Sunday, May 06, 2007

Would Sam Be Proud?

Executive Pay
Would Sam Be Proud?
Nathan Vardi 05.03.07, 6:00 PM ET

Things keep going wrong for H. Lee Scott Jr. and Wal-Mart Stores. The world's biggest retailer has been floundering since he took over seven years ago. The company's shares have returned -3.4% annually, compared with the 1.5% annual gain for the S&P 500 during Scott's tenure. But the man in charge is still being paid well, earning $60 million this decade and averaging $8.5 million a year.

Scott, 58, is only the second man to head Wal-Mart since founder Sam Walton left a legacy of annual double-digit growth. But for Scott, posting surging financials at a company with $345 billion of sales has proved challenging. Earnings have slowed, rising only 8% annually over the last two years. Last November, same-store sales growth turned negative for the first month in a decade.

Trying to find his way, Scott has emphasized everything from organic apples to trendy crochet sweaters. He admitted in October that hocking upscale products at the discount retailer had "moved too far too fast," adding it was time to go back to "fashion basics." Scott has also been focusing on international expansion, especially in places like Mexico and China. Still, Wal-Mart had to exit its foreign adventure in Germany last year, resulting in an $863 million loss, and Japanese and U.K. operations are struggling.

On the home front, Wal-Mart continues to be publicly assaulted by unions, trial lawyers, local community groups and just about anybody else with an ax to grind. Scott's battle for American hearts and minds was not helped by former Atlanta Mayor Andrew Young, whom Wal-Mart hired to help improve its public image. Young resigned after giving a newspaper interview in which he reportedly said ethnic shopkeepers were selling spoiled food to inner city blacks. The company recently had to fire an employee who worked for its Threat Research and Assessment Group, set up to look for pro-union sentiment in its ranks. Acting on his own and with unclear motivations, the employee had been secretly recording conversations between Wal-Mart media relations staff and a journalist.

Still, Wal-Mart defends Scott's paycheck and his performance. Wal-Mart points to the fact that last year alone sales increased $37 billion and income from continuing operations increased by $770 million. The company claims Scott's compensation is benchmarked with the CEOs of other publicly traded U.S. retailers and large companies, adding that its boss gets paid one of the lowest salaries as a percentage of annual revenue and net income.

"Lee Scott leads the largest and most complex company in the world and has delivered strong financial performance," says John Simley, a Wal-Mart spokesman. "More than 85% of our CEO's compensation, as set by an independent board committee, is tied to the company's financial performance."

Indeed, Wal-Mart's board has kept finding ways to reward Scott, who was born in Baxter Springs, Kan., and joined Wal-Mart in 1979. In 2006, for example, the board saw fit to grant Scott $4.4 million in a long-term incentive payout. For the last four years, Scott's annual pat-on-back bonus has added up to $16.6 million.

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