I am attempting to stoke this fire some more with Red Bird. One reader posted a comment to yesterday’s post stating this:
You guys must be living under a bush somewhere back east. Have you ever heard of the golden parachute? Show up, don€™t do anything, get fired and walk away with millions. It€™s great gig if you can get it.
Chew on this
http://www.washingtonpost.com/wp-dyn/content/article/2007/01/03/AR2007010300553.htmlor this http://blogs.wsj.com/deals/2007/04/10/a-53-million-golden-parachute-for-sprints-forsee/
Fair enough – I know this is an emotional topic for many people. However, emotions are not the best option for rational decision-making. I think most people will agree that CEO’s do more than “Show up, don’t do anything, get fired and walk away with millions.”
I “chewed on” both article links and want to highlight a couple significant items from them. In regards to Bob Nardelli (topic of the first link):
He has succeeded on many fronts, even as he fell short on others, and in recent years found himself defending his hefty salary. Revenue has nearly doubled, to $81.5 billion in 2005 from $45.7 billion in 2000, though that figure fell short of his goal of $100 billion. During that time, profit rose to $5.8 billion from $2.6 billion.
Not bad. Admittedly, the stock price has not followed this revenue and profit growth. I think the hesitancy from the street has more to do with the cooling housing market as opposed to Home Depot’s revenue performance. I am impressed that he doubled profits in 6 years. What company wouldn’t desire that profit growth? From what I read, Nardelli’s real downfall was his lack of communication ability which ties in nicely to my earlier post.
If you don’t know his history, he was one of 2 top executives to succeed Jack Welch at GE. Welch chose Jeffrey Immelt instead because of his communication ability. Nonetheless, the street was going to pay a hefty price for Nardelli based on experience. Home Depot’s board chose to pay for Nardelli. Note to Red Bird – I am not aware of any of Nardelli’s cronies being on Home Depot’s compensation committee.
The second article link references the CEO of Sprint Nextel. I am a former Sprint stockholder but I sold the stock since that industry is difficult to predict. I think the Nextel merger was a mistake – maybe knee-jerk reaction to other mergers.
Forsee has been under fire from investors since, as the head of Sprint, he orchestrated the company€™s 2005 merger with Nextel. The deal hasn€™t lived up to its billing, with subscriber growth slowing and Nextel€™s creaky network taking a toll on call quality. That has helped drive down the combined company€™s stock 26% since the deal was closed.
A number of Sprint investors say they expect Forsee has another quarter or two to show some progress turning the ship around before being shown the door. Should he get the boot, the severance payment would represent a surcharge for investors, if you will, on top of the $20 billion in market value that has evaporated since the merger.
Bad deal and a serious market value “evaporation” (glad I sold the stock). But take a closer look at the specifics of Forsee’s package:
Most of the value of the package, $43.2 million, comes from the accelerated vesting of options and restricted stock. Forsee gets the money only if he€™s forced out €œwithout cause€ or suffers a €œconstructive discharge,€ as defined by his employment contact. The payment was calculated at the end of 2006, when the stock was at $18.89. (It closed at $19.33 today.)
A couple of important points to the severance package, wouldn’t you say? This money is not guaranteed to him. Simultaneously, he gets more if he increases the company’s stock price. Those conditions seem reasonable to me.
The final point for me is simple – why should I get upset over a CEO’s compensation? How does Nardelli or Forsee getting less money than what they received affect me in any way? They negotiated their compensation packages and the company agreed to pay them that amount.
The final question that I posed to Red Bird last week was this – If you want CEO compensation capped, who is the arbitrator of the cap? Who determines what is reasonable and what is excessive?
If your answer is the government, I have much more writing to do.