TEXT OF INTERVIEW
SCOTT JAGOW: When Home Depot CEO Bob Nardelli resigned last week, a lot of people were outraged at his severance package: $210 million. That’s a lot of money for a CEO whose company struggled badly while he was on the job. Newsweek’s Allan Sloan is with us. Allan, why did Home Depot give him so much money?
ALLAN SLOAN: Because it was in his contract. If you go and just look at his contract and you read the shareholder documents describing what his compensation package was, you came up with pretty much what they announced last week.
JAGOW: So instead of looking at the parachute or the severance package we should be looking back to when he was hired at Home Depot?
SLOAN: Exactly so. This was at the end of 2000, he was supposed to be a star and Home Depot loaded up his contract and gave it to him and now everyone’s whining about it. If they didn’t like it, they didn’t have to give him his contract and when it expired at the end of 2005 they should have changed it.
JAGOW: It seems to me this is kind of like sports, say foe example the Red Sox paying $50 million for a Japanese pitcher. I mean if they didn’t pay, someone else would right?
SLOAN: I think a better example is the coach if the Steelers who a year ago was a genius right? They won the Super Bowl. Now suddenly the quarterback wrecks himself up in the off-season on a motorcycle, the team doesn’t make the playoffs and now there are stories about how he may leave. It’s the same thing with these CEOs. When you hire them they’re geniuses, everyone’s in love. When there’s a problem, nobody remembers that the problem was you gave him too much money when you loved him
JAGOW: But the difference is that in a lot of cases in sports, they give you the money in a bonus structure so if you perform then you get the money. And here the case is, he didn’t perform and he’s still getting the money.
SLOAN: You know, I went over this at some length with Paul Hodgson of The Corporate Library who reads these things for a living, and what he finds striking about this is that most of the incentives in Nardelli’s contract had to do with longevity, not performance.
JAGOW: So how does Corporate America break this cycle of overpaying CEOs?
SLOAN: Well it never will. And remember nobody would be saying a word about this if Home Depot’s stock had done well. What they care about is the stock has done badly and he got paid.
JAGOW: Alright, thanks Allan.
SLOAN: My pleasure Scott.
JAGOW: Allan Sloan is the Wall Street editor for Newsweek magazine.
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