Wal-Mart DEF 14A 2012
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 2012 ANNUAL SHAREHOLDERS MEETING
To Be Held June 1, 2012
Please join us for the 2012 Annual Shareholders Meeting of Wal-Mart Stores, Inc. The meeting will be held on Friday, June 1, 2012, at 7:00 a.m. Central time in Bud Walton Arena, University of Arkansas, Fayetteville, Arkansas.
The purposes of the 2012 Annual Shareholders Meeting are:
Important Notice Regarding the Availability of Proxy Materials for the 2012 Annual Shareholders Meeting. This year, we will once again take advantage of the rules of the Securities and Exchange Commission that allow us to furnish our proxy materials on the internet. As a result, we are mailing a notice of availability of the proxy materials on 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. Shareholders who have affirmatively requested electronic delivery of our proxy materials will receive instructions via e-mail regarding how to access these materials electronically. All other shareholders, including shareholders who have previously requested to receive a paper copy of the materials, will receive a full paper set of the proxy materials by mail. This distribution process will contribute to our sustainability efforts and will reduce the costs of printing and distributing our proxy materials.
You must have been the holder of record of shares of Wal-Mart Stores, Inc. common stock at the close of business on April 4, 2012 to vote at the 2012 Annual Shareholders Meeting. If you plan to attend the meeting, please bring the admittance slip on the back cover of this proxy statement or other proof of your ownership of Wal-Mart Stores, Inc. common stock as of the close of business on the record date (such as the notice of availability of our proxy materials if you received one) and picture identification. Regardless of whether you will attend, please vote as described on pages 3 through 7 of the proxy statement. Voting in any of the ways described will not prevent you from attending the 2012 Annual Shareholders Meeting.
The proxy statement and our Annual Report to Shareholders for the fiscal year ended January 31, 2012 are available at the Investors section of our corporate website at www.walmartstores.com/annualmeeting. In accordance with the rules of the Securities and Exchange Commission, we do not use software that identifies visitors accessing these materials on our website.
By Order of the Board of Directors
Jeffrey J. Gearhart
April 16, 2012
Admittance Requirements on Back Cover
WAL-MART STORES, INC.
702 Southwest 8th Street
Bentonville, Arkansas 72716-0215
Corporate website: www.walmartstores.com
On April 16, 2012, we began mailing to some of our shareholders a notice that this proxy statement and the related proxy materials are available on the internet. That notice contains instructions on how to access the proxy materials on the internet. On April 16, 2012, we also began mailing a full set of proxy materials to other shareholders, including shareholders who have previously requested to receive a paper copy of the proxy materials. On this date, we also sent instructions via e-mail regarding how to access the proxy materials electronically to certain shareholders who have previously requested this method of delivery. These proxy materials relate to the solicitation of proxies by the Board of Directors of Wal-Mart Stores, Inc., a Delaware corporation, for use at our 2012 Annual Shareholders Meeting. The meeting will be held in Bud Walton Arena on the campus of the University of Arkansas, Fayetteville, Arkansas, on Friday, June 1, 2012, 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:
2011 Annual Shareholders Meeting: Walmarts Annual Shareholders Meeting held on June 3, 2011
2012 Annual Shareholders Meeting: Walmarts Annual Shareholders Meeting to be held on June 1, 2012
401(k) Plan: the Walmart 401(k) Plan
Annual Report to Shareholders: Walmarts Annual Report to Shareholders for fiscal 2012
Associate: an employee of Walmart or one of its subsidiaries
Audit Committee: the Audit Committee of the Board
Board: the Board of Directors of Walmart
Board committees: the Audit Committee, the CNGC, the Executive Committee, the Global Compensation Committee, the SPFC, and the TeCC
Broadridge: Broadridge Financial Solutions, Inc., representatives of which will serve as the inspectors of election at the 2012 Annual Shareholders Meeting
Bylaws: the amended and restated Bylaws of Walmart, effective as of June 2, 2011
CD&A: the Compensation Discussion and Analysis included 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, the board of managers of a limited liability company, the board of directors or similar governing body of a non-profit entity, or any committee of the foregoing
CNGC: the Compensation, Nominating and Governance Committee of the Board
Deferred Compensation Plan: Until January 31, 2012, the Wal-Mart Stores, Inc. Officer Deferred Compensation Plan. Beginning February 1, 2012, the Walmart Deferred Compensation Matching Plan, which replaced the Officer Deferred Compensation Plan
Director Compensation Deferral Plan: the Wal-Mart Stores, Inc. Director Compensation Deferral Plan, effective June 4, 2010, which sets forth terms and procedures with respect to the deferral of cash and equity compensation paid to Non-Management Directors
E&Y: Ernst & Young LLP, an independent registered public accounting firm
Exchange Act: the Securities Exchange Act of 1934, as amended
Executive Committee: the Executive Committee of the Board
Executive Officers: those senior officers of our company designated by the Board as executive officers (as defined by Rule 3b-7 under the Exchange Act) as to whom Walmart has certain disclosure obligations and who must report certain transactions in equity securities of our company under Section 16
Fiscal 2014, fiscal 2013, fiscal 2012, fiscal 2011 and fiscal 2010: Walmarts fiscal years ending January 31, 2014, 2013, 2012, 2011, and 2010, respectively
GAAP: generally accepted accounting principles in effect in the United States from time to time
Global Compensation Committee or GCC: the Global Compensation Committee of the Board
Independent Directors: the Walmart directors whom the Board has determined have no material relationships with our company pursuant to the standards set forth in the NYSE Listed Company Rules 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
Internal Revenue Code: the Internal Revenue Code of 1986, as amended
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: Walmarts President and CEO, Walmarts CFO, the next three most highly compensated Executive Officers during fiscal 2012, and the Executive Vice President, President and CEO, Sams Club during fiscal 2012, whom Walmart is voluntarily including as an NEO in this proxy statement
Non-Management Directors: the members of the Board who are not employed by Walmart or a subsidiary of Walmart
NYSE: the New York Stock Exchange
NYSE Listed Company Rules: the NYSEs rules for companies with securities listed for trading on the NYSE, including the continual listing requirements and rules and policies on matters such as corporate governance, shareholder communication and shareholder approval
SEC: the United States 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, which was replaced, effective February 1, 2012, with the Walmart Deferred Compensation Matching Plan
Share or Shares: a share or shares of Walmart 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 Incentive Plan: the Wal-Mart Stores, Inc. Stock Incentive Plan of 2010
Stock Purchase Plan: the Wal-Mart Stores, Inc. 2004 Associate Stock Purchase Plan, as restated effective February 1, 2004, and subsequently amended
TeCC: the Technology and eCommerce Committee of the Board
Walmart, our company, the company, we, our or us: Wal-Mart Stores, Inc., a Delaware corporation
Your proxy to vote your Shares at the 2012 Annual Shareholders Meeting is solicited by the Board. Walmart pays the cost of soliciting your proxy and reimburses brokers and others for forwarding to you the proxy statement, proxy card or voting instruction form, and Annual Report to Shareholders and, for certain shareholders, the 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 4, 2012. You are entitled to one vote on each proposal presented at the 2012 Annual Shareholders Meeting for each Share you owned at that time. If you held Shares at that time in street name through a bank, broker, or other nominee, you must obtain a legal proxy, executed in your favor, from the holder of record of those Shares as of the close of business on April 4, 2012, to be entitled to vote those Shares at the meeting. As of the close of business on April 4, 2012, Walmart had 3,400,674,912 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 Walmart by Broadridge, but how you voted will remain confidential.
What is the quorum requirement for holding the 2012 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 business to be transacted at the meeting.
What vote is required to elect a director at the 2012 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, directors are elected by a plurality vote, which means that the director nominees receiving the most 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 will be elected, regardless of the number of votes cast in favor of each director nominee. 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 2012 Annual Shareholders Meeting? Any incumbent director who is a director nominee and who does not receive a majority vote in an uncontested election must promptly tender his or her offer of resignation as a director for consideration by the Board. Each director standing for reelection at the 2012 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 our 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 director 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. Only one of the director nominees named in this proxy statement is not an incumbent director. 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 2012 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: (i) ratification of the appointment of E&Y as Walmarts independent accountants for fiscal 2013; (ii) the adoption of a non-binding, advisory resolution to approve the compensation of the companys NEOs; and (iii) the adoption of each of the shareholder proposals.
What is the effect of an abstain vote on the proposals to be voted on at the 2012 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 2012 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 any matter as to which, under the NYSE Listed Company Rules, a broker may not vote without instructions from you, but the broker
nevertheless provides a proxy for your Shares. Shares as to which a broker non-vote occurs are considered present for purposes of determining whether a quorum exists, but are not considered votes cast or Shares entitled to vote with respect to such matter.
