U.S. Securities and Exchange Commission
Washington, DC 20549
NOTICE OF EXEMPT SOLICITATION
1. Name of the Registrant:
WAL-MART STORES, INC.
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2. Name of the person relying on exemption:
CTW INVESTMENT GROUP
___________________________________________________________________________
3. Address of the person relying on exemption:
1900 L STREET, NW, SUITE 900 WASHINGTON, DC 20036
___________________________________________________________________________
4. Written materials. Attach written materials required to be submitted
pursuant to Rule 14a6(g)(1):
CtW INVESTMENT GROUP
May 29, 2014
Dear Wal-Mart, Inc. Shareholder:
We wish the recent critiques of Wal-Mart's pay practices and the
recommendations against this year's Advisory Vote to Approve Named Executive
Officer Compensation would have prompted the board to reflect on whether it
is properly aligning executive pay to company performance. Instead, the
board has chosen to respond with a defense of its practices that, upon
examination, fails to provide any new or exculpatory information:
- The board argues that its pay is closely aligned with performance, but
cannot rebut the finding that, over the past three years, Wal-Mart's
target CEO pay has ranked at the 72nd percentile of its Equilar peer
group, while its total shareholder return ranks at the 22nd percentile.
- The board asserts incorrectly that Institutional Shareholder Services
acknowledges that "Wal-Mart's CEO pay is low relative to the median of
its peers." In fact, current CEO McMillon's $26.8 million in total
compensation for FY 2014 is 2.5 times the median for the peer group
selected by Wal-Mart, and about 1.5 times the ISS selected peer group.
- The board argues that its short-term and long-term performance payouts were
below the targeted payouts for executives this year. But as we have noted,
these payouts are:
- LARGE IN ABSOLUTE TERMS AND RELATIVE TO SALARY. Former CEO Duke received
an annual cash incentive payout of $2.8 million, more than twice his
salary. Current CEO McMillon received a bonus of over $1 million, over
100% of his salary.
- DISPROPORTIONATE TO PERFORMANCE, in that they provide a much larger
percentage of the targeted award than the percentage of targeted
performance achieved. Mr. Duke's cash incentive payout represented 64% of
his targeted bonus, despite the company achieving only 23% of targeted
performance. Mr. McMillon received a bonus equal to 54% of its targeted
level, despite achievement of only 23% and 24% of the two targeted
performance metrics.
- SIGNIFICANTLY LARGER THAN IF THE PERFORMANCE MEASURES WERE CALCULATED IN
GAAP TERMS RATHER THAN WITH MULTIPLE ADJUSTMENTS. For FY2014, the sole
metric for Mr. Duke's bonus, Total Company Operating Income, FELL 3.3%
measured in GAAP terms, but INCREASED 1% with the board-approved
adjustments. Mr. McMillon's targeted performance included one other
measure, International Operating Income, which FELL 17.6% in GAAP terms
but ROSE 2.2% as adjusted by the board.
- The board acknowledges that it has persistently lowered the targets and
thresholds for the Return on Investment metric used in its Performance
Shares plan. Nevertheless, it insists that this repeated shifting of the
goal posts does not mean that the goals it sets for executives are not
demanding. The board seems to believe that the point of such programs is
to ensure that executives enjoy a handsome payout, regardless of
performance; we disagree. We believe that steadily declining ROI indicates
a challenge, and that the board should incentivize executives to rise to
this challenge. If instead executives can expect performance goals to be
lowered year after year, we worry that Wal-Mart's long-standing decline
in ROI will not be reversed.
- The board suggests that the $50 billion increase in the company's market
capitalization over the past five fiscal years indicates that "shareholders
believe in our strategies." However, as the company's own 10K reveals,
Wal-Mart's share price growth over the last five fiscal years has
significantly lagged both the S&P 500 Retail Index and the S&P 500 overall.
- The board argues that the adjustments it makes to various performance
measures are appropriate in order to avoid disincentivizing sound long-term
decisions that have negative consequences for short-term performance.
However, in our view this potential conflict between the short- and
long-term is precisely why companies have multiple components to their
executive compensation programs: so that executives can be confident that
difficult short-term decisions will be rewarded in the long run.
Consequently, adjustments to performance measures that reflect decisions
over which executives have significant control should be unnecessary.
Moreover, while the net effect of these
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adjustments is not always to improve on GAAP-measured performance, they did
have this performance-boosting effect in five of the last seven fiscal
years, including the past two years, for Total Company Operating Income
growth and International Operating Income growth. For US Operating Income
growth, the adjusted performance is higher than GAAP performance for each
of the past six fiscal years.
- The board provides no defense for adjusting its sales measure for its
Performance Shares program to reflect reductions in federal SNAP benefits,
which we assume indicates that the board realizes such adjustments are
indefensible.
- The board fails altogether to justify its additional grants of between $1
million and $2.5 million in restricted stock to executives "for retention
purposes" despite these executives having already received between $12.8
million and $25.6 million in restricted stock grants over the past three
years. We note that according to Wal-Mart's proxy statement (pg. 73),
termination of an executive's employment for reasons other than death or
disability would result in the forfeiture of unvested restricted stock, so
these large recent grants seem to provide a more than adequate retention
incentive. Moreover, one of these executives was only hired in 2012, and
another promoted to her current position in 2012, making it hard to
understand why the recent CEO transition would require a special equity
grant to retain their services.
- We believe that a creative, evidenced-based approach to human capital
management, including but not limited to the level and design of executive
compensation, is both consistent with the Compensation, Nominating, and
Governance Committee's charter, and in the best interests of long-term
shareholders.
We hope that the board will reconsider its response and make appropriate changes
to its executive pay program in the near future. Until then, for all of the
reasons listed above, we urge you to vote AGAINST Proposal No. 3 - Advisory Vote
to Approve Named Executive Officer Compensation at Wal-Mart, Inc.'s annual
meeting on June 6, 2014.
Sincerely,
/s/
Dieter Waizenegger
Executive Director, CtW Investment Group
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