Wal-Mart DEF 14A 2006
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
Wal-Mart Stores, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
702 Southwest 8th Street
Bentonville, Arkansas 72716-0215
NOTICE OF 2006 ANNUAL SHAREHOLDERS MEETING
To Be Held June 2, 2006
Please join us for the 2006 Annual Shareholders Meeting of Wal-Mart Stores, Inc. The meeting will be held on Friday, June 2, 2006, at 7:00 a.m. in Bud Walton Arena, University of Arkansas, Fayetteville, Arkansas.
The purposes of the 2006 Annual Shareholders Meeting are:
You must own shares of Wal-Mart Stores, Inc. common stock at the close of business on April 5, 2006, to vote at the 2006 Annual Shareholders Meeting. If you plan to attend, please bring the Admittance Slip on the back cover and a picture I.D. Regardless of whether you will attend, please vote as described on pages 3-4 of the proxy statement. Voting in any of these ways will not prevent you from attending the 2006 Annual Shareholders Meeting.
By Order of the Board of Directors
Thomas D. Hyde
April 14, 2006
Admittance Requirements on Back Cover
702 Southwest 8th Street
Bentonville, Arkansas 72716-0215
This proxy statement and accompanying proxy card are being mailed beginning April 14, 2006, in connection with the solicitation of proxies by the Board of Directors of Wal-Mart Stores, Inc., a Delaware corporation, for use at the 2006 Annual Shareholders Meeting. The meeting will be held in Bud Walton Arena, University of Arkansas, Fayetteville, Arkansas, on Friday, June 2, 2006, at 7:00 a.m.
TABLE OF CONTENTS
TABLE OF ABBREVIATIONS
The following abbreviations are used in this proxy statement:
Your proxy is solicited by the Board. The Company pays the cost of soliciting your proxy and reimburses brokers and others for forwarding you the proxy statement, proxy card, and Annual Report to Shareholders.
Who may vote? You may vote if you owned Shares at the close of business on April 5, 2006. You are entitled to one vote on each matter presented at the 2006 Annual Shareholders Meeting for each Share you owned on that date. As of March 31, 2006, Wal-Mart had 4,167,369,745 Shares outstanding.
What am I voting on? You are voting on:
Who counts the votes? Computershare will count the votes. The Board appointed two employees of Computershare as independent inspectors of the election.
Is my vote confidential? Yes, your proxy card or ballot and voting records will not be disclosed to Wal-Mart unless the law requires disclosure, you request disclosure, or your vote is cast in a contested election. If you write comments on your proxy card or ballot, your comments will be provided to Wal-Mart, but how you voted will remain confidential.
What vote is required to pass an item of business at the 2006 Annual Shareholders Meeting? The holders of a majority of the outstanding Shares must be present in person or represented by proxy for the 2006 Annual Shareholders Meeting to be held. The vote of the holders of a plurality of the Shares present in person or represented by proxy and entitled to vote in the election of directors is required to elect any director. Each Share may be voted for as many nominees as there are seats on the Board, but no Share may be voted more than once for any particular nominee.
The vote of the holders of a majority of the Shares present in person or represented by proxy at the meeting and entitled to vote is required for ratification of the appointment of E&Y as Wal-Marts independent accountants and the shareholder proposals.
Abstentions and broker non-votes are not relevant to the election of directors. Abstentions will have the effect of a vote against any of the other proposals. Broker non-votes will have no effect on the vote for any of the other proposals. A broker non-vote occurs if your Shares are not registered in your name and you do not provide the record holder of your Shares (usually a bank, broker, or other nominee) with voting instructions on a matter and the holder is not permitted to vote on the matter without instructions from you under applicable NYSE rules.
Unless you indicate otherwise on your proxy card, the persons named as your proxies in the proxy card will vote your Shares: FOR all of the nominees for director named in this proxy statement, FOR the ratification of E&Y as Wal-Marts independent accountants, and AGAINST the six shareholder proposals.
How do I vote? The process for voting your Shares depends on how your Shares are held. Generally, you may hold Shares in your name as a record holder or in street name, through a nominee, such as a broker or bank.
If you are a record holder, you may vote by proxy or you may vote in person at the 2006 Annual Shareholders Meeting. If you are a record holder and would like to vote your Shares by proxy prior to the 2006 Annual Shareholders Meeting, there are three ways for you to vote:
Please note that telephone and internet voting will close at 11:00 p.m. (CT) on June 1, 2006.
If your Shares are held through the Profit Sharing/401(k) Plan or the Wal-Mart Puerto Rico Profit Sharing and 401(k) Plan and you do not vote your Shares in one of the methods described above, your Shares will be voted by the Retirement Plans Committee of the Company in accordance with the rules of the applicable plan.
If you plan to attend the 2006 Annual Shareholders Meeting and wish to vote in person, the Company will give you a ballot at the 2006 Annual Shareholders Meeting. Please note that you may vote by proxy prior to June 2, 2006, and still attend the 2006 Annual Shareholders Meeting.
If your Shares are held in the name of a broker, bank, or other nominee, you should receive separate instructions from the holder of your Shares describing how to vote. Nonetheless, if your Shares are held in the name of a broker, bank, or other nominee and you want to vote in person, you will need to obtain (and bring with you to the 2006 Annual Shareholders Meeting) a legal proxy from the holder of your Shares indicating that you were a beneficial owner of Shares on April 5, 2006, which is the record date for voting at the 2006 Annual Shareholders Meeting, as well as the number of Shares you were the beneficial owner of on the record date.
Can I revoke my proxy? Yes, you can revoke your proxy if you are a record holder by:
If your Shares are held in street name through a broker, bank, or other nominee, you need to contact the holder of your Shares regarding how to revoke your proxy.
INFORMATION ABOUT THE BOARD
Wal-Marts directors are elected at each annual shareholders meeting and hold office until the next election. All nominees are presently directors of Wal-Mart, except for Aida M. Alvarez and James I. Cash, Jr. Assuming shareholders elect all the director nominees at the 2006 Annual Shareholders Meeting, Wal-Mart will have 13 directors. The Board has authority under the Bylaws to fill vacancies and to increase or, upon the occurrence of a vacancy, decrease the Boards size between annual shareholders meetings.
Your proxy holder will vote your Shares for the Boards nominees unless you instruct otherwise. If a nominee is unable to serve as a director, your proxy holder may vote for any substitute nominee proposed by the Board.
NOMINEES FOR ELECTION TO THE BOARD
The following candidates are nominated by the Board based on the recommendation of the CNGC. They have held the positions shown for at least five years unless otherwise noted. They were selected on the basis of outstanding achievement in their professional careers; broad experience; wisdom; personal and professional integrity; ability to make independent, analytical inquiries; experience with and understanding of the business environment; and willingness to devote adequate time to Board duties. The Board is committed to diversified membership. In selecting nominees, the Board does not discriminate on the basis of race, color, national origin, gender, religion, disability, or sexual preference.
The Board recommends that the shareholders vote FOR all nominees for election to the Board.
Pursuant to the NYSE Listed Company Manual, Wal-Mart is required to have a majority of independent directors on its Board. In addition, the Audit Committee and CNGC must be composed solely of Independent Directors. The NYSE Listed Company Manual defines specific relationships that would disqualify a director from being independent and further requires that for a director to qualify as independent the Board must affirmatively determine that the director has no material relationship with the Company.
As permitted by the NYSE Listed Company Manual, the Board determined categorically that one or more of the relationships within the Categorical Standards described below will not be considered to be material relationships that impair a directors independence:
(1) The director, an entity with which a director is affiliated, or one or more members of the directors immediate family, purchased property or services from Wal-Mart in retail transactions on terms generally available to other Associates during Wal-Marts last fiscal year;
(2) The director or one or more members of the directors immediate family owns or has owned during the entitys last fiscal year, directly or indirectly, 5 percent or less of an entity that has a business relationship with Wal-Mart;
(3) The director or one or more members of the directors immediate family owns or has owned during the entitys last fiscal year, directly or indirectly, more than 5 percent of an entity that has a business relationship with Wal-Mart so long as the amount paid to or received from Wal-Mart during the entitys last fiscal year accounts for less than $1,000,000 or, if greater, 1 percent of the entitys consolidated gross revenues for that entitys last fiscal year;
(4) The director or one or more members of the directors immediate family, is a director or trustee or was a director or trustee of an entity during the entitys last fiscal year that has a business or charitable relationship with Wal-Mart and that made payments to, or received from, Wal-Mart during the entitys last fiscal year an amount representing less than $5,000,000 or, if greater, 5 percent of the entitys consolidated gross revenues for that entitys last fiscal year;
(5) Wal-Mart paid to, employed, or retained one or more members of the directors immediate family for compensation not exceeding $60,000 during Wal-Marts last fiscal year;
(6) The director or a member of the directors immediate family is, or has been during the entitys last fiscal year, an executive officer or employee of an entity that made payments to, or received payments from, Wal-Mart during the entitys last fiscal year that account for less than $1,000,000 or, if greater, 1 percent of the entitys consolidated gross revenues for that entitys last fiscal year; or
(7) The director or one or more members of the directors immediate family received from Wal-Mart, during Wal-Marts last fiscal year, personal benefits having an aggregate value of less than $5,000.
In developing the Categorical Standards, the Board considered that: 1) directors (or their immediate family members) regularly purchase items at Wal-Marts stores, Neighborhood Markets, and SAMS CLUBs; 2) directors (or their immediate family members) may hold minor investments in companies that do business with Wal-Mart; 3) directors (or their immediate family members) may hold more than a minor investment in companies that do business with Wal-Mart, but the amount of business done with Wal-Mart is immaterial; 4) directors (or their immediate family members) may serve on the board of commercial or charitable entities with immaterial relationships with Wal-Mart; 5) directors may have immediate family members employed by Wal-Mart in positions earning $60,000 per year or less; 6) directors (or their immediate family members) may be officers or employees of companies that receive payments from Wal-Mart or its affiliates that account for less than $1,000,000 or, if greater, 1 percent of such companys gross revenues; and 7) that former officers who are directors (or their immediate family members) may continue to receive from Wal-Mart certain residual benefits from their service with the Company.
Our Board has determined that the following directors are Independent Directors under the independence standards set forth by the NYSE Listed Company Manual: James W. Breyer, M. Michele Burns, Douglas N. Daft, Roland A. Hernandez, John D. Opie, J. Paul Reason, Jack C. Shewmaker, José H. Villarreal, Christopher J. Williams, and Linda S. Wolf. Furthermore, the Board determined that director-nominees, Aida M. Alvarez and James I. Cash, Jr., are independent under the NYSE Listed Company Manual independence standards. In making these determinations, the Board found that the current Independent Directors standing for election, Ms. Alvarez, and Dr. Cash do not have a material or other disqualifying relationship with Wal-Mart.
