at the top of the pyramid, while the workers at the bottom toil without any organized voice or clout. Nardelli walked out of Home Depot after six years as very rich man. Which is more than Home Depot employees will ever see. Next spring, at the Home Depot annual meeting, investors have submitted a proposal that requests the Home Depot board of directors to appoint a special committee of independent directors to evaluate the strategic direction of the Company, the performance of management and strategic alternatives for the Company. Maybe they ought to examine the retailer’s orange parachute policy as well.
