A pay and performance revolt pushed Nardelli out; Home Depot refocused on stores

Home Depot CEO Bob Nardelli left in January 2007 after a shareholder revolt over his pay and strategy. Over six years the shares fell 8% while he collected at least $119 million in salary and bonus, and he departed with a severance package valued at $210 million.

Relational Investors, led by Ralph Whitworth, had campaigned over pay, management controls and strategy and planned to nominate directors. At the 2006 annual meeting only Nardelli attended from the board, and at least 30% of shareholders withheld support for ten of eleven directors.

Home Depot averted a proxy fight by giving Relational a board seat, and Frank Blake, the new chairman and CEO, re-centred the business on stores and loosened the centralised purchasing Nardelli had built. Blake also opened the door to a sale or spin-off of the supply unit and cut his own pay to $8.9 million.

Home Depot replaced Nardelli with Frank Blake, who re-centred the company on stores, gave Relational a board seat and reconsidered the supply unit; Blake's pay was $8.9M.

Pay and shareholder returns were visibly out of line, giving the activist a charge.

The supply business and centralised decisions had diluted the core retail brand.

A board seat for Relational removed the cost of a proxy fight.

Blake's focus on store culture and decisive cost changes reset investor confidence.

Executive pay that looks disconnected from returns gives an activist a lever; changing the CEO is the decision, and re-centring on the core store business is the change that follows.

Home Depot shares recovered as Blake refocused on the core business, and the supply unit was later sold. The episode became an example of how an executive-pay revolt can force a CEO change that shifts strategy.