Annual Director Compensation
The base compensation for Non-Management Directors upon their election to the Board on June 3, 2005, consisted of a Share award and an annual retainer. The award of Shares with a market value on the date of grant of $140,000 was paid upon election either in Shares or deferred in stock units under the Director Compensation Plan, as elected by the Non-Management Director. The annual retainer of $60,000 was payable in arrears in equal quarterly installments commencing after the 2005 Annual Shareholders Meeting and was taken in cash, Shares, deferred in stock units under the Director Compensation Plan, or deferred to an interest-credited account under the Director Compensation Plan, as elected by the director. The interest rate on the interest bearing account was approved by the CNGC based on the mid-term rate on ten-year Treasury notes plus 270 basis points and was 6.95 percent for the calendar year ended December 31, 2005 and increased to 7.07 percent for calendar year ending December 31, 2006, based on the formula provided in the Director Compensation Plan.
The Board committee chairs also received a chair retainer for the additional time required for Board committee business. The retainer for the Audit Committee chair was $25,000, the retainer for the CNGC chair was $15,000, and the retainer for the SPFC chair was $15,000. The chair retainers were payable in arrears in equal quarterly installments, and were taken in cash, Shares, deferred in stock units under the Director Compensation Plan, or deferred in an interest-credited account under the Director Compensation Plan, as elected by the Board committee chair.
Pursuant to the CNGC charter, director compensation is reviewed annually by the CNGC, which recommends to the Board the annual compensation for the directors. Consistent with Wal-Marts Executive Officer compensation philosophy, the total compensation for the directors and Board committee chairs upon election in fiscal 2006 placed them in the top quartile of the Peer Group Survey and mid-way between the median to the top quartile for the Top 50. Despite an increase in director compensation in the Peer Group Survey and the Top 50, the total compensation approved by the Board for directors upon their election on June 2, 2006, will remain at $200,000 and will be granted to directors in the same composition as described above. The committee chair retainers will also remain at the amounts described above.
The compensation paid to the Non-Management Directors during fiscal 2006 is described in the table below.
Director Stock Ownership Guidelines
On June 5, 2003, the Board adopted stock ownership guidelines for the Non-Management Directors. Each Non-Management Director must own, within five years from election or appointment to the Board, an amount of Shares, restricted stock, or stock units having a value equal to five times the annual retainer component of the Non-Management Directors compensation approved by the Board in the year the director was elected or appointed. Non-Management Directors who began serving prior to June 5, 2003, are required to own, within five years from June 5, 2003, $300,000 worth of Shares, restricted stock, or stock units.
The Board held four regular meetings and three telephonic meetings during fiscal 2006 to review significant developments affecting the Company, engage in strategic planning, and act on matters requiring Board approval. For fiscal 2006, each director attended at least 75 percent of the Board meetings and the meetings of Board committees on which he or she served.
BOARD AND COMMITTEE GOVERNING DOCUMENTS
The Board has adopted Corporate Governance Guidelines, and the Audit Committee, the CNGC, the EC, the SOC, and the SPFC have adopted charters, which you may review on the corporate Web site at www.walmartstores.com in the Corporate Governance section of the Investors Web site. In addition, these documents are available in print at no charge to any shareholder who requests a copy from Wal-Marts Investor Relations Department by following the instructions on the Investors Web site or by writing to the Investor Relations Department at: Wal-Mart Stores, Inc., Investor Relations Department, 702 Southwest 8th Street, Bentonville, Arkansas 72716-0100.
COMMUNICATIONS WITH THE BOARD
The Board welcomes communications from shareholders. Shareholders may write to the Board at:
Wal-Mart Stores, Inc. Board of Directors
c/o J. Michael Bradshaw, Senior Liaison to the Board of Directors
702 Southwest 8th Street
Bentonville, Arkansas 72716-0215
Shareholders also may e-mail the Board at email@example.com. Any communications to the Independent Directors may be e-mailed to firstname.lastname@example.org. Communications with the Non-Management Directors may be e-mailed to email@example.com, and communications with individual directors should be addressed to the full name of the director as listed in this proxy statement followed by @wal-mart.com. For example, shareholders may e-mail S. Robson Walton, Chairman, by e-mailing firstname.lastname@example.org.
A company of Wal-Marts size receives a large number of inquiries regarding a wide range of subjects each day. As a result, the Board is not able to respond to all shareholder inquiries directly. Therefore, the Board, in consultation with the Company, has developed a process to assist it with managing inquiries directed to the Board.
Letters and e-mails directed to the Board, Independent Directors, and Non-Management Directors are reviewed by the Company to determine whether a response on behalf of the Board is appropriate. While the Board oversees management, it does not participate in day-to-day management functions or business operations and is not normally in the best position to respond to inquiries with respect to those matters. Thus, the Company will direct those types of inquiries to the appropriate Associate for a response. Responses to letters and e-mails by the Company on behalf of the Board, Independent Directors, or Non-Management Directors are maintained by the Company and are available for any directors review.
If a response on behalf of the Board, Independent Directors, or Non-Management Directors is appropriate, the Company gathers any information and documentation necessary for answering the inquiry and provides the information and documentation as well as a proposed response to the appropriate director. The Company also may attempt to communicate with the shareholder for any necessary clarification. S. Robson Walton, Wal-Marts Chairman, reviews and approves responses on behalf of the Board, and José H. Villarreal, Wal-Marts presiding director, reviews and approves the responses on behalf of the Independent Directors and Non-Management Directors. In certain situations, Mr. Walton or Mr. Villarreal may respond directly to a shareholders inquiry.
For inquiries forwarded to individual directors, each director has provided instructions for responding to those inquiries. Currently, all directors have requested that the Company review letters and e-mails, gather any information or documentation necessary to respond to the inquiry, and propose a response. The director will review the proposed response and either direct the Company to send such response on behalf of the director, or the director may choose to respond directly to the shareholder.
Certain circumstances may require that the Board depart from the procedures described above, such as the receipt of threatening letters or e-mails or voluminous inquiries with respect to the same subject matter. The Board, nevertheless, does consider shareholder questions and comments important and endeavors to respond promptly and appropriately.
José H. Villarreal currently serves as the presiding director of executive sessions of the Non-Management Directors and Independent Directors. Upon the conclusion of Mr. Villarreals term in June 2006, the Board will appoint another Independent Director to preside over the executive sessions of Non-Management Directors and Independent Directors.
NOMINATION PROCESS FOR DIRECTOR CANDIDATES
The CNGC is, among other things, responsible for identifying and evaluating potential candidates and recommending candidates to the Board for nomination. The CNGC is governed by a written charter, a copy of which can be found in the Corporate Governance section of the Investors Web site of Wal-Marts corporate Web site at www.walmartstores.com.
The CNGC regularly reviews the composition of the Board and whether the addition of directors with particular experiences, skills, or characteristics would make the Board more effective. When a need arises to fill a vacancy or it is determined that a director possessing particular experiences, skills, or characteristics would make the Board more effective, the CNGC initiates a search. As a part of the search process, the CNGC may consult with other directors and Senior Officers, and may hire a search firm to assist in identifying and evaluating potential candidates.
The CNGC has retained SpencerStuart as its director candidate search consultant. In that capacity, SpencerStuart seeks out candidates who have the experiences, skills, and characteristics that the CNGC has determined are necessary to serve as a member of the Board. SpencerStuart researches the background of all candidates, conducts extensive interviews with candidates and their references, and then presents the most qualified candidates to the CNGC and the Companys management.
When considering a candidate, the CNGC reviews the candidates experiences, skills, and characteristics. The Committee also considers whether a potential candidate will otherwise qualify for membership on the Board, and whether the potential candidate would likely satisfy the independence requirements of the NYSE.
Candidates are selected on the basis of outstanding achievement in their professional careers, broad experience, wisdom, personal and professional integrity, their ability to make independent, analytical inquiries, and their experience with and understanding of the business environment. With respect to the minimum experiences, skills, or characteristics necessary to serve on the Board, the CNGC will only consider candidates who:
In addition, at least a majority of the Board must be independent as determined by the Board under the guidelines of the NYSE Listed Company Manual, and at least one member of the Board should have the qualifications and skills necessary to be considered an Audit Committee Financial Expert as that term is defined in Item 401(h)(2) of Regulation S-K, promulgated by the SEC.
All potential candidates are interviewed by Wal-Marts Chairman, Wal-Marts CEO, and the chair of the CNGC, and may be interviewed by other directors and Senior Officers as desired and as schedules permit. The CNGC then meets to consider and approve the final candidates, and either makes its recommendation to the Board to fill a vacancy, add an additional member, or recommends a slate of candidates to the Board for nomination for election to the Board. The selection process for candidates is intended to be flexible, and the CNGC, in the exercise of its discretion, may deviate from the selection process when particular circumstances warrant a different approach.
Jim C. Walton was appointed to the Board on September 28, 2005, and Aida M. Alvarez and James I. Cash, Jr. are not currently serving on the Board. Ms. Alvarez and Dr. Cash have been nominated for election to the Board at the 2006 Annual Shareholders Meeting and were recommended to the CNGC by Wal-Marts Chairman, Wal-Marts CEO, Non-Management Directors, SpencerStuart, and other Executive Officers.
S. Robson Walton and Jim C. Walton are members of a group that beneficially own more than five percent of the Shares. Any participation by them in the nomination process was considered to be in their capacities as directors of the Company and not as recommendations from security holders that beneficially own more than five percent of the Shares.
Shareholders may recommend candidates by writing to:
Wal-Mart Stores, Inc. Board of Directors
c/o J. Michael Bradshaw, Senior Liaison to the Board of Directors
702 Southwest 8th Street
Bentonville, Arkansas 72716-0215
The recommendation must include the following information:
All candidates nominated by a shareholder pursuant to the requirements above will be submitted to the CNGC for its review, which may include an analysis of the candidate from the Companys management.
AUDIT COMMITTEE REPORT
During fiscal 2006, Wal-Marts Audit Committee consisted of four directors, each of whom has been determined by the Board of Directors to be independent as defined in the current NYSE Listed Company Manual and the applicable rules of the SEC. The members of the Audit Committee, during fiscal 2006, were M. Michele Burns (who resigned from the Audit Committee, effective February 20, 2006); Roland A. Hernandez, the chair of the Audit Committee; J. Paul Reason; and Christopher J. Williams. The Audit Committee is governed by a written charter adopted by the Board. A copy of the current Audit Committee charter is available on Wal-Marts corporate Web site at www.walmartstores.com in the Corporate Governance section of the Investors Web site.
Wal-Marts management is responsible for Wal-Marts internal controls over financial reporting, including the preparation of Wal-Marts consolidated financial statements. Wal-Marts independent auditor is responsible for auditing Wal-Marts annual consolidated financial statements in accordance with generally accepted auditing standards. The independent auditor is also responsible for issuing a report on those financial statements and an attestation report on managements assessment of Wal-Marts internal controls over financial reporting. The Audit Committee monitors and oversees these processes. The Audit Committee is responsible for selecting, engaging, and overseeing Wal-Marts independent auditor, which is E&Y.
