Jan. 24 (Bloomberg) -- Home Depot Inc. may pay Chief Executive Officer Frank Blake $8.9 million this year, less than the $39.7 million it paid predecessor Robert Nardelli, who was ousted this month amid criticism of his compensation.

Blake, who took over Jan. 2, received a base salary of $975,000. He'll get the rest if he meets the board's profit and stock performance goals, the world's biggest home-improvement retailer said today in a statement.

Nardelli was paid $225 million during his six-year tenure while the stock fell 7.9 percent, prompting criticism from investors including the California Public Employees' Retirement System, the biggest U.S. public pension fund. Nardelli left with a $210 million separation package.

``Someone got the message that CEO compensation was a little out of line, and that's a good thing,'' said Patricia Edwards, a Seattle-based money manager at Wentworth, Hauser & Violich. The firm manages $8.2 billion in assets, including Home Depot shares. ``It looks like the board really thought this through and decided to make sure CEO pay wasn't going to be one of the issues on the table for the activist shareholders.''

Home Depot shares rose 26 cents to $40.69 at 4 p.m. in New York Stock Exchange composite trading.

Blake's contract doesn't include a severance package. About $5 million of his bonus is in the form of stock and options, addressing investor concerns that his pay might rise even if the shares dropped. Nardelli was guaranteed at least $3 million in bonuses every year, regardless of the stock's performance.

`Shareholder Respect'

Blake's pay ``sends the right message,'' Matt Fassler, a Goldman Sachs analyst, wrote in a research note today. ``After being criticized broadly for Mr. Nardelli's compensation package, we believe the board had to align compensation to returns to earn shareholder respect.''

The remainder of the bonus is based on the company's stock performance compared with other companies in the Standard & Poor's 500 Index. Home Depot's board said in a statement that Blake's compensation package ``closely links his success with that of our associates and shareholders.''

Blake, 57, was a General Electric Co. executive with no retail experience before joining Home Depot. Previously Home Depot's vice chairman before becoming CEO, he is credited with steering the company's move into Mexico and China and expanding sales to construction companies.

Trailing Lowe's

Atlanta-based Home Depot lost market share to Lowe's Cos. since Nardelli started in December 2000. While Home Depot's shares declined, Lowe's tripled.

Last year, Lowe's CEO Robert Niblock, 44, earned total compensation of $9.3 million, according to data compiled by Bloomberg.

Home Depot, which is headed for its smallest annual profit gain in at least nine years, has since tightened regulations to appease shareholders critical of the board's oversight. It added a provision that lets the company recoup compensation paid to executives who commit fraud, and increased the number of directors needed to approve executive compensation.

Nardelli became a lightning rod for critics of excessive executive pay. He was the only board member to appear at the company's annual meeting last May, where he refused to answer investor questions about his compensation.

Nardelli and Home Depot ``mutually agreed'' to his departure, the company said Jan. 3. His separation package includes a $20 million cash severance payment and $32 million in retirement benefits, as well as the acceleration of $77 million of deferred stock awards and options valued at $7 million, the company said.

To contact the reporter on this story: Mark Clothier in Atlanta at mclothier@bloomberg.net

Last Updated: January 24, 2007 16:11 EST