Concerned Shareholders Urge Walmart to Review Executive Pay Incentives
Posted on April 18, 2012 by jway
Four long-term Walmart Associates and shareholders have proposed a resolution calling for the company to review executive incentive structures and bonuses in order to discourage senior executives from “making investments that result in declining rates for return on investment.”
“[T]he board should look at the way it structures executive bonuses and make sure that it is not creating incentives that hurt shareholders,” said Jackie Goebel, an OUR Walmart member. “Unfortunately, we have seen the board lower the performance goals year after year, remove key performance objectives when they’re not going to be achieved, and make ‘executive-friendly’ adjustments to boost reported profits. This has been good for executives, but not for shareholders like us.”
The proposal, entitled proposal #6, will appear on the ballot at the annual shareholders’ meeting in June. It comes in the wake of several years during which the company has significantly underperformed its retail competitors. (See below.) According to this data, for the three-year period ending April 12, 2012, the S&P 500 Retailing Index was up over 88%, whereas Walmart’s share price had grown less than 17%.
“Unfortunately, Walmart’s stock has significantly underperformed its retail peers over the last 10 years; Return on investment is down for the fifth year in a row and the company has lost market share in the US for two years in a row. This year, shareholder engagement with the company will be very important,” said John Marshall of the United Food and Commercial Workers’ Capital Stewardship Program.
Advocates of proposal #6 on the shareholder ballot argue that Walmart is underperforming due to problematic incentive structures dictating senior executives’ bonuses and pay structure. For example, they argue that CEO Mike Duke’s $18.1 million pay for this year (down slightly from $18.7 million in the previous year) was artificially high due in part to lower return on investment goals. Supporters of proposal #6 argue that this, coupled with problematic adjustments in bonuses based on factors that are “beyond the control” of executives lead to inflated executive pay despite relatively underwhelming performance by the company’s leadership. Moreover, the group has expressed concern over the company’s tendency to cannibalize the sales of existing stores through the creation of new stores in close proximity.
“I’ve been a Walmart shareholder for 20 years, and an associate for even longer,” said Mary Tifft, an OUR Walmart member and 24 year employee of the company. “Walmart used to be a good company, one that I was proud to work for, but I’m afraid the company has lost its way. We think this proposal is an important step in getting the company back on track.”
Shareholders will gather in Bentonville, Arkansas to vote on the proposal in early June. In the meantime, the company will likely face a number of questions related to executive incentive structures in relation to the company’s long-term potential for growth in light of store cannibalization.