Not many Americans can retire after only six years on the job, but not many Americans are Bob Nardelli.
The former CEO of The Home Depot Inc. (HD) could buy himself a fiefdom as he walks away from the company's Atlanta headquarters with a $210 million compensation package that includes $20 million in cash severance and $32 million in retirement benefits.
"Certainly working people and people that are punching clocks and pulling down an hourly wage can't even comprehend these kinds of figures," said Richard Metcalf, the director of the department of corporate affairs for the Laborers' International Union of North America, which owns around 1.7 million shares of Home Depot stock.
"But I need to say, I think [it] cuts way across that," he continued. "I think fairly wealthy people are taken aback by this kind of elite supergroup; there seems to be just no connection whatsoever to reality and performance. And with Mr. Nardelli there was no connection."
Nardelli, 58, joined Georgia-based Home Depot in December 2000, after working as a senior executive at GE (GE). He departed amid investor discontent spurred by lackluster share performance.
The newly unemployed Nardelli's situation is vastly different from the average Georgian laid off from work.
According to the state's Department of Labor, the average weekly unemployment-insurance benefit is around $250, though workers may be eligible for up to $320 for a maximum of 26 weeks. The Bureau of Labor Statistics for the federal Department of Labor does not keep unemployment insurance averages, as claim amounts vary from state to state.
Judged on the unemployment insurance limit of 26 weeks, Nardelli would be raking in $769,230.77 a week on his severance alone.
Executives can command lucrative compensation benefits because there aren't enough of them to go around, said Don Lindner, the executive compensation practice leader for WorldatWork, a nonprofit professional association.
"So much of what they get when they leave is prescribed when they come," Lindner said, noting that contracts signed at the onset of employment are laden with incentives — used to lure the executives from their previous posts — that are eligible for payout upon termination.
That's just what happened at Home Depot, according to Metcalf.
"We were told that the reason for Mr. Nardelli's package was because they had to match certain benefits that he had when he worked for GE," Metcalf said.
So when Nardelli said goodbye on Jan. 2, he did so with a wealth of riches he contractually "earned." Those include around $77 million of unvested deferred stock awards, $44 million of previously earned stock awards, around $2 million from his 401(k) and $18 million in other entitlements to be paid over a four-year period.
"Compensation plans, whether it's an annual bonus plan or a long-term incentive plan, equity plan, if they're designed properly, executives should only be rewarded when the company is doing well and the shareholders are getting increased share value," Lindner said. "If they're designed poorly, which unfortunately some of them are, the executives will get paid well regardless of what happens to the company and that's where the real disconnect is."
Laborers' Union worries that Nardelli's plan and subsequent plans for other Home Depot executives fall into the latter category. The group's investments will fund the retirements of its working-class members, making it that much harder to tolerate the sum of Nardelli's retirement package.
"We rewarded [Nardelli] by giving him $32 million of retirement to walk away after he eroded the investments of our members, who are counting on those investments to supply retirement to them which maybe averages more in the $30,000- to 40,000-a-year range," Metcalf said. "And so if you think our members are angry, yes they are, but I can think of very few Americans who shouldn't be angry."
The Laborers' Union has called for board-of-directors accountability, especially when it comes to the approval of overly generous senior executive retirement programs or SERPs; they pushed the issue at a Home Depot shareholders meeting last year.
"This whole question of executive compensation has gotten way out of control whereby things that are called bonuses are automatic. We see all the time packages that include guaranteed bonuses, which to us is an oxymoron," Metcalf said. "Or we see situations where you got a bonus for performance for one year and then that becomes a part of your ongoing calculation to get a pension for the rest of your life."
Boards of directors in each of the nation's 18,000 public companies are likely to take more careful notice of executive compensation packages now that the a 2006 Securities and Exchange Commission decision requires companies to include the details of such deals in their proxy statements to shareholders, Lindner said.
"It just makes people think through their decisions much more carefully because they know the ramifications," Lindner said.
The Laborers' Union remains nervous, hoping that incoming CEO Frank Blake doesn't leave on the same lucrative carpet as Nardelli.
"The question will be whether or not this board really starts moving to adopt policies that will guide them in the future as opposed to saying, 'Oh, Mr. Nardelli was just an individual mistake,'" Metcalf said.