Sunday, April 29, 2007

Wal-Mart Filing Puzzles Analysts

Wal-Mart Filing Puzzles Analysts
This article was published on Saturday, April 28, 2007 5:13 PM CDT in Business
By Anita French
The Morning News






Wal-Mart filed what some analysts called an odd statement with the U.S. Securities and Exchange Commission late Thursday that seems to try and justify the $29 million President and CEO Lee Scott earned last year.

The Bentonville-based retailer filed its annual proxy statement April 19 outlining Scott's and other top executives' compensation. On Thursday, the company followed up with a two-page document that began with an explanatory note saying Wal-Mart had provided statements in response to a media inquiry regarding the company's executive compensation.

The document goes on to outline Wal-Mart's financial performance last year and how sales had grown under Scott's leadership. The company then includes a statement that seems an attempt to justify Scott's compensation.

"More than 85 percent of our CEO's compensation, as set by an independent board committee, is tied to the company's financial performance. Lee Scott's compensation is benchmarked with the CEOs of other publicly traded U.S. retailers and large companies. When compared to other companies, it is among the lowest as a percentage of annual revenue and net income," the statement says.

Wal-Mart spokesman John Simley said the company filed the unusual document "in anticipation of any questions we might get about executive compensation."

"Under SEC rules, when a director is standing for election or there are shareholders proposals relating to compensation, we have to file any responses to news media with the SEC," he said. "If we were to say something, it may constitute solicitation of shareholders. In order to prepare for any questions from the news media, we have to file our answers."

In its proxy statement, Wal-Mart said Scott, 58, earned $1.3 million in base salary, which was unchanged from fiscal 2006. Scott received an incentive payment of $4.3 million, which was based on the total company attaining 82.42 percent of its maximum pre-tax profit improvement performance goal for fiscal 2007.

He also received $15.3 million in stock awards and $8.1 million in option awards, along with $422,680 in other compensation and $308,390 in changes in pension value and nonqualified deferred compensation earnings.

Scott's total compensation was $29.7 million, but the stock options and restricted stock awards will not vest for several years and are based on the company's performance.

Jeff Macke, founder and president of Macke Asset Management, said in March that Scott's stock award of $22 million seemed extreme in light of Wal-Mart's recent financial performance.

"I've no idea what their logic was. I'm a capitalist, but I'm not sure how you can justify $22 million," he said at the time.

On Friday, Macke seemed equally perplexed at Wal-Mart's follow-up filing with the SEC.

"It's bizarre," he said. "Better to remain silent. Justification seems the obvious reason behind it, but there's nothing about his compensation being tied to shareholders. There should be some relationship between pay and return to shareholders.

"The financial arguments make sense to an extent, but the idea that employees are proud of him is nice but has nothing to do with his compensation at all."

Fund manager Patricia Edwards of Wentworth, Hauser and Violich in Seattle, also said she had never seen an SEC document like the one Wal-Mart filed.

"They seem to want to be able to make sure the public has the information they have as reasons for the compensation. It's fine, but not everyone is going to agree with it," she said.

Wal-Mart's most persistent critic, Wal-Mart Watch of Washington, weighed in with its own statement. Spokesman Nu Wexler called the SEC document "defensive and misleading."

"It's awfully hard to justify a $29 million CEO salary when your stock is dead money, your upscale strategy was a flop, and you've just posted the lowest same-store sales growth in the history of the company. Lee Scott's spending a lot of time putting out public relations brushfires and Wal-Mart's senior management team seems to be losing its focus on the fundamentals," he said in an e-mail.

Wal-Mart's stock price has remained sluggish since Scott took over the company almost seven years ago. The company also has had to defend itself recently against attacks over its wages and health benefits, largely from Wal-Mart Watch and another union-backed organization, Wake-Up Wal-Mart.

Text of Wal-Mart's SEC filing on Thursday:

"Lee Scott leads the largest and most complex company in the world and has delivered strong financial performance. Last year alone, sales were up $37 billion and income from continuing operations increased by $770 million from the prior fiscal year. Since he became CEO in 2000, annual sales have more than doubled to $345 billion and income from continuing operations has grown 126 percent to $12.2 billion. Compound annual growth rates are strong in almost every major category: net sales 12.3 percent, income from continuing operations 11.8 percent, EPS from continuing operations 12.9 percent.

We have maintained double-digit annual growth rates in sales and income from continuing operations, which is almost unprecedented for a company this size. More people than ever are shopping at Wal-Mart and that's why we are once again the number one company in the Fortune 500.

More than 85 percent of our CEO's compensation, as set by an independent board committee, is tied to the company's financial performance. Lee Scott's compensation is benchmarked with the CEOs of other publicly traded U.S. retailers and large companies. When compared to other companies, it is among the lowest as a percentage of annual revenue and net income.

Our associates respect that Wal-Mart has a well-recognized culture of opportunity. They are proud that their CEO started as a manager in the trucking division and has stayed with the company for 28 years. They're also proud that his leadership - through sustainability initiatives and the $4 prescription drug program -- reflects the company's purpose of saving people money so they can live better."

SOURCE: Wal-Mart Stores Inc., U.S. Securities and Exchange Commission











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