Chrysler Chief Could Be First Test of Pay Limits
Saturday, February 7, 2009
The first test case of the Obama administration's tougher executive compensation standards may very well be the man who a few years ago was a symbol of corporate excess: Robert L. Nardelli.
In 2007, Nardelli was ousted as chief executive of Home Depot after a series of strategic moves failed to boost the firm's stock price. Much to the outrage of shareholders and lawmakers, the company pushed Robert Nardelli out the door with a $210 million golden parachute.
Now Nardelli, the chief executive of Chrysler, is seeking a $3 billion loan from the federal government by March 31, on top of $4 billion that the automaker received in December.
The new request for federal rescue funds would likely trigger the executive pay limits announced this week by President Obama, an administration official said. Nardelli, as well as the other senior executives of Chrysler, would be limited to $500,000 in total compensation. Any amount above that could only come in the form of restricted stock that cannot be sold until the government loans are repaid.
These restrictions only apply to firms that receive special assistance from the government. Companies that already obtained federal aid are also exempt. So executives of General Motors, which received a $13.4 billion aid package from the Treasury Department last year, would not face the new pay limits unless it seeks additional aid.
The goal of the administration's policy was to tie executive compensation to the long-term performance of a firm -- the very criticism that dogged Nardelli's tenure at Home Depot.
Chrysler's spokesman Stuart Schorr said the company's executives are willing to abide by the administration's new pay limits in order to get government help.
"We will continue to work with the Treasury Department to determine what new steps, if any, will be required to continue to comply with executive compensation requirements of our Treasury Department loan agreement terms," he said.
Nardelli told lawmakers in a hearing last year that he would take only $1 in annual salary, but he likely receives compensation in other forms, analysts said. Because Chrysler is a private company, whose majority shareholder is private-equity shop Cerberus Capital Management, the automaker is not required to reveal Nardelli's pay arrangements.
Chrysler officials declined to comment yesterday on how much Nardelli is making beyond his salary.
In six years at Home Depot, Nardelli earned $125.57 million in annual salary, bonuses, stocks and other payments, according to Equilar, a compensation research firm in San Mateo, Calif. His massive severance package nearly doubled that yearly take-home pay.
"He, along with others that were a part of a group of high-profile executives with large compensation, ushered in a lot of changes we're starting to see," said Alexander Cwirko-Godycki, a research manager at Equilar.
Nardelli was able to expand Home Depot's footprint across the country and built up a profitable wholesale business to attract professional contractors. But the company's stock never took off. Competition from rival Lowe's squeezed Home Depot's customer base. And shareholders called for his dismissal.
Chrysler is the second company Nardelli is trying to turn around in this decade. He was brought on board in August 2007 after the automaker was sold off by Germany's Daimler-Benz.
The economic downturn has hit Chrysler hard. In January, its sales plummeted 55 percent compared the same month a year ago.
Nardelli has pursued alliances and partnerships to keep the company afloat. Last month the automaker struck a deal with Fiat, giving the Italian automaker a 35 percent stake in exchange for its technology and international sales network.
Chrysler officials said the firm still needs more government help by the end of March.
"I can't tell you the lights will go out on April 1, but unless something changed, that's the time when we need the funds," said Jim Press, Chrysler's vice chairman and president, in a roundtable with reporters late last month.
Government officials have said that no aid will be offered to Chrysler unless the company submits a restructuring plan to the administration by Feb. 17. If the request is approved, Nardelli and other senior executives would face several new pay restrictions.
Chrysler's top five executives would not be able to receive golden parachute payments upon their exit from the company. The top 25 officers would be subject to a "clawback" provision, requiring them to return bonuses if the company was found to misstate its results.
The company would also have to craft a "name and shame" policy that discloses how executives spend company funds on holiday parties, corporate jets and other luxury items.
Such restrictions will not apply to the majority of firms seeking government aid -- only those such as Chrysler that receive exceptional assistance to survive. While critics say the limits could dissuade top talent from working at restricted firms, some compensation analysts say the administration's policies may lead to more reasonable executive pay packages.
Nardelli's "compensation package at Home Depot is a pay package that bridges the old era of CEO pay and current era we are in now," Cwirko-Godycki said. "At the time Nardelli negotiated his contract, executives had more power at the bargaining table than they do now."