As part of the oversight processes, the Audit Committee regularly meets with management of the Company, the Companys independent auditor, and the Companys internal auditors. The Audit Committee often meets with each of these groups separately in closed sessions. Throughout the year, the Audit Committee had full access to management, and the independent and internal auditors for the Company. To fulfill its responsibilities, the Audit Committee did, among other things, the following:
The Audit Committee submits this report:
M. Michele Burns
Roland A. Hernandez, chair
J. Paul Reason
Christopher J. Williams
AUDIT COMMITTEE FINANCIAL EXPERT
Wal-Marts Board has determined that Roland A. Hernandez and Christopher J. Williams are Audit Committee Financial Experts as that term is defined in Item 401(h)(2) of Regulation S-K, promulgated by the SEC, and are independent under Section 10A(m)(3) of the Exchange Act and the requirements set forth in the NYSE Listed Company Manual. During fiscal 2006, the Board designated M. Michele Burns as the Audit Committee Financial Expert.
AUDIT COMMITTEE SERVICE
Roland A. Hernandez, who is the chair of the Audit Committee, currently serves on the audit committees of three other public companies and serves as the Chairman of one such other public companys audit committee. The Board has determined that such service does not impair the ability of Mr. Hernandez to serve effectively on the Audit Committee.
AUDIT COMMITTEE PRE-APPROVAL POLICY
To ensure the independence of the Companys independent accountant and to comply with applicable securities laws, listing standards, and the Audit Committee charter, the Audit Committee is responsible for reviewing, deliberating and, if appropriate, pre-approving all audit, audit-related, and non-audit services to be performed by the Companys independent accountants. For that purpose, the Audit Committee has established a policy and related procedures regarding the pre-approval of all audit, audit-related, and non-audit services to be performed by the Companys independent accountant (the Pre-Approval Policy).
The Pre-Approval Policy provides that the Companys independent accountant may not perform any audit, audit-related, or non-audit service for the Company, subject to those exceptions that may be permitted by applicable law, unless: (1) the service has been pre-approved by the Audit Committee or (2) the Company engaged the independent accountant to perform the service pursuant to the pre-approval provisions of the Pre-Approval Policy. In addition, the Pre-Approval Policy prohibits the Audit Committee from pre-approving certain non-audit services that are prohibited from being performed by the Companys independent accountant by applicable securities laws. The Pre-Approval Policy also provides that the corporate controller will periodically update the Audit Committee as to services provided by the independent accountant. With respect to each such service, the independent accountant provides detailed back-up documentation to the Audit Committee and the corporate controller.
Pursuant to its Pre-Approval Policy, the Audit Committee has pre-approved certain categories of services to be performed by the independent accountant and a maximum amount of fees for each category. The Audit Committee annually re-assesses these service categories and the associated fees. Individual projects within the approved service categories have been pre-approved only to the extent that the fees for each individual project do not exceed a specified dollar limit, which amount is re-assessed annually. Projects within a pre-approved service category with fees in excess of the specified fee limit for individual projects may not proceed without the specific prior approval of the Audit Committee (or a member to whom pre-approval authority has been delegated). In addition, no project within a pre-approved service category will be considered to have been pre-approved by the Audit Committee if the project causes the maximum amount of fees for the service category to be exceeded, and the project may only proceed with the prior approval of the Audit Committee (or a member to whom pre-approval authority has been granted) to increase the aggregate amount of fees for the service category.
At least annually, the Audit Committee designates a member of the Audit Committee to whom it delegates its pre-approval responsibilities. That member has the authority to approve interim requests as set forth above within the defined, pre-approved service categories, as well as interim requests to engage the Companys independent accountant for services outside the Audit Committees pre-approved service categories. The member has the authority to pre-approve any audit, audit-related, or non-audit service that falls outside the pre-approved service categories, provided that the member determines that the service would not compromise the independent accountants independence and the member informs the Audit Committee of his or her decision at the Audit Committees next regular meeting.
CODE OF ETHICS FOR THE CEO AND SENIOR FINANCIAL OFFICERS
You may review Wal-Marts Code of Ethics for the CEO and Senior Financial Officers on Wal-Marts corporate Web site at www.walmartstores.com in the Corporate Governance section of the Investors Web site. A description of any substantive amendment or waiver of Wal-Marts Code of Ethics for the CEO and Senior Financial Officers will be disclosed on Wal-Marts corporate Web site at www.walmartstores.com in the Corporate Governance section of the Investors Web site for a period of 12 months after the amendment or waiver. Wal-Marts Code of Ethics for the CEO and Senior Financial Officers supplements the Statement of Ethics, which is applicable to all Associates and is available on Wal-Marts corporate Web site at www.walmartstores.com in the Corporate Governance section of the Investors Web site. A copy of Wal-Marts Code of Ethics for the CEO and Senior Financial Officers and Statement of Ethics are also available in print at no charge to any shareholder who requests a copy from the Wal-Mart Investor Relations Department by following the instructions on the Investors Web site or by writing to the Investor Relations Department at: Wal-Mart Stores, Inc., Investor Relations Department, 702 Southwest 8th Street, Bentonville, Arkansas 72716-0100.
BOARD ATTENDANCE AT ANNUAL SHAREHOLDERS MEETINGS
The Board has adopted a policy stating that all directors are expected to attend annual shareholders meetings. While the Board understands that there may be situations that prevent a director from attending an annual shareholders meeting, the Board strongly encourages all directors to make attendance at all annual shareholders meetings a priority. All directors nominated by the Board for election to the Board in 2005, as well as all directors who did not stand for re-election, attended the 2005 Annual Shareholders Meeting.
SUBMISSION OF SHAREHOLDER PROPOSALS
If you want to present a proposal for possible inclusion in the Companys 2007 proxy statement pursuant to the SECs rules, send the proposal to Jeffrey J. Gearhart, Vice President and General Counsel, Corporate Division, and Assistant Secretary, 702 Southwest 8th Street, Bentonville, Arkansas 72716-0215, by registered, certified, or express mail. Shareholder proposals must be received on or before Friday, December 15, 2006.
Shareholders who want to bring business before the 2006 Annual Shareholders Meeting other than through a shareholder proposal pursuant to the SECs rules must notify the Secretary of the Company in writing and provide the information required by the provision of the Bylaws dealing with shareholder proposals. The notice must be delivered to or mailed and received at the principal executive offices of the Company not less than 75 nor more than 100 days prior to the date of the 2006 Annual Shareholders Meeting, unless less than 85 days notice or public disclosure of that date is given or made, in which case the shareholders notice must be received by the close of business on the tenth day after the notice or public disclosure of the date of the 2006 Annual Shareholders Meeting is made or given. The requirements for such notice are set forth in the Bylaws, a copy of which can be found in the Corporate Governance section of the Investors Web site of Wal-Marts corporate Web site at www.walmartstores.com. In addition, the Bylaws were filed as an exhibit to the Current Report on Form 8-K of the Company dated March 8, 2005.
The Company is not aware of any other matters that will be considered at the 2006 Annual Shareholders Meeting. If any other matters are properly raised at the 2006 Annual Shareholders Meeting, the proxy holders will vote the Shares as to which they hold proxies at their discretion.
REPORT ON EXECUTIVE COMPENSATION
The Companys executive compensation program is designed to:
all in a manner consistent with shareholder interests.
Committee: The four members of the CNGC, during fiscal 2006, were Douglas N. Daft; John D. Opie; José H. Villarreal, the chair of the CNGC; and Linda S. Wolf (appointed on June 3, 2005). The CNGC is governed by a written charter adopted by the Board. A copy of the current CNGC charter is available on Wal-Marts corporate Web site at www.walmartstores.com in the Corporate Governance section of the Investors Web site. The CNGC met eight times in fiscal 2006 to fulfill the functions under its charter.
The members of the CNGC have each been determined by the Board to be Independent Directors under the standards of the NYSE Listed Company Manual. The members are also non-employee directors for purposes of Section 16 and outside directors, as defined in Section 162(m) of the Internal Revenue Code.
Review of compensation: The CNGC is responsible, according to its charter, for annually:
The compensation package of all Executive Officers consists of three main components, which are reviewed and approved by the CNGC at least annually:
The Companys executive compensation package also includes the Deferred Compensation Plan, the Profit Sharing/401(k) plan, the SERP, the Stock Purchase Plan, a post-termination and non-compete agreement, and other perquisites and supplemental benefits. The CNGC considers the total compensation of each Executive Officer, including the CEO, as well as the allocation of compensation among base salary, annual incentive payments, and equity-based compensation.
Philosophy: The CNGCs philosophy is that a substantial portion of overall executive compensation should be at risk and tied to corporate performance. This philosophy focuses on the long-term interests of shareholders and seeks to align the interests of
the Executive Officers with the Companys continued growth and long-term performance goals. Generally, the CNGC places less emphasis on base salary and employee benefits than on annual performance-based incentive payments and equity-based compensation. The CNGC receives information from the Chairman, the CEO, and other Executive Officers regarding individual performance of Executive Officers and considers this information in approving total compensation and the allocation of compensation.
Base salary: In approving base salaries of the Companys Executive Officers, the CNGC considers the Companys performance for the prior fiscal year and a subjective evaluation of each Executive Officers contribution to that performance. As measures of the Company performance for the year, the CNGC focuses primarily on net income, total sales, comparable store sales, return on shareholder equity, and other financial factors. The CNGC also considers other performance criteria, including diversity performance and operating performance in accordance with the business and ethical standards expected by Wal-Marts shareholders and the communities in which it operates. Base salary primarily rewards the Executive Officers individual performance in relation to Company performance.
Incentive and equity compensation: The CNGC believes that a combination of annual incentive payments and equity awards strategically align the compensation of the Executive Officers with the overall short-term and long-term performance objectives of the Company. Incentive payments and equity awards implement the CNGCs philosophy as follows:
The CNGC seeks to relate the total compensation package for Executive Officers directly to the Companys current and future success, which ultimately benefits the Companys shareholders.
The CGNC determines the total compensation for each Executive Officer after subjectively evaluating: (1) the compensation provided to executives in comparable positions in companies in the Peer Group Survey and the Top 50, (2) the individual performance of the Executive Officer, and (3) the Companys performance.
If maximum performance goals are achieved by the Company, the total compensation target approved by the CNGC would generally place the Executive Officers in the top quartile of the Peer Group Survey and would range from the median to the top quartile for the Top 50. Although the Peer Group Survey does not include all of the same companies that are included in the S&P 500 Retailing Index in the stock performance chart that appears below, the CNGC uses the data in the Peer Group Survey because it focuses on comparable companies, based on both size and industry. The CNGC granted the Executive Officers special awards of performance-based restricted stock during fiscal 2006 for retention purposes, which were not taken into consideration for purposes of comparison to the companies in the Peer Group Survey or the Top 50.
For information on compensation paid to executives in comparable positions in companies in the Peer Group Survey and the Top 50, the CNGC reviewed data prepared by outside compensation consultants. In approving compensation of the Executive Officers, the CNGC reviews and considers the allocation of total compensation (among salary, annual incentive payments, and equity compensation) paid by companies in the Peer Group Survey and the Top 50.
Stock Ownership Guidelines
The Board has approved stock ownership guidelines to help ensure that the CEO and members of the Executive Committee of the Company remain focused on the long-term interests of shareholders and the Companys long-term goals. These guidelines are as follows:
These guidelines are subject to modifications in situations involving dramatic and unexpected changes in the Share price or in other circumstances that the CNGC deems appropriate.