Under the NYSE Listed Company Rules, the election of directors, the advisory vote to approve the compensation of the companys NEOs, and the shareholder proposals described in this proxy statement are not matters on which a broker may vote without your instructions. Therefore, if your Shares are not registered in your name and you do not provide instructions to the record holder of your Shares with respect to these proposals, a broker non-vote as to your Shares will result with respect to these proposals. The ratification of the appointment of independent accountants is a routine item under the NYSE Listed Company Rules. As a result, brokers who do not receive instructions as to how to vote on that matter generally may vote on that matter in their discretion.
If your Shares are held of record by a bank, broker, or other nominee, we urge you to give instructions to your bank, broker, or other nominee as to how you wish your Shares to be voted so you may participate in the shareholder voting on these important matters.
How do I vote? The process for voting your Shares depends on how your Shares are held. Generally, you may hold Shares 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 2012 Annual Shareholders Meeting. If you are a record holder and would like to vote your Shares by proxy prior to the 2012 Annual Shareholders Meeting, you have three ways to vote:
Please note that telephone and internet voting will close at 11:59 p.m. Eastern time on May 31, 2012. 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 in the notice of availability of the proxy materials. If you received a proxy card in the mail and wish to vote by completing and returning the proxy card via mail, please note that your completed proxy card must be received by no later than the time the polls close for voting at the 2012 Annual Shareholders Meeting.
If you plan to attend the 2012 Annual Shareholders Meeting and wish to vote in person, you will be given, upon your request, a ballot at the 2012 Annual Shareholders Meeting. Even if you vote by proxy prior to June 1, 2012, you may still attend the 2012 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 2012 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 4, 2012) indicating that you were a beneficial owner of Shares as of the close of business on April 4, 2012, 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 2012 Annual Shareholders Meeting.
If your Shares are held through the 401(k) Plan or the Wal-Mart Puerto Rico 401(k) Plan, you must provide instructions on how you wish to vote your Shares held through such plans no later than 11:59 p.m. Eastern time on May 29, 2012. If you do not provide such instructions by that time, your Shares will be voted by the Retirement Plans Committee of the respective plan in accordance with the rules of the applicable plan.
What if I do not specify a choice for a matter when returning a signed proxy? Unless you indicate otherwise, the persons named as proxies on the proxy card will vote your Shares: FOR the election of each of the nominees for director named in this proxy statement; FOR the ratification of E&Y as Walmarts independent accountants for fiscal 2013; FOR the non-binding, advisory resolution to approve the compensation of the companys NEOs; and AGAINST each of the shareholder proposals appearing in this proxy statement.
Can I revoke my proxy? Yes, if you are a record holder, you may revoke a previously submitted proxy by:
If your Shares are held in street name through a broker, bank, or other nominee, you should 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, as it has done since 2009, Walmart is taking advantage of the SEC rule that allows companies to furnish their proxy materials on the internet to some or all of their shareholders. As a result, Walmart 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 on 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? Walmart 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 on the internet? You can access the proxy statement and the Annual Report to Shareholders in the Investors section of Walmarts corporate website at www.walmartstores.com/annual meeting. If you wish to join in Walmarts sustainability efforts, you can instruct Walmart 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 Walmarts 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 and the Annual Report to Shareholders 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 and the Annual Report to Shareholders as part of that e-mail notification. We will mail a paper copy of the proxy materials and the Annual Report to Shareholders 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 of availability, 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 of availability, 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 you receive or vote the Shares to which each proxy card relates by telephone or internet as described above, or vote in person as described above. If you have Shares held in one or more street names, you must complete, sign, date and return to each bank, broker or other nominee through which you hold Shares each voting instruction card received from that bank, broker or other nominee.
How can I attend the 2012 Annual Shareholders Meeting? Only shareholders who owned Shares as of the close of business on April 4, 2012 will be entitled to attend the 2012 Annual Shareholders Meeting. You will be admitted to the 2012 Annual Shareholders Meeting only if you present a valid admittance slip (or other written proof
of Share ownership as described below) and photo identification (such as a valid drivers license or passport) at an entrance to Bud Walton Arena, the facility at which the 2012 Annual Shareholders Meeting is held.
No cameras, camcorders, videotaping equipment, other recording devices or large packages will be permitted in Bud Walton Arena. Photographs and videos taken at the 2012 Annual Shareholders Meeting may be used by Walmart. By attending the 2012 Annual Shareholders Meeting, you will be agreeing to Walmarts use of those photographs and videos and waive any claim or rights with respect to those photographs and videos and their use.
If you are unable to attend the 2012 Annual Shareholders Meeting in person, you may view a live webcast at www.walmartstores.com/shareholdersmeeting. The webcast of the 2012 Annual Shareholders Meeting will be available for viewing for a limited time after the meeting.
INFORMATION ABOUT THE BOARD
Walmarts directors are elected at each annual shareholders meeting and hold office until their successors are elected and qualified or, if earlier, their resignation, death or removal. All nominees for election to the Board are presently directors of Walmart with the exception of Marissa A. Mayer, who is standing for election to the Board for the first time. If the shareholders elect all of the director nominees named in this proxy statement at the 2012 Annual Shareholders Meeting, Walmart will have 16 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 2012 Annual Shareholders Meeting to be 16 directors.
Your proxy holder will vote your Shares for the election of each of the Boards nominees named below 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 as directors at the 2012 Annual Shareholders Meeting have been nominated by the Board based on the recommendation of the CNGC. The information set forth below includes, with respect to each nominee, his or her age, principal occupation and employment during the past five years, the year in which he or she first became a director of Walmart, and directorships held by each nominee at other public companies during the past five years. In addition to the information presented below regarding each nominees specific experience, qualifications, attributes and skills that led the Board to conclude that he or she should serve as a director, our Board believes that each of our director nominees has demonstrated outstanding achievement in his or her professional career; 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 has also determined that each nominee has met the minimum qualifications for Board service described below under Nomination Process for Director Candidates. As set forth in our companys Corporate
Governance Guidelines, 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 orientation.
The Board recommends that shareholders vote FOR each of the nominees named above for election to the Board.
A majority of our directors must be independent in accordance with the independence requirements set forth in the NYSE Listed Company Rules. In addition, the Audit Committee and the CNGC must be composed solely of independent directors to comply with the NYSE Listed Company Rules and, in the case of the Audit Committee, also with the SECs rules. The NYSE Listed Company Rules define specific relationships that disqualify directors from being independent and further require that for a director to qualify as independent, the Board must affirmatively determine that the director has no material relationship with our company. The SECs rules contain a separate definition of independence for members of audit committees.
The Board has determined that the following directors are Independent Directors under the independence standards set forth in the NYSE Listed Company Rules: Aida M. Alvarez, James W. Breyer, M. Michele Burns, James I. Cash, Jr., Roger C. Corbett, Douglas N. Daft, Steven S Reinemund, Arne M. Sorenson, Christopher J. Williams, and Linda S. Wolf. The Board has also determined that the currently serving members of the Audit Committee and the CNGC meet the independence standards for membership on those Board committees set forth in the NYSE Listed Company Rules and, as to the Audit Committee, the SECs rules. Additionally, the Board has determined that Marissa A. Mayer, who is standing for election as a director for the first time at the 2012 Annual Shareholders Meeting, is independent under these standards.
In making these determinations, the Board found that the current Independent Directors, as well as Ms. Mayer, do not currently have a material or other disqualifying relationship with Walmart and that the currently serving Independent Directors and Ms. Mayer have not had during the last three years: (i) any of the disqualifying relationships set forth in the NYSE Listed Company Rules referred to above; or (ii) any other material relationship with our company that would compromise their independence. The CNGC recommended that the Board make these determinations.
In April 2012, the Board and the CNGC reviewed directors and the director nominees responses to a questionnaire asking about their relationships with the company (and their immediate family members relationships
with the company) and other potential conflicts of interest, as well as material provided by management related to transactions, relationships, or arrangements between the company and the directors or the director nominee or parties related to the directors or the director nominee. The Board made its determination as to whether any relationship between a director or the director nominee and Walmart is a material relationship based on the facts and circumstances of the relationship, the amounts involved in the relationship, the directors or director nominees interest in such relationship, if any, and such other factors as the Board, in its judgment, deemed appropriate.
In making its determination as to the independence of our Independent Directors and Ms. Mayer, the Board considered certain types of relationships as noted below:
In addition, in making their independence determinations, the Board and the CNGC considered that each of the directors and the director nominee, and entities with which she or he is affiliated, or one or more members of her or his immediate family, have in the past purchased property or services from Walmart in retail transactions, all of which transactions were on terms no better than those generally available to Associates at the time of the transactions. All of the other relationships and transactions of the types described above were entered into at arms length in the normal course of business and, to the extent they are commercial relationships, have standard commercial terms.
In their determination as to Mr. Breyers independence, the Board and the CNGC considered that, as a partner in Accel Partners and in light of his position at certain related investment funds (the Accel Funds) and certain portfolio companies of Accel Funds, Mr. Breyer may be deemed to have an indirect interest in certain portfolio companies which engaged in transactions with Walmart in fiscal 2012.
