Envy is so passe'

There has been a lot of screaming about the severance package size of Home Depot CEO Robert Nardelli and indeed the compensation package size of many departing CEO’s. I grow weary of their protestations. These same people see nothing wrong with paying top athletes and entertainers millions of dollars to profusely sweat during a cardio workout.

Nardelli’s compensation/severance package was negotiated by the Home Depot board of directors as an inducement for him to COME to Home Depot—not LEAVE Home Depot. Nardelli was a a talented former executive at General Electric who came within a whisker of being its CEO. During his tenure, Home Depot posted sales of $90.4 billion, almost twice the sales figure of $45.7 billion recorded for fiscal 2000. During that same period, net income rose 130%, from $2.5 billion to $5.9 billion. Also during his tenure Home Depot's return on average invested capital stood at 16.8% for fiscal 2000, peaked at 19.5% in 2005, and will be 17.4% for fiscal 2006 and left Home Depot OWNING $25 billion worth of DEBT-FREE property.
Operating Income increased to $9.363 billion in 2006 from $5.830 billion in 2003. These are not numbers to be dismissed. Additionally, the severance package is not $210 million in cash. The bulk of it, as in most cases, is stock, stock options, retirement benefits, etc., and represents about 8% of Home Depot’s net income and .2% of its gross sales (revenue), and 3% of the operating revenue.

Now, as to the outrage expressed by members of the public who own no stock in Home Depot, are not employed by Home Depot, are not a vendor to Home Depot, do not sign the checks for Nardelli’s (or any other Home Depot employee) compensation, are not on the board of directors for Home Depot, and have no connection to Home Depot other than being a customer, knowing its name, knowing its location, and knowing what it does for business—BUTT OUT! It’s not your concern! The only reason you are exercised over this is your own envy and class hatred! If you don’t like the severance package for Home Depot’s CEO: don’t shop at Home Depot, don’t buy Home Depot stock, don’t work for Home Depot, don’t get appointed to its board of directors!

I venture to say, if any of you were in Nardelli’s situation and doubled the sales, quadrupled the net income of Home Depot you would be asking for more than the 8% that he is getting! As it is, Nardelli’s severance is the result of negotiation for labor compensation between him and the board of directors at Home Depot. It is the board of directors who will have to answer for their decision—for good or ill.

To put things into perspective consider the salaries of top entertainers:

Steven Spielberg $332 million
Howard Stern $302 million
George Lucas $235 million
Oprah Winfrey $225 million
U2 $110 million
Jerry Seinfeld $100 million
Tiger Woods $90 million

Now, look at top athlete salaries in football and basketball in relation to their percentage of revenue and value of the team:

BASKETBALL ($mil)
Team Player Salary VALUE OPREV %VALUE %OP REV
Miami Heat Shaquille ONeal $20.00 $362.00 $119.00 5.52% 16.81%
Phily 76ers Chris Webber $19.10 $351.00 $110.00 5.44% 17.36%
Minn. T-wolves Kevin Garnett $18.00 $303.00 $101.00 5.94% 17.82%
Ind. Pacers Jermaine ONeal $16.40 $324.00 $108.00 5.06% 15.19%
NJ Nets Jason Kidd $16.40 $271.00 $ 87.00 6.05% 18.85%
LA Lakers Kobe Bryant $15.00 $529.00 $156.00 3.01% 10.19%
San Ant Spurs Tim Duncan $15.80 $350.00 $121.00 4.51% 13.06%
NY Knicks Anfernee Hardaway $15.70 $543.00 $181.00 2.89% 8.67%
Dall Mavs Keith Van Horn $15.60 $403.00 $124.00 3.87% 12.58%
Houst Rockets Tracy McGrady $15.60 $422.00 $141.00 3.70% 11.06%
Orlando Magic Grant Hill $15.60 $247.00 $ 82.00 6.32% 19.02%

FOOTBALL
PLAYER-TEAM SAL VALUE REV OP INC %VAL %REV %OP INC
Ty Law N.E 9.60 1,176 250 43.6 0.82% 3.84% 22.02%
Brett Favre G.B. 9.53 911 194 22.3 1.05% 4.91% 42.74%
Jonathan Ogden Balt. 9.10 946 201 27.8 0.96% 4.53% 32.73%
Randy Moss Minn. 8.63 720 167 16.3 1.20% 5.17% 52.94%
John Tait Chi. 8.54 945 201 51.5 0.90% 4.25% 16.58%
Chris Samuels Wash. 8.35 1,423 303 108.4 0.59% 2.76% 7.70%
Samari Rolle Tenn. 8.31 886 189 48.3 0.94% 4.40% 17.20%
Peyton Manning Ind. 8.30 837 167 25 0.99% 4.97% 33.20%
Marvin Harrison Ind. 8.08 837 167 25 0.97% 4.84% 32.32%
Michael Vick Atl. 7.89 730 170 6.6 1.08% 4.64% 119.55%
Patrick Surtain Mia 7.88 912 194 33.4 0.86% 4.06% 23.59%
Donovan McNabb Phi. 7.86 1,024 218 54.2 0.77% 3.61% 14.50%
Isaac Bruce St. L. 7.64 841 179 33.2 0.91% 4.27% 23.01%

SALARY=ANNUAL SALARY IN MILLIONS
VALUE=TEAM VALUE IN MILLIONS
REV=ANNUAL REVENUE IN MILLIONS
OP INC=OPERATING INCOME IN MILLIONS
%VAL=PERCENTAGE OF VALUE
%REV=PERCENTAGE OF REVENUE
%OP INC=PERCENTAGE OF OPERATING INCOME

When compared against professional sports, who manage nobody or nothing but their own careers, Nardelli is a piker in terms of compensation as a percentage of revenue/income generated!