January 8, 2007

Our new year has only completed a week, and we already have a major corporate scandal: a $210 million severance package for the sorry CEO of Home Depot, an outfit that just happens to be the second-largest retailer in the entire United States.

In this week's Too Much, we take a look behind the Home Depot headlines — and into the Home Depot aisles — to see what exactly generated this latest whopping windfall.

Also this week: a look at why the new football coach at the University of Alabama just might be doing a lot more shopping at Bloomingdale's.

Greed at a Glance: Helping Kids for $4 Million a Year

What would Gandhi say? In India today, United Nations researchers note, one of every 11 children dies before the age of six. Nearly half — 44.9 percent — get so little to eat they qualify as “growth stunted.” Meanwhile, a new wave of “super-chic bars and clubs” is offering India’s burgeoning ranks of beautiful people a “world class” night-life experience. In jumping joints like Mumbai’s Prive, a members-only club the India Times describes as “obviously limited to the super rich,” every member gets a “mini bar, personal butler, world music, and cocktails created by the renowned cocktail guru Grant Collins.” What’s behind the night-club boom? Wealthy Indians, the India Times explains, have become “at ease partying” in Paris and Miami and “they expect the same experience back home.”

A week past every year’s biggest party night, New Year’s Eve, party people in Moscow are still clucking over the bash that billionaire Vladimir Potanin threw to usher in 2007. Vlady had a special treat for his closest family and friends: a concert by singer George Michael. The British rocker entertained the private party for 75 minutes, singing 13 of his all-time greatest hits. Michael collected $3.3 million for the performance, a sum, the Moscow News reports, “thought to be the largest a recording artist has earned for a single gig.” The 46-year-old Potanin earned his first billion playing footsie with Russian President Boris Yeltsin’s daughter in the controversial 1990s program that shifted control over former Soviet state-run enterprises into private hands. Potanin’s current fortune, worth about $8 billion, ranks as Russia’s ninth-largest . . .

America, newly elected Democratic and Republican lawmakers and governors pronounced last week, needs more “fiscal discipline.” Who needs to be disciplined most? How about deep-pocket scofflaws who aren’t paying their taxes? This chronic tax avoidance is costing state and federal treasuries enormous sums. One sign of that enormity: California last year unveiled a program that offered tax cheats amnesty from prosecution if they paid up their taxes due. The state quickly picked up $200 million — from one single individual. This “taxpayer X” — state officials refused in late December, on privacy grounds, to reveal the scofflaw’s name — must have failed to report about $2 billion in income, tax experts estimate . . .

Nick Saban loves working with “young people.” How much? Last week, Saban gave up his job coaching pro football’s Miami Dolphins to become the head football coach at the University of Alabama. Saban told reporters he’s returning to college coaching to impact “young people, in their character, attitude, the choices they make every day.” One other factor — money — may have somewhat influenced the choice Saban made. His new eight-year contract with Alabama guarantees Saban $32 million, making him the highest-paid coach in all of college football. The contract also entitles Saban to an additional $6.4 million in “performance” bonuses. University trustee John McMahon says Saban's hire will help the school's football team win enough to keep the Alabama athletic department profitable — and able to continue making contributions to the university’s academic program. Last year, the athletic department contributed all of $1 million to academics. That sum, this coming year, will cover just three months of Saban’s guaranteed salary . . .

Pay Equity Progress for Women: Why the Big Stall?

The U.S. House of Representatives has finally elected a woman as speaker. That new speaker — Nancy Pelosi — called last week’s vote “a moment for which we have waited more than 200 years.”

For equal pay for equal work, on the other hand, American women will apparently have to keep waiting. The pay gap between men and women with the same qualifications who do the same work, the latest statistics make plain, “has barely budged since 1990.”

At the start of the 1980s, women earned about 82 percent of men with the exact same occupation, education, and experience. By 1990, report Cornell University economists Francine Blau and Lawrence Kahn, compensation for women had jumped to 91 percent of the pay of men in these same situations. Since then, no progress at all appears evident.

