Human Capital & Careers

New at Home Depot: No CEO Severance

The retailer's executive compensation arrangements get another touch-up.
Stephen TaubJanuary 24, 2007

Earlier this month, criticism of Home Depot’s stock performance gave way to criticism of its pay packages when Robert Nardelli resigned as chairman, president, and chief executive officer — and walked away with a severance package valued at some $210 million.

Next time will be different.

In a regulatory filing, Home Depot stated that the employment contract for its new chief executive officer, Francis Blake, “does not provide for payment of severance upon termination.”

Blake, who was vice chairman and executive vice president before Nardelli’s departure — he is now chairman as well as CEO — will receive a base salary of $975,000. He stands to earn about another $8 million in performance-based pay, including $2.5 million in shares and $2.5 million in vested options, both tied solely to shareholder return. “These awards are designed to incentivize Mr. Blake to drive sustainable returns and to remain with the company as CEO for the long term,” the filing asserted.

The performance shares will be paid out at the end of three years, based on Home Depot’s total shareholder return compared with the other members of the S&P 500. Blake will receive 25 percent of the award if the company is at the 26th percentile, 100 percent at the 50th percentile, and 300 percent at the 100th percentile. Blake will receive no payout for a total shareholder return that ranks below the 26th percentile.

The options vest only after one year from the grant date and only when Home Depot’s share price has increased 25 percent over the grant-date price for at least 30 consecutive trading days.

Any changes to Blake’s pay package will be subject to an approval process adopted following the furor that accompanied Nardelli’s departure. Home Depot’s by-laws now require that two-thirds of independent board members approve any such compensation; previously, only a simple majority was needed.

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