3 CEOs who ought to go

By Michael Brush

The targets on the backs of overpaid CEOs just got a lot bigger.

That's because Robert Nardelli, the embattled chief executive of Home Depot (HD, news, msgs), didn't go quietly when he parted company with the home-improvement retailer last week. It's hard to avoid notice when your severance package is reported to be $210 million.

Nardelli's pay has long been a sore spot for Home Depot shareholders. He collected compensation of about $240 million during his six-year stay at Home Depot, even though the company's stock price declined by 6% during his tenure.

Now shareholders at other underperforming companies will, rightly, ask these questions: What are we paying our CEO, and what are we getting in return?

Consider this article a cheat sheet in answering those questions. Below are three other CEOs who aren't earning their keep and may follow Nardelli out the door.

What to watch for

To find other CEOs whose shareholders may be sharpening axes, I first looked for the two obvious signs of potential trouble in the corner office: an extravagant pay package and a sagging stock price.

Then I sought another key ingredient: activist shareholders who will challenge boards and CEOs on those extravagant pay packages at annual meetings this coming spring. After all, CEO pay experts such as Paul Hodgson at the Corporate Library have little doubt that pay activists like Ralph Whitworth at Relational Investors and Rich Ferlauto at the American Federation of State, County and Municipal Employees (AFSCME) played a key role in Nardelli's ouster.

"It just got to be too much for them, the constant shareholder carping," Hodgson says.

The Nardelli case has emboldened the activists. "This opens new avenues," says John Chevedden, an individual investor who has been putting pay-related reforms to shareholders at companies for years.

Here's a look at three CEOs who will be in the sights of activists at annual meetings in the spring.

AT&T

AT&T (T, news, msgs) CEO Edward Whitacre Jr. is one of the more richly paid CEOs by any standard. He got $57.3 million in 2003-05 in salary, bonuses, options, long-term incentive pay, restricted stock grants and other pay. He earned $85 million during the past five years, an average of about $17 million a year, according to a report from the Corporate Library called "Pay for Failure: The Compensation Committees Responsible."

Whitacre will continue as a consultant for three years after he retires -- at more than $1 million a year. He'll also get lifetime access to a corporate jet, a car, an office and a support staff. He's in line for an annual pension of $5.3 million, as well.

Long-term shareholders, meanwhile, have been big losers under Whitacre's stewardship. True, AT&T stock has advanced 43% in the past year. But it still has a long way to go to make up for terrible performance over the long run. Shareholders who have owned the stock for the past five years have seen returns of just 8.2%. They would have earned about 20% in a Standard & Poor's 500 Index fund over the same period.

At this year's annual meeting, AT&T will face several shareholder proposals aimed at reining in Whitacre's pay, according to Patrick McGurn, a special counsel for Institutional Shareholder Services. A labor union has proposed a vote on whether the company should create greater links between executive pay and company performance. And the United Brotherhood of Carpenters and Joiners of America wants to hear shareholder opinion on whether AT&T shareholders should be able to vote on supplemental executive retirement plans, which are special pension plans for top execs.

"Whitacre deeply misunderstands the current attitudes toward executive compensation," says one pay expert who asked not to be identified. "They need to sit down and renegotiate his contract. His style of compensation has outstayed its welcome."

An AT&T spokesman says that Whitacre is "widely recognized for his leadership in the industry and for transforming Southwestern Bell, one of the smallest Bell companies, into AT&T, the world's largest telecom company." The spokesman says AT&T is a target of shareholder activists simply because of its size.

EMC

EMC Corp. (EMC, news, msgs) CEO Joseph Tucci received $57.3 million in 2003-05 in salary, bonuses, restricted stock, options and other compensation, according to company documents.

Shareholders, meanwhile, have gotten the shaft. Shares of the data-storage developer have underperformed sharply in the past five years, losing 18%. At this year's annual meeting, EMC shareholders will have at least two opportunities to voice their displeasure with Tucci's pay package and try to rein it in.

A United Brotherhood of Carpenters and Joiners of America shareholder proposal seeks greater links between pay and performance. "The pay-for-performance concept has received considerable attention, yet most executive-compensation plans are designed to award significant amounts of compensation for average or below-average peer group performance," said a similar proposal from the union last year.

The California Public Employees' Retirement System wants EMC shareholders to have an advisory vote on executive pay packages.

EMC spokesman Michael Gallant responds that about a third of Tucci's compensation for 2003-2005 was in the form of performance stock that will only have value if Tucci meets "rigorous three-year financial performance objectives for 2006 through 2008."

Gallant also says Tucci has performed well on behalf of shareholders in the past four years by doubling revenue to an estimated $11.1 billion for 2006, according to analysts, from $5.4 billion in 2002. Gallant says EMC has grown revenue each year since 2002 at 14% to 32%. "You'd be hard pressed to find another technology company of similar or greater size growing at these percentage rates," he says.

IBM

IBM Corp. (IBM, news, msgs) CEO Samuel Palmisano received $65.5 million in salary, bonuses, restricted stock, options, long-term incentive pay and other compensation in 2003-05. He also has a pension that will pay at least $1.2 million a year.

Shareholders have not done nearly as well. They are up 19% in the past 12 months, but over the past five years, they are down about 18%.

At an annual meeting later this year, shareholders will have a chance to tell IBM it wants greater links between Palmisano's pay and performance -- because of a shareholder proposal from a labor union, according to Institutional Shareholder Services. Another shareholder has put in a proposal seeking greater disclosure of executive pay.

At the time of publication, Michael Brush did not own or control shares of any company mentioned in this column.