Management Incentive Plan: Annual incentive payments are earned under the Management Incentive Plan, upon achievement of pre-established performance goals derived in accordance with the Management Incentive Plan. For fiscal 2006, annual incentive payments were based on improvements in pre-tax profits and diversity goals. Consistent with the CNGCs philosophy, annual incentives are designed to reward achievement of annual performance objectives.
The CNGC assigned incentive levels as a percentage of base salary for achieving pre-established pre-tax profit goals for fiscal 2006. These incentive levels were tied respectively to achieving threshold and maximum performance objectives. Incentive payments ranging from a minimum of 40 percent of base salary at the threshold performance level to a high of 350 percent at the maximum level were payable to the Executive Officers under the Management Incentive Plan. Unless the CNGC otherwise provides when the performance measures and goals are established, if the Company fails to achieve its threshold performance goals, no incentive will be paid to any Executive Officer. However, the Management Incentive Plan requires the CNGC to make certain adjustments for extraordinary events or other situations so that results are computed on a comparable basis for each performance period. The CNGC also retains the right to reduce, eliminate, or increase any incentive payment for any individual or group, except that the amount of any incentive payment to a Named Executive Officer may not be increased.
With respect to pre-tax profits, performance goals were based on overall corporate performance. For divisional Executive Officers, performance goals were based equally on overall corporate performance and on performance of the Executive Officers division.
For fiscal 2006, the CNGC also established objective diversity goals under the Management Incentive Plan. The CNGC set diversity goals to motivate officers to achieve the Companys diversity initiatives while adhering to the Companys commitment to select the most qualified individual for each position. For fiscal 2006, an officers annual incentive payment could have been reduced by up to 15 percent for not achieving the Companys diversity initiatives. Diversity is and has been a responsibility of Wal-Marts officers, and this potential reduction in the incentive payment under the Management Incentive Plan will ensure that Wal-Marts officers are held accountable for doing what they are supposed to do. No Executive Officers incentive payment was reduced because of the diversity goals in 2006.
For fiscal 2006, improvement in pre-tax profits did not exceed the maximum target pre-tax profits determined by the CNGC. Accordingly, Associates serving the total Company only received 86.63 percent of the maximum payout. With respect to the divisions, Associates in the Wal-Mart Stores Division received 70.45 percent of the maximum payout. Associates in the SAMS CLUB Division received 84.89 percent of the maximum payout. Associates in the International Division received 73.41 percent of the maximum payout. The total amount of incentive payments made during fiscal 2007 under the Management Incentive Plan for the fiscal 2006 performance period was $226,310,590 of which the amount paid to Executive Officers was $10,781,630.
2005 Stock Incentive Plan: The CNGC grants equity awards to Executive Officers, and the SOC establishes award levels and grants equity awards to other Associates eligible to receive equity awards. The 2005 Stock Incentive Plan provides many alternatives for granting time-based and performance-based equity. The types of equity that the CNGC has granted in the past include stock options, restricted stock, performance shares, and performance-based restricted stock. If the equity awards are performance-based, the 2005 Stock Incentive Plan requires the CNGC to make certain adjustments for extraordinary events or other situations so that results are computed on a comparable basis for each performance period.
Stock options: Stock options generally have an exercise price equal to the closing price of a Share on the date of grant and have a ten-year term. Stock options typically vest in five equal annual installments, beginning one year from the date of grant. The CNGC generally awards total stock options to each Executive Officer based on a dollar amount divided by the stock options exercise price. Stock options were granted to the Executive Officers on January 5, 2006 and had an exercise price of $45.69 per Share.
Restricted stock: Generally, grants of restricted stock are Shares granted with a time-based vesting schedule. The Executive Officers were granted performance-based restricted stock awards during fiscal 2006, which were made for retention purposes.
Performance-Based Restricted Stock: During fiscal 2006, the CNGC awarded the Executive Officers performance-based restricted stock, for retention purposes, that has both performance-based and time-based vesting requirements. The performance component is based on a percentage increase in total gross revenue for the Company during fiscal 2007 compared to fiscal 2006. If the performance goal is met, the performance-based restricted stock, upon certification by the CNGC that the performance goal has been attained, will vest over time. The number of shares of performance-based restricted stock awarded and the vesting schedule were determined separately for each Executive Officer.
Performance Shares: In January 2006, the CNGC continued the performance share program instituted in January 2005. Each Executive Officer was awarded performance shares for the performance cycle ending January 31, 2009. The number of performance shares that may ultimately vest will depend on the Companys performance against two separate pre-established performance measures, average revenue growth and average return on investment, over the relevant performance cycle. If the Company meets the threshold performance goals, up to 100 percent of the performance shares will vest. If the Company exceeds the target performance goals, up to a maximum of 150 percent of the performance shares may vest. If the Company does not meet threshold performance goals, no performance shares will vest. The CNGC must certify that the performance goals were attained prior to the vesting of any performance shares.
The Company exceeded the threshold return on investment and revenue growth performance goals for the performance cycle ended January 31, 2006. As a result, 77.63 percent of the performance shares relating to that performance cycle vested and were paid out in March 2006.
Deferred Compensation Plan: Under the Deferred Compensation Plan, all officers may defer up to 100 percent of their base salary and annual incentive awards under the Management Incentive Plan. Interest accrues on amounts deferred at an interest rate set annually by the CNGC, which is typically based on the mid-term rate on ten-year Treasury notes plus 2.70 percent. However, because of the uncertainty of the application of Internal Revenue Code Section 409A, which was enacted as part of the American Jobs Creation Act, the CNGC has not changed the interest rate for the previous two plan years. Accordingly, for the 2005 and 2006 Deferred Compensation Plan years, the interest rate remained at 6.95 percent. The interest rate for the 2007 Deferred Compensation Plan Year, which began on April 1, 2006 and will end on March 31, 2007, was set at 7.07 percent. The interest rate selected was the mid-term rate on ten-year Treasury notes determined as of the first business day of January 2006, plus 2.70 percent.
The Deferred Compensation Plan provides an incentive payment to reward participants who have remained with the Company ten or more consecutive full years beginning with the year the participant first made a deferral under the Deferred Compensation Plan. Specifically:
As of March 31, 2006, 267 officers, including ten Executive Officers, were participating in the Deferred Compensation Plan. During the Deferred Compensation Plan year ended March 31, 2006, officers deferred an aggregate total of $10,910,669 in salary, $19,297,554 in annual incentive payments under the Management Incentive Plan, $809,094 in deferrals of restricted stock, and $5,910,539 in performance share deferrals. The aggregate total amount of all compensation deferred under the Deferred Compensation Plan by Executive Officers, as of March 31, 2006, including salary, incentive payments under the Management Incentive Plan, the 20 Percent and 10 Percent Increments, restricted stock deferrals, performance share deferrals, plus the interest accrued on these amounts, was $77,136,327. The earliest contribution from an Executive Officer began in 1978.
SERP and Profit Sharing/401(k) Plan: All Associates, including Executive Officers, are eligible to participate in the SERP and Profit Sharing/401(k) Plan. With the SERP, amounts that ordinarily would be contributed by the Company under the Profit
Sharing/401(k) Plan, but for the limitation on compensation and the maximum limitations on allocations under the Internal Revenue Code or due to the officers deferral under the Deferred Compensation Plan, are credited to the participants account in the SERP (the limit on compensation used in calculating contributions to the Profit Sharing/401(k) Plan was $210,000 for fiscal 2006). Each participant in the SERP receives a combined contribution from the Company to his or her SERP, 401(k), and profit sharing accounts of approximately four percent of the total of the participants base salary plus incentive payment. SERP accounts are credited with earnings or charged with losses as if they were credited to the participants profit sharing account under the Profit Sharing/401(k) Plan. The SERP account is payable in a lump sum after termination of employment and is not eligible for the special tax treatment that payments from the Profit Sharing/401(k) Plan receive.
Other Components of Executive Officer Compensation
Post-Termination and Non-Competition agreements: Certain officers are offered a post-termination and non-competition agreement providing that, if the officers employment is terminated by the Company for any reason other than the officers violation of Company policy, the Company will continue to pay the officers base salary generally for up to two years following termination of employment, less any earnings the officer receives from other employment. The covenants provide that the officer, generally for a period of up to two years following his or her termination of employment with the Company, will not participate in a business that competes with the Company and will not solicit the Companys Associates for employment. Competing business is defined in the agreements as any retail, wholesale, or merchandising business that sells products of the type sold by the Company at retail, is located in a country in which the Company has a store or in which the executive knows the Company expects to have a store within the next two years, and has annual retail sales revenue of at least $2 billion. In addition, prior to 2003, an equity award was granted to certain Senior Officers for executing a post-termination and non-competition agreement. Currently, all Executive Officers have executed post-termination and non-competition agreements.
Perquisites and supplemental benefits: Executive Officers are entitled to a limited number of perquisites and supplemental benefits. For certain Executive Officers, these include:
Currently, all officers are entitled to receive the following benefits:
All Associates are entitled to the following:
Compensation of the President and CEO
Compensation philosophy: The CNGCs determination of the compensation package for H. Lee Scott, Jr., the President and CEO, during fiscal 2006, was consistent with its overall compensation philosophy for other Executive Officers. Mr. Scotts compensation is weighted heavily towards long-term and at-risk forms of compensation, which provide a greater link with the Companys long-term strategy and shareholder interests. Particularly with respect to the long-term incentive component of Mr. Scotts compensation, the CNGC considered objective factors, both personal and Company-related, including the complexity of the job, relative shareholder return, the value of similar incentive awards made to CEOs at comparable companies in the Peer Group Survey and the Top 50, and long-term incentives granted to Mr. Scott in prior years.
Based on its review, the CNGC believes that the compensation for Mr. Scott, as well as the other Executive Officers, was fair and reasonable. During fiscal 2006, the total compensation earned by Mr. Scott (including the restricted stock award granted in fiscal 2005 but excluding the performance-based restricted stock award granted in fiscal 2006) placed him in the top quartile of the Peer Group Survey and the median to the top quartile for the Top 50.
Base salary: In January 2005, the CNGC approved a base salary of $1.3 million for Mr. Scott which was effective March 19, 2005. Mr. Scott did not receive an increase in base salary for fiscal 2007. In determining the amount of Mr. Scotts base salary, as well as his annual incentive payment and equity-based awards, the CNGC followed its overall compensation philosophy and also considered subjective factors, including Mr. Scotts general knowledge of the retail business, his contribution to the Companys business success, and the CNGCs belief that Mr. Scott has the vision and managerial capability to oversee the Companys continued growth into the future.
Incentive payment: Mr. Scott also received an incentive payment of $3,941,561, which was based on attaining 86.63 percent of the maximum pre-tax profit performance goals for the total Company under the Management Incentive Plan. The range of the potential incentive payment was from 140 percent of Mr. Scotts salary for meeting the threshold performance goals to 350 percent of salary for meeting or exceeding the maximum performance goals. The incentive payment was paid in March 2006 but relates to the Companys performance during fiscal 2006. Mr. Scotts incentive payment was not reduced because of the diversity goals in 2006.
