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Bob Nardelli: Doing the Math

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We’re not going to beat you over the head with defenses of gigantic CEO pay packages. Okay, we probably are. But not right now. We’ve done enough of it in the last couple of days. And we’re pretty sure you get the point by now that the populist outrage of CEO pay at public companies—combined with outsized criminal penalties for white collar criminal convictions, increasingly burdensome regulation and gigantic risks being shifted from the markets to chief executives and financial officers—is in all likelihood leading to a brain drain away from public markets toward private equity. And that this move itself leads to a shift in wealth away from private shareholders and the broader public to the wealthy few who can invest in private equity funds. You totally get all that already, right? Good.
So now we’ll bring you the other side. Greg Easterbrook does the math that shows exactly why people are so outraged at pay packages like ex-Home Depot chief Bob Nardelli’s.

Combining regular income, stock options, pension and a golden parachute, Nardelli received $274 million for six years of work. That's $34,250 an hour. That's about 3,000 times the hourly wage of a Home Depot worker. That's $275,000 per day – five times as much per day as the typical American family earns in a year. Good management is of value to a company's shareholders: skilled corporate officers should be well paid. But there's a difference between "well paid" and something akin to looting. Why isn't Nardelli's $274 million, taken from the shareholders, simply viewed as embezzlement? Home Depot stock fell from $43 to $41 under his Nardelli's tenure, a 21 percent drop when calculated for inflation. The CEO cannot control a company's stock price, and excessive emphasis on stock price creates a temptation to cook the books. But it's absurd to think that shareholders can get hosed under a CEO's watch, and for that the CEO deserves $274 million. The Home Depot board offered Nardelli the terms that led to the $274 million. Boards of directors have a self-interest in overpaying CEOs, because many board members are themselves CEOs who know their own pay will rise if other CEOs' pay rises. With Nardelli's $274 million, CEO overpay has reached runaway levels. What the Home Depot board did was perfectly legal, and that in itself is a scandal. What the Home Depot board did was perfectly legal, and that in itself is a scandal. The word for what many public-company CEOs and their boards are up to should be: embezzlement.

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