U.S. Securities and Exchange Commission
Washington, DC 20549
NOTICE OF EXEMPT SOLICITATION
1. Name of the Registrant:
WAL-MART STORES, INC.
___________________________________________________________________________
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 19, 2014
Please vote AGAINST the Advisory Vote to Approve Named Executive Officer
Compensation and AGAINST Director Linda S. Wolf at Wal-Mart, Inc.'s
(NYSE: WMT) Annual Meeting on June 6, 2014.
Dear Wal-Mart, Inc. Shareholder:
Despite the Compensation, Nominations, and Governance Committee ("CNGC")'s
claim that it seeks to align pay with performance, Wal-Mart executives
continue to receive outsized compensation while performance declines.
According to Equilar, Wal-Mart this year ranks 2nd among its peers in pay,
but last in total shareholder returns, and over the past three years
Wal-Mart's CEO's target pay has ranked at the 72nd percentile while its
total shareholder return is in just the 22nd percentile. As it has in the
past, this year the Wal-Mart board's CNGC has lowered performance targets
and made numerous after-the-fact adjustments to its performance measures
that have resulted in this stark divergence between pay and performance:
- Targeted levels for performance measures including Return on Investment
("ROI"), Operating Income Growth, and Total Company Revenue Growth have
all been reduced - concurrent with declining performance. The ROI target,
the main metric determining the vesting of Wal-Mart's equity grants to
executives, has been steadily reduced for the past six years.
- Wal-Mart makes numerous adjustments to the performance measures it employs,
many of which are of dubious merit. For instance, this year the CNGC has
adjusted its targeted performance measures in light of reductions in SNAP
benefits, a legislative change that was not only widely anticipated, but
which Wal-Mart's US CEO had previously dismissed as an obstacle to strong
sales, and, indeed, was supported by elected officials to whose campaigns
the Wal-Mart PAC has contributed.
- In FY2014, Wal-Mart's annual Cash Incentive Plan payments provided to its
former and current CEO exceeded 50% of the targeted payout, even though the
company achieved less than 25% of targeted performance on the metrics
applied to the CEOs, even after the generous adjustments applied to the
company's actual performance on this metric.
- In FY2014, Wal-Mart inexplicably provided large, "special" restricted stock
grants to executives over and above the equity awards provided by its
established program, which it explained only by reference to "retention,"
and despite these executives having already received at least $7 million in
restricted stock over the past two years.
The unbalanced manner in which the Wal-Mart board and the CNGC in particular
have overseen management of human capital is stark: new CEO C. Douglas
McMillon is being paid 1,142 times the estimated pay of the company's share
price now having underperformed the S&P 500 by 20 percentage points over the
past 10 years, 50 percentage points over the past 5 years, and 17 percentage
points in the past year alone, it is urgent for shareholders to send a clear
message that a balanced approach to human capital management is overdue. As
Chair of the CNGC since 2008, director Linda S. Wolf bears particular
responsibility for the large disconnect between Wal-Mart's executive pay and
its performance.
The CtW Investment Group works with pension funds sponsored by affiliates of
Change to Win - a federation of unions representing over six million members -
to enhance long-term shareholder value through active ownership. These funds
invest over $200 billion in the global capital markets and are substantial
investors in Wal-Mart.
MOVING THE GOAL POSTS
The Wal-Mart board's CNGC has repeatedly lowered the levels of the financial
metrics it targets for performance-related-pay purposes, and has done so again
this year. Figure one below illustrates this problem as it relates to Return on
Investment, one of two metrics used to determine vesting of performance shares
for Wal-Mart's executives:
CEO PAY AT WMT: LOWERING THE BAR
Return on Investment: Actual vs. Target
2007 2008 2009 2010 2011 2012 2013 2014
Threshold 22% 22% 18% 18.5% 18.66% 8.40% 17.85% 17.23%
Target 23% 23% 20.80% 20% 19.21% 18.95% 18.40% 17.82%
Adjusted ROI 23% 23.05% 20.74% 19.73% 19.19% 18.63% 18.42% 17.30%
Actual (10-K) 19.87% 19.52% 19.29% 19.28% 19.18% 18.61% 18.14% 16.99%
1900 L Street, NW, Suite 900 Washington, DC 20036
202-721-6060
www.ctwinvestment group.com
Such repeated lowering of targets defeats the purpose of such targets: to
provide executives with clear incentives to achieve performance consistent
with long-term shareholder interests. By lowering its targets, the CNGC enables
executives to reap large rewards even as shareholders suffer declining
performance. This year, the CNGC has also lowered the targets for Operating
Income Growth - the sole performance measure utilized by its annual Cash
Incentive Plan for its former CEO and a key performance measure for several
other named executive officers.
