Ms. Bonnie G. Hill, Chair
Leadership Development and Compensation Committee Board of Directors
c/o Secretary to the Board of Directors
The Home Depot, Inc.
2455 Paces Ferry Road, N.W.
Atlanta, Georgia, 30339

Dear Ms. Hill:
 
I am writing to call on you to take the necessary steps to recoup any gains from stock options that were improperly granted to Home Depot executives. You are the only key Board committee chair who did not serve on the Compensation Committee or the Stock Option Committee during the period now under investigation by the Securities and Exchange Commission. Home Depot should seek to hold personally liable any director who improperly authorized grants in violation of Home Depot’s stock option plan. In addition, I urge you to request the resignation of Home Depot director Kenneth Langone, who served on the Stock Option Committee during the period of improperly granted stock options.

On June 16th, 2006, Home Depot disclosed that in five instances stock options were granted on dates later than that used to determine the stock option exercise price. According to a June 17, 2006 article in the Wall Street Journal, all five of these stock option grants were between May 1999 and August 2000. According to Home Depot spokesman Jerry Shields, “the process at the time was governed by the stock option committee.” On three of these occasions, the market price of Home Depot’s stock on the award date was higher than the exercise price.

This granting of “in-the-money” stock options appears to be in violation of the provisions of Home Depot’s 1997 Omnibus Stock Incentive Plan as approved by shareholders. Under this plan, “the date specified by the Committee on which a grant of an Award shall become effective…shall not be earlier than the date on which the Committee takes actions with respect thereto.” The plan also provides that “each grant shall specify an Option Price per Share, which shall be equal to or greater than the Fair Market Value on the Grant Date.”

Home Depot also appears to have breached the proxy disclosure rules when it failed to provide timely disclosure of these stock option grants. According to the Compensation Committee Report in the 2000 Proxy Statement, “Stock options are granted to all executive officers, excluding both the Chairman and CEO, to purchase stock at the then current market price.” We request a full explanation for this misleading statement from Director John Clendenin, who cosigned this report as a member of the Compensation Committee.

Granting stock options on terms that violate the provisions of a shareholder-approved plan is a clear breach of fiduciary duty. Accordingly, we believe Home Depot should seek to disgorge any profits that executives gained by exercising improperly priced options. Home Depot should also cancel all remaining unexercised options that were improperly granted. Lastly, legal action should be brought against directors who authorized improper stock grants if this action constituted a breach of fiduciary duty under state law.

Going forward, I urge you to consider using other forms of executive compensation that are less subject to improper manipulation. For example, many companies have stopped granting stock options in favor of granting shares of stock that require the achievement of performance goals as a prerequisite to vesting. These performance-vesting shares combine the goals of pay-for-performance with increasing executives’ direct share ownership. This step is particularly warranted at a company like Home Depot that has been widely criticized by shareholders for its CEO pay practices.

Sincerely,

Richard L. Trumka

cc: Home Depot Board of Directors