If a headhunter approaches you to offer you a high-profile CEO job at an overvalued company, do yourself a favor and avoid even interviewing. That was one of the points I was trying to make in defending Home Depot
Nardelli has been getting a whole lot of grief lately. Yes, the beefy $124 million that he pocketed during his past six years at the helm is a whole lot of money. The problem is that irate investors are judging him based on the stock's slight decline during his tenure instead of the company's ascending financial performance. I weighed Nardelli's pay against the $5.8 billion in profits and $81.5 billion in sales that the company had generated last year alone, and it did not sit well with at least one reader.
"I am always intrigued by people that give the value of a company or the sales it produces as a justification for a CEO to earn a pay package like Bob Nardelli," he wrote. "If he was running a store, district of stores, a region of stores, or any portion of the company he rules, he would have been fired long before now. Why wouldn't the shareholders have the same feeling about him?"
Let's see here. In 1999, the year before Nardelli took over, the company generated $2.3 billion in profits on $38.4 billion in sales. So in six years, the company has seen the bottom and top lines grow by 152% and 112%, respectively. Is that so vile? Would you fire that kind of production?
Naturally, shareholders don't see it that way. They see a stock that is trading lower than when Nardelli took over. Is that a good reason to let someone go? Because he had the misfortune of accepting a job at a company trading at a lofty and unsustainable 40 times earnings? The market was stupid then, so Nardelli is stupid now? I can make the disconnect. Can't you?
And I'm not even a big Nardelli fan. The "I love Nardelli" tattoo isn't permanent. It's a henna, I swear. I would just prefer to rip into a CEO for more legitimate reasons, like dissing investors.
I may not have been wowed by Roberto Goizueta's replacements at Coca-Cola
One can argue that the same things may currently be happening at Dell
So, is Nardelli perfect? No way. But I stand by my argument that some CEOs are coming under fire for share prices that were pumped up before their arrival. It's not fair. CEOs, you've been duly warned. Before you sign on the dotted line, make sure that an unrealistic share price won't sink your career.
Home Depot, Coca-Cola, and Dell are Inside Value stock picks. Dell is also a Stock Advisor selection. If you want to learn more, kick the tires of either newsletter with a 30-day free trial subscription.
Longtime Fool contributor Rick Munarriz can be pretty cheap at times, but he doesn't own any of the stocks in this article. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.