Wal-Mart Stores $WMT – Proxy Score 57

Wal-Mart Stores (WMT) is one of the stocks in my portfolio. Their annual meeting is coming up on 6/6/2013. ProxyDemocracy.org had collected the votes of three funds when I checked on 5/31/2013.  I voted with management 57% of the time.  View Proxy Statement.

Warning: Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime)

I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.

Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.

WMT’s Summary Compensation Table shows Michael T. Duke, CEO, was the highest paid named executive officer (NEO) at about $20.7M in 2012. I’m using Yahoo! Finance to determine market cap ($255B) and Wikipedia’s rule of thumb regarding classification. WMT is a mega-cap company. According to the United States Proxy Exchange (USPX) guidelines (pages 9 & 10), using data from Equilar, the median CEO compensation at large-cap corporations was $10.8 million in 2010.

WMT’s pay is well above median when we factor inflation.  Therefore, I voted against the pay package, bond plan, and members of the compensation committee: Linda S. Wolf, ChairDouglas N. Daft, and Steven S Reinemund.

The Waltons, who own over 49% of the company through a family partnership, hold three board seats, and engage in related-party transactions with the company. Of 17 directors, eight are not independent under GMI guidelines, mostly because they are relatives, consultants with WMT or have other potential conflicts of interest. Aside from high pay, which is a concern to me, much of the pay to NEOs is not tied to performance. That’s certainly a concern to most shareowners.

With regard to shareowner proposals. Of course, I voted in favor of #5, which would give shareowners holding 10% of outstanding common stock the right to call a special meeting. I filed that proposal and think it is just good governance to be able to call a special meeting in an emergency. Right now, we have no such right, at any level of ownership.

I also voted in favor of proposal #6 by the Teamsters asking the board to adopt a policy requiring that senior executives retain a significant percentage of shares acquired through equity compensation programs until reaching normal retirement age or terminating employment with the Company. We want senior executives focused on the long-term, not attempting to spike the share price temporarily. This proposal would align their interests with ours.

I voted in favor of proposal #7 to create an independent chairman. I understand this proposal was filed by Legal & General Assurance (Pensions Management) Limited (“L&G”) on behalf of Hermes Equity Ownership Services and co-filed by AFSCME. How can the CEO lead the board that is evaluating his/her performance? It is an obvious conflict of interest that should not be tolerated. 

Finally, I also voted in favor of proposal #8 by the UAW and seven co-filers, including state pensions, UK and Swedish funds, as well as a US bank. The proposal asks WMT to disclose annually whether Walmart, in the previous fiscal year, recouped any incentive or stock compensation from any senior executive or caused a senior executive to forfeit an outstanding incentive or stock compensation award. This is a simple matter of keeping shareowners informed through disclosure. For example, did Walmart recoup compensation from any current or former senior executive as a result of Foreign Corrupt Practices Act violations currently being investigated in Mexico, China, India and Brazil.

How I voted (CorpGov) below:

1aElect Director Aida M. AlvarezForFor
1bElect Director James I. Cash, Jr.ForFor
1cElect Director Roger C. CorbettForFor
1dElect Director Douglas N. DaftAgainstFor
1eElect Director Michael T. DukeForAgainst
1fElect Director Timothy P. FlynnForFor
1gElect Director Marissa A. MayerForFor
1hElect Director Gregory B. PennerForFor
1iElect Director Steven S. ReinemundAgainstFor
1jElect Director H. Lee Scott, Jr.ForFor
1kElect Director Jim C. WaltonForFor
1lElect Director S. Robson WaltonForAgainst
1mElect Director Christopher J. WilliamsForAgainst
1nElect Director Linda S. WolfAgainstFor
2Ratify AuditorsForAgainst
3Advisory Vote to Ratify Named Executive Officers’ CompensationAgainstFor
4Amend Executive Incentive Bonus PlanAgainstFor
5Amend Bylaws — Call Special MeetingsForFor
6Adopt Retention Ratio for DirectorsForFor
7Require Independent Board ChairmanForFor
8Increase Disclosure of Executive CompensationForFor

If you wish to submit a proposal for possible inclusion in our 2014 proxy statement, send the proposal, by registered, certified, or express mail to:

Gordon Y. Allison, Vice President and General Counsel, Corporate Division, 702 Southwest 8th Street, Bentonville, Arkansas 72716-0215

Shareholder proposals intended for inclusion in our proxy statement for the 2014 Annual Shareholders’ Meeting in accordance with the SEC’s Rule 14a-8 under the Exchange Act must be received by our company in the manner described above no later than the close of business on December 23, 2013.

  Looking at SharkRepellent.net, special meetings cannot be called at all by shareowners and neither can we act by written consent.

Wal-Mart Stores Inc.’s ISS Governance QuickScore as of May 1, 2013 is 1. The pillar scores are Audit: 1; Board: 10; Shareholder Rights: 1; Compensation: 1. Brought to you by Institutional Shareholder Services (ISS). Scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosure.

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