Researchers are currently debating why progress against the pay gap has so thoroughly stalled. Some note, one recent analysis points out, “that government efforts to reduce sex discrimination have ebbed over the period that the pay gap has stagnated.”

The pay equity progress for women in the 1980s, this analysis explains, took place in the wake of landmark legislation, enacted in the 1960s and 1970s, that banned gender discrimination on the job and in education. But lawmakers have taken no significant new action against gender bias since the 1970s.

Something else as well has ebbed since the landmark anti-discrimination laws of the 1960s and 1970s: America’s overall commitment to economic equality.

In the early 1970s, the United States was ending an amazing quarter century that introduced record levels of equality into American economic life. In the mid 20th century, the incomes of typical American families more than doubled, after inflation, and the share of the nation’s income that went to America’s richest 1 percent dropped by half.

Income equality surges like this almost always have social and political consequences. Equality, in effect, begets more equality. The lower a society's overall gaps in income and wealth, the more outrageous the gaps that remain — gaps based on gender or race — come to appear. Societies tend to make their greatest strides against gender and racial inequality at times when economic class equality is increasing.

The contemporary United States remains not one of these times.

Bob Nardelli's Home Sweet Home Depot

Executive excess has a new poster child. Last week, three days into the new year, Robert Nardelli resigned under pressure as CEO of Home Depot and walked off into the sunset with a severance package worth well over $200 million.

Nardelli’s windfall, after six stormy years at Home Depot’s summit, once again reminds us that something deeply wrong is ailing Corporate America. Unfortunately, most pundits, reformers, and political leaders can’t seem to get right just what that something is.

Last week’s mainstream commentary on Nardelli’s windfall offered a simple, straightforward  — and sadly shallow — critique. Home Depot, mainstream analysts opined, brought in Nardelli six years ago to do a job. Nardelli performed poorly in that job, but Home Depot rewarded him lavishly anyway.

Corporate boards, this mainstream critique continues, need to get serious about linking pay to performance, and shareholders need to hold their feet to the fire until they do. End of story.

Left unchallenged in this mainstream critique: the basic assumption that led Home Depot’s corporate board to guarantee Nardelli a mega severance in the first place, the notion that a single executive, if that executive has the smarts and the guts to perform well enough, can turn a company around.

Six years ago, corporate board members at Home Depot thought they were getting one of those executive top performers, a true superstar, when they hired Bob Nardelli. That’s why they lavished upon Nardelli a pay deal that ensured him a fortune even before he stepped foot in Home Depot’s executive suites. You want a CEO miracle worker, you pay the CEO miracle worker going rate.

But CEOs, as both Home Depot board members and their now plentiful critics both don’t seem to understand, can’t work miracles. The chief executives of major corporations need to be recognized for what they actually are: administrators of huge enterprises whose success hinges on the performance of not one individual but thousands.

And if an enterprise, to be effective, must depend on contributions from many thousands of people, as sober thinkers about successful organizations have been preaching ever since Peter Drucker founded modern management science over a half-century ago, you don’t make an enterprise more effective by heaping rewards on a single individual.

We have more on where Home Depot directors — and their legion of mainstream critics — are missing the CEO boat.

Stat of the Week: Super-Rich on a Super Roll

In 2004, one out of every 325 households in the United States held at least $10 million in net wealth, a total, after adjusting for inflation, that more than quadruples the number of similar high-wealth households in 1989. Columbia University historian Manning Marable last week called this “exponential growth of America’s 'super-rich'” a direct consequence “of the near-elimination of capital gains taxes and the sharp decline in federal government income tax rates.”

Quote of the Week: Iron Some More Prison Grays

“In my opinion, not enough executives have gone to jail.”

Charles Munger, the 83-year-old vice chairman of Berkshire Hathaway and long-time associate of billionaire investor Warren Buffett, Munger weighs in on CEOs' big pay packages, Seattle Times, January 3, 2007

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