Equity-based awards: The CNGC granted equity-based awards to Mr. Scott on January 5, 2006 under the 2005 Stock Incentive Plan, consisting of the following:
Prerequisites and supplemental benefits: Mr. Scott participates in the Deferred Compensation Plan, the SERP, the Profit Sharing/401(k) Plan, and the Stock Purchase Plan. During fiscal 2006, he also received personal use of Company aircraft (89.3 hours used out of 140 hours allocated), security monitoring of his home, additional term life and accidental death and dismemberment insurance (paid for by Mr. Scott), a Wal-Mart discount card, certain medical benefits, and foreign business travel insurance. Finally, Mr. Scott executed a post termination and non-competition agreement with the Company in June 1998, and upon his involuntary separation from the Company for reasons other than a violation of Company policy, he will receive his base salary for two years, less any earnings he receives from other employment; provided, however, he does not violate any of the covenants of the non-competition agreement.
Deductibility of Compensation
Internal Revenue Code Section 162(m) provides that compensation in excess of $1 million paid to the Named Executive Officers is not deductible unless it is performance-based. Neither base salary nor restricted stock qualify as performance-based compensation under Section 162(m). It is the policy of the CNGC periodically to review and consider whether particular compensation and incentive payments to the Companys executives will be deductible for federal income tax purposes. A significant portion of the Companys executive compensation satisfies the requirements for deductibility under Internal Revenue Code Section 162(m). However, the CNGC retains the ability to evaluate the performance of the Companys executives, including Wal-Marts CEO, and to pay appropriate compensation, even if it may result in the non-deductibility of certain compensation under federal tax law.
The CNGC submits this report:
Douglas N. Daft
John D. Opie
José H. Villarreal, chair
Linda S. Wolf
This table shows the compensation paid during each of the Companys last three fiscal years to the Named Executive Officers, based on compensation earned for fiscal 2006.
The other annual compensation for John B. Menzer and Michael T. Duke includes $212,556 and $139,971, respectively, for incentive payments on amounts deferred under the Deferred Compensation Plan.
The other annual compensation for Eduardo Castro-Wright for fiscal 2006 includes $438,637 in tax payments in Mexico related to his expatriate assignment as the President and CEO of Wal-Mart de Mexico S.A. de C.V. The other annual compensation amounts for Mr. Castro-Wright for fiscal 2004 and 2005 are also related to his expatriate assignment, including $653,056 and $624,744, respectively, in tax payments in Mexico.
For the other Named Executive Officers, the amounts for the value of perquisites and other personal benefits, which include security system monitoring of the Named Executive Officers residences, are not disclosed because they do not exceed the lesser of $50,000 or ten percent of any Named Executive Officers total annual salary and bonus.
Listed below are the total number of shares of restricted stock (excluding performance-based restricted stock) owned by each of the following Named Executive Officers as of the end of fiscal 2006, and the total values thereof based on the market value of the Companys Shares on January 31, 2006: H. Lee Scott, Jr., 765,104 shares of restricted stock ($35,278,945); John B. Menzer, 192,498 shares of restricted stock ($8,876,083); Michael T. Duke, 162,348 shares of restricted stock ($7,485,866); Thomas M. Schoewe, 210,612 shares of restricted stock ($9,711,319); and Eduardo Castro-Wright, 45,591 shares of restricted stock ($2,102,201). Holders of shares of restricted stock receive the same cash dividends as other shareholders owning Shares.
COMPENSATION PURSUANT TO STOCK OPTIONS
This table shows all options to acquire Shares granted to the Named Executive Officers during fiscal 2006.
Option Grants In Last Fiscal Year
This table shows all stock options exercised by the Named Executive Officers during fiscal 2006, and the number and value of options they held at fiscal year end.
Aggregated Option Exercises In Last Fiscal Year And Fiscal Year End Option Values
LONG-TERM INCENTIVE PLANSAWARDS IN FISCAL 2006
EMPLOYMENT AND TERMINATION OF EMPLOYMENT AND NON-COMPETITION AGREEMENTS
The Company has entered into a covenant not to compete that includes post-termination payments with each of the Named Executive Officers. Each agreement prohibits the Named Executive Officer, for a period of two years following his termination of employment with the Company for any reason, from participating in a business that competes with the Company and from soliciting the Companys Associates for employment. For purposes of the agreements, a competing business includes any retail, wholesale, or merchandising business that sells products of the type sold by the Company at retail, is located in a country in which the Company has a store or in which the Named Executive Officer knows the Company expects to have a store within the next two years, and has annual retail sales revenue of at least $2 billion. Each agreement also provides that, if the Named Executive Officers employment is terminated by the Company for any reason other than his violation of Company policy, the Company will continue to pay his base salary for two years following termination of employment, less any earnings the Named Executive Officer receives from other employment. The agreements with H. Lee Scott, Jr., John B. Menzer, and Michael T. Duke provided for a stock option grant equal to 100 percent of the Named Executive Officers base salary at the time of execution in 1998.
Eduardo Castro-Wright accepted an offer of employment from Wal-Mart Stores, Inc. on December 20, 2004, which set forth his base salary, annual incentive payment, certain payments related to his expatriate assignment as President and CEO of Wal-Mart de Mexico S.A. de C.V., an annual stock option award, an initial restricted stock award, and the benefits to which associates of the Company are generally entitled (e.g., health insurance, Associate Stock Purchase Plan, and the Profit Sharing/401(k) Plan). That offer was made in connection with his assuming the position of Executive Vice President and Chief Operating Officer of the Wal-Mart Stores Division upon his return to the U.S. after completion of his service with Wal-Mart de Mexico S.A. de C.V. The only benefits to which Mr. Castro-Wright remains entitled under the offer of employment are two residual cash payments of $50,000 and $25,000 payable in the next two fiscal years, which relate to his expatriate assignment with Wal-Mart de Mexico S.A. de C.V.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain information for fiscal 2006 with respect to Shares that may be issued under the Companys existing equity compensation plans.
The following tables set forth ownership of Shares by major shareholders, directors, director nominees, and Executive Officers of the Company.
HOLDINGS OF MAJOR SHAREHOLDERS
There were 4,167,369,745 Shares outstanding on March 31, 2006. The following table lists the beneficial owners of five percent or more of the Shares as of March 31, 2006.
Shared Voting and Investment Power
HOLDINGS OF OFFICERS AND DIRECTORS
This table shows the amount of Shares held by each director, director nominee, and the Named Executive Officers on March 31, 2006. It also shows the Shares held by all of Wal-Marts directors, director nominees, and Executive Officers as a group on that date.
The holdings of officers and directors also include stock units received by the Non-Management Directors as part of their compensation, as follows: Douglas N. Daft (3,824 Shares), Roland A. Hernandez (15,322 Shares), John D. Opie (8,218 Shares), José H. Villarreal (10,550 Shares), Christopher J. Williams (5,377 Shares), and Linda S. Wolf (2,987 Shares).
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Wal-Marts directors, Executive Officers, and persons who own more than ten percent of the Shares to file reports of ownership and changes in ownership with the SEC. SEC regulations require Wal-Mart to identify anyone who failed to file a required report or filed a late report during fiscal 2006. The Company believes that all Section 16(a) filing requirements were met, except that the Company is not aware of any report made by Thomas M. Coughlin, who was a director until March 25, 2005, for gifts of 9,141 Shares and 12,892 Shares made on or about March 19, 2004, and February 25, 2005, respectively.
This section discusses certain direct and indirect relationships and transactions involving Wal-Mart and any director, Executive Officer, director nominee, beneficial owner of more than five percent of the Shares, and any member of the immediate family of the foregoing. Wal-Mart believes that the terms of all of the following transactions are comparable to terms that would have been reached by unrelated parties in arms-length transactions:
During fiscal 2006, companies owned by S. Robson Walton, a director, Executive Officer and beneficial owner of more than five percent of the Shares; the Estate of John T. Walton, a beneficial owner of more than five percent of the Shares; Jim C. Walton, a director and beneficial owner of more than five percent of the Shares; and Helen R. Walton, a beneficial owner of more than five percent of the Shares, paid a total of $102,809 to Wal-Mart and its subsidiaries for aviation-related expenses, substantially all of which was for maintenance and fuel at the same prices paid by unrelated third parties.
Frank C. Robson, the brother of Helen R. Walton, personally and through partnerships or trusts, leased three store locations to Wal-Mart. Wal-Mart paid rent and other expenses of $1,043,798 under the leases for fiscal 2006.
During fiscal 2006, a banking corporation and its affiliates, collectively owned by Helen R. Walton, S. Robson Walton, the Estate of John T. Walton, and Jim C. Walton, made payments to Wal-Mart in the amount of $631,149 for banking facility rent and related ATM surcharges. The banking corporation and its affiliates made additional payments to Wal-Mart pursuant to similar arrangements awarded by Wal-Mart on a competitive-bid basis.
In June 1988 and January 1990, Walton Enterprises, Inc. (WEI), an entity in which S. Robson Walton; the Estate of John T. Walton; Jim C. Walton; Helen R. Walton; and Alice L. Walton, a beneficial owner of more than five percent of the Shares, formerly had an interest, entered into various leases for retail grocery space in Arkansas. WEI subsequently assigned the leases to The Phillips Companies, Inc. (Phillips), an unrelated party, in 1990, which agreed to indemnify WEI for any breach of the leases. Two of the leases were assigned to a company that eventually merged with Fleming Companies (Fleming). In 1991, in an unrelated transaction, Phillips was acquired by Wal-Mart. Fleming filed for bankruptcy in 2003 and the lease obligations were rejected by the U.S. Bankruptcy Court. As a result, the landlords filed lawsuits against the Wal-Mart subsidiary that became the successor to Phillips and WEI (and S. Robson Walton in one of the lawsuits) for unpaid lease obligations and future rents. In defense of its own interests and in order to fulfill its contractual indemnification obligations, Wal-Mart assumed the defense of the lawsuits and paid an aggregate amount of $258,822 during fiscal 2006 in attorneys fees in connection with the litigation. Wal-Mart paid approximately $2.46 million to settle the lawsuits during fiscal 2006.
James W. Breyer, a director of Wal-Mart, beneficially owned more than ten percent of the equity of Groove Networks, Inc. (Groove) during fiscal 2006. Groove was sold to Microsoft Corporation in April 2005. During fiscal 2006, Wal-Mart paid Groove $118,394 for computer software and services.
Timothy E. Coughlin, a Regional Loss Prevention Director of Wal-Mart, is the brother of Thomas M. Coughlin, a former director and Executive Officer of Wal-Mart. For fiscal 2006, Wal-Mart paid Timothy E. Coughlin a salary of $90,150 and a bonus of $15,689. For Mr. Coughlins performance in fiscal 2006, he also received a grant of stock options to purchase 329 Shares at an exercise price of $45.15 per Share and 223 restricted stock rights.
Stephen P. Weber, a manager in Wal-Marts Information Systems Division, is the son-in-law of Michael T. Duke, an Executive Officer. For fiscal 2006, Wal-Mart paid Mr. Weber a salary of $91,636 and a bonus of $15,959. For Mr. Webers performance in fiscal 2006, he also received a grant of stock options to purchase 329 Shares at an exercise price of $45.15 per Share and 223 restricted stock rights.
