dispatches from the new world of work

Pay For Performance?

Home Depot Chairman & CEO Bob Nardelli is a pal. Period. An amazing guy. Perhaps more energy and determination than I've ever seen in one package. (I met him at GE.) And he has indeed mounted a largely successful REVOLUTION at Home Depot. Which is why I am simply dumbfounded by his Annual Meeting behavior last week. (Among many other things ... the Board were no-shows!!) I talked at a dinner on Sunday with a couple of gen-u-ine "captains of industry" ... with dozens of high-visibility annual meetings under their belts. They, too, are incredulous.

I confidently declare, alas, that Bob N will never recover from this one. FYI, for excellent commentary on the meeting, see Joe Nocera's article, "The Board Wore Chicken Suits," in the New York Times (0527); Joe is an old friend and superb reporter.

(If I don't understand, I sure as hell do offer the "shitty timing" prize for this sicko performance occurring the day after Skilling & Lay went down for, in effect, extreme executive arrogance and disdain of shareholders.)

Of course, pay for performance, a key Home Depot issue, is a very hot-contentious topic. A recent study (source??) I saw observed that CEO pay is closely (statistically) related to company size—and essentially unrelated to performance. So consider this from Advertising Age (0521.06) on top-mgt comp. Barebones: Over the last five years, INTERPUBLIC GROUP lost about $2 BILLION—and the top five execs were collectively paid $107 million. During the same five years OMNICOM's top five pocketed $111 million—on a profit of $3.2 BILLION. (Hmmmm?? Wow!! And: Not unusual.)

Tom Peters posted this on 05/30/06.

Comments

Sadly, this is simply the most recent example of how most upper management has lost touch with the reality in which the majority of their employees live -- where we'd love to have 245 dollars to spare at the end of the month, and 245 million dollars is a number so outrageously large that it feels about as realistic as monopoly money.

Posted by carikate at May 30, 2006 6:58 AM

And again I repeat TP on p. 45 of " The Pursuit of WOW" (one of my all time favorites):

"You CAN get away ith all sorts of crap when things are going well- resist the temptation, because it'll come back to haunt you (or worse) when things go sour (as they will)."

I live with the faith that the swellheads will eventually get theirs. Hopefully in my lifetime.

Posted by Kate at May 30, 2006 7:06 AM

For those not enrolled for the Times' "premium" package, here's a link to the Atlanta Journal Constitution's report on the meeting.

http://www.ajc.com/business/content/business/stories/0526bizdepot.html

An absolute display of arrogance--"thank you for your comments"--when the comment's neither heard nor has any chance of being considered or acted upon.

Posted by Ed Di Gangi at May 30, 2006 7:50 AM

Wait a minute, let's just talk out of one side of our mouths. Authors and commentators in this blog repeatedly bemoan the way corporations and executives are forced to act like some kind of shareholder slaves, often to the detriment of the long-term outlook of their companies. So now, when one board and one CEO decide to do it differently, they are blasted as arrogant and unresponsive? Revenues of HD are up 17% and stock value is down 20%. Which is better for the company? Which do the shareholders care about? Why should Nardelli listen to people whose minds are already made up? If the shareholders are so smart, why aren't any of them running the company?

Posted by Mike at May 30, 2006 8:04 AM

Tom,

Executive pay and performance management is one of the biggest challenges in American economic history and one of its key components is the way corporations manage people and talent. Huge topic IMH and it's worth bringing forward figures showing disconnection and divergence between the corporation's best interest and executives' self-interest. Perhaps also another argument that feeds and reinforces your skepticism about mega-corporations.

Thanks for the post.

Posted by alex at May 30, 2006 12:06 PM

When Nardelli took over at Home Depot, there were lots of changes that were needed. The company needed more discipline. The company needed more centralized/standardized systems.

But Home Depot had built success on being responsive to the customer. It did not need to have that responsive culture gutted to achieve greater discipline or more standardized systems. But that's what Nardelli did.

On a mechanical level he's shaped up the inventory, improved systems, streamlined processes and eliminated lots of waste. He's also eliminated what made Home Depot successful. And he did that with nothing to put in its place.