ADJUSTMENTS TO PERFORMANCE MEASURES FURTHER DELINK PAY FROM PERFORMANCE
Additionally, Wal-Mart adjusts the performance measures it targets both for its
annual Cash Incentive Plan and for its performance share units, to exclude a
variety of costs associated with store closings in Brazil and China, the
termination of its joint venture in India, restructuring of Sam's Club's staff,
and - according to the CNGC "most [significantly]" - for reductions in federal
SNAP (food stamps) benefits and delayed store openings. It is hard to understand
why the CNGC believes these adjustments should be made, given that the decision
to close stores or restructure staffing at a company segment are very much
under the control of executives, and presumably reflect strategic judgments for
which executives should be accountable. Its seems especially inexplicable to
adjust performance-related pay for reductions in SNAP benefits, since the
company could reasonably have anticipated that the reductions were coming when
performance-related pay targets were set and since Wal-Mart's PAC - presumably
with the knowledge and approval of executives who have contributed to it -
has supported candidates calling for reductions in public spending generally
and SNAP in particular. Moreover, it is clear that the effect of these
adjustments is to make performance appear substantially better than it would
if the targeted metrics were calculated in line with GAAP.
WAL-MART TOTAL COMPANY OPERATING INCOME GROWTH
Actual vs. Adjusted
Y08 Y09 Y10 Y11 Y12 Y13 Y14
Adjusted 7.50% 8.91% 8.60% 4.80% 3.00% 5.70% 1.00%
Actual 6.6% 3.9% 5.4% 6.4% 4.0% 4.7% -3.3%
WAL-MART US OPERATING INCOME GROWTH
Actual vs. Adjusted
Y09 Y10 Y11 Y12 Y13 Y14
Adjusted 8.91% 8.60% 4.80% 3.00% 5.70% 1.00%
Actual 7.1% 4.0% 2.1% 2.3% 5.4% 4.0%
WAL-MART INTERNATIONAL OPERATING INCOME GROWTH
Actual vs. Adjusted
Y09 Y10 Y11 Y12 Y13
Adjusted 11.49% 10.99% 10.20% 6.20% 11.70%
Actual 3.6% 1.9% 10.8% 10.9% 8.3%
EXCESSIVE ANNUAL CASH INCENTIVE PAYMENTS GIVEN PERFORMANCE MISSES
In FY2014 Wal-Mart fell short of targeted performance on 4 of the 5 measures
used in determining the annual Cash Incentive payments; nevertheless,
executives still received large payouts under this program. For instance,
former CEO Michael Duke's annual Cash Incentive award was determined fully
by Total Company Operating Income Growth, a measure which in FY2014 was
actually negative, but, even after the CNGC's upward adjustments, achieved
only 24% of the target set by million, equivalent to 207% of salary and 64%
of his targeted payout. Similarly, current CEO McMillon's annual Cash
Incentive Plan performance measure was comprised of 50% of Total Company
Operating Income Growth and 50% International Operating Income Growth, which,
after adjustments, achieved only 24% of its targeted level. Mr. McMillon's
$1.03 million payment equaled 54% of his targeted Cash Incentive payout. We
have great difficulty understanding how the CNGC can justify claiming that
these payments are based on performance measures when achievement of less
than 25% of targeted performance produced a payment over 50% of its
targeted level.
THIS IS NOT A SOLICITATION OF AUTHORITY TO VOTE YOUR PROXY. PLEASE DO
NOT SEND US YOUR PROXY CARD AS IT WILL NOT BE ACCEPTED.
LARGE "SPECIAL" RESTRICTED STOCK GRANTS SEEM UNNECESSARY FOR RETENTION
Over the past three years, executives William S. Simon, Charles M. Holley, Neil
M. Ashe, and Rosalind G. Brewer have each been granted restricted stock valued
at $19.2 million, $12.8 million, $25.6 million, and $20 million, respectively.
In addition to these grants, this year the CNGC believed it was necessary and
appropriate to grant additional restricted stock to these executives, providing
Mr. Simon with a grant of $2.5 million, Mr. Ashe with $2 million, and Mr.
Holley and Ms. Brewer with $1 million each. The CNGC stated that these special
restricted stock grants were intended mainly for retention purposes, but it is
exceedingly difficult to imagine how these grants would provide any such
benefit to shareholders, given the very large amounts of stock already granted
to these executives.
Over and over again, the Wal-Mart board and the CNGC in particular have
demonstrated a thoroughly unbalanced approach to human capital management: they
have found numerous mechanisms to delink pay from performance, and provide scant
if not implausible explanations for their decisions. Consequently Wal-Mart has
one of the highest CEO pay ratios in the United States, even while its
same-store sales decline and its stock price lags. We urge you to join us in
insisting that the CNGC take a new, balanced approach by Voting Against the
Advisory Vote to Approve Named Executive Officer Compensation, and Voting
AGAINST the re-election of director Linda S. Wolf at Wal-Mart, Inc.'s
(NYSE: WMT) Annual Meeting on June 6, 2014.
Sincerely,
/S/
Dieter Waizenegger
Executive Director, CtW Investment Group
1900 L Street, NW, Suite 900 Washington, DC 20036
202-721-6060
www.ctwinvestment group.com
WAL-MART INTERNATIONAL OPERATING INCOME GROWTH
Actual vs. Adjusted
Y09 Y10 Y11 Y12 Y13
Adjusted 11.49% 10.99% 10.20% 6.20% 11.70%
Actual 3.6% 1.9% 10.8% 10.9% 8.3%
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