Mauricio Castro-Wright, a director of operations in Brazil, is the brother of Eduardo Castro-Wright, an Executive Officer. For fiscal 2006, Wal-Mart paid Mauricio Castro-Wright a salary of $184,439 and a bonus of $82,298. For Mr. Castro-Wrights performance in fiscal 2006, he also received a grant of stock options to purchase 767 Shares at an exercise price of $45.15 per Share and 519 restricted stock rights.
During fiscal 2006, Springdale Card & Comic Wholesale, Inc., which is owned by the son of David D. Glass, a director and Executive Officer of Wal-Mart, had sales to Wal-Mart in the amount of $2,745,289.
Roland A. Hernandez, a director of Wal-Mart, beneficially owns more than ten percent of Inter-Con Security Systems, Inc. During fiscal 2006, Wal-Mart paid Inter-Con Security Systems, Inc., through its wholly-owned subsidiary operating in Mexico, $729,623 for security services.
STOCK PERFORMANCE CHART
This graph shows Wal-Marts cumulative total shareholder return during the five fiscal years ending with fiscal 2006. The graph also shows the cumulative total returns of the S&P 500 Retailing Index and the S&P 500 Index. The comparison assumes $100 was invested on January 31, 2001 in Shares and in each of the indices shown and assumes that all of the dividends were reinvested.
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Audit Committee appointed E&Y as the Companys independent accountants to audit the consolidated financial statements of the Company for fiscal 2007. E&Y and its predecessor, Arthur Young & Company, have been Wal-Marts independent accountants since prior to the Companys initial offering of securities to the public in 1970. E&Y served as the Companys independent accountants for fiscal 2006 and reported on the Companys consolidated financial statements for that year. Representatives of E&Y will attend the 2006 Annual Shareholders Meeting. They will have the opportunity to make a statement if they desire to do so and to respond to appropriate questions.
Although shareholder ratification is not required, the appointment of E&Y is being submitted for ratification at the 2006 Annual Shareholders Meeting because the Company believes it is a matter of good corporate governance practice. Furthermore, the Audit Committee will take shareholders opinions regarding E&Ys appointment into consideration in future deliberations. If E&Ys selection is not ratified at the 2006 Annual Shareholders Meeting, the Audit Committee will consider the engagement of other independent accountants. The Audit Committee may terminate E&Ys engagement as the Companys independent accountants without the approval of the Companys shareholders whenever the Audit Committee deems termination appropriate.
E&Ys fees for fiscal 2005 and fiscal 2006 were as follows:
A description of the types of services provided in each category is as follows:
Audit FeesIncludes the audit of the Companys annual financial statements, the audit of: (1) managements assessment of the effectiveness of internal control over financial reporting and (2) the effectiveness of internal control over financial reporting, the review of the Companys quarterly reports on 10-Q, statutory audits required internationally, and consents for and review of registration statements filed with the SEC.
Audit-Related FeesIncludes audits of the Companys employee benefit plans, due diligence in connection with acquisitions and accounting consultations related to GAAP, the application of GAAP to proposed transactions, statutory financial statement audits of non-consolidated affiliates (e.g., the audit of The Seiyu Ltd., a previously non-consolidated entity), and work related to the Companys compliance with its obligations under SOX.
Tax FeesIncludes tax compliance at international locations, domestic and international tax advice and planning, assistance with tax audits and appeals, and tax planning for acquisitions and restructuring.
None of the services described above were approved pursuant to the de minimis exception provided in Rule 2-01(c)(7)(i)(C) of Regulation S-X promulgated by the SEC.
For the above reasons, the Board recommends that the shareholders vote FOR the ratification of E&Y as the Companys independent accountants for fiscal 2007.
The text of the shareholder proposals and supporting statements appear in the exact form as received by the Company. All statements contained in the shareholder proposals and supporting statements are the sole responsibility of the proponents. The Company will provide the names, addresses, and shareholdings (to the Companys knowledge) of the proponents of any shareholder proposal upon oral or written request of Wal-Marts Investor Relations Department.
Some of the shareholder proposals contain assertions about Wal-Mart or other matters that the Company believes are incorrect, but the Company has not attempted to refute all of those assertions. However, the Board recommends a vote against each of the following shareholder proposals based on broader policy reasons as set forth in Wal-Marts statements in opposition following each shareholder proposal.
HUMANE POULTRY SLAUGHTER
WHEREAS consumers consider animal welfare when choosing where to buy food products; and
WHEREAS Wal-Mart Stores, Inc.(Wal-Mart), has recognized the need for treating animals humanely in order to keep its competitive advantage within the cutthroat food retail market, as shown by its support for the Food Marketing Institutes standards; and
WHEREAS Wal-Mart purchases chickens from suppliers that use the outdated method of electrical stunning, in which the birds legs are forced into metal shackles and the birds are shocked with an electric current, have their throats slit, and are dropped into tanks of scalding-hot water, so that they are often still conscious when they suffer this hideous cruelty; and
WHEREAS Wal-Mart has yet to make notable progress on requiring that its suppliers implement the new USDA-approved method of poultry slaughter called controlled-atmosphere killing (CAK), which replaces the oxygen that birds are breathing with inert gasses, gently and effectively putting them to sleep; and
WHEREAS a report commissioned by McDonalds (the report) concurred that CAK is, as animal welfare experts have described it, the most humane method of poultry slaughter ever developed and admitted that CAK has advantages [over electrical stunning] from both an animal welfare and meat quality perspective obviates potential distress and injury can expeditiously and effectively stun and kill broilers with relatively low rates of aversion or other distress and would eliminate the pain of premature shocks and inadequate stunning that are associated with electrical stunning; and
WHEREAS the report further concludes that McDonalds European suppliers that use CAK have experienced improvements in bird handling, stunning efficiency, working conditions, and meat yield and quality1; and
WHEREAS it would help the company retain its competitive advantage if it eliminated the worst abuses that chickens suffer during slaughter before ending up on Wal-Marts shelves and required its suppliers to phase in CAK; and
WHEREAS, although CAK is optimal for both the birds well-being and for profit, Wal-Mart has yet to require that its suppliers implement it or show any signs of progress toward that end; and
WHEREAS, while others companies continue to make progress toward adopting the technology and it continues to be used in Europe (as it has been for nearly a decade), Wal-Mart has yet to show its shareholders what it is doing to gain the competitive advantage of requiring that its suppliers adopt this humane slaughter technology;
NOW, THEREFORE, BE IT RESOLVED that shareholders request that the Board of Directors issue interim reports to shareholders following the second, third, and fourth quarters of 2006 detailing the progress made toward accelerating the implementation of CAK for birds killed for its stores.
WAL-MARTS STATEMENT IN OPPOSITION TO
PROPOSAL NO. 3
As acknowledged by the proposal, the Company has demonstrated support for the Food Marketing Institutes standards, which include measures regarding the humane treatment of animals. The Company works hard to be a good corporate citizen and believes in good animal handling practices. Wal-Mart believes that controlled atmosphere killing (CAK) and other emerging technologies are worthy of continued study and review. However, the research available to date is incomplete and inconclusive as to whether CAK is more humane than current methods in all respects. Furthermore, the Company believes that the potential effects of CAK on food safety and product quality for poultry have yet to be determined with sufficient certainty in commercial operations. Wal-Mart is committed to continuing to monitor new technologies and, when appropriate, will take additional action to further the humane treatment of animals in its supply chain.
Pending further research on potential advantages and disadvantages of this method, any study about implementation would be premature. The Board believes that the quarterly report requested by the proponent would lack adequate scientific basis to support any conclusions about progress made in implementation at this time. Any such report would be time-consuming and expensive without providing meaningful information or benefits to Wal-Mart or its shareholders.
For the above reasons, the Board recommends that the shareholders vote AGAINST this proposal.
POLITICAL CONTRIBUTIONS REPORT
RESOLVED: That the shareholders of Wal-Mart Stores, Inc. (Wal-Mart or the Company) hereby request that the Company provide a report, updated semi-annually, disclosing the Companys:
This report shall be presented to the Board of Directors audit committee or other relevant oversight committee, and posted on the Companys website to reduce costs to shareholders.
SUPPORTING STATEMENT: As long-term shareholders of Wal-Mart, we support policies that apply transparency and accountability to corporate spending on political activities. Such disclosure is consistent with public policy and in the best interest of the Companys shareholders.
Company executives exercise wide discretion over the use of corporate resources for political activities. These decisions involve political contributions with corporate funds, called soft money. They also involve payments to trade associations and other tax-exempt groups used for political activities that media accounts call the new soft money. Most of these expenditures are not publicly disclosed. In 2003-04, the last fully reported election cycle; our Company contributed at least $70,000 in soft money contributions. (Center for Public Integrity, Silent Partners: http://www.publicintegrity.org/527/db.aspx?act=main). However, its payments to trade associations used for political activities are undisclosed and unknown. Our proposal asks the Company to disclose its political contributions and payments to tax-exempt organizations including trade associations.
The Bi-Partisan Campaign Reform Act of 2002 allows companies to contribute to independent political committees, also known as 527s, and to give to tax-exempt organizations that make political expenditures and contributions.
Absent a system of accountability, corporate executives will be free to use company assets for political objectives that are not shared by and may be inimical to the interests of the Company and its shareholders. Relying on publicly available data does not provide a complete picture of the Companys political expenditures. The Companys Board and its shareholders need complete disclosure to be able to fully evaluate the political use of corporate assets. Thus, we urge your support FOR this critical governance reform.
WAL-MARTS STATEMENT IN OPPOSITION TO
PROPOSAL NO. 4
Our business is subject to extensive regulation at the federal and state levels. Wal-Mart seeks to be an effective participant in the political process by making prudent political contributions consistent with federal, state, and local laws. Wal-Mart is fully committed to complying with all applicable laws concerning political contributions, including laws requiring public disclosure.
Since the early 1970s, corporate contributions have been prohibited at the federal level. Political contributions to federal candidates, political party committees, and political action committees are made by Wal-Marts political action committee (Wal-PAC), which is funded by voluntary contributions of management Associates. The activities of Wal-PAC are subject to comprehensive regulation by the federal government, including detailed disclosure requirements. Wal-PAC files monthly reports of receipts and disbursements with the Federal Election Commission (the FEC), as well as pre-election and post-election FEC reports. All political contributions over $200 are shown in public information made available by the FEC. Under the Lobbying Disclosure Act of 1995, Wal-Mart submits to Congress semi-annual reports, which also are publicly available.
At the state level, Wal-Marts political contributions are also subject to regulation. Although some states have not banned corporate contributions to candidates or political parties, all states require that such contributions be disclosed either by the recipient or by the donor. This information is also publicly available.