In particular, the Board and the CNGC considered Mr. Breyers indirect interest, through certain Accel Funds, in Kosmix, Inc. (Kosmix). During fiscal 2012, Walmart acquired all of the equity interests in Kosmix in a merger transaction. Certain Accel Funds owned an aggregate of 15.56% of Kosmix at the time of the acquisitions closing; however, Mr. Breyer owned, directly and indirectly, less than 3% of Kosmix. The Accel Funds holding Kosmix stock received approximately $35.67 million in the transaction. Each class of Kosmix shareholders received the same consideration per respective class share. Moreover, Mr. Breyer was not involved in Walmarts identification of Kosmix as a potential acquisition candidate, was not involved in any discussions or negotiations between Walmart and Kosmix and recused himself from all Board discussions and deliberations and the approval of the Kosmix acquisition. Based on the Boards understanding of the nature of Mr. Breyers limited indirect interest in Kosmix and the fact that Mr. Breyer recused himself from all discussions, deliberations and approvals of the transaction by the Board, the Board determined that Mr. Breyers interest in the Kosmix transaction did not give rise to a material relationship with Walmart.
The Board and the CNGC also considered Mr. Breyers interest in Facebook, Inc. (Facebook). Based on his personal holdings in and his relationship with certain Accel Funds that own Facebook stock, Mr. Breyer is deemed to have voting and investment power with respect to Facebook shares having approximately 11.4% of the voting power attributable to all of Facebooks outstanding shares; however, his economic interest in Facebook amounts to less than 5% of Facebooks voting securities. He also serves as a member of the board of directors of Facebook. In fiscal 2012, Walmart paid Facebook for display advertising amounts that represent less than 1% of Facebooks 2011 revenues. Walmart anticipates that it will continue to purchase advertising from Facebook during fiscal 2013. Mr. Breyer has not been and is not currently involved in any transaction between Walmart and Facebook. Based on Mr. Breyers limited economic interest in Facebook stock, both directly and through the Accel Funds, and Mr. Breyers lack of involvement in the transactions between Walmart and Facebook, the Board determined that Mr. Breyers interest in Facebook does not give rise to a material relationship with Walmart.
In their determination of Ms. Mayers independence, the Board and the CNGC considered Ms. Mayers position as an officer of and a less than 1% equity owner of Google Inc. (Google). During fiscal 2012, Walmart paid Google for advertising space on Googles websites amounts that represented less than 1% of Googles 2011 revenues. Walmart anticipates that it will purchase advertising space on Googles websites during fiscal 2013. Ms. Mayer has not been and is not currently involved in any transaction between Walmart and Google. Based on the Boards consideration of Ms. Mayers position as an officer of Google and ownership of Google securities, the fact that Ms. Mayer is not involved in any transaction between Walmart and Google, and certain other factors mentioned above, the Board determined that Ms. Mayers interest in Google does not give rise to a material relationship with Walmart.
In their determination of Ms. Alvarezs independence, the Board and the CNGC considered Ms. Alvarezs husbands position as an officer of Kaiser Permanente (Kaiser). In fiscal 2012, Walmart paid Kaiser for health insurance benefits amounts representing less than 1% of Kaisers 2011 revenues. Walmart anticipates that it will continue to make payments to Kaiser for health insurance benefits during fiscal 2013. Ms. Alvarezs husband has not been and is not currently involved in any transaction between Walmart and Kaiser. Based on the Boards consideration of Ms. Alvarezs husbands position as an officer of Kaiser, the fact that he is not involved in any transaction between Walmart and Kaiser, and certain other factors mentioned above, the Board determined that Ms. Alvarezs husbands position with Kaiser does not give rise to a material relationship with Walmart.
The Board and the CNGC concluded that none of the above relationships or transactions: (i) constitute disqualifying relationships under the NYSE Listed Company Rules; (ii) otherwise compromise the independence of the named directors or Ms. Mayer; or (iii) otherwise constitute a material relationship between Walmart and the named directors or Ms. Mayer.
Annual Director Compensation
The base compensation for Non-Management Directors upon their election to the Board on June 3, 2011 consisted of a Share award and an annual retainer. During fiscal 2012, Michael T. Duke and S. Robson Walton received compensation only for their services as Executive Officers of our company and not in their capacities as directors.
For service on the Board for the term beginning upon election at the 2011 Annual Shareholders Meeting on June 3, 2011, each Non-Management Director received an annual equity award of Shares with a market value of $175,000, rounded to the nearest whole share. These Shares were awarded on June 3, 2011. The number of Shares awarded was determined by dividing the dollar amount of the award by the closing price of the Shares on the NYSE on the date of the grant. This annual equity award was paid directly in Shares or deferred in stock units, as elected by each Non-Management Director. In addition, each Non-Management Director elected to the Board at the 2011 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 2011 Annual Shareholders Meeting. This annual retainer may be taken in cash, in Shares rounded to the nearest whole share, deferred in stock units, or deferred into an interest-credited account, as elected by each Non-Management Director.
The Non-Management Directors who serve as the chair of a Board committee receive an additional retainer for the additional time required for Board committee business. For the Board term commencing at the 2011 Annual Shareholders Meeting, the retainer for the chairs of the Audit Committee and CNGC was $25,000, and the retainer for the chairs of the SPFC and TeCC was $20,000. In addition, Non-Management Directors who serve on more than one standing Board committee receive an additional $15,000 annually. Further, the director appointed by the Board to serve as the presiding director of executive sessions of the Non-Management Directors and Independent Directors receives an additional $20,000 annually. Finally, each Non-Management Director who attends in person a Board meeting held at a location that requires intercontinental travel from his or her residence is paid a $4,000 meeting attendance fee. This additional fee is intended to compensate our Non-Management Directors for the additional time required to travel intercontinentally. These additional fees are payable in arrears in equal quarterly installments, and may be taken in cash, in Shares rounded to the nearest whole share, deferred in stock units, or deferred into an interest-credited account, as elected by each Non-Management Director.
Pursuant to the CNGCs 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 2012 is described in the table below.
DIRECTOR COMPENSATION FOR FISCAL 2012 (1)
The following directors elected to receive the amounts included in this column in the form of Shares, rounded to the nearest whole share, in lieu of cash:
The following directors elected to defer the receipt of the amounts included in this column, either in the form of cash deposited into an interest-bearing account or in the form of stock units, as shown below:
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, and/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 who have served on the Board for five years or more currently own sufficient Shares to satisfy the guidelines.
The Board held a total of four meetings during fiscal 2012 to review significant developments affecting our company, engage in strategic planning, and act on matters requiring Board approval. During fiscal 2012, each incumbent 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. Beginning in fiscal 2013, the Board will hold at least five meetings each year.
BOARD AND COMMITTEE GOVERNING DOCUMENTS
The Board has adopted Corporate Governance Guidelines and charters for each of the standing Board committees. 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 by writing to our Investor Relations Department at: Wal-Mart Stores, Inc., Investor Relations Department, 702 Southwest 8th Street, Bentonville, Arkansas 72716-0100. You may also request copies of these and other corporate governance documents at no charge by accessing the Investors tab on our corporate website at www.walmartstores.com, clicking on Contact Investor Relations, and then completing and submitting the online form provided, specifying the documents you would like to receive.
BOARD LEADERSHIP STRUCTURE
We have separated the roles of the Chairman and the CEO of our company since 1988. We separate these roles in recognition of the differences between the two roles and the value to our company of having the distinct and different perspectives and experiences of a separate Chairman and CEO. As specified in our Bylaws, our CEO is responsible for the general management, supervision and control of the business and affairs of our company, and ensuring that all orders and resolutions of the Board are carried into effect. Our Chairman, on the other hand, is charged with presiding over all meetings of the Board and our shareholders, and providing advice and counsel to the CEO and our companys other officers regarding our business and operations. By separating the roles of CEO and Chairman, our CEO is able to focus his time and energy on managing Walmarts complex daily operations, while our Chairman can devote his time and attention to addressing matters relating to the responsibilities of our Board. Our CEO and Chairman have an excellent working relationship, and, with over 40 years of experience with Walmart, our Chairman is well positioned to provide our CEO with guidance, advice and counsel regarding our companys business, operations and strategy. Moreover, we believe that having a separate Chairman focused on oversight and governance matters allows the Board to more effectively perform its risk oversight role described below. In connection with the Boards annual self-evaluation process, as required by our Corporate Governance Guidelines, the Board evaluates its organization and processes to ensure that the Board is functioning effectively. For the foregoing reasons, we believe that our separate CEO/Chairman structure is the most appropriate and effective leadership structure for our company and our shareholders.
