Wal-Mart: Proxy Score 52

Wal-MartWal-Mart Stores Inc. (WMT) operates retail stores in various formats worldwide  and is one of the stocks in my portfolio. Their annual meeting is coming up on 6/5/2015. ProxyDemocracy.org had the vote of one fund when I checked and voted on 5/31/2015.  I voted with management 52% of the time and assigned Wal-Mart Stores Inc. a proxy score of 52.

View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the Wal-Mart Stores Inc. 2015 proxy in order to enhance corporate governance and long-term value.

Wal-Mart: ISS Rating

From Yahoo! Finance: Wal-Mart Stores Inc.’s ISS Governance QuickScore as of May 1, 2015 is 8. The pillar scores are Audit: 10; Board: 10; Shareholder Rights: 6; Compensation: 7. 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 disclosures. That gives us a quick idea of where to focus… audit and board.

Wal-Mart: Compensation

Wal-Mart Stores Inc. Summary Compensation Table shows the highest paid named executive officer (NEO) was President and CEO C. Douglas McMillon, at about $25.6M in 2014.  I’m using Yahoo! Finance to determine market cap ($239.6B) and Wikipedia’s rule of thumb regarding classification.

Wal-Mart Stores Inc. is a large-cap company.  According to Equilar (page 6), the median CEO compensation at large-cap corporations was $10.1 million in 2013, so Wal-Mart Stores Inc.’s pay is above that number. Wal-Mart Stores Inc. shares under-performed the S&P 500 over the most recent one, two, five, and ten year periods. Therefore, the CEO can not be credited for out-performance.

The GMIAnalyst report I reviewed gave Wal-Mart Stores Inc. an overall grade of ‘F.’ According to the report:MSCI GMIAnalyst

  •  Unvested equity awards partially or fully accelerate upon the CEO’s termination. Accelerated equity vesting allows executives to realize pay opportunities without necessarily having earned them through strong performance.
  • The company has not disclosed specific, quantifiable performance target objectives for the CEO. Disclosure of performance metrics is essential for investors to assess the rigor of incentive programs.
  • The company pays long-term incentives to executives without requiring the company to perform above the median of its peer group. Incentive plans that pay for mediocre performance undermine the linkage between pay and performance.
  • A decline has occurred in the CEO’s equity holdings in the company over last year. Diminished executive exposure to company stock may work to reduce the alignment between the CEO’s interests and those of shareholders.

With far above median relative pay, poor relative stock performance and the above issues, I voted against the pay package and stock plan.

Wal-Mart: Board of Directors and Board Proposals

Generally, when I vote against the pay package I also vote against the compensation committee, since they recommended the pay package to the full board: Aida M. Alvarez, Douglas N. Daft (retires from the Board 6/15/2015), Kevin Y. Systrom, and Linda S. Wolf, Chair.

As discussed in the GMIAnalyst report:

The dominant characteristic of Wal-Mart Stores, Inc.’s governance profile is the close relationship between the company and its founding family, the Waltons, who own nearly 51% of the company’s shares. The Waltons hold three board seats and there are extensive related-party transactions, features that may not be in the best interests of minority shareholders. Compounding these issues are pay practices that favor company management. Accordingly, recent shareholder votes reflect a moderate level of dissent among minority investors.

 Until ownership shifts or disagreements among the Waltons arises, there is not much hope for significant changes driven by shareowners who are not insiders.

Wal-Mart: Accounting

I voted against ratifying Wal-Mart Stores Inc.’s auditor based on the vote by CBIS. I don’t see possible conflicts of interest with the actual outside auditor… more with the audit committee itself, which has been conducting an internal investigation into alleged violations of the U.S. Foreign Corrupt Practices Act (FCPA) and other alleged crimes or misconduct in connection with foreign subsidiaries, and whether prior allegations of such violations and/or misconduct were appropriately handled by Wal-Mart. Unfortunately, several members of the audit committee serve together on other boards, served as a director or trustee of a Wal-Mart provider or have an immediate family member that is an  employee or officer of a Wal-Mart vendor or service provider.

Shareholder Proposals at Wal-Mart

With regard to shareholder proposals, of course I voted in favor of my own proposal (James McRitchie) for proxy access. That proposal, #6, would increase direct accountability of the directors to shareholders. Vote FOR proposal #6

All the other shareholder proposals also deserve support. Shareholder deserve the right to know if executive pay has been recouped to misconduct. (proposal 5) How can we hold management accountable without such information? Vote FOR #5.

Similarly, a report on greenhouse gas (GHG) emissions from its international marine shipping activities would provide important information on Wal-Mart’s supply chain management practices so shareholders can ensure management is acting responsibly on an issue that could influence the environment, as well as consumer behavior. Please vote FOR proposal #7.

Proposal #8 seeks a report to ensure Wal-Mart is putting its resources to best use to ensure return on investment. What could be better for shareholders? Vote FOR #8.

Proposal #9 seeks an independent chair. This is the same type of proposal I have introduced elsewhere and is especially critical at Wal-Mart with so much control in so few hands.

CorpGov Recommendations for Wal-Mart – Votes Against Board Position in Bold

1aElect Director Aida M. AlvarezAgainstFor
1bElect Director James I. Cash, Jr.ForFor
1cElect Director Roger C. CorbettForFor
1dElect Director Pamela J. CraigForFor
1eElect Director Michael T. DukeForFor
1fElect Director Timothy P. FlynnForFor
1gElect Director Thomas W. HortonForFor
1hElect Director Marissa A. MayerForFor
1iElect Director C. Douglas McMillonForFor
1jElect Director Gregory B. PennerForFor
1kElect Director Steven S. ReinemundForFor
1lElect Director Kevin Y. SystromAgainstFor
1mElect Director Jim C. WaltonForFor
1nElect Director S. Robson WaltonForFor
1oElect Director Linda S. WolfAgainstFor
2Ratify Ernst & Young LLP as AuditorsAgainstAgainst
3Advisory Vote to Ratify Named Executive Officers’ CompensationAgainstFor
4Amend Omnibus Stock PlanAgainstFor
5Disclosure of Recoupment Activity from Senior OfficersFor For
6Provide Proxy Access RightFor For
7Adopt Quantitative GHG Goals for Maritime ShippingFor For
8Clawback of Incentive PaymentsFor For
9Require Independent Board ChairmanFor For

SharkRepellentGovernance Issues at Wal-Mart

Looking at SharkRepellent.net for provisions unfriendly to shareowners:

Walmart PhilanthropyWhile there doesn’t appear to be significant issues of the normal nature with regard to corporate governance reported by SharkRepellent.net, I am concerned that Wal-Mart is a controlled company where decisions can easily be swayed more by family interests than those of ‘outside’ shareowners. In other words, the Waltons are looking out for themselves, not for us.

Wal-Mart: Proxy Proposal Deadline for Next Year

Mark your calendar to submit future proposals:

If you wish to submit a proposal for possible inclusion in our proxy statement relating to our 2016 Annual Shareholders’ Meeting, send the proposal, by registered, certified, or express mail to: Gordon Y. Allison, Vice President and General Counsel, Corporate Division, Wal-Mart Stores, Inc., 702 Southwest 8th Street, Bentonville, Arkansas 72716-0215.

Shareholder proposals intended for inclusion in our proxy statement for the 2016 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 24, 2015.


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 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 % if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.

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