Home Depot Inc., the world’s largest home-improvement retailer, ousted Chief Executive Officer Robert Nardelli after investors criticized him for earning $225 million while the company’s stock fell during his six-year tenure.

Home Depot invited further criticism by sending Mr. Nardelli, 58, off with $210 million as part of his separation package, including compensation and benefits earned but not yet received. Vice Chairman Frank Blake, 57, will replace Mr. Nardelli immediately, the company said in a statement.

Home Depot lost market share to Lowe’s Cos. since Mr. Nardelli started in December 2000, and the shares declined 7.9%. The Atlanta-based company is headed for its smallest annual gain in profit in at least nine years.

“We didn’t expect the timing,” an activist investor who last month told Home Depot directors he wanted them to evaluate Mr. Nardelli’s performance, Ralph Whitworth, said. “This was inevitable considering the track record, and we hope this will pave the way for some major strategic decisions.”

Mr. Whitworth plans to continue his push for two board seats and expects to meet with management this month.

Home Depot shares rose 91 cents, or 2.3%, to $41.07 at 4:21 p.m. in New York Stock Exchange composite trading. It was the highest price since May. The stock fell almost 1% last year, the second straight annual decline.

Mr. Nardelli, who joined Home Depot from General Electric Co., became a lightning rod for critics of excessive executive pay.

“We hold the board of directors accountable,” the director of pension investment policy at the American Federation of State, County and Municipal Employees, Richard Ferlauto, said. “The compensation committee should have known better. It is not a divine right of CEOs to be paid huge numbers of dollars when they do not perform.