Markets & Finance

How Nardelli Finally Helped the Stock


Home Depot shares gain nearly 4% on Nardelli's departure, before finishing 2.3% higher

While Bob Nardelli was able to deliver profits and trim costs, The Home Depot's (HD) share price was a no-show during his tenure as CEO, a moribund performer that stood in stark contrast to the richness of his own pay packages. As a result, Nardelli and the company's board "mutually agreed" that he would leave the job effective Jan. 2.

Nardelli exits with a severance package of about $210 million. Frank Blake, Home Depot's vice chairman and executive vice president, succeeds him.

"Under Bob's tenure, the company made significant and necessary investments that greatly improved the company's infrastructure and operations, expanded our markets to include wholesale distribution and new geographies, and undertook key strategic initiatives to strengthen the company's foundation for the future," Home Depot's board said in a statement on Jan. 3. "The Home Depot has delivered strong and consistent growth and gained market share under Bob's leadership, and we believe that the company is well positioned to continue to do so."

But Home Depot's share price hasn't improved much since Nardelli took charge at the Atlanta home-improvement retailer in December, 2000. Back then Home Depot's stock traded at just under $37 per share. After the news of Nardelli's departure, investors bid up Home Depot's stock nearly 4%, before it settled back, finishing 2.3% higher at $41.07 in trading on the New York Stock Exchange.

Home Improvement Retail stocks on the S&P 1500 Index gained 1.7% of their value in 2006. In contrast, Home Depot improved by only 1% last year. This is also a stock whose performance stands to affect Home Depot founders Bernie Marcus and Arthur Blank's billion-dollar bank accounts.

And what about those who worked for Nardelli? Home Depot's "Success Sharing" program, which doles out bonuses primarily to Home Depot's 319,000 non-salaried employees based on store financial performance, fell from $90 million in 2004 to $44 million in 2005. The average payout to workers: $137.93. Yet Nardelli's total bonus, which Home Depot says is based on overall company performance, rose from $5.75 million in 2004 to $7 million last year.

In 2005, Nardelli took home a hefty $38.1 million in total compensation. And Home Depot has rewarded Nardelli with some $200 million in salary, bonus, stock, stock options, and other perks since he took the helm. He had a $3 million minumum gauranteed in his annual bonus. Plus a $10 million loan that was fully forgiven at the end of fiscal 2005. Yet Home Depot's total return to shareholders, a key benchmark of corporate performance, is down 13%, according to Institutional Shareholder Services (ISS ). (see BusinessWeek.com, May 23, 2006, "Home Depot's CEO Cleans Up.")

“Our view is that under Mr. Nardelli's reign, HD successfully cut costs and improved financial metrics,” said Standard & Poor’s Corp. analyst Michael Souers. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.) “However, service quality and excessive compensation were among critics' many points of contention, and HD's share price has languished since he took over as CEO about six years ago.”


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