THE BOARDS ROLE IN RISK OVERSIGHT
The Audit Committee reviews and discusses with management the companys processes and policies with respect to risk assessment and risk management, including the companys enterprise-wide risk management program. In addition, the companys risk oversight process involves the Board receiving information from management on a variety of matters, including operations, legal, regulatory, finance, reputation and strategy, as well as information regarding any material risks associated with each matter. The full Board (or the appropriate Board committee, if the Board committee is responsible for the oversight of the matter) receives this information through updates from the appropriate members of management to enable it to understand, monitor and give direction with respect to the companys risk management practices. In addition, when a Board committee receives an update, the chairperson of the relevant Board committee reports on the discussion to the full Board during the Board committee reports portion of the next Board meeting. This enables the Board and the Board committees to coordinate the risk oversight role.
James W. Breyer currently serves as the presiding director of executive sessions of the Non-Management Directors and Independent Directors.
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 encourages all directors to make attendance at all annual shareholders meetings a priority. With the exception of Ms. Burns and Mr. Reinemund, each of our current directors attended the 2011 Annual Shareholders Meeting.
COMMUNICATIONS WITH THE BOARD
The Board welcomes communications from shareholders and other interested parties. Shareholders and other interested parties may write to the Board or individual members of the Board at:
Name of Director(s) or Board of Directors
c/o Lynn Hancock, Senior Liaison to the Board of Directors
702 Southwest 8th Street
Bentonville, Arkansas 72716-0215
Shareholders and other interested parties also may e-mail the entire Board at email@example.com; the Independent Directors at firstname.lastname@example.org; the Non-Management Directors at email@example.com; and any individual 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 firstname.lastname@example.org.
A company of our size receives a large number of inquiries regarding a wide range of subjects each day. As a result, our individual directors are often not able to respond to all inquiries directly. Therefore, our Board has provided a process for managing communications to the Board and individual directors.
Communications directed to the Board or individual directors are reviewed by Walmarts legal department to determine whether, based on the facts and circumstances of the communication, a response on behalf of the Board or an individual director is appropriate. If a response on behalf of the Board or an individual director is appropriate, Walmart will assist the Board or individual director in gathering all relevant information and preparing a proposed response for the Boards or the individual directors review and approval.
Because the Board 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, communications pertaining to such matters will be directed to an appropriate member of management for a response. Further, Walmart will typically not distribute to the Board or an individual director communications of a threatening or personal nature, voluminous or mass mailings on the same subject matter, business solicitations or advertisements, surveys, or other communications otherwise inappropriate for the Boards or an individual directors consideration. Walmarts legal department maintains records of communications directed to the Board and individual directors, and such records are available to our directors at any time upon request of any director.
NOMINATION PROCESS FOR DIRECTOR CANDIDATES
Pursuant to its charter and the companys Corporate Governance Guidelines, the CNGC is responsible for identifying, evaluating, and recommending potential candidates to the Board for nomination for election to the Board. The CNGCs charter and the companys Corporate Governance Guidelines may be viewed in the Corporate Governance section of the Investors page of our corporate website at www.walmartstores.com.
In fulfilling this responsibility, the CNGC selects potential candidates on the basis of the candidates 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; willingness and ability to devote adequate time to Board duties; and such other experience, attributes and skills that the CNGC may determine as qualifying candidates for service on the Board. The CNGC also considers whether a potential candidate satisfies the independence and other requirements for service on the Board, as set forth in the NYSE Listed Company Rules, the SECs rules, and other applicable laws, rules, or regulations. Additional information regarding director qualifications and the nomination process for director candidates is set forth in the CNGCs charter and our Corporate Governance Guidelines.
As a part of the candidate 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 our companys director candidate search consultant. In this capacity, SpencerStuart seeks out candidates who have the experience, skills, and characteristics that the CNGC has identified for potential candidates, conducts an extensive search for and analysis of potential candidates, and then presents the most qualified candidates to the CNGC and our Chairman. If the CNGC decides, on the basis of its preliminary review, to proceed with further consideration of a potential candidate, the chair of the CNGC and other members of the CNGC, as well as other members of the Board, as appropriate, may interview the candidate. The CNGC then 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. SpencerStuart initially identified Ms. Mayer as a potential candidate for the Board, and her nomination for election to the Board at the 2012 Annual Shareholders Meeting was a result of the process outlined above.
As provided in our companys Corporate Governance Guidelines, the Board is committed to diversified membership. The Board will not discriminate on the basis of race, color, national origin, gender, sexual orientation, religion, or disability in selecting nominees. Diversity and inclusion are values embedded into Walmarts culture and fundamental to its business. In keeping with those values, when assessing a candidate, the CNGC and the Board consider the different viewpoints and experiences that a candidate could bring to the Board and how those viewpoints and experiences could enhance the Boards execution of its responsibilities. In addition, the Board assesses the diversity of the Board and Board committees as a part of its annual self-evaluation process.
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 is considered to be in their capacities as members of the Board and is not considered to be recommendations from security holders who 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 Lynn Hancock, Senior Liaison to the Board of Directors
702 Southwest 8th Street
Bentonville, Arkansas 72716-0215
The recommendation must include the following information:
All candidates recommended for nomination to the Board by a shareholder pursuant to the requirements above will be submitted to the CNGC for its review. Any candidates recommended by shareholders meeting the above requirements will be evaluated by the CNGC on the same basis as all other potential director candidates.
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 NYSE Listed Company Rules 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. You can obtain a copy of the current Audit Committee charter in the Corporate Governance section of the Investors page of our corporate website at www.walmartstores.com. In addition, Walmart will provide a copy of the Audit Committee charter in print at no charge to any shareholder requesting a copy by writing to our companys Investor Relations Department at: Wal-Mart Stores, Inc., Investor Relations Department, 702 Southwest 8th Street, Bentonville, Arkansas 72716-0100.
Walmarts management is responsible for Walmarts internal control over financial reporting and the preparation of Walmarts consolidated financial statements. Walmarts independent accountants are responsible for auditing Walmarts 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 the effectiveness of Walmarts internal control over financial reporting. The Audit Committee monitors and oversees these processes. The Audit Committee is responsible for selecting, engaging, and overseeing Walmarts independent accountants.
As part of the oversight process, the Audit Committee regularly meets with management of our company, our companys independent accountants, and our 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 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 Rules.
AUDIT COMMITTEE PRE-APPROVAL POLICY
To ensure the independence of our independent accountants and to comply with applicable securities laws, the NYSE Listed Company Rules, 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 Walmart, 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) Walmart 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 our companys independent accountants by applicable securities laws. The Pre-Approval Policy also provides that Walmarts 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 the 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 reassesses these service categories and the associated fees. Individual projects within the pre-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 reassessed 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 Walmarts 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 discharges the Boards responsibilities relating to the compensation of our companys directors and Executive Officers. 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 Rules and applicable laws and regulations. However, the CNGC may not delegate its authority over the evaluation, establishment and approval of Executive Officer compensation. The CNGC met seven times in fiscal 2012. 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 our 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
Steven S Reinemund
Linda S. Wolf, Chair
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the directors who served on the CNGC at any time during fiscal 2012 were officers or Associates of Walmart or were former officers or Associates of Walmart. None of the directors who served on the CNGC at any time during fiscal 2012 had any relationship with our 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 had or 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 Walmart officers who serve as Executive Vice Presidents or above; to all directors and director nominees; to all shareholders beneficially owning more than five percent of Walmarts outstanding 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 and in which Walmart is a participant (each a Covered Transaction).
Under the Transaction Review Policy, each Covered Person is responsible for reporting to Walmarts Chief Audit Executive any Covered Transactions of which he or she has knowledge. Walmarts Chief Audit Executive, with the
assistance of other appropriate Walmart 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 for which prior approval and review is not sought if the Audit Committee determines that the Covered 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 Walmarts 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. Walmarts Code of Ethics for the CEO and Senior Financial Officers supplements Walmarts Statement of Ethics, which is applicable to all directors, Executive Officers, and Associates and is also available at www.walmartstores.com/ethics. A description of any substantive amendment or waiver of Walmarts Code of Ethics for the CEO and Senior Financial Officers or Walmarts 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 Walmarts Code of Ethics for the CEO and Senior Financial Officers and of Walmarts Statement of Ethics are also available in print at no charge to any shareholder who requests a copy by writing to our Investor Relations Department at: Wal-Mart Stores, Inc., Investor Relations Department, 702 Southwest 8th Street, Bentonville, Arkansas 72716-0100.
SUBMISSION OF SHAREHOLDER PROPOSALS
If you wish to present a proposal for possible inclusion in our 2013 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 2013 Annual Shareholders Meeting must be received by our company on or before December 17, 2012.
Shareholders who wish to bring business before Walmarts 2013 Annual Shareholders Meeting other than through a shareholder proposal pursuant to the SECs rules must notify the Corporate Secretary of our 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 Walmarts principal executive offices not less than 75 nor more than 100 days prior to the date of the 2013 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 2013 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 with the SEC as Exhibit 3(ii) to our companys Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2011.
