Pay, political measures on Wal-Mart table
Posted on Sunday, May 25, 2008
Eight resolutions seeking to change some of Wal-Mart Stores Inc. ’s business practices or shed more light on them await shareholders when they gather for the company’s annual meeting June 6.
The number is down from 11 last year as the company’s financial performance has improved and it has spent somewhat less time in the public spotlight.
Going into last year’s meeting, Wal-Mart was dealing with several high-profile issues that kept it in the news, including a court battle with fired advertising executive Julie Roehm; the firing of an employee who said he eavesdropped on board members and a reporter as he tried to identify the source of company leaks; and a constant barrage of criticism from unionfunded groups.
However, the Bentonvillebased company still draws plenty of attention.
This year’s resolutions seek, among other things, to change how executive pay is calculated, to establish a human-rights committee at the company board level and to mandate reports on the company’s political activities and its reputation.
Wal-Mart’s management recommends that all the measures be defeated except those proposed by the company: electing the proposed slate of directors; approving its incentive plan for management; and renewing its contract with Ernst & Young to audit the company’s financial statements.
Harrington Investments Inc. of Napa, Calif., proposes that Wal-Mart establish a humanrights committee at the board level. According to Harrington’s Web site, the firm “seeks to influence public corporations to promote positive social change, improve environmental performance and disclosure and enhance corporate responsibility.”
Harrington spokesman Jack Ucciferri said Wal-Mart’s business model is based on driving down supplier costs “by any means necessary,” which leads to an inherent conflict between keeping expenses down and working conditions at factories.
In its supporting statement, Harrington said Wal-Mart and its suppliers “have been associated with labor and human-rights controversies both inside and outside the [United States ].”
“Wal-Mart’s corporate governance mechanisms to address human rights are quite lacking,” Ucciferri said. “Very few people would say that Wal-Mart has adequately addressed humanrights concerns.”
In its proxy filed with the U. S. Securities and Exchange Commission, Wal-Mart says it has had written standards for its suppliers since 1992 and that, in 2006, it conducted 16, 700 audits — announced and unannounced — of 8, 873 factories. The board reviews the findings of those audits, the company said.
Wal-Mart spokesman John Simley said the company does not comment on shareholder resolutions beyond its proxy statement.
Wal-Mart’s 2006 Report on Ethical Sourcing showed that 40. 3 percent of audits found “high-risk” violations that would lead to a re-audit in 120 days. Among the categories that trigger a high-risk violation is failure to pay legally required overtime.
RiskMetrics Group of New York, which evaluates shareholder resolutions as one of its services, said in a report that a board committee could “influence the activities of people and governments where it operates when human-rights abuses occur.”
It also said shareholders might oppose the resolution if they didn’t believe it would increase Wal-Mart’s influence in such cases or found the resolution “too prescriptive.”
Ucciferri said Harrington does not expect the resolution to gain a majority of voting shares, but said the history of shareholder advocacy shows that any significant vote count sends a strong message to a company.
Members of company founder Sam Walton’s family control more than 42 percent of the voting shares. Officers and directors as a group control more than 43 percent.
Other proposed resolutions would: Expressly prohibit discrimination based on sex identity, a proposal from the Unitarian Universalist Association of Congregations in Boston. Wal-Mart currently prohibits discrimination based on sexual orientation. Wal-Mart says it already has a broad anti-discrimination policy. Implement a pay-for-performance plan for executives that would be at or below the median of a peer group of companies. The Central Laborers Pension Welfare and Annuity Funds of Jacksonville, Ill., contends that most of the company’s longterm compensation is based on longevity, not performance.
It also would limit payments when Wal-Mart doesn’t perform as well as peer companies.
Wal-Mart says its executive pay already is tied to performance with measures such as pre-tax profit, return on investment, year-to-year increases in comparable-store sales and revenue growth in its international division. And, it contends, as the world’s largest retailer with 2. 1 million employees, it deals with issues no other retailer faces.
The AFL-CIO Reserve Fund in Washington proposes that the company must pursue recovery of future compensation from senior executives if it is determined that compensation was obtained fraudulently or illegally. The company says it already pursues recovery if a former employee has been “unjustly enriched by acting unethically.” Amalgamated Bank of Washington, otherwise known as America’s Labor Bank, proposes a shareholder advisory vote on executive compensation. Wal-Mart says its nominating and governance committee should retain the authority and flexibility to set compensation. William C. Thompson Jr., the New York comptroller who oversees several employee retirement funds, seeks a semiannual report on Wal-Mart’s political contributions and expenditures, including those to fund trade groups such as the Retail Industry Leaders Association. He contends that public reports do not “provide a complete picture” of Wal-Mart’s political expenditures.
Wal-Mart counters that it must be involved in the political process because it is subject to extensive federal and state regulation, and that it complies with all laws that require reporting of political contributions and expenditures. F&C Management Ltd. of Boston, which specializes in “ethically acceptable” investing, seeks a social and reputation impact report to shareholders by October. It cites past news reports about mandatory “off-the-clock” work required of employees and other potential cases of noncompliance with International Labor Organization standards.
Wal-Mart says the United States has ratified only 14 of the labor organization’s standards, most of which don’t apply to the company, and that it has “vigorously defended” against allegations of violating labor laws. John Chevedden of Redondo Beach, Calif., and William Steiner of Piermont, N. Y., propose that shareholders be given the ability to call special shareholder meetings on matters such as a takeover offer.
Wal-Mart said the proposal would “allow a shareholder who has owned a single share of our common stock for a single day to call a special shareholders ’ meeting for any reason.” Such a policy “would be contrary to good corporate governance practices,” the company said.
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