As a result of the disclosures mandated by law, the Board has concluded that ample disclosure exists regarding Wal-Marts political contributions to alleviate the concerns cited in this proposal. In addition, the Board believes that the disclosure of the business rationale behind each political contribution, as requested in this proposal, would place Wal-Mart at a competitive disadvantage by revealing its long-term business strategies and priorities. The Company is involved in a number of legislative initiatives that could dramatically affect our business and operations. Because parties with adverse interests also participate in the political process for their own business reasons, any unilateral expanded disclosure by Wal-Mart could benefit these parties to the detriment of Wal-Mart and its shareholders.
For the above reasons, the Board recommends that the shareholders vote AGAINST this proposal.
DIRECTOR ELECTION MAJORITY VOTE STANDARD
Resolved: That the shareholders of Wal-Mart Stores, Inc. (Company) hereby request that the Board of Directors initiate the appropriate process to amend the Companys governance documents (certificate of incorporation or bylaws) to provide that director nominees shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders.
Supporting Statement: Our Company is incorporated in Delaware. Delaware law provides that a companys certificate of incorporation or bylaws may specify the number of votes that shall be necessary for the transaction of any business, including the election of directors. (DGCL, Title 8, Chapter 1, Subchapter VII, Section 216). The law provides that if the level of voting support necessary for a specific action is not specified in a corporations certificate or bylaws, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.
Our Company presently uses the plurality vote standard to elect directors. This proposal requests that the Board initiate a change in the Companys director election vote standard to provide that nominees for the board of directors must receive a majority of the vote cast in order to be elected or re-elected to the Board.
We believe that a majority vote standard in director elections would give shareholders a meaningful role in the director election process. Under the Companys current standard, a nominee in a director election can be elected with as little as a single affirmative vote, even if a substantial majority of the votes cast are withheld from that nominee. The majority vote standard would require that a director receive a majority of the vote cast in order to be elected to the Board.
The majority vote proposal received high levels of support last year, winning majority support at Advanced Micro Devices, Freeport McMoRan, Marathon Oil, Marsh & McLennan, Office Depot, Raytheon, and others. Leading proxy advisory firms recommended voting in favor of the proposal.
Some companies have adopted board governance policies requiring director nominees that fail to receive majority support from shareholders to tender their resignations to the board. We believe that these policies are inadequate for they are based on continued use of the plurality standard and would allow director nominees to be elected despite only minimal shareholder support. We contend that changing the legal standard to a majority vote is a superior solution that merits shareholder support.
Our proposal is not intended to limit the judgment of the Board in crafting the requested governance change. For instance, the Board should address the status of incumbent director nominees who fail to receive a majority vote under a majority vote standard and whether a plurality vote standard may be appropriate in director elections when the number of director nominees exceeds the available board seats.
We urge your support for this important director election reform.
WAL-MARTS STATEMENT IN OPPOSITION TO
PROPOSAL NO. 5
The proposal would require directors to be elected by a majority (over 50 percent) of the votes cast at annual shareholders meetings. Under this proposed system for electing directors, nominees who receive less than 50 percent of the votes cast would not be elected. However, under Delaware law, once elected, a director serves until that directors successor is elected, the director resigns, or the director is removed. As a result, under the proposed system, an incumbent director standing for re-election who does not receive a majority of the votes cast would nevertheless continue to serve as a director because no successor was elected. Likewise, if a new nominee for director fails to receive a majority of the votes cast (even if the new nominee would have been elected under a plurality vote standard), the incumbent director not standing for re-election would continue in office as a director until he or she resigns or until the next election of directors.
If a director resigns after failing to receive a majority vote, the Board will have a vacancy. By contrast, the existing plurality vote system ensures that the Board will have a full complement of directors because those nominees who receive the greatest number of votes are elected.
The Company is not per se opposed to majority voting. However, if the proposed voting standard were adopted, it would introduce legal ambiguities into the election of directors and, in effect, reduce rather than increase the ability of shareholders to influence the election of directors. For example, determining a replacement for a hold over director will likely come within the responsibilities of the Board rather than the shareholders.
After careful consideration, in view of the possible uncertainties associated with electing directors by a majority of votes cast, the Company believes that the adoption of this proposal could unnecessarily complicate the election of directors and result in less democracy for shareholders. Therefore, the Company has concluded that a change from the widely accepted plurality voting standard to a majority voting standard would not be beneficial, and, in fact, could be detrimental, to its shareholders.
For the above reasons, the Board recommends that the shareholders vote AGAINST this proposal.
Whereas, Wal-Mart has recently pledged to report to shareholders in 2007 on its progress towards an initial set of environment-related goals (http://walmartstores.com/GlobalWMStoresWeb/navigate.do?catg=345). However, the company has still not committed to developing a public sustainability report that addresses its strategies concerning economic, social, and environmental issues and developments.
Concerned investors believe this information is material in making well-informed investment decisions as it speaks to the vision and stewardship of management and can have significant impacts on our companys reputation and on shareholder value.
According to Dow Jones, Corporate Sustainability is a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental, and social developments. Corporate sustainability leaders achieve long-term shareholder value by gearing their strategies and management to harness the markets potential for sustainability products and services while at the same time successfully reducing and avoiding sustainability costs and risks. (http://www.sustainability-index.com/htmle/sustainability/corpsustainability.html)
We believe initiatives to improve energy savings and waste reduction are important but insufficient. As Procter and Gamble states in its 2005 Sustainability Report, Great companies have not been built on the elimination of non-value, but on the creation of new value for consumers and for society. Wal-Marts successful introduction of products made from organic cotton is a good example, but by itself remains inadequate.
Sustainability includes more than the environment, however. Social issues, such as worker rights, human rights, and supply chain compliance, including independent monitoring and a transparent verification process; economic issues, such as Wal-Marts economic impact on communities and regions; payment of a sustainable living wage, and corporate governance must also be addressed.
A September, 2005 statement by research analysts at 23 investment firms representing over $435 billion in assets under management asserts, we find compelling the large and growing body of evidence linking companies strong performance addressing social and environmental issues to strong performance in creating long-term shareholder value. (http://www.bsr.org/Meta/200510_Corp-Sustainability-Reporting.pdf)
As one of the largest companies in the world (Fortune Global 500), we believe Wal-Mart should be the leader in responsible policies concerning its workforce, suppliers, the environment, and the communities in which it does business. Proactively addressing these issues can improve productivity, reduce waste, enhance Wal-Marts image, and identify new business opportunities.
Resolved: Shareholders request the Board of Directors to prepare at reasonable expense and omitting proprietary information a sustainability report. A summary of the report should be provided to shareholders by December 2006.
We recommend that Wal-Mart use the Global Reporting Initiatives Sustainability Reporting Guidelines (The Guidelines) to prepare the report. The Global Reporting Initiative (www.globalreporting.org) is an international organization with representatives from the business, environmental, human rights, and labor communities. The Guidelines provide guidance on report content, including performance on direct economic impacts, the environment, labor practices and work conditions, human rights, society, and product responsibility. The Guidelines provide a flexible reporting system that allows the omission of content that is not relevant to company operations. Over 700 companies use or consult the Guidelines for sustainability reporting.
WAL-MARTS STATEMENT IN OPPOSITION TO
PROPOSAL NO. 6
The Company believes that social and environmental considerations are an integral part of the business and should be reflected in how the Company conducts its business. Wal-Mart remains committed to increased transparency relating to the Companys environmental and social direction. This includes Wal-Marts goals and progress made toward achieving those goals. The Company recognizes the importance of greater transparency in these matters and that such transparency will make Wal-Mart a
better company. Wal-Mart will prepare a report, which will likely focus on a number of areas, including benefits, wages, product sourcing, community engagement, diversity, and the environment. The Company intends for its report to provide meaningful, validated insight into our performance in these areas.
The proposal also recommends that the Company use the Global Reporting Initiatives Sustainability Reporting Guidelines to prepare the report. The Company will be reviewing many different sources and guidelines in preparing its report but, at this point, does not believe that following one single source will benefit the Company or shareholders.
Finally, the proposal seeks to have a summary of this report provided to shareholders by December 2006. Wal-Mart is in the process of developing this report, which involves establishing data collection procedures, integrating these procedures into our core business reporting, and auditing this information to ensure accuracy. Our schedule for completion and release of this report is no later than spring 2007. The Company believes that, in view of the scope and scale of Wal-Marts business and the importance and complexity of the issues to be addressed, Wal-Marts report will be of greater value to shareholders if the Company invests more time in its preparation.
For the above reasons, the Board recommends that the shareholders vote AGAINST this proposal.
Resolved: Shareholders request that the Boards Compensation Committee review Wal-Marts senior executive compensation policies and make available (at reasonable cost, omitting proprietary information) within six months, a report of that review, including:
Supporting Statement: Concern continues about the explosion in compensation for top corporate executives. These packages have frequently become excessive, have increased the compensation (e.g. health care benefits; cash) gap between highest and lowest paid employees and have weakened the connection between corporate performance and executive compensation. We believe that executive compensation systems should provide incentives to build a successful, sustainable company, but that prosperity should be fairly shared within the company.
According to Wal-Marts SEC filings for the fiscal year ended January, 2005, our CEO received total compensation worth not less than $17,542,908 (and had received total compensation of not less than $27,178,157 in a prior year).
Our CEOs compensation was approximately 1,000 times the average pay of Wal-Marts US employees in fiscal 2005 and more than 1,500 times the average pay in that prior year. (Our calculations assume an average wage of $9.68, reported by Wal-Mart9.68 x 35 hours per week x 52 weeks per year.) The ratio at other large companies averaged 431-1 in 2004, up from 21-1 in 1964. Shareholders are entitled to an explanation of why the ratio is so large at Wal-Mart and what steps, if any, are being taken to further reduce that ratio, especially because we believe that a companys success is driven not merely by the CEO, but rather by the entire executive team and the whole workforce. At DuPont the CEOs cash compensation is limited to twice that of the next highest officer.
WMT sold for $70+ in 12/99 (Scott was appointed CEO 1/2000); $61 in 3/04; $48 today when this resolution was submitted. Excessive compensation for excessive performance?
An example of why we believe that executive competition at Wal-Mart is out of control: Most of Wal-Marts own lawsuit against its former Vice-Chairman for fraud against the Company by misappropriating (embezzling) Wal-Marts money was dismissed because his $15,000,000 retirement package contained a clause forbidding Wal-Mart to sue him for prior events. (A criminal investigation continues.)
If you believe that the Company has adequate controls in place to prevent unreasonable executive compensation, vote against this proposal. If you believe that executive compensation at Wal-Mart is in need of greater scrutiny, please support this proposal.
WAL-MARTS STATEMENT IN OPPOSITION TO
PROPOSAL NO. 7
All Associates make important contributions to the success of Wal-Mart. The Company is committed to paying its Associates fairly in accordance with their job responsibilities, their performance in those jobs and their ability to contribute to Wal-Marts overall success, taking into account competitive and market factors. Our executive compensation program is designed to compensate our Executive Officers fairly based on their performance and contribution to the Company, to provide incentives to attract and retain key executives, and to instill in them a long-term commitment to the Company and a sense of Company ownership, all consistent with the shareholders interests. The compensation of Executive Officers is subject to the oversight of the CNGC, which is composed entirely of independent directors. Both the Board and the CNGC believe that Wal-Marts compensation philosophy and the procedures for determining the compensation of the Executive Officers and the rest of Wal-Marts Associates are in the best interests of the Company and its shareholders.
The Company believes that the shareholders already have available to them the information necessary to assess the compensation practices of the Company, including the differences between the pay and benefits of our Executive Officers and the pay and benefits of our store Associates who are paid an hourly wage.
The independent CNGCs Report on Executive Compensation in this proxy statement provides a comprehensive review of Wal-Marts philosophy for compensating its Executive Officers, the components of the Executive Officer compensation program, and the method for determining and approving the compensation for Executive Officers. This proxy statement includes detailed information about the cash and equity compensation paid to the Named Executive Officers for the last three fiscal years, as well as information about perquisites provided to them.
In a recent press release, the Company disclosed the average hourly wage paid to store Associates in the U.S. as well as the average hourly wage paid to store Associates in a number of U.S. cities. In addition, the Companys Web site describes in detail the other benefits, including perquisites, available to Associates, including our Executive Officers.
The information described above provides shareholders the information necessary to understand and assess the Companys Executive Officer compensation practices and the differences between the pay and benefits of the Named Executive Officers and that of the Associates. Although the requested report might provide some historical data not otherwise readily accessible, the Company must set the compensation of Associates, including its Executive Officers, based on conditions and competitive factors in the market today. As a result, the Company believes that the requested report would not provide the shareholders with additional information pertinent to a sound assessment of the Companys current compensation practices and such a report would be an unnecessary use of the Companys resources.
For the above reasons, the Board recommends that the shareholders vote AGAINST this proposal.
EQUITY COMPENSATION GLASS CEILING
Wal-Mart founder Sam Waltons legacy was a company known for creating a better, more secure life for all associates. Mr. Sam believed that it was the collective work of associates that contributed to customer and shareholder value. He was fond of telling tales of greeters and cashiers who retired as millionaires thanks to the Wal-Mart stock they received along with their pay.
More than 60% of the companys associates are women, and nearly 30% are employees of color, according to the companys WalMartFacts.com website. We dont know what share of the companys stock option and restricted stock goes to these women and minority associates. What we do know is that over the last three years, the companys top five officers (.000003 of all employees), all white men, have received between 4.8% and 13% of the total stock options granted each year, according to the companys proxy statements. Many large U.S. companies distribute options broadly among employees. The wealth generated from these option gains have allowed employees to fund a family members college education, make a down payment on a house, provide for an enhanced retirement or establish a reserve tool for emergencies.
Wal-Marts compensation policies are under increased public scrutiny. Employment discrimination litigation can be costly and risks damaging a companys reputation. In 2000, Coca-Cola settled one of the nations largest employee racial discrimination suits for $192 million. Three years earlier, Home Depot spent $104 million of shareholders money to settle gender discrimination charges involving just 25,000 female employees. In June 2004, US District Court Judge Martin Jenkins certified a gender discrimination suit involving 1.6 million current and former females employees of Wal-Mart, and called this suit historic in nature, dwarfing other employment suits that came before it.
Shareholders request that the Board prepare a special report documenting the distribution of last years equity compensation by race and gender of the recipient of stock options and restricted stock awards (i.e., the percentage of equity compensation received by white men, white women, African-American men, African-American women, and so on.) The report shall also provide context explaining recent trends within Wal-Marts equity compensation granted to women and employees of color. The report, prepared at reasonable cost and omitting proprietary information, shall be available to shareholders, upon request, no later than November 1, 2006.
This report will help shareholders determine whether there is an equity compensation glass ceiling at Wal-Mart that might lead to potential future liability. In requesting this report, we wish to be sure that all Wal-Mart associates have received wealth-creating opportunities that fairly reflect their contribution to the company. Wal-Mart has made public commitments to greater transparency and to being a leader in corporate diversity. We believe the disclosure of this additional information is consistent with our companys commitments.
Please vote FOR this proposal.
WAL-MARTS STATEMENT IN OPPOSITION TO
PROPOSAL NO. 8
Wal-Mart sponsors several compensation plans that provide equity-based awards to Associates. The independent CNGC is responsible for awarding equity-based compensation to the inside directors and Executive Officers. The SOC is responsible for administering awards to Associates who are not inside directors or Executive Officers. Neither the CNGC nor the SOC considers race or gender of any Associate in granting equity-based compensation. Both Committees grant equity awards based on the Associates performance and position in the Company.
The CNGC, however, has taken diversity into consideration with respect to the compensation of all the Companys officers, including Wal-Marts CEO and the members of the Executive Committee of the Company. The CNGC established diversity goals as part of the performance measures for the incentive payment under the Management Incentive Plan, and those performance measures continued in force and effect for fiscal 2006. The CNGC set these objective diversity initiatives to motivate officers to achieve the Companys diversity goals while adhering to the Companys commitment to select the most qualified individual for each position. For fiscal 2006, an officers annual incentive payment could have been reduced by up to 15 percent for not meeting the diversity goals. Diversity is and has been a responsibility of Wal-Marts officers, and this potential reduction in the incentive payment under the Management Incentive Plan will ensure that Wal-Marts officers are held accountable for doing what they are supposed to do. In addition, beginning with fiscal 2007, certain non-officer managers will have diversity goals, which will be part of the managers evaluation.
This shareholder proposal is substantially the same proposal that Wal-Marts shareholders rejected at the 2004 and 2005 Annual Shareholders Meetings. We believe that the preparation of the proponents report with respect to equity compensation would not be meaningful to our shareholders due to our reliance on Associate performance and position in granting equity compensation awards and our executive compensation philosophy.
For the above reasons, the Board recommends that the shareholders vote AGAINST this proposal.
By Order of the Board of Directors
Thomas D. Hyde
April 14, 2006
2006 ANNUAL SHAREHOLDERS MEETING
Wal-Mart Stores, Inc. Bentonville, Arkansas 72716-0215 479-273-4000
Mark this box with an X if you have made changes to your name or address details above.
Annual Meeting Proxy Card
PLEASE REFER TO THE REVERSE SIDE FOR TELEPHONE AND INTERNET VOTING INSTRUCTIONS.
A Election of Directors
1. The Board of Directors recommends a vote FOR the following persons nominated for election to the Board of Directors of Wal-Mart Stores, Inc., such election to be at the Annual Shareholders Meeting on June 2, 2006.
01Aida M. Alvarez 02James W. Breyer 03M. Michele Burns 04James I. Cash, Jr. 05Douglas N. Daft 06David D. Glass 07Roland A. Hernandez 08H. Lee Scott, Jr. 09Jack C. Shewmaker 10Jim C. Walton
11S. Robson Walton 12Christopher J. Williams 13Linda S. Wolf
B Company Proposal
The Board of Directors recommends a vote FOR Proposal 2.
For Against Abstain
2. Ratification of Independent Accountants
C Shareholder Proposals
The Board of Directors recommends a vote AGAINST Proposals 3 through 8.
For Against Abstain
3. A shareholder proposal regarding humane poultry slaughter 4. A shareholder proposal regarding a political contributions report 5. A shareholder proposal regarding a director election majority vote standard 6. A shareholder proposal regarding a sustainability report 7. A shareholder proposal regarding compensation disparity 8. A shareholder proposal regarding an equity compensation glass ceiling report
Mark this box if you have made comments on the reverse.
E Authorized SignaturesSign HereThis section must be completed for your instructions to be executed.
NOTE: Please sign exactly as your name appears hereon. Joint owners should each sign. When signing as attorney-in-fact, executor, administrator, trustee, or guardian, please give full title as such.
Signature 1Please keep signature within the box Signature 2Please keep signature within the box Date (mm/dd/yyyy)
0 0 8 1 5 8 1
W M T M T G
ProxyWal-Mart Stores, Inc.
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE 2006 ANNUAL SHAREHOLDERS MEETING OF WAL*MART STORES, INC. TO BE HELD ON JUNE 2, 2006
I have received the notice of the 2006 Annual Shareholders Meeting (the Meeting) to be held on June 2, 2006, and a proxy statement furnished by the Wal-Mart Stores, Inc. (Wal-Mart) Board of Directors. I appoint S. ROBSON WALTON, H. LEE SCOTT, JR., and DAVID D. GLASS, or any of them, as proxies and attorneys-in-fact, with full power of substitution, to represent me and to vote all shares of Wal-Mart common stock that I am entitled to vote at the Meeting in the manner shown on this form as to the proposals described herein and in their discretion on any other matters that come before the Meeting. If I participate in the Wal-Mart Profit Sharing and 401(k) Plan or the Wal-Mart Puerto Rico Profit Sharing and 401(k) Plan and I have a portion of my interest invested in Wal-Mart stock, I also direct the Retirement Plans Committee of the respective plan to take such actions necessary to vote my stock which is attributable to my interest in the manner shown on this form as to the following matters and in its discretion on any other matters that come before the Meeting.
You are encouraged to specify your choices by marking the appropriate boxes on the reverse side, but you need not mark any box if you wish to vote in accordance with the Board of Directors recommendations. The proxy holders cannot vote your shares unless you sign and return this card.
If this proxy is signed and returned, it will be voted in accordance with your instructions shown on the reverse side. If you do not specify how this proxy should be voted, it will be voted FOR the election of each nominee for director listed in this card, FOR Proposal 2, and AGAINST Proposals 3 through 8.
2006 Annual Shareholders Meeting June 2, 2006 7:00 AM
Bud Walton Arena University of Arkansas Fayetteville, Arkansas
ELECTRONIC ACCESS TO WAL-MARTS FUTURE ANNUAL REPORTS AND PROXY MATERIALS
Help Wal-Mart reduce expenses and eliminate bulky materials from your mail. Sign-up for Internet access to receive Wal-Marts proxy statement and annual report to shareholders. If you enroll in this service, we will e-mail you the proxy statement and annual report to shareholders to your designated e-mail address, along with instructions that will enable you to cast your vote. To sign-up, access www.econsent.com/wmt and follow the instructions indicated so that you will receive next years proxy statement and annual report to shareholders electronically.
Telephone and Internet Voting Instructions
You can vote by telephone OR Internet! Available 24 hours a day 7 days a week!
Wal-Mart encourages you to take advantage of two convenient ways to vote your shares. If you hold your shares in your own name rather than through a broker, bank, or other nominee, you can vote your shares electronically by Internet or by telephone. This eliminates the need to return the proxy card.
To vote using the Telephone (within U.S. and Canada)
Call toll free 1-800-652-VOTE (8683) in the United States or Canada any time on a touch tone telephone. There is NO CHARGE to you for the call.
Follow the simple instructions provided by the recorded message.
To vote using the Internet
Go to the following web site:
Enter the information requested on your computer screen and follow the simple instructions.
VALIDATION DETAILS ARE LOCATED ON THE FRONT OF THIS FORM IN THE SHADED TITLE BAR.
If you vote by telephone or the Internet, please DO NOT mail back this proxy card.
Proxies submitted by telephone or the Internet must be received by 11:00 p.m., Central Time, on June 1, 2006. THANK YOU FOR VOTING
0 0 8 1 5 8 1 2 U P X W M T M T G