Our company is not aware of any matters that will be considered at the 2012 Annual Shareholders Meeting other than the matters described herein. If any other matters are properly brought before the 2012 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 Executive Officers (our Named Executive Officers or NEOs) were compensated in fiscal 2012 (February 1, 2011 through January 31, 2012) and describe how this compensation fits within our executive compensation philosophy.
Our financial performance for fiscal 2012 was solid. Our earnings were in the top half of our annual guidance provided at the beginning of fiscal 2012, when our incentive goals were set. The Walmart US segment delivered positive comparable store sales for the fiscal year, and Walmart US sales improved over the course of the year, with consecutive fiscal quarters of positive comparable store sales in the third and fourth quarters. Walmart International continues to deliver strong growth, and Sams Club sustained its momentum, with continued strong sales and operating income. Our company continued to leverage expenses, and our return on investment (ROI) continued to be relatively stable, with ROI for fiscal 2012 moderately less than the prior fiscal year, primarily due to additional investments in property, plant and equipment, Global eCommerce, and higher inventories, as well as investments in price. Our stock price increased more than 9 percent during fiscal 2012, and we paid dividends of $1.46 per share during the fiscal year, for a total of approximately $5 billion in dividends. We also returned an additional $6.3 billion to shareholders in the form of share repurchases.
The key financial measures on which our incentive compensation plans are based are operating income, sales, and ROI. Despite our strong earnings performance and relatively stable returns in fiscal 2012, with the exception of our Sams Club division, our overall fiscal 2012 performance was below the challenging goals established by the CNGC for our executive compensation plans in which our NEOs participate. In particular, with the exception of Sams Club, our operating income fell short of the target performance goals under our cash incentive plan, and our sales and ROI fell short of the target performance goals under our long-term equity incentive program. This performance directly impacted our NEOs compensation for fiscal 2012. In particular, each of our NEOs earned a cash incentive payment that was below target for fiscal 2012, and our CEOs cash incentive payment was approximately 25 percent less than his cash incentive payment for the prior fiscal year. Similarly, with the exception of Mr. Brian C. Cornell, who was responsible for our Sams Club segment in fiscal 2012, our NEOs long-term equity incentive payout for fiscal 2012 was reduced. Because we determine long-term equity payouts based on performance over three years, these payouts will be reduced for the next two fiscal years as well.
Our Compensation Program Emphasizes Performance
Our total direct compensation (TDC) packages for NEOs, comprising base salary, annual cash incentives, and long-term equity, are heavily weighted towards performance. Base salary represents less than 17 percent of each NEOs target TDC opportunity (approximately 7 percent for the CEO), and a substantial majority (at least 69 percent) of each NEOs target TDC opportunity is contingent on meeting operating income, sales, and ROI goals that we believe have a meaningful impact on shareholder value.
Our NEOs annual cash incentive is based primarily on the operating income of our company and/or one or more operating divisions, depending on each NEOs responsibilities. Our long-term performance share program is based on total company ROI and the sales performance of one or more operating divisions, depending on each NEOs area of responsibility. We believe that this balance of performance metrics, and the balance between rewarding the performance of the total company and the performance of operating divisions, drives financial performance and shareholder value, and mitigates the risk that our executives will overemphasize any single performance metric to the detriment of our company as a whole.
In addition, our executive compensation program seeks to balance long-term and annual performance. Our annual cash incentive plan is primarily based on operating income during a single fiscal year, while our long-term performance share program is based on sales and ROI over a three-year period, with performance goals set annually and payouts
based on the average performance against these goals during each of the three years. Our executives also receive service-based restricted stock. Restricted stock granted in January 2012 as part of our NEOs annual equity awards vests on the third anniversary of the grant date. Along with performance shares, restricted stock gives our NEOs ownership in the company, as well as serving as a retention tool.
The CNGC regularly reviews our executive compensation programs to ensure that compensation is competitive but remains closely tied to performance that can be impacted by our executives and that the CNGC believes is aligned with shareholder value. In addition, the CNGC ensures that the goals and objectives of our performance-based compensation plans are challenging in light of the expectations of and our commitments to our shareholders and other stakeholders, as well as the internal expectations of the Board and our company.
Our Incentive Plans During Fiscal 2012
The compensation earned by our NEOs for fiscal 2012 shows that our incentive plans are working as designed. While our fiscal 2012 earnings performance was strong, our total company operating income was below the fiscal 2012 target goals under our annual cash incentive plan. As a result, our CEOs cash incentive payment for fiscal 2012 was approximately $2.88 million, which was significantly less than his target payout of $4.05 million. This compares to a cash incentive payment of $3.85 million to our CEO for fiscal 2011, and a maximum cash incentive payment of $4.80 million to our CEO for fiscal 2010.
With respect to our long-term performance share program, our ROI remained relatively stable, but was below the target performance goal under this plan, and our sales performance also fell short of our target performance goals under this plan (with the exception of Sams Club, which exceeded its sales goals for fiscal 2012 under this plan). As a result, with respect to the portion of performance shares dependent on fiscal 2012 performance, our CEO earned approximately 28 percent less than his target opportunity (compared to approximately 14 percent less than his target opportunity earned in fiscal 2011, and approximately 8 percent above target earned in fiscal 2010). Because we average three separate years of performance to determine the three-year payout under our performance share program, not only did this result in a lower performance share payout for fiscal 2012, but it will also adversely impact our CEOs performance share payouts for fiscal 2013 and fiscal 2014.
Who are the Named Executive Officers Covered in this Proxy Statement?
For fiscal 2012, our NEOs were:
Mr. Ashe joined our company less than one month before the end of fiscal 2012. However, because Mr. Ashe received his initial annual equity award in January 2012, prior to the end of fiscal 2012, Mr. Ashe is an NEO for fiscal 2012 due primarily to the value of this annual equity award. Mr. Ashe did not receive a cash incentive payout or a long-term performance share payout for fiscal 2012. We have voluntarily included Mr. Cornell as a NEO because he led our Sams Club segment during fiscal 2012.
Impact of Fiscal 2012 Performance on Executive Compensation
How was Walmarts fiscal 2012 performance reflected in our executive compensation?
Cash Incentive Plan. While our fiscal 2012 earnings performance was strong, operating income for the total company, as well as for the Walmart US and International segments, was below the fiscal 2012 target performance goals under our annual cash incentive plan. As a result, our CEOs cash incentive payment for fiscal 2012 was less than the target payout. With the exception of Mr. Ashe, who was not eligible for a cash incentive payout for fiscal 2012, each of our other NEOs also received a cash incentive payout that was below target.
Moreover, because our growth in operating income during fiscal 2012 was not as strong relative to our performance goals as it was in the prior two years, our NEOs earned less under our annual cash incentive plan for fiscal 2012 than for each of the prior two years (with the exception of Mr. Simon, whose payout percentage was slightly higher and whose cash incentive opportunity was greater in fiscal 2012 than in prior years, as described below). The following table compares our fiscal 2012, fiscal 2011, and fiscal 2010 payouts under our cash incentive plan:
As a result, our NEOs who continued in the same positions with the same cash incentive opportunities earned a smaller cash incentive payment for fiscal 2012 as compared to the previous two fiscal years. For example, our CEO earned a cash incentive payment for fiscal 2012 that was almost $1.0 million less than his cash incentive payment for fiscal 2011, and approximately $1.9 million less than his cash incentive payment for fiscal 2010, when he received a maximum payout under the plan:
Performance Shares. With respect to our long-term performance share program, our ROI was below the target performance goal under our long-term incentive plan. Our sales performance for the total company and the Walmart US and International divisions also fell short of our target performance goals under this plan. As a result, as shown in the table below, we fell short of our target performance share goals applicable to each of our NEOs, with the exception of Mr. Cornell, who was responsible for our Sams Club operations. Because we average three separate years of performance to determine the three-year payout under our performance share program, not only did this result in a lower performance share payout for fiscal 2012, but it will also adversely impact our NEOs performance share payouts for fiscal 2013 and fiscal 2014.
As a result of our fiscal 2012 performance, the combined value of Mr. Dukes performance share payouts for fiscal 2012, fiscal 2013 and fiscal 2014 will be approximately $3.2 million less than if we had reached our target performance share goals for fiscal 2012 (assuming a stock price of $61.36 per share, which was the closing price of Shares on the NYSE on January 31, 2012). Actual performance share payouts to our NEOs for the three-year period ended January 31, 2012 are shown below on page 31.
Fiscal 2012 Performance Measures and Performance Goals
What performance metrics were used in our executive compensation program for fiscal 2012?
