Wal-Mart DEF 14A 2009
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
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
Corporate website: www.walmartstores.com
NOTICE OF 2009 ANNUAL SHAREHOLDERS MEETING
To Be Held June 5, 2009
Please join us for the 2009 Annual Shareholders Meeting of Wal-Mart Stores, Inc. The meeting will be held on Friday, June 5, 2009, at 7:00 a.m. Central time in Bud Walton Arena, University of Arkansas, Fayetteville, Arkansas.
The purposes of the 2009 Annual Shareholders Meeting are:
Important Notice Regarding the Availability of Proxy Materials for the 2009 Annual Shareholders Meeting. This year, we will be taking advantage of the rules of the Securities and Exchange Commission that allow us to furnish our proxy materials over the internet. As a result, for the first time, we are mailing a notice of availability of the proxy materials over the internet, rather than a full paper set of the proxy materials, to many of our shareholders. The notice of availability contains instructions on how to access our proxy materials on the internet, as well as instructions on how shareholders may obtain a paper copy of the proxy materials. All shareholders who do not receive such a notice of availability, including shareholders who have previously requested to receive a paper copy of the materials, will receive a full set of paper proxy materials by U.S. mail. This distribution process will contribute to our sustainability efforts and will reduce the costs of printing and distributing our proxy materials.
You must be the holder of record of shares of Wal-Mart Stores, Inc. common stock at the close of business on April 9, 2009 to vote at the 2009 Annual Shareholders Meeting. If you plan to attend, please bring the admittance slip on the back of this proxy statement or other proof of ownership of Wal-Mart Stores, Inc. common stock on the record date (such as the notice of availability if you received one) and picture identification. Regardless of whether you will attend, please vote as described on pages 4 and 5 of the proxy statement. Voting in any of the ways described will not prevent you from attending the 2009 Annual Shareholders Meeting.
By Order of the Board of Directors
Thomas D. Hyde
April 20, 2009
Admittance Requirements on Back Cover
702 Southwest 8th Street
Bentonville, Arkansas 72716-0215
Corporate website: www.walmartstores.com
On April 20, 2009, we began mailing to some of our shareholders a notice that these proxy materials are available on the internet. This notice contains instructions on how to access the proxy materials on the internet. On April 20, 2009, we also began mailing a full set of proxy materials to certain shareholders, including shareholders who have previously requested to receive a paper copy of the proxy materials. These proxy materials are in connection with the solicitation of proxies by the Board of Directors of Wal-Mart Stores, Inc., a Delaware corporation, for use at the 2009 Annual Shareholders Meeting. The meeting will be held in Bud Walton Arena, University of Arkansas, Fayetteville, Arkansas, on Friday, June 5, 2009, at 7:00 a.m. Central time.
TABLE OF CONTENTS
TABLE OF ABBREVIATIONS
The following abbreviations are used for certain terms that appear in this proxy statement:
2005 Stock Incentive Plan: the Wal-Mart Stores, Inc. Stock Incentive Plan of 2005, as it amended and restated the Wal-Mart Stores, Inc. Stock Incentive Plan of 1998
Annual Report to Shareholders: the Wal-Mart 2009 Annual Report to Shareholders
Associate: an employee of Wal-Mart or one of its subsidiaries
Audit Committee: the Audit Committee of the Board
Board: the Board of Directors of Wal-Mart
Board committees: the Audit Committee, the CNGC, the Equity Compensation Committee, the Executive Committee, and the SPFC
Broadridge: Broadridge Financial Solutions, Inc., representatives of which will serve as the inspectors of election at the 2009 Annual Shareholders Meeting
Bylaws: the amended and restated Bylaws of Wal-Mart, effective as of September 21, 2006
Categorical Standards: standards adopted by the Board that describe types of relationships that a director might have with Wal-Mart or its subsidiaries that the Board believes are per se immaterial to a directors independence, as permitted by the NYSE Listed Company Manual
CD&A: the Compensation Discussion and Analysis, located in this proxy statement
CEO: the Chief Executive Officer of a company
CFO: the Chief Financial Officer of a company
Chairman: the Chairman of a board of directors of a corporation or of the board of managers of a limited liability company
CNGC: the Compensation, Nominating and Governance Committee of the Board
Deferred Compensation Plan: the Wal-Mart Stores, Inc. Officer Deferred Compensation Plan, as amended and restated effective January 1, 2009
Director Compensation Plan: the Wal-Mart Stores, Inc. Director Compensation Plan, as amended and restated effective January 1, 2009
E&Y: Ernst & Young LLP, Wal-Marts independent registered public accounting firm
Equity Compensation Committee: the Equity Compensation Committee of the Board, formerly called the Stock Option Committee
Exchange Act: the Securities Exchange Act of 1934, as amended
Executive Committee: the Executive Committee of the Board
Executive Officers: certain senior officers of the Company designated by the Board as executive officers (as defined by Rule 3b-7 under the Exchange Act) that have certain disclosure obligations and who also must report certain transactions in equity securities of the Company under Section 16
Fiscal 2006, fiscal 2007, fiscal 2008, fiscal 2009, fiscal 2010 and fiscal 2011: Wal-Marts fiscal years ending January 31, 2006, 2007, 2008, 2009, 2010, and 2011, respectively
GAAP: generally accepted accounting principles in effect in the United States from time to time
Independent Directors: the directors whom the Board has determined have no material relationships with the Company pursuant to the standards set forth in the NYSE Listed Company Manual and, as to members of the Audit Committee, who meet the requirements of Section 10A of the Exchange Act and Rule 10A-3 under the Exchange Act
Management Incentive Plan or MIP: the Wal-Mart Stores, Inc. Management Incentive Plan, as amended and restated effective February 1, 2008
Named Executive Officers or NEOs: the Companys President and CEO, CFO, and the next three most highly compensated Executive Officers for a particular fiscal year
Non-Management Directors: the members of the Board who are not employed by Wal-Mart or any of its subsidiaries
NYSE: the New York Stock Exchange
NYSE Listed Company Manual: the manual of the NYSE that sets forth policies, practices, and procedures for companies with securities listed for trading on the NYSE
Profit Sharing/401(k) Plan: the Wal-Mart Profit Sharing and 401(k) Plan, as amended and restated effective February 1, 2009
SEC: the Securities and Exchange Commission
Section 16: Section 16 of the Exchange Act
SERP: the Wal-Mart Stores, Inc. Supplemental Executive Retirement Plan, as amended and restated effective January 1, 2009
Share or Shares: a share or shares of Wal-Mart common stock, $0.10 par value per share
SOX: the Sarbanes-Oxley Act of 2002
SPFC: the Strategic Planning and Finance Committee of the Board
Stock Purchase Plan: the Wal-Mart Stores, Inc. 2004 Associate Stock Purchase Plan, as restated effective February 1, 2004, and subsequently amended
Wal-Mart, the Company, we, our or us: Wal-Mart Stores, Inc.
Your proxy is solicited by the Board. The Company pays the cost of soliciting your proxy and reimburses brokers and others for forwarding to you the proxy statement, proxy card, Annual Report to Shareholders and notice of availability.
VOTING AND OTHER INFORMATION
Who may vote? You may vote if you were the holder of record of Shares at the close of business on April 9, 2009. You are entitled to one vote on each matter presented at the 2009 Annual Shareholders Meeting for each Share you owned at that time. If your Shares are held in street name through a bank, broker, or other nominee, you must obtain a proxy, executed in your favor, from the holder of record as of the close of business on April 9, 2009, to be able to vote at the meeting. As of April 9, 2009, Wal-Mart had 3,912,873,022 Shares outstanding.
What am I voting on? You are voting on:
Who counts the votes? Broadridge will count the votes. The Board has appointed two employees of Broadridge as the inspectors of election.
Is my vote confidential? Yes, your proxy card or ballot and voting records will not be disclosed 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 by Broadridge, but how you voted will remain confidential.
What is the quorum requirement for holding the 2009 Annual Shareholders Meeting? The holders of a majority of the Shares outstanding as of the record date for the meeting must be present in person or represented by proxy for the meeting to be held.
What vote is required to elect a director at the 2009 Annual Shareholders Meeting? In an uncontested election of directors, to be elected, a director nominee must receive affirmative votes representing a majority of the votes cast by the holders of Shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors (a majority vote). In a contested election of directors, to be elected, a director nominee must receive a plurality of the votes of the holders of Shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Under the Bylaws, an uncontested election is an election in which the number of nominees for director is not greater than the number of directors to be elected and a contested election is an election in which the number of nominees for director is greater than the number of directors to be elected.
What happens if a director nominee does not receive a majority vote in an uncontested election at the 2009 Annual Shareholders Meeting? Any incumbent director who is a director nominee and who does not receive a majority vote must promptly tender his or her offer of resignation as a director for consideration by the Board. Each incumbent director standing for re-election at the 2009 Annual Shareholders Meeting has agreed to resign, effective upon acceptance of such resignation by the Board, if he or she does not receive a majority vote. The Board must accept or reject such resignation within 90 days following certification of the shareholder vote in accordance with the procedures established by the Bylaws. If a directors resignation offer is not accepted by the Board, that director will continue to serve until the Companys next annual shareholders meeting and his or her successor is duly elected and qualified or until the directors earlier death, resignation, or removal.
Any director nominee who is not an incumbent Board member and who does not receive a majority vote in an uncontested election will not be elected as a director and a vacancy will be left on the Board. All of the director nominees named in this proxy statement are incumbent Board members.
The Board, in its sole discretion, may either fill a vacancy resulting from a director nominee not receiving a majority vote pursuant to the Bylaws or decrease the size of the Board to eliminate the vacancy.
What vote is required to pass the other proposals at the 2009 Annual Shareholders Meeting? The affirmative 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 for adoption of each of the shareholder proposals.
What is the effect of an abstain vote on the proposals to be voted on at the 2009 Annual Shareholders Meeting? A Share voted abstain with respect to any proposal is considered as present and entitled to vote with respect to that proposal, but is not considered a vote cast with respect to that proposal. Therefore, an abstention will not have any effect on the election of directors. Because each of the other proposals requires the affirmative vote of the holders of a majority of the Shares present and entitled to vote on each such proposal in order to pass, an abstention will have the effect of a vote against each of the other proposals.
What is the effect of a broker non-vote on the proposals to be voted on at the 2009 Annual Shareholders Meeting? 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 record holder is not permitted to vote on the matter without instructions from you under applicable NYSE rules. A broker non-vote is considered present for purposes of determining whether a quorum exists, but is not considered a vote cast or entitled to vote with respect to such matter. Therefore, broker non-votes will not have any effect on any of the matters to be voted on at the 2009 Annual Shareholders Meeting.
