The Home Depot board removed Nardelli Wednesday after hearing shareholder complaints about his lavish compensation over his six-year tenure, while the home improvement giant's share price dropped by 8 percent.

However, the ouster left stockholders with a hefty bill, and a company that is lagging behind its rival, Lowe's. While Nardelli ran Home Depot, Lowe's paid its top executive a third of what Nardelli made while its stock prices increased by 188 percent, the Wall Street Journal reported.

"This board should be ashamed of themselves," Nell Minow, an expert on executive compensation at The Corporate Library, told the Los Angeles Times. "I would like to see several board members leave in acknowledgment of their utter failure."

“The company is big, the underperformance is significant and the numbers are very large,” said Lucian Bebchuk, a Harvard Law School professor and critic of executive pay. “But each of the pieces that lead to the decoupling of pay from performance are very common to the executive compensation landscape,” Bebchuk told the New York Times.

The Corporate Library, a research firm that studies corporate pay and governance issues, cites several examples of top executives walking away from failure with huge riches.

At Pfizer, Henry A. McKinnell left with an exit package worth $213 million, including an $82 million pension, after the pharmaceutical company lost more than $137 billion in market value over his six-year tenure. At Sovereign Bank, former chairman Jay Sidhu received $44 million when he was removed last fall. And at Morgan Stanley, Philip J. Purcell received an exit package worth more than $95 million when he was ousted in July 2005.

“The justification that is given for these big executive pay packages is that we have to give them very strong incentives to create shareholder value,” said Jesse M. Fried, a law professor at the University of California, Berkeley, according to the New York Times. “But if you are allowing them to walk away with hundreds of millions of dollars even if they do extremely poorly, you are undermining that case.”

Home Depot was also swept up in the scandal over backdated stock options. In mid-December, an internal investigation concluded that the company regularly backdated stock options for 20 years, and understated compensation expense by $200 million as a result.

Pressure by shareholders can have an effect, as this case shows. Daniel Pedrotty, director of the AFL-CIO's office of investment, told the Los Angeles Times that he was “distressed” by the size of Nardelli's severance but added, "I think the tide is beginning to turn. We are extremely encouraged that boards are beginning to assert their independence, but there are miles to go before we are satisfied."

Charles Read , 05 January 2007 @ 17:09 PM  The Market Rules. Not Professors or Unions. Having worked in major corporations I would not take on running one if I only got paid when the stock price went up. There are too many reasons why stock prices can fall outside of the CEO's control, and ways to make it rise that are not good for the stockholders. If you don't provide a reasonable severance package if you fire me then I want nothing to do with you. I have too many other opportunities if I am that good. See Adam Smith's "The Invisible Hand." Charles J. Read, CPA Texas