Commensurate with the CNGCs philosophy, our NEOs fiscal 2012 TDC was substantially performance-based. Each NEOs performance measures are based on the performance of our total company or a combination of the performance of our total company and the NEOs operating division. This approach is consistent with our objective of compensating officers based on performance within their control or influence, while still tying a significant portion of executive compensation to the performance of the overall company to drive the companys business strategies. The performance measures applicable to our NEOs fiscal 2012 compensation were:
The CNGC chose these performance measures to align with the companys strategic priorities of growth, leverage, and returns. The CNGC concluded that the combination of these performance metrics was likely to incentivize our executives to achieve performance that is in line with the best interests of our company and our shareholders. In addition, the CNGC believes that the combination and weighting of these performance metrics help to mitigate the risk that our executives would be motivated to pursue results with respect to one metric to the detriment of our company as a whole. For example, if our management were to seek to increase sales by pursuing strategies that would negatively impact our profitability, resulting increases in performance share payouts should be offset by decreases in annual cash incentive payouts.
What were our specific performance targets for fiscal 2012, and how did we perform in comparison to these targets?
In determining actual performance for purposes of our performance-based plans, the CNGC made certain positive and negative adjustments to our reported results, as provided by the terms of the applicable plans. These adjustments are intended to enable results for a particular fiscal year to be computed on a comparable basis to the prior year, and to ensure that our incentive plans reward underlying operational performance, disregarding factors that are beyond the control of our executives. For fiscal 2012, operating income and ROI were adjusted to exclude the net effect of recent acquisitions, currency exchange rate fluctuations, natural disaster-related costs, the sale of real estate in Brazil, and certain other items that were not material in the aggregate or individually, and sales growth was adjusted to exclude the effects of fuel sales by our International and Sams Club segments, currency exchange rate fluctuations, and acquisitions. The adjustments to operating income had the effect of reducing the fiscal 2012 cash incentive payments earned by our NEOs.
Annual Cash Incentive Payment Goals. The growth goals applicable to the cash incentive payments are expressed in terms of a percentage increase over our prior year performance. For fiscal 2012, the threshold, target, and maximum performance goals under our cash incentive plan, and our actual performance, are shown in the following table:
The results shown above resulted in the following annual cash incentive payments to our NEOs for fiscal 2012:
A portion of each NEOs cash incentive payment is also subject to satisfying diversity objectives, and each NEOs cash incentive payment can be reduced by up to 15 percent if he or she does not satisfy these objectives. For fiscal 2012, these objectives consisted of two components: good faith efforts and placements. Each of our NEOs is subject to good faith efforts requirements. In order to satisfy the good faith efforts component of this program, each NEO must actively sponsor at least two associates and must also participate in at least two diversity-related events.
Each of our NEOs with responsibility for our Walmart US and/or Sams Club field operations are also subject to placement objectives. For fiscal 2012, Messrs. Duke, Simon and Cornell were subject to placement objectives. The determination as to whether an NEO satisfies his or her placement objectives is based on several factors, including the relative number of diverse candidates placed in specified positions within the NEOs organization; the NEO demonstrating engagement and participation in a diversity and inclusion strategy; the NEOs leadership efforts in implementing these strategies; and the NEOs efforts in recruiting and developing diverse associates. Applying these factors, at the end of each fiscal year, our Chief Diversity Officer reviews each NEOs performance under our diversity program and reports the results of this review to the CNGC prior to the approval of annual cash incentive payouts to our NEOs. Based on the report of our Chief Diversity Officer, the CNGC determined that each NEO satisfied his diversity goals for fiscal 2012.
Performance Share Goals. The following table shows the performance goals set by the CNGC for fiscal 2012 under our performance share program, and our performance against those goals:
These adjusted results were averaged with the adjusted results for fiscal 2010 and fiscal 2011, the other two fiscal years within the three-year performance period, and compared to the goals established by the CNGC to determine the ultimate performance share payout for the performance shares with a three-year performance cycle ending January 31, 2012:
Components of Fiscal 2012 Compensation and Pay Mix
What are the other components of our NEOs compensation?
In addition to the annual cash incentive and long-term performance shares described above, our NEOs also receive a base salary and a service-based restricted stock award. These four elements comprise each NEOs total direct compensation, or TDC. Consistent with our philosophy of tying compensation to performance, the value of each NEOs annual restricted stock award is one-third the target value of the NEOs performance share award.
How much of our NEOs TDC was performance-based in fiscal 2012?
For fiscal 2012, base salary represented less than 17 percent of each NEOs target TDC opportunity, and a substantial majority of each NEOs target TDC opportunity was comprised of an annual cash incentive and performance shares that is, compensation that is contingent on satisfying a balance of performance measures that we believe have a meaningful impact on shareholder value, as shown in the following charts.
Mr. Ashe is not included above because he joined our company at the end of fiscal 2012.
What other types of compensation did our NEOs receive for fiscal 2012?
Our NEOs may from time to time receive special awards. Special awards are typically granted for retention purposes or in recognition of extraordinary performance. Because these awards are not part of an NEOs annual compensation, the special awards are not included in TDC.
In March 2011, the CNGC approved a special performance-based cash award opportunity for Mr. Cornell in the amount of $2 million. In order for Mr. Cornell to earn this award, Sams Club total sales, excluding fuel, had to increase by at least 1.1 percent during fiscal 2012. The purpose of this award was to emphasize the importance of continued strong sales performance. During fiscal 2012, total sales for Sams Club, excluding fuel, increased by approximately 5.4 percent. As a result, Mr. Cornell earned the award in full. The special performance-based cash award is included on the Summary Compensation table in Mr. Cornells fiscal 2012 compensation since it was earned for that period.
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 for our NEOs. We provide each NEO with personal use of our aircraft for a limited number of hours each
year. Our NEOs also receive company-paid life and accidental death and dismemberment insurance. Our NEOs also are entitled to benefits available to officers generally, such as participation in the Deferred Compensation Plan, and benefits available to Associates generally, including a Walmart discount card, a limited 15 percent match of purchases of Shares through our Stock Purchase Plan, participation in the 401(k) Plan, medical benefits, and foreign business travel insurance. We provide these perquisites and supplemental benefits to attract talented executives to our company and to retain our current executives.
Fiscal 2012 Total Direct Compensation Opportunity
What was the TDC for the NEOs in fiscal 2012 and the other years covered in the Summary Compensation table?
The following table shows the TDC established for each NEO for the fiscal years reported on the Summary Compensation table, rounded to the nearest thousand. 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.
As described above, because our overall performance during fiscal 2012 was not as strong as our performance during the prior two fiscal years, our continuing NEOs realized less of their TDC opportunity during fiscal 2012 as compared to prior fiscal years.
Why is TDC different than the amounts shown in the Summary Compensation table?
Inclusion of the TDC table above is not designed to replace the Summary Compensation table, but rather to provide insight into the CNGCs decision-making process when establishing NEO compensation. The Summary Compensation table that appears on page 43 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 necessarily reflect the compensation opportunities approved by the CNGC for our NEOs, nor do they necessarily provide insight into the compensation that may actually be earned by each NEO upon satisfaction of applicable performance conditions. For example, because the CNGC typically grants annual equity awards to our NEOs prior to the start of the fiscal year, the equity awards granted for fiscal 2013 appear on the Summary Compensation table as part of fiscal 2012 compensation. As noted above, Mr. Ashe received equity awards in January 2012 that are included on the Summary Compensation table for fiscal 2012, but are intended as part of Mr. Ashes fiscal 2013 TDC.
What were the significant changes to our NEOs compensation for fiscal 2012?
There were no significant changes to the basic TDC structure for NEOs in fiscal 2012. After including a Walmart US sales component in Mr. Simons cash incentive award in fiscal 2011, Mr. Simons cash incentive for fiscal 2012 was based on operating income, as it is for our other senior executives and most management Associates generally. In making this change, the CNGC recognized that a significant portion of Mr. Simons TDC is already dependent on Walmart US sales by means of our long-term performance share program.
For fiscal 2012, our NEOs received base salary increases ranging from approximately 2 percent to approximately 4 percent, which is consistent with annual base salary increases for management Associates generally. For fiscal 2012, Mr. Simons target cash incentive award increased from 180 percent to 200 percent of his base salary. This increase reflected Mr. Simons continued experience in his leadership role and was intended to align Mr. Simons cash incentive opportunity with other internal leaders and external peer groups.
How is TDC allocated between annual and long-term compensation?
A majority of each NEOs fiscal 2012 TDC was allocated to performance shares, which have a three-year performance period. An additional portion of fiscal 2012 TDC was allocated to restricted stock, which vests on the third anniversary of the grant date. The following charts illustrate this allocation for our CEO and for our other NEOs as a group. The percentages may not total 100.0% due to rounding.
We believe that this mix appropriately balances annual and long-term performance.
Executive Compensation Philosophy and Process
Who establishes the TDC at Walmart?
The CNGC is the Board committee that is responsible for establishing and approving the compensation of the officers subject to Section 16, including the CEO and other NEOs. The members of the CNGC are independent (see pages 18 and 24 for more information on the CNGC).
