Better late than never, I guess.
It appears that the Home Depot (NYSE:HD) board of directors finally got religion and decided to rein in runaway executive pay. Sort of.
In the uproar following the severance-pay package of former CEO Bob Nardelli, the board of directors amended its bylaws to require two-thirds of its independent directors to approve any compensation granted to a Home Depot CEO. Nardelli, who apparently tired of being the nail to every critic's hammer and being compared with competitor Lowe's (NYSE:LOW), simply took his $210 million gift from shareholders and went home.
While it's a nice gesture, it amounts to something of closing the barn door after the horse is already out. Where was the board's empathy for shareholders before they gave away the store to Nardelli?
Moreover, as I noted yesterday, boards of directors already have a clubhouse atmosphere; many times the directors have been appointed by the CEO, and will supposedly have to vote impartially on the CEO's pay. While Home Depot's new CEO, Francis Blake, didn't recommend or appoint any of the board's members, he was appointed to the board last year and has served as executive vice president of business development and corporate operations. It's not as if the board doesn't know the man.
It's also not as if there are any real divisions amongst board members when executive pay comes up for a vote. I don't think Nardelli's compensation during his tenure or his subsequent severance package hung by a thread as a bare majority eked out a vote. In fact, I'd be willing to bet that the votes were, if not unanimous, almost so.
This change is really window dressing to try to improve the board's image. And boy, does it need improvement. Considering the board members' display of contempt for shareholders at last year's annual meeting, where not one of them thought enough of the true owners of the company to even bother to show up and face them, requiring a two-thirds vote to approve a CEO's pay package hardly goes far enough in ameliorating the ire that shareholders expressed.
Yet it seems as though the board still hasn't truly gotten it. Even this vote to change the company's bylaws was conducted in a way that disregards the concerns of shareholders. While the board actually approved the measure on Jan. 4 -- two days after Nardelli's exit -- it never mentioned it publicly until it filed the required notice with the SEC yesterday. A little more compassion for shareholders might have been to say, "We feel your pain, and we're going to do our best to improve. Here's a first step."
In the same way that the company dismissed shareholder outrage at the conduct at the annual meeting -- a little press release saying, "Oops, sorry. Our bad. We didn't mean to offend you" -- the board has again failed to understand the nuances of placating a disgruntled shareholder.
Yet for all the social backwardness this board has displayed, the new rule is a welcome change. Let's see what else its members can come up with to restore investor confidence in their ability to lead Home Depot forward.
You can look back at these related Foolish articles:
- CEO Job Under Construction at Home Depot
- Is CEO Pay Really Out of Whack?
- Home Depot Abdicates Responsibility
Home Depot is a recommendation of Motley Fool Inside Value, despite the executive turmoil. Find out why with a 30-day guest pass that gives you full access to all of the newsletter's market-beating recommendations.
Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