Visit a Home Depot today and try to find someone who knows something and is willing to help. Part timers used to do most of that and they're gone.

His process so far seems to be efforting a "rational" solution to Home Depot's problems. He's ignored the folks who built the place. As pressure about stock price has mounted (it's been five years) he's thrown up the barricades and hunkered down inside.

Earlier this year HD said it would no longer report same store sales. Now we have the annual meeting debacle.

In the meantime, Nardelli's bonus has been going up, while the bonuses for rank and file have been going down. Troops refer to his email as "Bobaganda."

However bright and dedicated he may be, Tom, the man simply doesn't seem to see that his compensation is a real issue and that building trust with the folks on the front line is important, and that all the talk you can force out about teamwork and "being in this together" and "not meaning to offend our stockholders" pales beside his actions.

In my blog, I called it "Hubris on Parade" and compared it to the Lay and Skilling hubris. But beware. Hubris is followed inevitably by Nemesis.

Posted by Wally Bock at May 30, 2006 1:11 PM

Wally, I was not defending Bob N. His strengths simply make the behavior even more bizarre.

Posted by tom peters at May 30, 2006 6:20 PM

Ed, nice link. Thanks!

Posted by tom peters at May 30, 2006 6:23 PM

Mike, there is surely merit in what you say; on the other hand if the situation were reversed and the share price were soaring for no apparent reason the CEO would doubtless take full credit. After all, Exxon is claiming that their profit surge is significantly linked to excellent management. And, wow, did we have a lot of stellar-hero-brilliant CEOs from about 1983-2000 ... when the market was going up, up, up.

Posted by tom peters at May 30, 2006 6:26 PM

True, Tom, and I agree that it could have been that way, but I don't know Mr. Nardelli so I can't say for sure if he would take full credit.
We also need to make sure we understand there are two different arguments going on--the first is Nardelli's behavior toward HD employees and the second is his behavior toward shareholders. real pfizer viagra online

I can't agree with Wally's post above about the employees and HD service. I have been a customer of HD for a long time and there has NEVER been anything even remotely resembling customer service at ANY of the locations I frequent. (I was even told point blank by a service counter employee that if I wanted service I was in the wrong store--I could not have service AND low prices!) I don't think the lack of customer service at Home Depot is the result of Mr. Nardelli eliminating it. It was never part of their culture to begin with.

As for shareholders, many, including the AFSCME union mentioned in the USA Today article about the HD meeting, think that they are somehow entitled to constantly rising stock prices. When things don't work out that way, they over-react and start yelling "off with his head!" It's juvenile, it's greedy, it's corrupt, it's shfting the blame, and it's an unfortunate fact of modern society. Would the shareholders feel better if Nardelli were doing the same as Bill Ford and refusing any compensation (except stock) until the company improved? How well has that worked out for Ford and Ford's shareholders?

Posted by Mike at May 31, 2006 2:38 AM

Mike, I'm in a rush ... but I'll fall back on my typical argument. Life gyrates; "smooth" is a snare and a delusion (not that you said otherwise). CEOs were unchecked for years, decades. Boone Pickens changed all that--I spoke at a couple of his conferences about 20 years ago. Then as always we arguably overcorrected. (Incidentally if CalPers et al weren't enough, the hedge fund dudes are really taking hearty swings on the short-term earnings thing.)

Posted by tom peters at May 31, 2006 3:16 AM

Bob Nardelli is nothing but a an overgrown child with a fascination for men in uniform. With his preference for GE executives and his love of Military officers, it is no wonder the condition of the company is going down. I have worked for the company for a short time, but from what I am told and have seen already, it is time for Bernie and Arthur to re-claim the greatness that was The Home Depot and it's core values. Bob and the Board of Directors are a little too cozy. It is time for shareholders like myslef to rise up and take back our company. Bob and the Board are causing me a great deal of concern. Their actions appear to be defensive and down right deceptive. What are you hiding Bob?

Posted by Nathan G. at May 31, 2006 5:18 PM