The CNGC met seven times in fiscal 2012. During each of these meetings, the CNGC considered executive compensation matters, including the review and approval of compensation for our NEOs; the selection of performance metrics and performance goals applicable to the NEOs performance-based compensation; and the review of performance against those metrics.
What is the companys compensation philosophy in establishing TDC?
The companys philosophy is that a substantial portion of TDC should be tied to performance that drives the companys business strategies and that each NEO can impact. This philosophy focuses on the long-term interests of
shareholders and seeks to align the interests of the NEOs with the companys continued growth and long-term performance goals. Applying this philosophy, the CNGC designs the executive compensation program to:
How does the CNGC establish TDC?
The process of setting TDC is a dynamic one. The CNGC considers, among other things:
Generally, our NEOs target TDC (which would be earned if target performance goals are achieved) place the NEOs in the top quartile of the peer groups for their respective positions. The CNGC believes that it is generally appropriate to position our NEOs target TDC at this level because, as the worlds largest retailer, the companys size, extensive international presence, and complex operations result in our NEO jobs having a greater level of complexity than similar jobs at many of our peer group companies. The target TDC opportunity for a new executive may be less than the top quartile of the peer groups depending on a number of factors, particularly time and experience in a similar role. In evaluating individual performance, the CNGC relied on annual performance evaluations for each NEO and discussions with the NEOs supervisor.
The differences in TDC among our NEOs are due to many factors. These factors include the differences in job scope and responsibilities; the CNGCs review of peer group compensation information through peer benchmarking; 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 on page 33 represent the CNGCs judgment as to the appropriate compensation opportunities in light of these factors.
How is TDC allocated among the various elements of compensation?
Base Salary. In keeping with our philosophy that a substantial majority of NEO compensation should be performance-based, the CNGC typically allocates a relatively small percentage 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.
Annual Cash Incentive. Under our Management Incentive Plan, most salaried management Associates, including our NEOs, are eligible to earn an annual cash incentive payment. The target opportunity for the annual cash incentive is based on a percentage of base salary. The cash incentive payout can range from 37.5 percent of the target opportunity at threshold to a maximum of 125 percent of the target opportunity. For example, our CEOs target opportunity is 320 percent of his base salary, and he can earn a cash incentive from 120 percent of his base salary at threshold to a maximum of 400 percent of his base salary. The cash incentive earned depends on whether we achieve pre-established performance goals, and no payout will be made unless the threshold performance goals are met. The CNGC sets the performance goals in the first quarter of the fiscal year.
Long-Term Equity Awards. The balance of TDC (generally the largest portion) is then allocated between two forms of long-term equity compensation. We believe that long-term equity awards help align the interests of our NEOs with the interests of our shareholders, as well as providing a retention tool. Consistent with our philosophy of tying
compensation to performance, 75 percent of the annual equity award is in the form of performance shares, with the remaining 25 percent granted in the form of restricted stock.
Performance Shares. 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. Generally, performance shares granted to our executives have a three-year performance period, with the performance metrics set annually by the CNGC. The number of Shares received at payout is based on the average performance as compared to these performance metrics over three fiscal years. The NEOs can earn from 50 percent at threshold, to a maximum of 150 percent of the target number of Shares.
Restricted Stock. The remaining 25 percent of the equity value is in the form of restricted stock, which, for annual awards granted in fiscal 2012, vests on the third anniversary of the grant date, so long as the NEO remains employed by our company on the vesting date.
How does the CNGC set performance goals?
The goals for our performance-based plans are established in light of the operating plans for our company and each of its operating segments. The companys operating plans to reach our strategic goals are reviewed by the Board in light of economic conditions in our industry and in the broader markets in which we operate. The companys operating plans are generally intended to be challenging, and fiscal 2012 was no exception, particularly given the economic environment for our core customer.
In order to achieve the target goals in our performance-based plans, our company and operating segments must perform in line with our sales, operating income, and return on investment expectations and operating plans at the time the goals were set. In order to achieve the maximum goals, the performance of our company and operating segments would have to exceed those expectations to a significant degree. Generally, goals for our International division require greater increases in operating income and sales relative to our other divisions. This reflects our strategic growth plans for our international operations in light of market conditions and the level of capital investment required for growth in the international markets in which we operate.
The CNGC generally attempts to set the threshold and maximum performance goals so that a consistent level of expected difficulty in achieving these goals is maintained from year to year. The CNGC generally establishes the maximum performance goals at a level that would represent superior performance for the company and the threshold performance goals at a level that is attainable but below which the company could not justify a payment.
Do our NEOs receive any compensation that is not included in TDC?
On occasion, we grant our officers, including our NEOs, special awards that are not included in TDC. These awards are generally in the form of performance-based restricted stock or service-based restricted stock and are intended for retention purposes and/or to reward exceptional performance. Also, 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. The CNGC did not increase or decrease any NEOs cash incentive payment for fiscal 2012. Mr. Cornell received a special performance-based cash award of $2 million based on Sams Club performance during fiscal 2012, which is described above on page 32. Our NEOs also receive limited perquisites and other benefits as described above on pages 32-33.
In January 2012, the CNGC approved a special performance-based cash award opportunity for Mr. Simon in the amount of $3 million. Half of this award is contingent on meeting performance goals for fiscal 2013, and half is contingent on meeting performance goals for fiscal 2014. In March 2012, the CNGC established a performance goal for fiscal 2013 applicable to this award. The CNGC will establish a performance goal or goals for the portion of this award contingent on fiscal 2014 performance at a later date. The purpose of this award was to allow the CNGC the ability to set separate strategic goals for Mr. Simon, which for fiscal 2013 is to continue to emphasize the importance of sales growth, and for retention purposes.
Also in January 2012, the CNGC approved a $2 million special restricted stock award to Mr. McMillon, primarily for retention purposes. One half of this award will vest on the first anniversary of the grant date and the other half will vest on the fourth anniversary of the grant date, provided that Mr. McMillon continues to be employed by Walmart through the vesting dates. Finally, as is customary for new officer hires, in January 2012, the CNGC approved two performance share awards to Mr. Ashe that were in addition to his annual performance share award that is scheduled
to vest on January 31, 2015. These additional performance share awards are scheduled to vest on January 31, 2013 and January 31, 2014, respectively, and each has a target value of $3.375 million, which is equal to the target value of his annual performance share award.
In addition, as described above, our NEOs receive other benefits generally available to our Associates, such as participation in our 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 described above.
Other Compensation Considerations
Are there any significant changes to our executive compensation program for fiscal 2013?
For fiscal 2013, the basic structure of our executive compensation program is unchanged. In March 2012, the CNGC established performance metrics and goals for the fiscal 2013 performance-based plans. For fiscal 2013, our executive incentive compensation programs continue to be based on sales, operating income, and ROI metrics.
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 of these NEOs provided by our CEO and the recommendations provided by our Chairman, our Global People division, and our CEO. As part of this process, our CEO reviews his annual performance evaluations of the other NEOs with the CNGC.
When establishing and approving the compensation of our CEO, our Chairman, with support from our Global People division and the Chair of the CNGC, reviews our CEOs performance evaluation with the CNGC and makes recommendations to the CNGC regarding our CEOs compensation.
Since early 2007, the CNGC has engaged an independent consultant on executive compensation matters. Since early 2010, Pay Governance LLC (Pay Governance) has been engaged by the CNGC as its independent executive compensation consultant. Under the terms of its engagement, Pay Governance reports directly and exclusively to the CNGC; the CNGC has sole authority to retain, terminate, and approve the fees of Pay Governance; and Pay Governance may not be engaged to provide any additional consulting services to Walmart without the approval of the CNGC. Other than its engagement by the CNGC, Pay Governance does not perform any services for Walmart. The CNGCs independent consultant attends and participates in CNGC meetings at which executive compensation matters are considered, and performs analyses for the CNGC at the CNGCs request, including benchmarking, realizable pay analysis, analysis of the correlation between performance metrics and shareholder return, and assessments of the difficulty of performance goals.
How is peer group data used by the CNGC?
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, the CNGC reviews publicly available information for three peer groups to determine how our NEOs compensation compares 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 results in a larger number of comparable positions to which our NEOs compensation can be benchmarked.
The CNGC uses 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. 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.
While the benchmarking data is generally used for comparable positions, the CNGC also reviews peer group data for retail CEO positions for our executives who lead our operating divisions. These roles have significant responsibilities, and the CNGC believes that these positions are often comparable to CEO positions at many of our
peer group companies. In addition, from a competitive standpoint, it is more likely that our operating segment leaders would be recruited for a CEO position, rather than a lateral move. Therefore, we benchmark these executives compensation against that of CEOs within our retail peer groups.