Under NYSE rules, the six shareholder proposals described in this proxy statement are not considered discretionary items. Therefore, if you do not provide instructions to the record holder of your Shares with respect to these proposals, a broker non-vote will result with respect to these proposals. The election of directors and the ratification of appointment of independent accountants are routine items under NYSE rules. As a result, brokers who do not receive instructions as to how to vote on these matters generally may vote on these matters in their discretion.
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 (that is, in your own name) or in street name (that is, through a nominee, such as a broker or bank). If you hold Shares in street name, you are considered to be the beneficial owner of those Shares.
If you are a record holder, you may vote by proxy or you may vote in person at the 2009 Annual Shareholders Meeting. If you are a record holder and would like to vote your Shares by proxy prior to the 2009 Annual Shareholders Meeting, there are three ways for you to vote:
Please note that telephone and internet voting will close at 11:59 p.m. Eastern time on June 4, 2009. If you wish to vote by telephone or internet, follow the instructions on your proxy card (if you received a paper copy of the proxy materials) or notice of availability of the proxy materials.
If you plan to attend the 2009 Annual Shareholders Meeting and wish to vote in person, you will be given a ballot at the 2009 Annual Shareholders Meeting. Please note that you may vote by proxy prior to June 5, 2009 and still attend the 2009 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 2009 Annual Shareholders Meeting) a legal proxy from the record holder of your Shares (who must have been the record holder of your Shares as of the close of business on April 9, 2009) indicating that you were a beneficial owner of Shares as of the close of business on April 9, 2009, as well as the number of Shares of which you were the beneficial owner on the record date, and appointing you as the record holders proxy to vote the Shares covered by that proxy at the 2009 Annual Shareholders Meeting.
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.
What if I do not specify a choice for a matter when returning a proxy? Unless you indicate otherwise, the persons named as proxies on 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 each of the six shareholder proposals.
Can I revoke my proxy? Yes, you may 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 record holder of your Shares regarding how to revoke your proxy.
Why did I receive a notice regarding the internet availability of the proxy materials instead of a paper copy of the proxy materials? As a part of its sustainability initiatives and to reduce the costs of printing and distributing its proxy materials, Wal-Mart for the first time this year is taking advantage of the SEC rule that allows companies to furnish their proxy materials over the internet to some or all of their shareholders. As a result, Wal-Mart is sending to some shareholders a notice regarding the internet availability of the proxy materials instead of a paper copy of its proxy materials. This notice explains how you can access the proxy materials over the internet and also describes how to request to receive a paper copy of the proxy materials by mail or a printable copy electronically.
Why didnt I receive a notice regarding the internet availability of the proxy materials? Wal-Mart is mailing to many of its shareholders, including shareholders who have previously requested to receive a paper copy, a paper copy of the proxy materials.
How can I access the proxy materials over the internet? You can access the proxy statement and the Annual Report to Shareholders in the Investors section of Wal-Marts corporate website at www.walmartstores.com/annualmeeting. If you wish to join in Wal-Marts sustainability efforts, you can instruct Wal-Mart to deliver its proxy materials for future Annual Shareholders Meetings to you electronically by e-mail. If you choose to access future proxy materials electronically, you will receive an e-mail with instructions containing a link to the website where those materials are available and a link to the proxy voting website. Your election to access proxy materials electronically will remain in effect until you terminate it. You may choose this method of delivery in the Investors section of Wal-Marts corporate website at www.walmartstores.com/annualmeeting.
How may I obtain a paper copy of the proxy materials? If you received a notice regarding the internet availability of the proxy materials, you will find instructions about how to obtain a paper copy of the proxy materials in your notice. If you received an e-mail notification as to the availability of the proxy materials, you will find instructions about how to obtain a paper copy of the proxy materials as part of that e-mail notification. We will mail a paper copy of the proxy materials to all shareholders to whom we do not send a notice of availability or an e-mail notification regarding the internet availability of the proxy materials.
What should I do if I receive more than one notice or e-mail notification about the internet availability of the proxy materials or more than one paper copy of the proxy materials? Certain shareholders may receive more than one notice of availability, more than one e-mail notification, or more than one paper copy of the proxy materials, including multiple proxy cards. For example, if you hold your Shares in more than one brokerage account, you may receive a separate notice, a separate e-mail notification, or a separate voting instruction card for each brokerage account in which you hold Shares. If you are a shareholder of record and your Shares are registered in more than one name, you may receive a separate notice, a separate e-mail notification, or a separate set of paper proxy materials and proxy card for each name in which you hold Shares. To vote all of your Shares, you must complete, sign, date and return each proxy card and voting instruction card that you receive and vote over the internet or by telephone the Shares represented by each notice and e-mail notification that you receive.
How can I attend the 2009 Annual Shareholders Meeting? Only shareholders who own Shares as of the close of business on April 9, 2009 will be entitled to attend the 2009 Annual Shareholders Meeting. A valid admittance slip (or other written proof of stock ownership as described below) and a photo identification (such as a valid drivers license or passport) will be required for admission to the 2009 Annual Shareholders Meeting.
No cameras, camcorders, video taping equipment, other recording devices or large packages will be permitted in the Bud Walton Arena. Photographs taken at the 2009 Annual Shareholders Meeting may be used by Wal-Mart, and by attending the 2009 Annual Shareholders Meeting, you waive any claim or rights with respect to those photographs and their use.
INFORMATION ABOUT THE BOARD
Wal-Marts directors are elected at each annual shareholders meeting and hold office until their successors are elected and qualified or, if earlier, their resignation or removal. All nominees for election to the Board are presently directors of Wal-Mart. If the shareholders elect all of the director nominees named in this proxy statement at the 2009 Annual Shareholders Meeting, Wal-Mart will have 15 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. The Board has established the size of the Board immediately after the 2009 Annual Shareholders Meeting to be 15 directors.
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.
ELECTION OF DIRECTORS
The following candidates for election at the 2009 Annual Shareholders Meeting have been 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 and ability to devote adequate time to Board duties. The Board is committed to a diverse 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 of the nominees named above for election to the Board.
Pursuant to the NYSE Listed Company Manual, Wal-Mart must have a majority of independent directors on its Board. In addition, the Audit Committee and the CNGC must be composed solely of independent directors. The NYSE Listed Company Manual defines specific relationships that disqualify directors from being independent under the NYSEs requirements and further requires that for a director to qualify as independent the Board must affirmatively determine that the director has no material relationship with Wal-Mart.
As permitted by the NYSEs requirements and policies, the Board has determined categorically that any relationship that is within one or more of the Categorical Standards described below will not be considered to be a material relationship that impairs 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 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, five 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 five 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, less than one 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 payments from, Wal-Mart during the entitys last fiscal year in an amount representing less than $5,000,000 or, if greater, less than five 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, less than one 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, other than as compensation for Board service.
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, less than 1 percent of such companys consolidated gross revenues for its last fiscal year; and (7) former officers who are directors (or their immediate family members) may continue to receive from Wal-Mart certain residual benefits from their service with Wal-Mart.
Our Board has determined that the following current directors nominated for reelection are independent directors under the independence standards set forth by the NYSE Listed Company Manual: Aida M. Alvarez; James W. Breyer; M. Michele Burns; James I. Cash, Jr.; Roger C. Corbett; Douglas N. Daft; Allen I. Questrom; Arne M. Sorenson; Christopher J. Williams; and Linda S. Wolf. Roland A. Hernandez and Jack C. Shewmaker served as directors of the Company during the portion of fiscal 2009 preceding the 2008 Annual Shareholders Meeting, but did not stand for reelection at that meeting. Our Board determined that Mr. Hernandez and Mr. Shewmaker were independent under the NYSE Listed Company Manual independence standards during the period in fiscal 2009 for which they were directors.
In making these determinations, the Board found that the current Independent Directors who are standing for reelection do not have a material or other disqualifying relationship with Wal-Mart. In making these determinations, the Board reviewed all relationships that may be deemed to exist between the directors and the Company. Except for Mr. Breyer, none of the current Independent Directors currently have, or during fiscal 2009 have had, any relationship with the Company that did not fall within the Categorical Standards. As a partner in Accel Partners, Mr. Breyer may be deemed to have an indirect interest in certain companies in which Accel Partners has an indirect ownership interest that engaged in transactions with the Company in fiscal 2009. In the case of two such companies, transactions between the Company and such companies do not fall within the Categorical Standards. Based on the Boards understanding of the nature of Mr. Breyers indirect interests in each of these two companies and the fact that Mr. Breyer is not a director or officer of, and has no other interest in, either such company, the Board has determined that Mr. Breyers interest in these companies does not give rise to a material relationship that would impair Mr. Breyers independence. More information regarding the Companys transactions with these companies is disclosed under Related-Party Transactions beginning on page 51.
Annual Director Compensation
The base compensation for Non-Management Directors upon their election to the Board on June 6, 2008 consisted of a Share award and an annual retainer. H. Lee Scott, Jr., S. Robson Walton and Michael T. Duke received compensation only for their services as Executive Officers of the Company and not in their capacities as directors.
For service on the Board for the term beginning upon election at the 2008 Annual Shareholders Meeting on June 6, 2008, each Non-Management Director received an annual equity award of Shares with a market value of $160,000. These Shares were awarded in two separate grants, with a grant of $140,000 worth of Shares on June 6, 2008, and a grant of $20,000 worth of Shares on September 30, 2008. This annual equity award was paid directly in Shares or deferred in stock units under the Director Compensation Plan, as elected by each Non-Management Director. In addition, each Non-Management Director elected to the Board at the 2008 Annual Shareholders Meeting was entitled to receive an annual retainer of $60,000, payable in arrears in equal quarterly installments for the Board term that commenced upon election at the 2008 Annual Shareholders Meeting. This annual retainer could be taken in cash, Shares, deferred in stock units under the Director Compensation Plan, or deferred into an interest-credited account under the Director Compensation Plan, as elected by each Non-Management Director.
The Board committee chairs who are Non-Management Directors also receive a chair retainer for the additional time required for Board committee business. For the Board term commencing at the 2008 Annual Shareholders Meeting, the retainer for the Audit Committee and CNGC chairs is $25,000, and the retainer for the SPFC chair is $15,000. In addition, Christopher J. Williams receives a retainer of $15,000 for his service on the Executive Committee because he serves on more than one Board committee. These additional retainers are payable in arrears in equal quarterly installments, and could be taken in cash, Shares, deferred in stock units under the Director Compensation Plan, or deferred into an interest-credited account under the Director Compensation Plan, as elected by the director.
Pursuant to the CNGC charter, director compensation for the Non-Management Directors is reviewed at least annually by the CNGC, which recommends to the Board the annual compensation for those directors. The compensation paid to the directors during fiscal 2009 is described in the table below.
DIRECTOR COMPENSATION FOR FISCAL 2009 (1)
Director Stock Ownership Guidelines
The Board has adopted stock ownership guidelines for the Non-Management Directors. Each Non-Management Director must own, within five years of his or her initial 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 initially elected or appointed. All Non-Management Directors subject to these guidelines currently own enough Shares to satisfy the guidelines.
The Board held a total of seven meetings (four regular meetings and three telephonic meetings) during fiscal 2009 to review significant developments affecting the Company, engage in strategic planning, and act on matters requiring Board approval. During fiscal 2009, each director attended at least 75 percent of the aggregate of the number of Board meetings and the number of meetings of Board committees on which he or she served. The Non-Management Directors and Independent Directors meet regularly in executive sessions.
BOARD AND COMMITTEE GOVERNING DOCUMENTS
The Board has adopted Corporate Governance Guidelines and charters for the Audit Committee, the CNGC, the Equity Compensation Committee, the Executive Committee, and the SPFC. You may review each of these documents on our corporate website at www.walmartstores.com by clicking on Investors and then Corporate Governance. In addition, these documents are available in print at no charge to any shareholder who requests a copy from our Investor Relations Department by submitting a request through the Investors page of our website or by writing to our 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 and other interested parties. Shareholders and other interested parties may write to the Board at:
Wal-Mart Stores, Inc. Board of Directors
c/o Elizabeth Bolen, Liaison to the Board of Directors
702 Southwest 8th Street
Bentonville, Arkansas 72716-0215
Shareholders and other interested parties also may e-mail: the Board at firstname.lastname@example.org; the Independent Directors at email@example.com; the Non-Management Directors at firstname.lastname@example.org; and any individual director, including the presiding director, at 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, at email@example.com.
A company of our size receives a large number of inquiries regarding a wide range of subjects each day. As a result, the Independent Directors, Non-Management Directors, and individual directors are not able to respond to all inquiries directly. Therefore, our directors, in consultation with Wal-Mart, have developed a process to assist in managing inquiries directed to the Board.
Letters and e-mails directed to the Board, the Independent Directors, the Non-Management Directors, and individual directors are reviewed by Wal-Mart 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 relating to those matters. Thus, we will direct those types of inquiries to an appropriate Associate for a response. Responses to letters and e-mails by Wal-Mart on behalf of the Board, Independent Directors, Non-Management Directors, or individual directors are maintained by Wal-Mart and are available for any directors review.
If a response on behalf of the Board, Independent Directors, Non-Management Directors, or individual directors is appropriate, Wal-Mart 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 or directors. Wal-Mart also may attempt to communicate with the shareholder or interested party for any necessary clarification. S. Robson Walton, Wal-Marts Chairman, reviews and approves responses on behalf of the Board, and James W. Breyer, 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. Breyer 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 Wal-Mart 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 Wal-Mart 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 to them promptly and appropriately.
James W. Breyer currently serves as the presiding director of executive sessions of the 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 for election to the Board. The CNGC is governed by a written charter, a copy of which can be found in the Corporate Governance section of the Investors page of our corporate website at www.walmartstores.com.
The CNGC regularly reviews the composition of the Board and the Board committees and considers whether the addition of directors with particular experience, skills, or characteristics would make the Board and one or more Board committees more effective. When a need arises to fill a vacancy or it is determined that a director candidate 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.
SpencerStuart currently serves as the Companys 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 experience, skills, and characteristics. The CNGC also considers whether a potential candidate will otherwise qualify for membership on the Board, and whether the potential candidate would satisfy applicable independence requirements.
Candidates are 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 and ability to devote adequate time to Board duties. With respect to the minimum experience, 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 407(d)(5)(ii) of Regulation S-K promulgated by the SEC.
Potential candidates are generally interviewed by our Chairman, our 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 or add an additional member, or recommends to the Board a slate of candidates 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.
S. Robson Walton and Jim C. Walton are members of a group that beneficially owns more than five percent of the outstanding Shares. Any participation by them in the nomination process was considered to be in their capacities as members of the Board and was not considered to be recommendations from security holders that beneficially own more than five percent of the outstanding Shares.
Shareholders may recommend candidates for consideration by the Board by writing to:
Wal-Mart Stores, Inc. Board of Directors
c/o Elizabeth Bolen, Liaison to the Board of Directors
702 Southwest 8th Street
Bentonville, Arkansas 72716-0215
The recommendation must include the following information:
All candidates recommended to the Board for nomination by a shareholder pursuant to the requirements above will be submitted to the CNGC for its review, which may include an analysis of the candidates qualifications prepared by the Companys management.
AUDIT COMMITTEE REPORT
The Audit Committee consists of four directors, each of whom has been determined by the Board to be independent as defined by the listing standards of the NYSE and the applicable rules of the SEC. The members of the Audit Committee are Aida M. Alvarez; James I. Cash, Jr.; Arne M. Sorenson; and Christopher J. Williams, the chair of the Audit Committee. The Audit Committee is governed by a written charter adopted by the Board. A copy of the current Audit Committee charter is available in the Corporate Governance section of the Investors page of our corporate website at www.walmartstores.com. In addition, the Audit Committee charter is available in print at no charge to any shareholder who requests a copy from our Investor Relations department by submitting a request through the Investors page of our corporate website or by writing to our Investor Relations department at: Wal-Mart Stores, Inc., Investor Relations Department, 702 Southwest 8th Street, Bentonville, Arkansas 72716-0100.
Wal-Marts management is responsible for Wal-Marts internal control over financial reporting and the preparation of Wal-Marts consolidated financial statements. Wal-Marts independent accountants are responsible for auditing Wal-Marts annual consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board. The independent accountants are also responsible for issuing a report on those financial statements and a report on Wal-Marts internal control over financial reporting. The Audit Committee monitors and oversees these processes. The Audit Committee is responsible for selecting, engaging, and overseeing Wal-Marts independent accountants.
As part of the oversight process, the Audit Committee regularly meets with management of the Company, the Companys independent accountants, 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, the independent accountants and the Companys internal auditors. To fulfill its responsibilities, the Audit Committee did, among other things, the following:
The Audit Committee submits this report:
Aida M. Alvarez
James I. Cash, Jr.
Arne M. Sorenson
Christopher J. Williams, Chair
AUDIT COMMITTEE FINANCIAL EXPERTS
The Board has determined that James I. Cash, Jr., Arne M. Sorenson and Christopher J. Williams are audit committee financial experts as that term is defined in Item 407(d)(5)(ii) of Regulation S-K of the SEC, and that all members of the Audit Committee are independent under Section 10A(m)(3) of the Exchange Act, the SECs Rule 10A-3, and the requirements set forth in the NYSE Listed Company Manual.
AUDIT COMMITTEE PRE-APPROVAL POLICY
To ensure the independence of our Companys independent accountants and to comply with applicable securities laws, NYSE 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 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 our Companys independent accountants (the Pre-Approval Policy).
The Pre-Approval Policy provides that our Companys independent accountants may not perform any audit, audit-related, or non-audit service for Wal-Mart, 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) Wal-Mart engaged the independent accountants 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 accountants by applicable securities laws. The Pre-Approval Policy also provides that Wal-Marts corporate controller will periodically update the Audit Committee as to services provided by the independent accountants. With respect to each such service, the independent accountants provide detailed back-up documentation to the Audit Committee and to 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 accountants 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 delegated) 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 Wal-Marts independent accountants 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.
COMPENSATION, NOMINATING AND GOVERNANCE COMMITTEE
The CNGC is charged with discharging the Boards responsibilities relating to the compensation of the Companys directors, Executive Officers, and Associates. With respect to its compensation functions, the CNGC is responsible, pursuant to its charter, for annually:
The CNGC may delegate its functions to a subcommittee, to the extent such delegation is consistent with the requirements of the NYSE Listed Company Manual and applicable laws and regulations. However, the CNGC may not delegate its authority over the evaluation and approval of Executive Officer compensation. The CNGC met nine times in fiscal 2009. Agendas for the meetings of the CNGC are determined in consultation with the chair of the CNGC.
COMPENSATION COMMITTEE REPORT
The CNGC has reviewed and discussed with the Companys management the CD&A included in this proxy statement and, based on such review and discussion, the CNGC recommended to the Board that the CD&A be included in this proxy statement.
The CNGC submits this report:
Douglas N. Daft
Allen I. Questrom
Linda S. Wolf, Chair
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members who served on the CNGC at any time during fiscal 2009 were officers or Associates of Wal-Mart or were former officers or Associates of Wal-Mart. None of the members who served on the CNGC at any time during fiscal 2009 had any relationship with the Company requiring disclosure under the section of this proxy statement entitled Related-Party Transactions. Finally, no Executive Officer serves, or in the past fiscal year has served, as a member of the compensation committee (or other board committee performing equivalent functions) of any entity that has one or more of its executive officers serving on the CNGC.
TRANSACTION REVIEW POLICY
The Board has adopted a written policy (the Transaction Review Policy) applicable to all Wal-Mart officers who are Executive Vice Presidents or above; to all directors and director nominees; to all shareholders beneficially owning more than five percent of Wal-Marts Shares; and to the immediate family members of each of the preceding persons (collectively, the Covered Persons). Any entity in which a Covered Person has a direct or indirect material financial interest or of which a Covered Person is an officer or holds a significant management position (each a Covered Entity) is also covered by the policy. The Transaction Review Policy applies to any transaction or series of similar or related transactions in which a Covered Person or Covered Entity has a direct or indirect material financial interest in which the Company is a participant (each a Covered Transaction).
Under the Transaction Review Policy, each Covered Person is responsible for reporting to Wal-Marts Chief Audit Executive any Covered Transactions of which he or she has knowledge. Wal-Marts Chief Audit Executive, with the assistance of other appropriate Company personnel, reviews each Covered Transaction and submits the results of such review to the Audit Committee. The Audit Committee reviews each Covered Transaction and either approves or disapproves the transaction. To approve a Covered Transaction, the Audit Committee must find that:
The Audit Committee may also ratify a Covered Transaction if prior approval and review is not sought if the Audit Committee determines that the transaction meets the criteria above and the failure to obtain pre-approval was unintentional, inadvertent, or due to a lack of knowledge.
The following categories of transactions are exempt from review and approval under the Transaction Review Policy:
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 in the Corporate Governance section of the Investors page of our corporate website at www.walmartstores.com. Wal-Marts Code of Ethics for the CEO and Senior Financial Officers supplements Wal-Marts Statement of Ethics, which is applicable to all directors, Executive Officers, and Associates and is also available in the Corporate Governance section of the Investors page of our corporate website. A description of any substantive amendment or waiver of Wal-Marts Code of Ethics for the CEO and Senior Financial Officers or Wal-Marts Statement of Ethics will be disclosed in the Corporate Governance section of the Investors page of our corporate website for a period of 12 months after the date of the amendment or waiver. Copies of Wal-Marts Code of Ethics for the CEO and Senior Financial Officers and of Wal-Marts Statement of Ethics are also available in print at no charge to any shareholder who requests a copy from our Investor Relations department by submitting a request through the Investors page of our corporate website 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. Each person nominated by the Board for election to the Board at the 2008 Annual Shareholders Meeting attended the 2008 Annual Shareholders Meeting. Mr. Hernandez and Mr. Shewmaker, former directors who did not stand for reelection at the 2008 Annual Shareholders Meeting, also attended that meeting.
SUBMISSION OF SHAREHOLDER PROPOSALS
If you wish to present a proposal for possible inclusion in our 2010 proxy statement pursuant to the SECs rules, send the proposal to Gordon Y. Allison, Vice President and General Counsel, Corporate Division, 702 Southwest 8th Street, Bentonville, Arkansas 72716-0215, by registered, certified, or express mail. Shareholder proposals for inclusion in our proxy statement for the 2010 Annual Shareholders Meeting must be received by the Company on or before December 21, 2009.
Shareholders who wish to bring business before the 2010 Annual Shareholders Meeting other than through a shareholder proposal pursuant to the SECs rules must notify the Corporate 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 Wal-Marts principal executive offices not less than 75 nor more than 100 days prior to the date of the 2010 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 2010 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 page of our corporate website at www.walmartstores.com. In addition, the Bylaws were filed as an exhibit to the Companys Current Report on Form 8-K dated September 25, 2006.
The Company is not aware of any matters that will be considered at the 2009 Annual Shareholders Meeting other than the matters described herein. If any other matters are properly brought before the 2009 Annual Shareholders Meeting, the proxy holders will vote the Shares as to which they hold proxies in their discretion.
In the following pages, we discuss how our CEO, CFO, and certain other current Executive Officers (our Named Executive Officers or NEOs) were compensated in fiscal 2009, and describe how this compensation fits within our executive compensation philosophy.
During fiscal 2009, under the leadership of our senior executive team, our company performed well, especially relative to our competitors. We reported strong financial results for the fiscal year, despite some very challenging economic conditions worldwide. While many retailers experienced disappointing sales and earnings and other financial challenges, our earnings for fiscal 2009 were within the range of guidance we provided at the beginning of the fiscal year, we recorded increased comparable store sales growth over fiscal 2008, our free cash flow was more than double what it was in fiscal 2008, and we finished the fiscal year with a strong balance sheet. Walmart US differentiated itself from its competitors with its price leadership and improved store operations and inventory management. Walmart US continues to be well positioned in the current economic environment. International continues to be our fastest-growing division, with sales growing by more than 9 percent in fiscal 2009. Factoring out the lower value of international currencies against the U.S. dollar, that growth would have been 11.6 percent. Sams Club also experienced continued growth, with comparable club sales, excluding fuel, increasing by 3.6 percent. Our stock price decreased slightly during fiscal 2009, but outperformed the broader stock market and the retail sector in particular. These accomplishments resulted in the compensation described below for fiscal 2009 and were considered by the CNGC when establishing the compensation of our NEOs for fiscal 2010.
Our Compensation Program Emphasizes Performance
We design our NEO compensation with an emphasis on performance. Base salary typically comprises less than 15 percent of each NEOs total annual compensation opportunity, and a substantial majority of each NEOs annual compensation is contingent on meeting performance goals that we believe have a meaningful impact on shareholder value. For fiscal 2009, the performance-based portion of NEO compensation consisted of performance shares and a cash incentive opportunity, and was contingent on meeting certain goals for pre-tax profit growth, operating income (for divisions), return on investment, comparative store sales growth and international revenue growth.
Because it is our goal to provide our executives with performance-based compensation on criteria they can actually control, we consider underlying operational performance, adjusted to ensure that operating results for the fiscal year are comparable to the prior year. During fiscal 2009, these adjustments include, among other items, adjustments to remove the impact of currency fluctuations and settlement charges relating to litigation arising in prior years. The adjustments made for purposes of determining fiscal 2009 performance under our compensation programs are described in more detail below.
Between September 2007 and March 2008, the CNGC undertook a full review of our compensation programs for NEOs and other members of management. As a result of this review, the CNGC concluded that changes could be made to our executive compensation program for fiscal 2009 to more closely tie executive compensation to measures of our performance that can be influenced by our executives and that we believe are likely to impact shareholder value. For fiscal 2009, 75 percent of the target value of our NEOs annual equity awards was subject to performance goals, up from two-thirds in fiscal 2008. The CNGC also reviewed the performance metrics used in our executive compensation program to ensure that the metrics used are metrics that the CNGC believes are important to our overall financial performance and likely to drive shareholder value. As a result of this review, beginning in fiscal 2009, in addition to the return on investment and pre-tax profit metrics that were already part of our program, a portion of each NEOs compensation was tied to our U.S. comparable store sales and/or international revenue growth, depending on each NEOs role with our company.
Consistent with our philosophy of tying executive compensation to performance that is within our executives control, our NEOs that are responsible for an operating division have a portion of their compensation directly tied to the performance of that division. Our Walmart US and International divisions performed well this year. As a result, our executives responsible for the Walmart US division received a maximum cash incentive payout for fiscal 2009, while executives responsible for the International division received a payout equal to approximately 97 percent of the maximum possible cash incentive payout. Because the performance of Sams Club was not as strong, executives responsible for that division received a payout equal to approximately 76 percent of the maximum cash incentive payout for fiscal 2009.
Compensation Established by a Committee of Independent Directors
The CNGC, whose members are all independent directors, oversees the programs used to determine our executives compensation. These compensation programs are designed to provide our NEOs with compensation that is fair and competitive in light of individual job responsibilities, individual performance, and contributions to our overall performance.
Since early 2007, Watson Wyatt & Company (Watson Wyatt) has served as the CNGCs independent consultant to advise the CNGC on executive compensation matters. Watson Wyatt reports directly and exclusively to the CNGC, and the CNGC has sole authority to retain, terminate, and approve the fees of Watson Wyatt. Under the terms of this engagement, Watson Wyatt may not be engaged to provide any additional consulting services to our company without the approval of the CNGC. Watson Wyatt advised the CNGC regarding the compensation of our NEOs and the design of our executive compensation programs for fiscal 2009.
In view of the size and complexity of our company, the CNGC reviews data from three different peer groups to determine how our NEOs compensation compares to the compensation paid to executives at other companies. Because our company is significantly larger than most companies in our peer groups, the CNGC generally sets compensation so that our NEOs have the opportunity to earn total compensation in the top quartile of the total compensation earned by executive officers who hold comparable positions in each of our peer groups. This benchmarking process and the peer groups used in this process are described in more detail below. In addition, when establishing NEO compensation, the CNGC considered the nature of each NEOs responsibilities and experience; the need to retain and motivate our executives; long-term succession planning; each NEOs contributions to our overall performance; and, where applicable, the performance of each NEOs operating division.
Executive Compensation Overview
Who are our NEOs?
For fiscal 2009, our NEOs were:
What are the primary components of our executive compensation program?
The annual compensation of our NEOs consists of three main components:
For purposes of setting NEO compensation, the CNGC considers the amount that each NEO could earn from these three components, assuming performance goals are achieved and all service-based equity awards vest, as that NEOs total direct compensation, or TDC. We discuss each of these components of TDC in greater detail below.
Our NEOs also receive other benefits generally available to our Associates, such as participation in our Profit Sharing/401(k) Plan, our Stock Purchase Plan, and other plans available to our officers, such as our Deferred Compensation Plan. Our NEOs also receive certain perquisites and supplemental benefits. Our company does not maintain a defined benefit pension plan for our NEOs. With the exception of Mr. Scott, who continues to serve as Chairman of the Executive Committee pursuant to the terms of an agreement relating to his retirement as our President and CEO, all of our NEOs are employed on an at will basis.
Fiscal 2009 Compensation
What were the significant changes to our executive compensation program for fiscal 2009?
Prior to setting compensation for fiscal 2009, the CNGC undertook a comprehensive review and analysis of our executive compensation program to determine if any improvements could be made to more closely tie executive compensation with performance metrics that are important to our overall results and that can be affected by our executives, and to otherwise more closely align our executive compensation program with shareholder interests. This process began with a review of our existing compensation programs by the consulting firm of Mercer LLC (Mercer) and included a review and recommendations from our People division and advice to the CNGC regarding these recommendations from Watson Wyatt. As a result of this review, the CNGC approved changes to our executive compensation program for fiscal 2009, including:
These changes are discussed in more detail below.
What was the TDC for each of our NEOs during fiscal 2008 and fiscal 2009?
When setting NEO compensation, the CNGC establishes a TDC amount for each NEO and then allocates that TDC among the various components of compensation. TDC represents the compensation opportunity available to an NEO for a given fiscal year if performance goals are achieved. As shown in the table below, Target TDC represents the amounts our NEOs would receive if target performance goals are achieved. Maximum TDC represents the amounts that our NEOs would receive if maximum performance goals are achieved, and is therefore intended to reflect the amounts our NEOs would receive only in the event of exceptional performance.
The Summary Compensation table that appears on page 36 provides specific compensation information for the three most recent fiscal years for our NEOs in the manner required by SEC rules. The amounts in the Summary Compensation table do not reflect the compensation opportunities approved by the CNGC, nor do they necessarily provide insight into the compensation actually earned by each NEO upon satisfaction of applicable performance conditions. For example, the SEC rules require us to report an NEOs stock-based compensation for each year in the Summary Compensation table based on the amounts expensed for financial reporting purposes in accordance with Statement of Financial Accounting Standards No. 123R, so that the expense relating to portions of an equity award granted to one of our NEOs generally will appear in the Summary Compensation table over a period of years.
The following table shows the TDC established for each NEO for fiscal 2008 and fiscal 2009. Inclusion of this information is not designed to replace the Summary Compensation table, but rather to provide insight into the CNGCs decision-making process when establishing NEO compensation.
TDC, for purposes of the table below, is defined as the sum of:
Because TDC is established through a benchmarking process, as described below, TDC does not include any one-time or special awards, as these types of awards are generally not reflected in the benchmarking data that is available for our peer group companies.
A significant percentage of the TDC amounts shown above consisted of performance-based equity. For fiscal 2009, approximately 57 percent of our CEOs target TDC consisted of performance shares, and at least 48 percent of each of the other NEOs TDC consisted of performance shares. During fiscal 2008, our NEOs did not receive any payout for performance shares.
The differences in TDC among our NEOs are due to many factors that the CNGC considers in evaluating and establishing the compensation of our NEOs. These factors include the CNGCs review of peer group compensation information through benchmarking, which is described in more detail below; differences in job scope and responsibilities among our NEOs; expertise and years of experience; historical compensation levels; retention and succession considerations; and individual and, where relevant, divisional performance. The TDC levels set forth in the table above represent the CNGCs judgment as to the appropriate compensation opportunities in light of these factors, and are not the result of any specific policy or formula.
How is the TDC of our NEOs allocated among the various elements of compensation?
Each NEOs TDC is comprised of the following elements: base salary, annual cash incentive opportunity, and equity. Each NEOs equity award is comprised of performance shares and restricted stock. For fiscal 2009, the CNGC allocated a majority of each NEOs target TDC to performance-based elements of compensation, as follows:
Base Salary. In keeping with our philosophy that a substantial majority of NEO compensation should be performance-based, the CNGC typically allocates less than 15 percent of TDC to base salary. Because our more senior executives typically have a large
portion of their annual compensation at risk, the percentage of TDC attributable to base salary generally becomes smaller as our executives advance in our company and assume jobs with greater responsibilities. For fiscal 2009, our NEOs base salaries were as follows:
In establishing the base salaries of our NEOs, the CNGC also benchmarks the proposed base salaries for our NEOs against base salaries within our peer groups to ensure that our NEOs base salaries are appropriately competitive. The CNGC typically seeks to set base salaries near the median of our peer groups. The CNGC will set base salaries higher or lower if necessary to result in TDCs in the top quartile of our peer groups or if necessary to result in an appropriate mix of performance-based versus fixed compensation. The benchmarking process for fiscal 2009 is described in more detail below.
Cash Incentive. Under our Management Incentive Plan, most salaried management Associates, including our NEOs, are eligible to earn an annual cash incentive payment, calculated as a percentage of base salary. Whether an incentive payment is earned and the amount of any payment depends on whether we achieve pre-established performance goals. For fiscal 2009, these goals were based on growth in pre-tax profit for the total company, and on growth in operating income for each of the companys divisions. Incentive payments are also based on achieving diversity goals.
The actual cash incentive payout earned by each of our NEOs for fiscal 2009, as well as the performance metrics and performance goals on which these payouts were contingent, are described below.
In addition, beginning in fiscal 2009, we added an individual performance component to the Management Incentive Plan. Under the plan as revised, the CNGC may, in its discretion, increase or decrease the amount of any individual NEOs cash incentive payment by up to 20 percent of the target payout for that NEO, based upon the CNGCs subjective evaluation of that NEOs individual performance. As described in more detail below, the CNGC approved an increase in the cash incentive payments received by Messrs. Castro-Wright and Schoewe based on exceptional individual performance during fiscal 2009.
Equity Awards. The balance of TDC is then allocated between various forms of equity compensation. We believe that equity awards that vest over a period of time help to align the interests of our NEOs with the interests of our shareholders. Consistent with our philosophy of tying compensation to performance, for fiscal 2009, approximately three-quarters of the equity value granted to our NEOs was granted in the form of performance shares, with the remainder granted in the form of restricted stock.
Performance Shares. We first granted performance shares to our NEOs in fiscal 2006. A performance share award gives the officer receiving it the right to receive a number of Shares if we meet certain performance goals during a specified performance period. If an Associate who holds performance shares ceases to be employed by us before the end of the applicable performance period, the performance shares do not vest and the recipient receives no payout.
Generally, performance shares granted to our executives have a three-year performance period. For performance share awards granted prior to January 2008, the applicable performance metrics were: (1) return on investment; and (2) revenue growth. As a result of the CNGCs comprehensive review of our executive compensation program, beginning in fiscal 2009, we replaced the revenue growth metric used in prior performance share grants with a comparable store sales improvement metric and/or a growth in International revenue metric, depending on the NEOs area of responsibility. These metrics are discussed in more detail below.
Restricted Stock. For fiscal 2009 compensation, the remaining 25 percent of the equity value granted to each NEO was in the form of restricted stock, which is scheduled to vest in three equal installments on the second, fourth and fifth anniversaries of the grant date, so long as the NEO remains employed by our company on the vesting dates.
What financial performance metrics applied to our NEOs compensation awarded for fiscal 2009?
After its comprehensive review of our executive compensation program, the CNGC selected the following performance metrics to apply to our NEOs compensation during fiscal 2009:
The CNGC chose these performance metrics because it believed that good performance relative to these metrics is important for our overall financial performance and, therefore, was likely to have a positive effect on shareholder returns. The CNGC concluded that the combination of these performance metrics was likely to incentivize our executives to achieve performance that is in the best interests of our company and our shareholders. The CNGC believes that the combination of these performance metrics helps to mitigate the risk that our executives would be incentivized to pursue good results with respect to a single metric to the detriment of our company as a whole. For example, if our management were to seek to increase comparable store sales by pursuing strategies that would negatively impact our profitability, resulting increases in performance share payouts should be offset by decreases in cash incentive payouts.
What were the specific performance goals for fiscal 2009, and how did our company perform relative to those goals?
Cash Incentive Payment Goals. The CNGC generally attempts to set performance goals applicable to our cash incentive plan so that a consistent level of expected difficulty in achieving these goals is maintained from year to year. The goals applicable to the cash incentive payments are expressed in terms of a percentage increase over our prior year performance. As described below, the cash incentive payments of our NEOs that are responsible for one of our operating divisions are based in part on the performance of those operating divisions. For fiscal 2009, the threshold, target and maximum performance goals under our cash incentive plan, and our actual performance, are shown in the following table. Since operating performance, for purposes of the cash incentive plan, is calculated on an as adjusted basis, the Actual results shown below differ from our reported operating results. Adjustments impacting cash incentive payments for fiscal 2009 are described below.
These goals were established in light of the operating plans for our company and each of its divisions, and in light of economic conditions in our industry and in the broader markets in which we operated at the time the goals were established in March 2008. The CNGC intended that the target performance goals described above would be achievable if we performed in line with our expectations, but that achieving the maximum goals would require us to exceed those expectations. Because various expenses related to company-wide support functions are allocated to the total company, the total company performance goals were lower than those of the operating divisions. The performance goals for our International division reflected our strategic growth plans for our international operations, including market conditions and the level of capital investment required for growth in the international markets in which we operate.
In determining actual performance for purposes of our cash incentive plan, the CNGC made certain positive and negative adjustments to the pre-tax profit results of our total company and operating income results for each of our operating divisions, as required by the terms of the plan. The purpose of these adjustments is to ensure that results for a particular fiscal year are computed on a comparable basis as the prior year, and to ensure that our cash incentive plan rewards underlying operational performance, disregarding factors that are beyond the control of our executives. For fiscal 2009, adjustments to pre-tax profit and operating income included adjustments for litigation settlement accruals, currency exchange rate fluctuations, interest expense related to share repurchases, and costs related to hurricane damage. In addition, since performance under the cash incentive plan is measured in terms of a percentage increase over prior fiscal year results, adjustments for the prior fiscal year also impact the cash incentive results for a given fiscal year. For example, our fiscal 2008 operating income under the cash incentive plan was adjusted to exclude Sams Club income from an excise tax refund on taxes previously paid on past prepaid phone card sales. As a result of this adjustment process, the fiscal 2009 increases in operating income shown in the table above differ from our publicly reported operating results for fiscal 2009 under GAAP.
After these adjustments, each of our NEOs received a cash incentive payment as follows:
As a result of this performance, at the end of fiscal 2009, the CNGC approved actual incentive payouts as shown on the table below. As described below, the CNGC approved an additional discretionary cash incentive payment to Mr. Castro-Wright and to Mr. Schoewe, each equal to 20 percent of his target cash incentive payment:
In exercising its discretion to approve the additional cash incentive payment shown above to Mr. Castro-Wright, the CNGC considered the outstanding performance of the Walmart US division in a challenging environment, as described above, and Mr. Castro-Wrights contributions to that performance. In approving the additional cash incentive payment shown above to Mr. Schoewe, the CNGC considered our companys outstanding financial management during challenging economic circumstances under Mr. Schoewes leadership.
A portion of each NEOs cash incentive payment is also subject to meeting diversity goals. For fiscal 2009, these goals consist of two components: placement goals and good faith efforts goals. For fiscal 2009, each NEOs cash incentive payment could have been reduced by up to 15 percent if such NEO did not achieve applicable diversity goals for the year. No NEOs incentive payment was reduced because of a failure to achieve diversity goals for fiscal 2009.
Performance Shares. Goals for performance shares are expressed in terms of average performance over the performance period. All performance shares granted prior to January 2007 vested only if we achieved the threshold goals for all applicable performance measures. For example, the performance shares with a performance period ending January 31, 2009 would vest only if both our average revenue growth and our average return on investment met or exceeded the threshold goals for those metrics. The following table shows the performance goals applicable to the performance shares with a three-year performance period ending January 31, 2009 held by our NEOs and the resulting performance (after adjustments to ensure that operating results for fiscal 2009 are computed on a comparable basis as the prior year) against those goals:
Beginning with the performance shares granted in January 2007 as part of fiscal 2008 compensation, we linked the vesting of a portion of the performance shares to the achievement of our goals under one performance measure and the vesting of the balance of the performance shares to the achievement of our goals under the other performance measure. We made this change to link more directly the achievement of a particular performance measure with compensation.
As noted above, beginning in fiscal 2009, the CNGC revised the metrics applicable to the performance shares granted to our NEOs in an effort to more closely align the performance share program with financial metrics that have the greatest impact on our overall financial results. For performance shares granted in January 2008 with a performance period ending January 31, 2011, the weighting of these metrics for our continuing NEOs was as follows:
The CNGC added U.S. comparable store sales as a performance metric because it believes it is a key driver of shareholder returns, and because investors look to comparable store sales as an important measure of performance in the retail industry. Since officers with primary responsibility for our international operations have little control over our U.S. comparable store sales, the CNGC instead established total revenue growth in our International operations as a performance share metric for these officers.
As a result of its review of the performance share awards and how well they served their intended purpose, for the fiscal 2009 awards, the CNGC also changed the manner in which performance goals are set and measured. For awards granted prior to January 2008, performance goals were set at the beginning of the three-year vesting period for the entire three-year period. After several years of experience with performance shares, we determined that, as a practical matter, setting goals at the beginning of a three-year period for the entire period could result in performance goals that were either not realistically achievable or could prove to be too easy to achieve. In either instance, performance shares would cease to be an effective tool in motivating performance.
The performance shares granted in January 2008 and January 2009 will continue to have a three-year vesting period and will continue to be based on performance over that three-year period. However, the CNGC will set the goals for each fiscal year within the three-year performance cycle early in that fiscal year. After the end of each year, the CNGC will determine our performance as a percentage of our target performance goal for that year. At the end of the full three-year performance cycle, we will calculate the average of these performance percentages for the three years to determine whether any performance shares will vest and, if so, how many. This change should give the CNGC the ability to set more effective performance goals based on more current information and over a more realistic time frame.
The following table shows the performance goals set by the CNGC for fiscal 2009 applicable to the performance shares granted in January 2008, and our performance against those goals:
As noted above, the performance considered for purposes of our performance under our executive compensation program is adjusted to ensure that operating results for a particular fiscal year are computed on a comparable basis as the prior year, and are intended to measure underlying operating performance. Therefore, the results shown above differ from our reported operating results for fiscal 2009. For example, the International revenue growth shown above is on a constant dollar basis excluding the impact of currency fluctuations.
These results will be averaged with the results against performance goals established by the CNGC for the second and third years within the three year performance period (i.e., our companys 2010 and 2011 fiscal years) to determine the ultimate payout for these performance shares.
What perquisites and other benefits do our NEOs receive?
Our NEOs receive a limited number of perquisites and supplemental benefits. We cover the cost of annual physical examinations. We provide each NEO with personal use of our aircraft for a specified number of hours each year. Certain NEOs receive monitoring and maintenance of home security systems. Our NEOs also receive company-paid life and accidental death and dismemberment insurance. Our NEOs also are entitled to benefits available to Associates generally, including a Wal-Mart discount card, a limited 15 percent match of purchases of our common stock through our Stock Purchase Plan, medical benefits, and foreign business travel insurance. We provide these perquisites and supplemental benefits to attract and retain talented executives to our company and to retain our current executives.
What types of retirement benefits are our NEOs eligible for?
Our NEOs are eligible for the same retirement benefits as our officers generally, such as participation in our Deferred Compensation Plan. They may also take advantage of other benefits available more broadly to our Associates, such as our Profit Sharing/401(k) Plan, and our SERP, which is a non-qualified, non-defined benefit plan in which all of our Associates participate to the extent the Internal Revenue Code limits the amounts we would ordinarily contribute for their benefit under our Profit Sharing/401(k) Plan.
Process for Establishing NEO Compensation
What is the CNGCs role in determining NEO compensation?
Under its charter, the CNGC is responsible for establishing and approving annually the compensation of our CEO and, in consultation with the CEO, our other Executive Officers, including our other NEOs. More information regarding the members of the CNGC and their responsibilities is set forth under Board Committees on page 13.
The CNGC meets numerous times each year as part of the process of establishing NEO compensation. The CNGC met a total of eight times in late fiscal 2008 and early fiscal 2009 to approve changes to the design of our executive compensation program, to approve total compensation for our NEOs for fiscal 2009, and to select performance metrics and performance goals applicable to that compensation. The CNGC also reviewed and certified our fiscal 2009 results against the performance-based elements of fiscal 2009 NEO compensation in March 2009.
Given the importance of executive compensation decisions, we engage in an extensive agenda planning and review process. Each regularly scheduled CNGC meeting agenda is reviewed in advance by our Corporate Secretary, the Executive Vice President of our People division, our CEO, our Chairman, and the chair of the CNGC to ensure that the appropriate matters are considered at each meeting, that appropriate time is allocated to each agenda item, and that CNGC members have appropriate input into, and information regarding, each agenda item.
What is the role of management and compensation consultants with respect to NEO compensation?
When evaluating, establishing and approving the compensation of our NEOs other than the CEO, the CNGC considers the performance evaluations provided by our CEO and the recommendations provided by our Chairman, our People division, and our CEO. With respect to the compensation of our CEO, our Chairman, with support from our People division, makes recommendations to the CNGC. As part of this process, our CEO reviews his annual performance evaluations of the other NEOs with the CNGC.
Our People division engages compensation consultants to assist it in formulating its recommendations to the CNGC regarding NEO compensation. In analyzing the appropriate level of compensation for our NEOs for fiscal 2009, our People division relied on benchmarking data and a benchmarking system developed by Hay Group, Inc. regarding executive pay at peer companies, as described below. Hay Group generally only advises management on compensation matters but in the past has been and, in the future, may be engaged to assist our company with non-compensation-related services. Representatives of Hay Group are available to meet with the CNGC independently at the CNGCs request.
In early 2007, following an extensive selection and interview process conducted by members of the CNGC, the CNGC engaged Watson Wyatt as its independent consultant to advise the CNGC on executive compensation matters and assist in assessing and establishing the compensation of Executive Officers, including our NEOs. Watson Wyatt reports directly and exclusively to the CNGC, and Watson Wyatts role in establishing NEO compensation is determined solely by the CNGC. The CNGC calls on Watson Wyatt when it deems necessary or advisable to obtain Watson Wyatts advice or recommendations. During fiscal 2009, representatives of Watson Wyatt attended all CNGC meetings at which NEO compensation was an agenda item and consulted frequently with members of the CNGC independently of management. Watson Wyatt also made recommendations to the CNGC regarding the compensation of our CEO. Watson Wyatt assisted the CNGC in evaluating the appropriateness of the compensation to be provided to our NEOs for fiscal 2009 and fiscal 2010 and the changes to our executive compensation program for fiscal 2009. In this role, representatives of Watson Wyatt attended portions of CNGC meetings during which executive compensation matters were considered, and met with and advised members of the CNGC on executive compensation matters, including the proposed compensation of our NEOs, outside of CNGC meetings.
The CNGC has sole authority to retain, terminate, and approve the fees of Watson Wyatt. Prior to its engagement as an independent consultant to the CNGC, Watson Wyatt has, from time to time, been engaged by our company on various matters. As a result, Watson Wyatt has provided immaterial amounts of services to our company unrelated to the executive compensation consulting services provided to the CNGC. Under the terms of its engagement by the CNGC, Watson Wyatt may not be engaged by Wal-Mart for additional consulting services unless such services are approved by the CNGC. The CNGC has not approved any such additional services since its engagement of Watson Wyatt. The CNGC is confident that Watson Wyatt provides it with independent and objective advice on executive compensation matters.
Prior to beginning the process of establishing NEO compensation for fiscal 2009, our People division hired Mercer to assist it in conducting a review of our executive compensation programs. Our People division and Mercer evaluated our existing executive compensation programs and interviewed our Chairman, our CEO, our other NEOs, other members of our senior management, and members of the CNGC regarding those programs. Based in part on Mercers review, our People division recommended changes to the design and composition of the compensation granted to our Executive Officers beginning in fiscal 2009, as described above. During this process, Watson Wyatt reviewed the reports that Mercer prepared in connection with this review and assisted the CNGC in evaluating the reports and recommendations of the People division. Representatives of Mercer attended one meeting of the CNGC during fiscal 2008 and were available to meet with the CNGC independently at the CNGCs request. We have engaged Mercer or its affiliates to perform other services unrelated to executive compensation. These services include advice regarding non-executive compensation, healthcare, and insurance consulting services. M. Michele Burns, a member of our Board who does not serve on the CNGC, is Chairman and CEO of Mercer. Ms. Burns did not participate in the consulting services provided to us by Mercer. Additionally, the services provided by Mercer were reviewed by our Internal Audit department and approved by the Audit Committee under the terms of Wal-Marts Transaction Review Policy.
How does the CNGC set TDC?
The process of setting TDC is a dynamic one. In setting TDC for fiscal 2009, the CNGC considered, among other things:
We do not have any predetermined formula that determines which of these factors is more or less important in setting TDC, and the importance of specific factors may vary from NEO to NEO. The CNGC considers the individual circumstances of each NEO and the needs of our company when determining the importance of these factors in setting TDC for each NEO.
In evaluating individual performance, the CNGC relied on annual performance evaluations and, for each NEO other than the CEO, on discussions with our CEO regarding such NEOs performance during the fiscal year. In assessing our CEOs performance, the CNGC also relied on an evaluation of our CEOs performance conducted by our Chairman and by the chair of the CNGC and on discussions with our Chairman regarding our CEOs performance.
As a result of this process, the CNGC set TDCs for fiscal 2009 that provided our NEOs with the opportunity to earn total compensation in the top quartile of the total compensation earned by executive officers who hold comparable positions in each of our peer groups. Within this quartile, the CNGC did not attempt to establish TDCs at a specific percentile of any peer group. Rather, the CNGC viewed the benchmarking process as a general guide as to the reasonableness and competitiveness of compensation opportunities for our NEOs.
How is benchmarking data used by the CNGC?
During the compensation setting process, the CNGC considers benchmarking data in several ways. First, benchmarking data was used to help determine the fiscal 2009 TDC amounts for each NEO. In benchmarking our NEOs against executives at peer group companies, the CNGC relied on comparative data and analyses provided to our People division by Hay Group to determine which positions at peer companies are most comparable to our NEOs. Through this process, Hay Group analyzes positions at our company and at peer group companies and sizes each job using a consistent methodology to represent the relative scope and difficulty of these jobs. This results in a point score for each job that is intended to provide for more accurate comparisons by referencing jobs of similar size. Our People division and the CNGC relied on these comparisons to determine those positions at peer group companies that are most comparable, in terms of job scope and responsibilities, to the positions and job responsibilities of our NEOs. Using this data does not produce comparable positions at all of our peer group companies for all of our NEOs.
The CNGC also used benchmarking data when allocating each NEOs TDC among the various elements of compensation as a general guide to ensure that the amount of TDC allocated to each element of compensation was set at an appropriately competitive level consistent with our emphasis on performance-based compensation.
What peer groups do we benchmark the compensation of our NEOs against?
Our company is the worlds largest retailer by a wide margin and has significantly more extensive international operations than most publicly traded U.S.-based retailers. As a result, the CNGC believes that simply benchmarking NEO compensation against a retail industry index would not provide the CNGC with sufficient information with which to determine the appropriate compensation of our NEOs. Therefore, when setting NEO compensation for fiscal 2009, we reviewed publicly available information for three peer groups to determine how our NEOs compensation compared to the compensation paid to executives in comparable positions at other companies. Since information regarding positions comparable to those of some of our NEOs is not available for many of the companies in our peer groups, using three peer groups also resulted in a larger number of positions to which our NEOs compensation could be benchmarked. Data regarding each of these peer groups was compiled by our People division with the assistance of Hay Group based on publicly available information.
Retail Industry Survey. This survey allowed us to compare our NEO compensation to that of our primary competitors in the retail industry. For fiscal 2009, the Retail Industry Survey included all publicly traded retail companies with significant U.S. operations with annual revenues exceeding approximately $10 billion, which were:
Select Fortune 100. We also benchmarked our NEO compensation against a select group of companies within the Fortune 100. This group, which we refer to as the Select Fortune 100, was chosen from among the Fortune 100 by the People division with the assistance of Hay Group. The Select Fortune 100 includes companies whose primary business is not retailing, but that are similar to us in one or more ways, such as global operations, business model, and size. We excluded retailers from this group, since those companies were already represented in the Retail Industry Survey. We also excluded companies with business models that are broadly divergent from ours, such as financial institutions and energy companies. The 27 companies included in the Select Fortune 100 Survey used to determine fiscal 2009 compensation were:
Top 50. At the time of our benchmarking for fiscal 2009, we were approximately 15 times larger in terms of annual revenue, and approximately ten times larger in terms of market capitalization, than the Retail Industry Survey at the median. To take into account this size discrepancy and the corresponding complexity of our NEOs job responsibilities, we also benchmarked our NEOs pay against the 50 largest public companies, excluding Wal-Mart Stores, Inc. (including selected non-U.S. based companies) in terms of market capitalization at the time of the review:
We did not attempt to quantify or otherwise assign any relative weightings to any of these peer groups or to any particular members of a peer group when benchmarking against them.
What other information does the CNGC consider when establishing TDC?
The CNGC also reviews other information in the process of setting TDC, although the CNGC generally considers these factors to be less significant than the factors described above.
Realized Compensation. The CNGC also reviews an estimate of the realized compensation of each of our NEOs during prior fiscal years, as well as forecasts of the compensation that could be realized by our NEOs in future years. The CNGC reviews this information in order to understand the compensation actually earned by each NEO and to determine whether such realized compensation is consistent with its view of the performance of each NEO, as well as to provide insight into retention considerations. No specific quantitative criteria is used in performing this analysis; rather, the CNGC views this information as helpful in making a subjective determination as to the appropriateness and reasonableness of each NEOs compensation and of the effectiveness of our compensation programs in achieving our objectives.
Tally Sheets. Beginning with the fiscal 2009 NEO compensation process, the CNGC also reviewed tally sheets prepared by the Companys People division. These tally sheets summarized the total value of the compensation received by each NEO during fiscal 2008 and quantified the value of each element of that compensation, including perquisites and other benefits. They also quantified the amounts that would be owed to each NEO upon retirement or separation from our company.
Are there any significant changes to our executive compensation program for fiscal 2010?
Generally, no. The CNGC believes that the changes to our program implemented for fiscal 2009 have been effective in properly incentivizing our senior management. The compensation granted to our NEOs for fiscal 2010 will continue to consist of base salary, a cash incentive opportunity, and an equity award. The equity award granted to our NEOs as part of fiscal 2010 compensation is comprised of a performance share award (representing 75 percent of the total equity value granted to each NEO) and a restricted stock award (representing 25 percent of the total equity value granted to each NEO).
In February 2009, the CNGC established performance metrics and goals for fiscal 2010 applicable to the cash incentive payable under the Management Incentive Plan. For fiscal 2010, the cash incentive payable to our NEOs under this plan will continue to be based on performance in pre-tax profit (for our total company) and operating income (for each of our divisions), as well as diversity results as described below. As in fiscal 2009, the CNGC again established threshold, target, and maximum performance goals under this plan. The CNGC set the performance goals such that, if our performance is in line with our earnings expectations as of February 2009, target performance goals should be achievable. Our company must perform at a very high level and achieve results near the top of our earnings expectations in order to achieve maximum performance goals for fiscal 2010.
In March 2009, the CNGC established performance metrics and goals for fiscal 2010 for performance shares held by our NEOs. For fiscal 2010, these goals will continue to be based on return on investment, comparable store sales, and international revenue. These performance goals were set at levels which, if we perform in line with our expectations, target goals should be achievable. Our company must perform at a very high level in order to achieve maximum performance goals for fiscal 2010.
As a result of Mr. Dukes promotion to President and CEO, during fiscal 2010 his cash incentive will be based on total company results, and his performance shares will be based on a combination of return on investment, comparable store sales, and international revenue. As a result of Mr. McMillons promotion to Executive Vice President, President and CEO of our International division, his fiscal 2010 cash incentive will be based on a combination of total company results and International division results, and his performance shares will be based on a combination of return on investment and International revenue.
Additionally, in light of the promotions of Messrs. Duke and McMillon to their present positions, effective February 1, 2009, and the promotion of Mr. Castro-Wright to his present position, effective November 20, 2008, in January 2009 the CNGC approved the issuance of additional performance shares to Messrs. Duke, McMillon and Castro-Wright for the performance cycles ending January 31, 2010 and January 31, 2011, respectively. The purpose of these additional performance shares was to provide these NEOs with a performance share payout opportunity for fiscal 2010 and 2011 that is commensurate with their present positions and responsibilities. These additional performance shares are subject to the same performance metrics and goals as the other performance shares held by these NEOs for those performance cycles.
General Executive Compensation Matters
What are our practices for granting stock options and other equity awards?
Option Exercise Prices. We did not grant any stock options to our NEOs during fiscal 2009 and stock options are not currently a part of our executive compensation program. Our CNGC may grant stock options in the future in special circumstances. When we grant stock options, the exercise price is equal to the fair market value of our common stock on the date of grant.
Timing of Equity Awards. The CNGC meets each January to approve and grant annual equity awards to our NEOs for the upcoming fiscal year. Because of the timing of these meetings, equity grants awarded for an upcoming fiscal year are reported in the executive compensation tables appearing in this proxy as granted during the prior fiscal year. The CNGC meets again in February and/or March to establish the performance goals applicable to the performance shares and any other performance-based equity granted at the January meeting. Any special equity grants to Executive Officers during the year are approved by the CNGC at a meeting or by unanimous written consent.
Does the CNGC take tax consequences into account when designing executive compensation?
Yes. Section 162(m) of the Internal Revenue Code provides that compensation in excess of $1 million paid to certain of our NEOs is generally not deductible unless it is performance-based. A significant portion of the compensation awarded to our NEOs satisfies the requirements for deductibility under Section 162(m). When designing NEO compensation, the CNGC considers whether particular elements of that compensation will be deductible for federal income tax purposes. The CNGC retains the ability to evaluate the performance of our NEOs and to pay appropriate compensation, even if our company may not be able to deduct all of that compensation under federal tax laws. With the exception of the portion of the cash incentive payment attributable to individual performance made to Mr. Castro-Wright, we believe that the cash incentive payments made to our NEOs for fiscal 2009 met these deductibility requirements. We also believe that the performance shares with a performance period ending January 31, 2009 held by our NEOs that vested met these deductibility requirements.
Do we have employment agreements with our NEOs?
Other than the agreement with Mr. Scott, described below, pursuant to which Mr. Scott will continue to serve as an Executive Officer of our company and as Chairman of the Executive Committee of our Board of Directors, we do not have employment agreements with any of our NEOs. All other NEOs are employed on an at-will basis.
Do we have severance agreements with our NEOs?
We have entered into a post-termination and non-competition agreement with each NEO. Each agreement provides that, if we terminate the NEOs employment for any reason other than his violation of company policy, we will generally pay the NEO an amount equal to two times the NEOs base salary, one-fourth of which is paid upon termination of employment and the balance of which is paid in installments commencing six months after separation. The amount payable may be reduced by the amount of any earnings that the NEO receives from other employment during that period.
Under these agreements, each NEO has agreed that for a two-year period following his termination of employment, he will not participate in a business that competes with us and will not solicit our Associates for employment. In this context, competing business means any retail, wholesale, or merchandising business that sells products of the type sold by us, is located in a country in which we have a store or in which the executive knows we expect to have a store within the next two years, and has annual retail sales revenue of at least $2 billion. These agreements reduce the risk that any of our former NEOs would use the skills and knowledge they gained while with us for the benefit of one of our competitors during a reasonable period after leaving our company. For more information regarding payments that we may be required to make to our NEOs upon termination of employment, see the disclosure below entitled Potential Payments Upon Termination or Change in Control.
In November 2008, Mr. Scott announced that he would retire as our President and CEO, effective January 31, 2009. We entered into an agreement with Mr. Scott whereby he will continue to be employed by our company through January 31, 2011, and will continue to serve as Chairman of the Executive Committee of our Board of Directors. Pursuant to this agreement, Mr. Scott will receive an annual base salary of $1.1 million, but he will not be eligible to earn a cash incentive under our Management Incentive Plan. Mr. Scotts unvested stock options, restricted stock and performance shares will continue to vest in the normal course through January 31, 2011, with the following exceptions. Mr. Scott forfeited 25 percent of the 208,508 target performance shares he received on January 22, 2007, 25 percent of the 55,608 target performance shares he received on March 26, 2007, and 50 percent of the 299,496 target performance shares he received on January 21, 2008. Under this agreement, the vesting of certain restricted stock grants held by Mr. Scott that were scheduled to vest at age 65 will be accelerated following his retirement after January 31, 2011. This agreement, which also amended Mr. Scotts preexisting non-compete agreement, extended Mr. Scotts non-competition and non-solicitation obligations under that agreement through March 14, 2016.
Does our compensation program contain any provisions addressing the recovery or nonpayment of compensation in the event of misconduct?
Yes. Our cash incentive plan provides that, in order to be eligible to receive an incentive payment, the participant must have complied with our policies, including our Statement of Ethics, at all times. It further provides that if the CNGC determines, within twelve months following the payment of an incentive award, that prior to the payment of the award, a participant has violated any of our policies or otherwise committed acts detrimental to the best interests of our company, the recipient must repay the incentive award upon demand. Similarly, our 2005 Stock Incentive Plan provides that if the CNGC determines that an Associate has committed any act detrimental to the best interests of our company, he or she will forfeit all unexercised options and unvested Shares of restricted stock and performance shares.
Are our NEOs subject to any minimum requirements regarding ownership of our stock?
To further align the long-term interests of our NEOs and our shareholders, our Board has approved the following stock ownership guidelines:
The Board or CNGC can modify these guidelines in the event of dramatic and unexpected changes in the market value of our Shares, or in other circumstances that the Board or CNGC deem appropriate. These guidelines became effective in June 2008 for each NEO with the exception of Mr. Castro-Wright, for whom the guidelines will become effective in February 2010 (the fifth anniversary of his initial appointment as an executive officer). All NEOs are currently in compliance with these guidelines.
Are there any restrictions on the ability of NEOs to engage in speculative transactions involving company stock?
Yes. Our Insider Trading Policy allows NEOs to trade in our stock only during open window periods and only after they have pre-cleared transactions. Moreover, NEOs may not at any time engage in any short selling, buy or sell exchange-traded puts or calls, or otherwise engage in any transaction in derivative securities that reflects speculation about the price of our stock or that may place their financial interests against the financial interests of our company.
This table shows the compensation for each of the Companys NEOs for the fiscal years shown.
The expense relating to restricted stock awards to the NEOs is recognized ratably in monthly increments over the vesting period of the award. Restricted stock awards vest on a number of different schedules. Certain restricted stock awards vest in installments of 25 percent of the Shares of restricted stock awarded on the third and fifth anniversaries of the grant date, with the remaining 50 percent vesting on the seventh anniversary of the grant date. Other restricted stock vests only upon the retirement on or after age 65 of the recipient.
Restricted stock granted to the NEOs as part of their annual grants on January 23, 2009 and January 21, 2008 will vest in three equal installments on the second, fourth and fifth anniversaries of the grant date. In fiscal 2008, Mr. Castro-Wright also received a second grant that will vest in equal installments on the third and fifth anniversaries of the grant date. In fiscal 2009, Mr. Castro-Wright also received a performance-based restricted stock award scheduled to vest on June 30, 2010, assuming performance conditions are satisfied, and Mr. Duke received a performance-based restricted stock award scheduled to vest on January 31, 2012, assuming performance conditions are satisfied.
As to awards of restricted stock made prior to January 2008, within thirty days of receiving a restricted stock award, a recipient could elect to defer payment of the restricted stock in the form of cash or Shares once the restricted stock vests. Such awards as to which the recipients have elected to defer the restricted stock award in cash are treated as a liability of the Company, which is marked-to-market monthly through expense using the closing Share price on the last business day of the month, which was $47.12 on January 30, 2009, $50.74 on January 31, 2008 and $47.69 on January 31, 2007. Prior to January 2008, when recipients elected to have awards paid or deferred in Shares, the award was treated as an equity award, and the expense was calculated using the closing Share price on the last business day of the month of election. All awards of restricted stock made on or after January 21, 2008 may be paid or deferred only in Shares, and the expense is calculated using the closing Share price on the date of grant. The amounts reflected in this column include both cash and Share settled awards.
Performance share award expense is recognized ratably in monthly increments over the vesting period of the award, generally three years, taking into account the likelihood of the Company achieving the performance goals set by the CNGC for each award. The following assumptions were made as of January 31, 2009, 2008 and 2007, regarding the likelihood of the Company achieving the performance goals for awards for which an amount is reflected in this column for each fiscal year shown:
Recipients of performance share awards scheduled to vest on January 31, 2010 may receive payment in cash or Shares at vesting. Awards made to recipients who have elected to receive the award in cash are treated as liabilities, which are marked-to-market monthly through expense, using the closing Share price on the last business day of the month, which was $47.12 on January 30, 2009, $50.74 on January 31, 2008 and $47.69 on January 31, 2007. Awards to be paid or deferred in Shares are treated as equity awards, and the expense is calculated using the closing Share price on the last business day of the month of election. Awards made during or after January 2008 may be paid or deferred solely in Shares, and the expense is calculated using the closing Share price on the date of grant. The amounts shown in this column include both cash and Share settled awards. On March 5, 2008, the CNGC determined that the threshold performance goals for the three-year performance period ending January 31, 2008 applicable to performance shares granted to the NEOs and certain other senior executives and scheduled to vest on January 31, 2008 had not been satisfied. On March 7, 2007, the CNGC determined that the threshold performance goals for the two-year performance period ending January 31, 2007 applicable to performance shares granted to the NEOs and certain other senior executives and scheduled to vest on January 31, 2007 had not been satisfied. Because the performance goals were not met, the performance shares awarded to the NEOs that had been scheduled to vest on January 31,
2007 and January 31, 2008 were cancelled and these NEOs did not receive any payout for these performance shares, as follows:
Because these performance shares did not vest, the cumulative expense recognized for the performance shares that would have vested on January 31, 2008 and performance shares that would have vested on January 31, 2007 was reversed during fiscal 2008 or fiscal 2007, as applicable. As a result, the amounts reflected in this column include the following credits:
On November 20, 2008, the Company entered into an agreement with Mr. Scott in connection with his retirement from the Company, which retirement was effective on January 31, 2009. Pursuant to that agreement, Mr. Scott forfeited 25 percent of the 208,508 performance shares he received on January 22, 2007, 25 percent of the 55,608 performance shares he received on March 26, 2007, and 50 percent of the 299,496 performance shares he received on January 21, 2008 on the effective date of his retirement. As a result of such forfeitures, the Company recorded a compensation expense credit of approximately $2.8 million during fiscal 2009. In addition, Mr. Scott and the Company agreed that the vesting of 407,792 Shares of restricted stock that were scheduled to vest upon Mr. Scotts retirement from the Company on or after age 65 would be accelerated to occur on February 1, 2011 after his anticipated retirement from all positions with the Company on January 31, 2011. As a result of these vesting date accelerations, the Company recorded an additional compensation expense of approximately $280,000 during fiscal 2009.
The value shown for personal use of Company aircraft is the incremental cost to the Company of such use, which is calculated based on the variable operating costs to the Company per hour of operation, which include fuel costs, maintenance, and associated travel costs for the crew. Fixed costs that do not change based on usage, such as pilot salaries, depreciation, insurance, and rent, were not included.
All other compensation for each NEO in each fiscal year shown also includes Company contributions to the Profit Sharing/401(k) Plan, as well as term life insurance premiums paid by Wal-Mart for the benefit of each officer for those fiscal years. This amount also includes the Companys costs related to a physical examination for Messrs. Scott, Schoewe, Duke and Castro-Wright in fiscal 2009, and for Messrs. Scott, Duke, and Castro-Wright for fiscal 2008 and fiscal 2007. This amount also includes monitoring and maintenance costs for home security equipment for Messrs. Scott and Duke in each fiscal year shown and for Mr. Schoewe in fiscal 2007. For Mr. Castro-Wright, the amounts for fiscal 2009 and fiscal 2008 include the costs of tax preparation services, and for fiscal 2007 includes certain tax equalization payments related to his former expatriate assignment as president and CEO of Wal-Mart de Mexico, S.A. de C.V. In addition, the amounts for each NEO included the amounts of certain other tax gross-up payments. The values of these personal benefits are based on the incremental aggregate cost to the Company and are not individually quantified because none of them individually exceed the greater of $25,000 or 10 percent of the total amount of perquisites and personal benefits for such NEO.
Other than post-termination agreements containing covenants not to compete (as described below under Potential Payments upon Termination or Change in Control) and the agreement entered into between the Company and Mr. Scott relating to his retirement as the Companys President and CEO as described in the CD&A above, the Company does not have employment agreements with its NEOs. The CNGC reviews and approves at least annually the compensation package of all Executive Officers, consisting of base salary, annual cash incentive payments, equity awards, and perquisites. The various incentive and equity compensation plans and types of awards available under the Companys plans are described more fully in the CD&A and more detail regarding the specific incentive and equity awards granted to NEOs during the Companys fiscal 2009, fiscal 2008 and fiscal 2007 are set forth in the Fiscal 2009 Grants of Plan-Based Awards table and accompanying notes.
FISCAL 2009 GRANTS OF PLAN-BASED AWARDS
As a result of his retirement from the position of President and CEO of the Company, Mr. Scott is not eligible to earn a cash incentive payment under the Management Incentive Plan during fiscal 2010.
For performance shares, up to 150 percent of the target number of Shares applicable to each performance metric will vest at the end of the applicable performance period, depending on the level of Wal-Marts average performance relative to goals under that performance metric over that performance period. If Wal-Mart does not meet the threshold level of performance for a particular performance metric, none of the performance shares tied to that performance metric will vest. However, vesting of the performance shares tied to other performance metrics may still occur if Wal-Mart meets at least the threshold goal for such other performance metrics applicable to the NEO. The CNGC must certify that the performance goals were attained prior to the vesting of any performance shares. Holders of performance shares do not earn dividends or enjoy other rights of shareholders with respect to such performance shares until such performance shares have vested. The CD&A provides additional information regarding the performance shares and the performance metrics used to determine if performance shares will vest and, if so, the number of Shares to vest.
As a result of his retirement from the position of President and CEO of the Company, Mr. Scott was not awarded any such performance shares or other performance-based equity awards during fiscal 2009.
As a result of his retirement from the position of President and CEO of the Company, Mr. Scott was not awarded any restricted stock during fiscal 2009.
OUTSTANDING EQUITY AWARDS AT FISCAL 2009 YEAR-END
The numbers in this column also include Shares of performance-based restricted stock for which the performance conditions have been satisfied, but which remain subject to service-based vesting requirements. These Shares of performance-based restricted stock held by the NEOs are scheduled to vest in amounts and on the dates shown in the following table:
These numbers also include 39,216 shares of performance-based restricted stock held by Mr. Duke scheduled to vest on January 31, 2012, and 39,216 shares of performance-based restricted stock held by Mr. Castro-Wright scheduled to vest on June 30, 2010. The vesting of these shares is contingent on the Company achieving minimum revenue goals for the fiscal year ending January 31, 2010.
FISCAL 2009 OPTION EXERCISES AND STOCK VESTED
FISCAL 2009 NONQUALIFIED DEFERRED COMPENSATION
The table below reflects the year in which each Named Executive Officer first made contributions to the Deferred Compensation Plan:
Under the Deferred Compensation Plan, all officers may defer up to 100 percent of their base salary and annual cash incentive awards under the Management Incentive Plan. Equity awards granted prior to January 2008 could also be deferred into the Deferred Compensation Plan upon vesting. Interest accrues on amounts deferred at an interest rate set annually by the CNGC, which is typically based on the ten-year Treasury note rate plus 2.70 percent. The Deferred Compensation Plan year ends on March 31 of each year. For the 2007 Deferred Compensation Plan year, the interest rate was 7.07 percent. For the 2008 Deferred Compensation Plan year, the interest rate was 7.36 percent. For the 2009 Deferred Compensation Plan year, the interest rate was 6.605 percent. The interest rate is the ten-year Treasury note rate determined as of the first business day of January, plus 2.70 percent.
The Deferred Compensation Plan provides an incentive payment to reward participants who have remained with the Company and contributed to the Deferred Compensation Plan for ten or more consecutive full years. Specifically:
Amounts deferred under the Deferred Compensation Plan, as well as earnings thereon, are not payable to the participating officer until after his or her separation from service with the Company. Deferrals may be paid out in a lump sum or, if applicable service requirements are met, in up to ten annual installments.
Officers may also elect to defer equity awards granted under the 2005 Stock Incentive Plan until a specified payout date, which date may be prior to the officers separation from the Company. Any de