Retail Industry Survey. This survey allows us to compare our NEO compensation to that of our primary competitors in the retail industry. For fiscal 2012, the Retail Industry Survey included all publicly traded retail companies with significant U.S. operations with annual revenues exceeding approximately $10 billion, which were:
The fiscal 2012 target TDCs of our NEOs were in the top quartile of TDCs for peer positions within the Retail Industry Survey. When compared to CEO positions within the Retail Industry Survey, Mr. McMillons target TDC was between the 50th and 75th percentile, and Mr. Simons and Mr. Cornells target TDCs were between the 25th and 50th percentiles.
Select Fortune 100. We also benchmark 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 our Global People division, with input by the CNGCs independent consultant. 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 because 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 companies included in the Select Fortune 100 when setting fiscal 2012 compensation were:
The fiscal 2012 target TDCs for Mr. Duke and Mr. Cornell fell between the 50th and 75th percentiles of peer TDCs within the Select Fortune 100. Mr. Simons target TDC was approximately at the 75th percentile, Mr. Holleys target TDC was slightly below the 50th percentile, and Mr. McMillons target TDC was in the top quartile for peer positions within this survey group.
Top 50. At the time of our benchmarking for fiscal 2012, we were approximately 16 times larger in terms of annual revenue, and approximately 14 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 benchmark our NEOs pay against the 50 largest public companies (including selected non-U.S. based companies), excluding Walmart, in terms of market capitalization at the time of the review:
The fiscal 2012 target TDCs for Mr. Duke, Mr. Simon, and Mr. Cornell fell between the 50th and 75th percentiles of peer TDCs within the Top 50. Mr. Holleys target TDC was between the 25th and 50th percentiles, and Mr. McMillons target TDC was in the top quartile for peer positions within this survey group.
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.
Tally Sheets. The CNGC also reviews tally sheets prepared by our companys Global People division. These tally sheets summarize the total value of the compensation received by each NEO for the fiscal year and quantify the value of each element of that compensation, including perquisites and other benefits. The tally sheets also quantify the amounts that would be owed to each NEO upon retirement or separation from our company.
Advisory Shareholder Votes on Executive Compensation. At the 2011 Annual Shareholders Meeting, for the first time, Walmarts shareholders had an opportunity to cast an advisory vote to approve our NEOs compensation. At the 2011 Annual Shareholders Meeting, approximately 98.8 percent of the votes cast on this proposal were voted to approve our NEOs compensation. While this vote was not held until after the CNGC had established our NEOs compensation opportunities for fiscal 2012, the CNGC believes that the results of this vote affirms shareholders support of our companys approach to executive compensation, which as described above, has not changed significantly since fiscal 2011. The CNGC considered that support when establishing our NEOs compensation opportunities for fiscal 2013. Based on the recommendation of the Board, our shareholders also voted overwhelmingly in favor of an annual advisory vote to approve our NEO compensation, and we have determined to hold such a vote annually. The CNGC will continue to consider the outcome of these annual advisory votes when making future compensation decisions for our NEOs.
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 2012, and stock options are not currently a part of our executive compensation program. The 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 statement 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 $1,000,000 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 pay appropriate compensation, even if our company may not be able to deduct all of that compensation under federal tax laws. Similarly, the CNGC generally has the ability to require an NEO to defer into the future compensation that is not deductible under federal tax laws.
Do we have employment agreements with our NEOs?
We do not have employment agreements with any of our NEOs. All 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.
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, a competing business generally means any retail, wholesale, or merchandising business with revenues over certain thresholds that sells products of the type sold by Walmart. In addition, Mr. Ashes agreement prohibits him from working for a global eCommerce company. 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. We do not have any contracts or other arrangements with our NEOs that provide for payments or other benefits upon a change in control of our company.
We did not pay Mr. Cornell any severance in connection with his departure from our company; however, Mr. Cornell continues to be subject to the non-compete obligations described in the previous paragraph. See Potential Payments Upon Termination or Change in Control on page 53 for more information.
What types of retirement and other 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 401(k) Plan. Our NEOs do not participate in any pension or other defined benefit retirement plan.
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 participant must repay the incentive award upon demand. Similarly, our 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 executives and our shareholders, the Board has approved the following stock ownership guidelines:
If any covered officer is not in compliance with these stock ownership guidelines, he or she may not sell or otherwise dispose of more than 50 percent of any Shares that vest pursuant to any equity award during any period for which he or she is not in compliance with such guidelines until such time as he or she is in compliance with the guidelines and such sale would not cause the covered officer to cease to be in compliance with the guidelines. The Board or the 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 the CNGC deems appropriate. Currently, each of our NEOs is in compliance with our ownership guidelines.
Are there any restrictions on the ability of NEOs to engage in speculative transactions involving company stock?
Yes. Other than pursuant to a Rule 10b5-1 plan that has been approved by our legal department, 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.
RISK CONSIDERATIONS IN OUR COMPENSATION PROGRAM
The CNGC, pursuant to its charter, is responsible for reviewing and overseeing the compensation and benefits structure applicable to our Associates generally. We do not believe that our compensation policies and practices for our Associates give rise to risks that are reasonably likely to have a material adverse effect on our company. In reaching this conclusion, we considered the following factors:
Finally, our cash incentive plan and our Stock Incentive Plan both contain provisions under which awards may be recouped or forfeited if the recipient has not complied with our policies, including our Statement of Ethics, or has committed acts detrimental to the best interests of our company.
The Summary Compensation table below summarizes the compensation for each of our NEOs for the fiscal years shown.
Mr. Simon and Mr. Holley were promoted to their current positions during fiscal 2011 and became subject to Section 16 at that time. We generally grant equity awards to officers subject to Section 16 in January of each year, and to all other eligible Associates in March or April. Because of this timing, the amounts in the Stock Awards column above for fiscal 2011 for Mr. Simon and Mr. Holley include two annual equity awards: their annual award for fiscal 2011, granted in March 2010, and their annual award for fiscal 2012, granted in January 2011.
We have voluntarily included Mr. Cornell as a NEO because he led our Sams Club segment during fiscal 2012.
Mr. Ashe joined our company less than one month before the end of fiscal 2012. However, because Mr. Ashe received his initial equity awards in January 2012, prior to the end of fiscal 2012, Mr. Ashe is an NEO for fiscal 2012 due primarily to the value of these equity awards. As is customary for new officer hires, in addition to his annual performance share award that is scheduled to vest on January 31, 2015, Mr. Ashe received two additional performance share awards. These additional performance share awards are scheduled to vest, if and to the extent earned, on January 31, 2013 and January 31, 2014, respectively, and each has a target value equal to the target value of his annual performance share award.
Each NEO received an annual restricted stock award on January 30, 2012. The grant date fair value of these awards was determined based on a per-Share amount of $61.30, which was the closing price of the Shares on the NYSE on that date.
As discussed in the CD&A, the number of performance shares that vest, if any, depends on whether we achieve certain levels of performance with respect to certain performance measures. The grant date fair values of the performance share awards included in the amounts in this column are based on the probable outcome of those awards as of the grant date, i.e., the probable payout of such awards based on what we have determined, in accordance with the stock-based compensation accounting rules, to be the probable levels of achievement of the performance goals related to those awards as described in the CD&A. The table below shows the grant date fair value of the performance-based share awards granted to each NEO during fiscal 2012, fiscal 2011 and fiscal 2010 assuming: (i) that our performance with respect to those performance measures will be at the levels we deem probable as of the grant dates; and (ii) that our performance with respect to those performance measures will be at levels that would result in a maximum payout under those performance awards. The grant date fair value of each performance share award was determined based on the closing price of a Share on the NYSE on the date the award was made, discounted for the expected dividend yield for such Shares during the vesting period:
The value shown for personal use of Walmart aircraft is the incremental cost to our company of such use, which is calculated based on the variable operating costs to our 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.
The fiscal 2012 amounts in the all other compensation column also include the cost of term life insurance premiums and related tax gross-up payments, which totaled less than $10,000 for each NEO. The fiscal 2012 amounts in this column also include the companys costs related to a physical examination for Mr. Duke and Mr. Simon. The values of these personal benefits are based on the incremental aggregate cost to our 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), our company does not have employment agreements with our NEOs. We do not have any contracts or other arrangements with our NEOs that provide for payments or other benefits upon a change in control of our company. 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 our companys plans are described more fully in the CD&A, and more detail regarding the specific cash incentive and equity awards granted to NEOs during fiscal 2012 is set forth in the Fiscal 2012 Grants of Plan-Based Awards table and accompanying notes.
FISCAL 2012 GRANTS OF PLAN-BASED AWARDS (1)
The CNGC annually establishes performance goals and metrics for each fiscal year within the performance period. These performance goals and metrics may be the same as or different from the goals and metrics for any other fiscal year in the performance period. The average of our performance against the annual goals for each fiscal year within the performance period will determine the number of performance shares that ultimately vest. For fiscal
2013, the applicable performance metrics are: (i) return on investment; and (ii) sales growth of our company or one of its primary divisions, depending on each NEOs primary area of responsibility. Each NEOs performance metric weighting is as follows: