Wal-Mart DEF 14A 2014
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
WAL-MART STORES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Wal-Mart Stores, Inc.
Bentonville, Arkansas 72716-0215
Friday, June 6, 2014
7:00 a.m., Central time
Bud Walton Arena, University of Arkansas Campus, Fayetteville, Arkansas 72701
We are pleased to invite you to join our Board of Directors, senior leadership, and other shareholders for the 2014 Annual Shareholders’ Meeting of Wal-Mart Stores, Inc. The meeting will be held on Friday, June 6, 2014, at 7:00 a.m., Central time in Bud Walton Arena on the campus of the University of Arkansas, Fayetteville, Arkansas 72701. The purposes of the meeting are:
The Board of Directors set April 11, 2014 as the record date for the meeting. This means that only shareholders of record of Walmart as of the close of business on that date are entitled to:
Attending the Meeting in Person. If you plan to attend the meeting in person, please see page 88 for information regarding what you must bring with you to gain admittance to the 2014 Annual Shareholders’ Meeting.
Your Vote is Important to Us. Regardless of whether you plan to attend, we urge all shareholders to vote on the matters described in the accompanying proxy statement. Please see pages 85-86 for information about voting by mail, telephone, the internet, mobile device, or in person at the 2014 Annual Shareholders’ Meeting. Voting by proxy in any of the ways described will not prevent you from attending the 2014 Annual Shareholders’ Meeting.
The proxy statement and our Annual Report to Shareholders for the fiscal year ended January 31, 2014 are available in the “Investors” section of our corporate website at http://stock.walmart.com/annual-reports.
April 23, 2014
By Order of the Board of Directors
Jeffrey J. Gearhart
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You are voting on a proposal to elect each of the nominees named below as a director of the company. Your proxy holder will vote your Shares FOR the election of each of the Board’s nominees named below unless you instruct otherwise. If the shareholders elect all of the director nominees named in this proxy statement at the 2014 Annual Shareholders’ Meeting, Walmart will have 14 directors.
In fulfilling its responsibility for identifying and evaluating director candidates, in accordance with Walmart’s Corporate Governance Guidelines, the CNGC selects potential candidates on the basis of: outstanding achievement in their professional careers; broad experience and 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 determines qualify candidates for service on the Board.
Depending on the current composition of the Board and Board committees and the company’s current needs and business priorities, the CNGC generally seeks director candidates who possess experience, skills, or background in one or more of the following areas:
The CNGC also considers whether a potential candidate satisfies the independence and other requirements for service on the Board and its committees, as set forth in the NYSE Listed Company Rules, the SEC’s rules, and other applicable laws, rules, or regulations. Additional information regarding qualifications for service on the Board and the nomination process for director candidates is set forth in the CNGC’s charter and our Corporate Governance Guidelines.
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The following candidates for election as directors at the 2014 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, each Board committee on which he or she currently serves, and directorships of other public companies held by each nominee during the past five years.
The Board recommends that shareholders vote FOR each of the nominees named below for election to the Board.
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Yes. In accordance with our company’s historical practice regarding our company’s previous CEOs’ service on the Board and our Corporate Governance Guidelines, H. Lee Scott, Jr. and Christopher J. Williams, each of whom currently serves on the Board, will rotate off the Board at the conclusion of their current term and will not stand for reelection at the 2014 Annual Shareholders’ Meeting.
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The CNGC has primary responsibility for identifying, evaluating, and recommending potential director candidates to the Board. The CNGC’s process for board succession planning and identifying potential candidates for nomination to the Board is an ongoing one. Throughout the year, the CNGC actively engages in director succession planning and regularly evaluates whether the addition of a director or directors with particular attributes, experience, or skills would contribute to enhancing the Board’s effectiveness, achieving the company’s business objectives, and serving our company’s and shareholders’ long-term best interests.
As a part of the process of identifying potential director candidates, the CNGC may consult with other directors and senior officers and may engage a search firm to assist in the process. Spencer Stuart currently serves as our company’s director candidate search consultant. In this capacity, Spencer Stuart seeks out candidates who have the desired skills, experience, and other attributes 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. Pamela J. Craig, who was appointed by the Board as a director on November 22, 2013 to fill a newly created vacancy on the Board, was initially identified as a potential candidate for the Board by Spencer Stuart and her appointment was a result of the process outlined above. C. Douglas McMillon was appointed as a director by the Board in connection with the Board appointing him as Walmart’s President and CEO, and not as a result of the candidate search process described above.
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 either of them in the nomination process is considered to be in their capacities as members of the Board and is not considered to be a recommendation from security holders who beneficially own more than five percent of the outstanding Shares.
Yes. As provided in our company’s 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 Walmart’s 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 Board’s effectiveness in the 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.
Yes. Shareholders may recommend candidates for consideration by the Board by writing to:
Wal-Mart Stores, Inc. Board of Directors
The recommendation must include the following information:
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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 and will be evaluated by the CNGC on the same basis as all other director candidates.
See “Submission of Shareholder Proposals” on page 89 for information regarding how shareholders may bring business before Walmart’s annual shareholders’ meetings, either through the shareholder proposal process or pursuant to the advance notice provisions of Walmart’s Bylaws.
All of Walmart’s director nominees are submitted to shareholders for election at each annual shareholders’ meeting and hold office until the next annual shareholders’ meeting and until their successors are duly elected and qualified or until their earlier resignation, death, or removal. Each of the 14 director nominees named in this proxy statement currently serves on the Board and was elected by the shareholders at the 2013 Annual Shareholders’ Meeting, with the exception of Pamela J. Craig and C. Douglas McMillon, both of whom were appointed as directors by the Board on November 22, 2013.
Each incumbent director is a nominee for election as a director at the 2014 Annual Shareholders’ Meeting, with the exception of H. Lee Scott, Jr., and Christopher J. Williams, who will not be standing for reelection. The Board has authority under the Bylaws to fill vacancies and to increase or, upon the occurrence of a vacancy, decrease the Board’s size between annual shareholders’ meetings. The Board has established the size of the Board immediately after the 2014 Annual Shareholders’ Meeting to be 14 directors.
Each director nominee named in this proxy statement has previously consented to act as a director of Walmart if elected. If a nominee becomes unwilling or unable to serve as a director, your proxy holder will have the authority to vote your Shares for any substitute candidate nominated by the Board, or the Board may decrease the size of 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 directors who meet additional, heightened independence standards applicable to members of audit committees and compensation committees under the NYSE Listed Company Rules and the SEC’s rules.
In making independence determinations, the Board complies with all NYSE and SEC criteria and considers all relevant facts and circumstances. Under the NYSE Listed Company Rules, to be considered independent:
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In April 2014, the Board and the CNGC conducted their annual review of directors’ responses to a questionnaire soliciting information regarding their direct and indirect relationships with the company (and the directors’ immediate family members’ direct and indirect relationships with the company) and other relationships that may be relevant to independence, as well as due diligence performed by management regarding any transactions, relationships, or arrangements between the company and the directors or parties related to the directors. As a result of this review, the Board has determined that the following director nominees are Independent Directors under the independence standards set forth in the NYSE Listed Company Rules: Aida M. Alvarez; James I. Cash, Jr.; Roger C. Corbett; Pamela J. Craig; Douglas N. Daft; Timothy P. Flynn; Marissa A. Mayer; Steven S Reinemund; and Linda S. Wolf. The Board has also determined that Christopher J. Williams, who is not standing for reelection at the 2014 Annual Shareholders’ Meeting, is an Independent Director. In addition, the Board determined that the currently serving members of the Audit Committee and the CNGC meet the heightened independence standards for membership on those Board committees. The Board also determined that James W. Breyer, M. Michele Burns, and Arne M. Sorenson, who did not stand for reelection at the 2013 Annual Shareholders’ Meeting and, therefore, ceased to be directors of Walmart on June 7, 2013, were independent during the portion of fiscal 2014 during which they served on the Board.
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In making its determination as to the independence of our Independent Directors, the Board considered whether any relationship between a director and Walmart is a material relationship based on the materiality guidelines discussed above, the facts and circumstances of the relationship, the amounts involved in the relationship, the director’s interest in such relationship, if any, and such other factors as the Board, in its judgment, deemed appropriate. In each case, the Board found the relationship with our Independent Directors to be immaterial to the director’s independence. The types of relationships considered by the Board are noted below:
All of the relationships and transactions of the types described in the preceding paragraph fit within our materiality guidelines, with the exception of certain relationships involving immediate family members of Ms. Craig, Mr. Corbett, and Mr. Reinemund. In each of these instances, an immediate family member of one of our directors is employed by (but is not an executive officer of) a Walmart supplier or vendor that received payments from Walmart during the entity’s last fiscal year that account for more than 1% of the entity’s consolidated gross revenues for that entity’s last fiscal year. The Board determined these relationships were immaterial to each director’s independence because in each case the immediate family member: (i) is not an executive officer of the entity; (ii) is not involved in the negotiation of transactions or the business relationship between Walmart and the entity; (iii) does not receive compensation from the entity based on the marketing or sale of the entity’s goods or services to Walmart; and (iv) did not have his or her advancement within such entity based on the marketing or sale of the entity’s goods or services to Walmart. Further, the payments made by Walmart to the entities, or by the entities to Walmart, were for various products and services in the ordinary course of business, and Walmart has had a relationship with these entities for many years prior to the directors’ immediate family members’ employment with these entities.
The Board and the CNGC concluded that the Independent Directors do not currently have and have not had during the last three years relationships (including all transactions disclosed under “Related Person Transactions” on page 40) that: (i) constitute disqualifying relationships under the NYSE Listed Company Rules; (ii) otherwise compromise the independence of the named directors; or (iii) otherwise constitute a material relationship between Walmart and the directors.
The Board held a total of six meetings during fiscal 2014 to review significant developments affecting our company, engage in strategic planning, and act on matters requiring Board approval. During fiscal 2014, each incumbent director attended at least 85 percent of the aggregate number of Board meetings and meetings of Board committees on which he or she served. As a whole, during fiscal 2014, our incumbent directors attended approximately 97 percent of the aggregate number of Board meetings and meetings of Board committees on which they served. The Outside Directors and Independent Directors met regularly in executive sessions, with the presiding director chairing those sessions.
All of our Board members are expected to gain an in-depth understanding of our business and operations in order to enhance their strategic value to our Board. Shortly after joining our Board, each new director is partnered in a mutual mentoring relationship with a member of senior management, and each new director has “learn the business” meetings with the leaders of key operational and corporate support functions. At least once per year, a Board meeting is held at a location away from our home office, usually in an international market in which we operate. In connection with these Board meetings, our directors learn more about that market and our business in that market through meetings with our business leaders in the markets, visits to our stores and other facilities in the local market, and visits to the stores of our competitors. Our Board members also engage directly with our Associates at a variety of events throughout the year. Activities and events that members of our Board participated in since the beginning of fiscal 2014 include:
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The Board has six standing committees: the Audit Committee; the Compensation, Nominating and Governance Committee; the Executive Committee; the Global Compensation Committee; the Strategic Planning and Finance Committee; and the Technology and eCommerce Committee. As described above, the Board has determined that all of the members of the Audit Committee and the Compensation, Nominating and Governance Committee are independent directors as defined in the SEC’s rules and regulations and the NYSE Listed Company Rules. The charters for each committee may be found on Walmart’s website at www.stock.walmart.com in the “Corporate Governance” section.
The charts below summarize the membership of each committee, as well as the roles and responsibilities of each committee.
C = Committee Chair
I = Determined by the Board to be independent under the NYSE and applicable SEC rules and regulations
M = Member of the committee
= Chairman of the Board
= Audit Committee Financial Expert as defined under applicable SEC rules and regulations
= Presiding director
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C = Committee Chair
F = Determined by the Board to be an Audit Committee Financial Expert as defined under applicable SEC rules and regulations
I = Determined by the Board to be independent under the NYSE Listed Company Rules and applicable SEC rules and regulations
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C = Committee Chair
I = Determined by the Board to be independent under the NYSE Listed Company Rules
* Not standing for reelection at the 2014 Annual Shareholders’ Meeting
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As described below, the base compensation for Outside Directors consists of a Share award and an annual retainer. During fiscal 2014, Michael T. Duke, C. Douglas McMillon, and S. Robson Walton received compensation only for their services as Associates of our company and not in their capacities as directors.
For service on the Board for the term beginning upon election at the 2013 Annual Shareholders’ Meeting on June 7, 2013, each Outside Director received an annual Share award on June 7, 2013. The number of Shares awarded was determined by dividing $175,000 by the closing price of the Shares on the NYSE on the date of the grant, rounded to the nearest Share. This annual Share award was paid directly in Shares or deferred in stock units, as elected by each Outside Director. In addition, each Outside Director is entitled to receive an annual retainer, payable in arrears in equal quarterly installments. For the Board term that commenced upon election at the 2012 Annual Shareholders’ Meeting, this annual retainer was $60,000. Upon election at the 2013 Annual Shareholders’ Meeting, which occurred on June 7, 2013, this annual retainer increased to $75,000. This annual retainer can be received in the form of cash, in Shares (determined by dividing the dollar amount of the quarterly installment by the closing price of the Shares on the NYSE on the payment date of the quarterly installment) rounded to the nearest whole Share, deferred in stock units, or deferred into an interest-credited cash account, as elected by each Outside Director.
The Outside Directors who serve as the chair of a Board committee receive an additional retainer for the additional time required for Board committee business. During fiscal 2014, 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, Outside 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 Outside Directors and Independent Directors receives an additional $20,000 annually. These additional fees are payable in arrears in equal quarterly installments, and as noted above, may be taken in cash, in Shares (determined by dividing the dollar value of the amount of the additional fees by the closing price of the Shares on the NYSE on the payment date of the quarterly installment to such directors) rounded to the nearest whole Share, deferred in stock units, or deferred into an interest-credited cash account, as elected by each Outside Director. Finally, each Outside 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 Outside Directors for the additional time required to travel intercontinentally, and may be taken in any of the forms available for the annual retainer, as elected by each Outside Director.
Since November 2011, the Audit Committee has been conducting an internal investigation into, among other things, alleged violations of the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”) and other alleged crimes or misconduct in connection with foreign subsidiaries, and whether prior allegations of such violations and/or misconduct were appropriately handled by Walmart. The Audit Committee and Walmart have engaged outside counsel from a number of law firms and other advisors who are assisting in the ongoing investigation of these matters. This investigation has resulted in a significant increase in the workload of the Audit Committee members since the commencement of this investigation, and during fiscal 2014, the Audit Committee conducted 13 additional meetings related to the investigation and compliance matters, and Audit Committee members received frequent updates via conference calls and other means of communication with outside counsel and other advisors related to the investigation. As it had done in November 2012 in recognition of the significantly increased commitment of time required of the Audit Committee to conduct this investigation, in November 2013, the CNGC and the Board approved an additional annual fee in the amount of $75,000 payable to each Audit Committee member other than the Audit Committee Chair for fiscal 2014, and an additional annual fee in the amount of $100,000 payable to the Audit Committee Chair for fiscal 2014. These amounts were prorated for directors who served on the Audit Committee during a portion of fiscal 2014. The CNGC determined the amounts of these additional fees based on (1) the CNGC’s and the Board’s review of the significant additional time and effort that had been required of the Audit Committee members during the previous Board term in connection with these matters, which were in addition to the time spent by the Audit Committee with respect to the Audit Committee’s other duties and its regularly scheduled meetings, and (2) the expectation that the Audit Committee members would continue to expend approximately the same amount of time and effort in discharging their responsibilities as Audit Committee members at least through the remainder of fiscal 2014.
The Board has adopted stock ownership guidelines for the Outside Directors. Each Outside Director must own, within five years of his or her initial election or appointment to the Board, an amount of Shares or stock units having a value equal to five times the annual retainer component of the Outside Director’s compensation approved by the Board in the year the director was initially elected or appointed. All Outside Directors who have reached the five-year compliance date own Shares having a value exceeding this requirement.
Pursuant to the CNGC’s charter, director compensation for the Outside 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 2014 is described in the table below.
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Director Compensation for Fiscal 2014 (1)
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:
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Board and Committee Governing Documents
Each standing committee of the Board has a written charter, which sets forth the roles and responsibilities of the Board committee. In addition, the Board has adopted Corporate Governance Guidelines, as more specifically described below. Those charters, along with the company’s Corporate Governance Guidelines, provide the overall framework for our corporate governance practices. Our Corporate Governance Guidelines address, among other topics:
The CNGC and the Board review the Corporate Governance Guidelines, and the CNGC, the Board, and each Board committee review the Board committee charters at least annually to determine whether any updates or revisions to these documents may be necessary or appropriate.
In addition to the Corporate Governance Guidelines and the Board committee charters, you may access and review the following additional corporate governance documents on our corporate website at http://stock.walmart.com/corporate-governance/governance-documents:
Walmart’s Code of Ethics for the CEO and Senior Financial Officers supplements Walmart’s Statement of Ethics, which is applicable to all directors, Executive Officers, and Associates and is also available at www.walmartethics.com. A description of any substantive amendment or waiver of Walmart’s Code of Ethics for the CEO and Senior Financial Officers or Walmart’s Statement of Ethics granted to Executive Officers or directors will be disclosed on our corporate website (http://stock.walmart. com/corporate-governance/governance-documents) for a period of 12 months after the date of the amendment or waiver. There were no substantive amendments or waivers of Walmart’s Code of Ethics for the CEO and Senior Financial Officers or Walmart’s Statement of Ethics granted to Executive Officers or directors during fiscal 2014.
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Board Leadership Structure
Separation of Chairman and CEO Roles. In accordance with our Corporate Governance Guidelines, 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. Our CEO is responsible for the day-to-day management and supervision of the business and affairs of our company (such as reviewing performance and allocating resources as the company’s chief operating decision maker) and for ensuring that the directives 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 company’s other officers regarding our business and operations, as well as focusing on oversight and governance matters.
By separating the roles of CEO and Chairman, our CEO is able to focus his time and energy on managing Walmart’s 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 more than 40 years of experience with Walmart, our Chairman is well positioned to provide our CEO with guidance, advice, and counsel regarding our company’s 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 as described below. In connection with the Board’s 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.
Presiding Director. Walmart is committed to the independence of our Board. Pursuant to the company’s Corporate Governance Guidelines, the Independent Directors, upon recommendation of the CNGC, annually appoint an independent presiding director who presides over executive sessions of the Outside Directors and Independent Directors. Our Board has had an independent presiding director since 2004, and James I. Cash, Jr. currently serves as the presiding director. Reflecting Walmart’s commitment to ensuring that our Board acts independently of management, the Board recently amended the company’s Corporate Governance Guidelines to expand and further clarify and formalize additional authority and responsibilities of the presiding director, including:
For additional information regarding Dr. Cash, see page 12.
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The Board’s Role in Risk Oversight
Taking reasonable and responsible risks is an inherent part of Walmart’s business, just as it is with any business, and is critical to our continued innovation, growth, and achievement of our strategic objectives. In order to ensure the long-term success and financial strength of our company, the Board and the Board committees play an active role in overseeing the management of risks that could potentially impact the company’s operations. Such risks could include operational, legal, regulatory, financial, reputational, and other risks. The Board does not view risk in isolation, but instead considers risk in connection with virtually every business decision it makes and as part of the company’s approach to its business strategy. The company has robust internal processes and a strong internal control environment that facilitate the identification and management of risk by the company’s management, the Board, and the Board committees.
The Board carries out its risk oversight function both as a whole and through delegation of certain risk management responsibilities to the Board committees, which report regularly to the Board. The Audit Committee is responsible for reviewing and discussing with management the company’s risk identification, risk assessment, and risk management processes and policies, including the company’s enterprise-wide risk management program, as well as the company’s financial and other risk exposures and the steps management has taken to monitor and control such exposures, including the ongoing enhancement of Walmart’s global compliance program. The Audit Committee is also responsible for discussing with management and advising the Board with respect to the company’s policies, processes, and procedures regarding compliance with applicable laws and regulations, the company’s Statement of Ethics, and the company’s Code of Ethics for the CEO and Senior Financial Officers. Further, the Audit Committee oversees, and receives regular reports from management regarding, the company’s information technology and data security programs and processes, including security measures designed to protect information about our customers and other third parties. The Audit Committee meets regularly with the company’s CEO, CFO, global chief compliance officer, global chief ethics officer, and other appropriate members of management regarding the implementation and effectiveness of the company’s compliance and ethics programs. In addition, the Audit Committee oversees internal investigatory matters, including the ongoing internal investigation into alleged violations of the FCPA and other alleged crimes or misconduct in connection with certain foreign subsidiaries, and oversees the continuing enhancements to Walmart’s global compliance program.
The other Board committees also play a significant role in the Board’s oversight of risk. For example, the CNGC is charged with developing and recommending to the Board the corporate governance principles applicable to the company; implementing incentive compensation programs with features that mitigate risk without diminishing the incentive nature of the compensation; reviewing and assessing the company’s compliance with the corporate governance requirements established by the NYSE, the requirements established under SOX and the Dodd-Frank Wall Street Reform and Consumer Protection Act and related SEC rules and regulations, and other applicable corporate governance laws and regulations; reviewing and advising the Board and management regarding the company’s reputation with external constituencies, the company’s social, community, sustainability, and charitable giving initiatives and strategies; and reviewing and advising management regarding the company’s legislative affairs and public policy engagement strategy. Furthermore, the SPFC regularly reviews with management the company’s financial status and advises management and the Board regarding financial matters, including the company’s global financial policies and practices, the company’s capital structure and capital expenditures, annual financial plans, dividend policy, and matters pertaining to potential acquisitions and divestitures. The CNGC’s and the SPFC’s review of these matters necessarily includes an analysis of any risks associated with such matters. Additional information regarding the roles and responsibilities of our Board committees can be found under “Board Committees” beginning on page 25.
When a Board committee receives an update on a risk-related matter, the chair of the relevant Board committee reports on the discussion to the full Board during the Board committee reports portion of the next Board meeting. The open communication between the company’s management and the Board and the Board committees, and between the Board and the chairs and the other members of the Board committees, enables the Board, Board committees, and management to coordinate the risk oversight role in a manner that serves the long-term interests of the company and our shareholders.
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Oversight of the Company’s Legislative Affairs and Public Policy Engagement Strategy
Walmart participates in the political process when we believe that doing so will serve the best interests of the company and our shareholders. Walmart is committed to engaging in the political process as a good corporate citizen and in a manner that complies with all applicable laws. Over the years, Walmart has provided greater transparency regarding the company’s political engagement. Consistent with our commitment to participating in the political process in a thoughtful and compliant manner, in fiscal 2014, the Board amended the charter of the CNGC, requiring the CNGC to review and advise management regarding the company’s legislative affairs and public policy engagement strategy. Similarly, pursuant to its charter, the CNGC is further responsible for reviewing and advising management regarding the company’s charitable giving strategy and the company’s social, community, and sustainability initiatives. For additional information regarding Walmart’s engagement in the political process, please see Walmart’s Global Responsibility Report, available at http://corporate.walmart.com/global-responsibility/, as well as Walmart’s Government Relations Policy, available at http://corporate.walmart.com/government-relations-policy.
Management Development and Succession Planning
Our Board has a thorough process in place regarding senior management development and succession planning. The CNGC has primary responsibility for reviewing and establishing for the full Board’s approval the succession planning and retention practices for our Executive Officers and other senior leaders. Executive Officer succession planning and senior management development is a regular topic on the agendas for the meetings of the CNGC. At these meetings, the members of our CNGC, in consultation with our CEO, our Executive Vice President, Global People, and others as the CNGC may deem appropriate, engage in comprehensive deliberations regarding the development and evaluation of current and potential senior leaders, as well as the development of executive succession plans, including succession plans for our CEO position. The Board, upon recommendation of the CNGC, has also separately developed a CEO succession planning process to address certain unanticipated events and emergency situations.
After serving as our CEO for five years, Michael T. Duke retired from that position effective January 31, 2014. Pursuant to the CNGC’s and the Board’s robust succession planning process described above, the Board appointed C. Douglas McMillon to succeed Mr. Duke as our CEO effective February 1, 2014. Mr. McMillon was also appointed to the Board effective November 22, 2013. Mr. Duke continues to serve as Chairman of the Executive Committee of the Board, and in that capacity, he, among other things, provides advice and counsel to Mr. McMillon, as requested, to help ensure a smooth transition in the CEO role. Mr. McMillon joined Walmart in 1990 as an assistant store manager, and since that time, he has held numerous leadership positions in our company, including Executive Vice President, President and CEO, Walmart International, and Executive Vice President, President and CEO, Sam’s Club. For additional information regarding Mr. McMillon, see page 17.
Board and Committee Evaluations
Each year, the Board and each Board committee conduct a self-evaluation by means of extensive written questionnaires completed by each director and committee member. These anonymous questionnaires are administered by a third party and are designed to elicit candid feedback regarding the effectiveness of the Board and Board committees, Board and Board committee structure and dynamics, and areas where the Board and Board committees could improve their effectiveness.
In fiscal 2014, we further enhanced our Board and Board committee evaluation process by supplementing the written questionnaires with confidential one-on-one interviews of our directors conducted by an independent, third-party expert, who works with our Chairman and the Chair of the CNGC to develop suggested action plans. The full Board and each Board committee discuss the results of these evaluations at their next meetings.
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Board Attendance at Annual Shareholders’ Meetings
The Board has adopted a policy stating that all directors are expected to attend the company’s 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. Each of the 14 individuals nominated by the Board for election to the Board at the 2013 Annual Shareholders’ Meeting attended the 2013 Annual Shareholders’ Meeting. In addition, Mr. Scott and Mr. Williams, as well as Ms. Burns, who did not stand for reelection at the 2013 Annual Shareholders’ Meeting, attended that meeting.
Communications with the Board
The Board welcomes communications from shareholders and other interested parties and believes that such communications are an important part of our corporate governance practices. Therefore, we provide shareholders and other interested parties with a number of methods for communicating with the Board or individual directors.
Shareholders and other interested parties may write to the Board or individual members of the Board at:
Our company receives a large volume of correspondence regarding a wide range of subjects each day. As a result, our individual directors are often not able to respond to all communications directly. Therefore, our Board has established a process for managing communications to the Board and individual directors.
Communications directed to the Board or individual directors are reviewed 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 Board’s or the individual director’s review and approval.
Communications related to day-to-day management functions or operations are typically 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 Board’s or an individual director’s consideration. Walmart maintains records of communications directed to the Board and individual directors, and these records are available to our directors at any time upon request.
The company’s relationship with its shareholders is a critical part of our corporate governance processes, and we recognize the value of taking their views into account. We conduct shareholder outreach throughout the year to ensure that management and the Board understand and consider the issues of importance to our shareholders and are able to address them appropriately. We value comments from shareholders, customers, and others about our business, and we appreciate that we receive input from many stakeholders on a daily basis. Specifically related to the investment community, we receive regular analysts’ reports about our business and interact from time to time with analysts, banks, and rating agencies. This feedback helps us improve.
Our company’s investor relations (“IR”) department is the key point of contact for shareholder interaction with the company. Shareholders may access information about our company through our website at http://stock.walmart.com. This website features a wide variety of information relevant to shareholders, including recent company financial news, information regarding company events, our corporate governance documents, our Annual Reports to Shareholders, Global Responsibility Reports, SEC reports, proxy statements, and stock information, among
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other items. In fiscal 2014, we made enhancements to the IR website to include a special section for investors with a particular interest in environmental, social, and governance (“ESG”) matters. On this section of the IR website, shareholders and other interested parties can access updates regarding Walmart’s initiatives and progress on ESG matters, including archived webcasts that feature company leaders discussing various ESG topics.
Shareholders can also contact IR through our investor hotline at (479) 273-6463, through email at firstname.lastname@example.org, or through providing feedback via our IR smartphone app, WMT IR. The Walmart IR smartphone app is free and available for iPad, iPhone, and Android devices. IR responds to inquiries from shareholders – ranging from individuals to institutional shareholders – and conveys the company’s position on a wide range of issues that matter to our shareholders. When appropriate, the IR team partners with subject matter experts from other company departments, such as legal, compliance, sustainability, operations, merchandising, and other areas to provide additional context and insight regarding the company’s response to a shareholder inquiry. We have had success engaging with parties to understand shareholder concerns and reaching resolutions on issues that are in the best interests of our shareholders. Beyond our standard means of communication, in 2013, members of management spoke at numerous industry and investment community conferences, and we also conducted activities and events such as store tours, investor road shows, analyst meetings, investor conferences, and the 2013 Annual Shareholders’ Meeting. Finally, as noted above, the Board recently amended our Corporate Governance Guidelines to provide that the Board’s independent presiding director will, when deemed appropriate, be available for consultation with major shareholders.
The CNGC has reviewed and discussed with our company’s management the CD&A included in this proxy statement and, based on that review and discussion, the CNGC recommended to the Board that the CD&A be included in this proxy statement.
The CNGC submits this report:
Aida M. Alvarez
Compensation Committee Interlocks and Insider Participation
None of the directors who served on the CNGC at any time during fiscal 2014 (including the current CNGC members listed above on page 26 and Steven S Reinemund, who served on the CNGC until June 7, 2013) were officers or Associates of Walmart or were former officers or Associates of Walmart. Further, none of the members who served on the CNGC at any time during fiscal 2014 had any relationship with our company requiring disclosure under the section of this proxy statement entitled “Related Person Transactions.” Finally, no Executive Officer serves, or in the past fiscal year has served, as a director of, or as a member of the compensation committee (or other board committee performing equivalent functions) of, any entity that has one or more of its executive officers serving as a director of Walmart or as a member of the CNGC.
Audit Committee Report
The Audit Committee consists of four Outside Directors, each of whom has been determined by the Board to meet the heightened independence criteria applicable to Audit Committee members and to satisfy the financial literacy requirements of the NYSE Listed Company Rules and the applicable rules of the SEC. Each member of the Audit Committee has also been determined by the Board to be an “audit committee financial expert” as defined under applicable SEC rules and regulations. The members of the Audit Committee are James I. Cash, Jr.; Pamela J. Craig; Timothy P. Flynn; and Christopher J. Williams, the Chair of the Audit Committee. Additional information regarding the members of the Audit Committee and the Audit Committee’s roles and responsibilities is set forth under “Proposal No. 1 – Election of Directors” and “Board Committees” on pages 11 – 19 and 25 – 26 of this proxy statement.
The Audit Committee held 22 meetings in fiscal 2014, 13 of which related primarily to its ongoing FCPA-related investigation and compliance matters. Additional information about the Audit Committee’s role in the investigation may be found under “Compensation of the Directors” on page 28. During fiscal 2014, at its regularly scheduled in-person meetings, the Audit Committee had separate private sessions with our company’s
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CEO, CFO, chief audit executive, global chief compliance officer, global chief ethics officer, the independent accountants, and others, during which sessions candid discussions regarding our company’s financial, accounting, auditing, and internal control over financial reporting, compliance, and ethics matters took place. Throughout the year, the Audit Committee had full access to management, the independent accountants, and internal auditors. The Audit Committee has retained independent legal counsel and met periodically with its legal counsel throughout fiscal 2014 regarding the FCPA-related investigation and ongoing enhancements to our global compliance program.
The Audit Committee’s meeting agendas are established by the Chair of the Audit Committee in consultation with the chief audit executive, the company’s Corporate Secretary, and other members of senior management.
The Audit Committee operates pursuant to a written charter, which may be found in the “Corporate Governance” section of Walmart’s website located at http://stock.walmart.com/corporate-governance/governance-documents. The Audit Committee reviews and assesses the adequacy of its charter on an annual basis.
To fulfill its oversight responsibilities as detailed in its charter, the Audit Committee did, among other things, the following in fiscal 2014 or subsequent to fiscal 2014 for matters related to fiscal 2014:
The Audit Committee submits this report:
James I. Cash, Jr.
The Board has determined that James I. Cash, Jr., Pamela J. Craig, Timothy P. Flynn, 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 SEC’s Rule 10A-3, and the requirements set forth in the NYSE Listed Company Rules.
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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 on, and, if appropriate, pre-approving all audit, audit-related, and non-audit services to be performed for our company 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 company’s independent accountants (the “Pre-Approval Policy”).
The Pre-Approval Policy provides that our company’s 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: (i) the service has been pre-approved by the Audit Committee; or (ii) 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 company’s independent accountants by applicable securities laws. The Pre-Approval Policy also provides that Walmart’s 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 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 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 would cause 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 Walmart’s independent accountants for services outside the Audit Committee’s 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 Committee’s next regular meeting. The Audit Committee approved all of the audit-related fees, tax fees, and all other fees paid to the company’s independent accountants in fiscal 2014.
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; all directors and director nominees; all shareholders beneficially owning more than five percent of Walmart’s outstanding Shares; and 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 Walmart’s chief audit executive any Covered Transactions of which he or she has knowledge. Walmart’s 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:
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The Audit Committee may also ratify a Covered Transaction of which prior approval and review was not sought if the Audit Committee determines that the Covered Transaction meets the criteria above and the failure to obtain pre-approval was unintentional or inadvertent.
The following categories of transactions are exempt from review and approval under the Transaction Review Policy:
Related Person Transactions
This section discusses certain direct and indirect relationships and transactions involving Walmart and certain of its directors, Executive Officers, the beneficial owners of more than five percent of the Shares outstanding, and certain immediate family members of the foregoing. Walmart believes that the terms of the transactions described below are comparable to terms that would have been reached by unrelated parties in arm’s-length transactions.
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Although shareholder ratification is not required, the appointment of E&Y as the company’s independent accountants for fiscal 2015 is being submitted for ratification at the 2014 Annual Shareholders’ Meeting because the Board believes doing so is a matter of good corporate governance practice. Furthermore, the Audit Committee will take the shareholders’ vote on this matter into consideration in future deliberations. If E&Y’s selection is not ratified at the 2014 Annual Shareholders’ Meeting, the Audit Committee will consider the engagement of other independent accountants. The Audit Committee may terminate E&Y’s engagement as the company’s independent accountants without the approval of the company’s shareholders whenever the Audit Committee deems termination appropriate.
The Audit Committee is directly responsible for the appointment, compensation, retention, and oversight of the independent accountants. The Audit Committee has appointed E&Y as the company’s independent accountants to audit the consolidated financial statements of the company for fiscal 2015. E&Y and its predecessor, Arthur Young & Company, have been Walmart’s independent accountants since prior to the company’s initial offering of securities to the public in 1970. E&Y served as the company’s independent accountants for fiscal 2014 and audited and reported on the company’s annual consolidated financial statements for that year.
The Audit Committee annually reviews E&Y’s independence and performance in determining whether to retain E&Y or engage another independent registered public accounting firm as our company’s independent accountants. As part of that annual review, the Audit Committee considers, among other things, the following:
Based on this evaluation, the Audit Committee believes that E&Y is independent and well qualified to serve as our company’s independent accountants. Further, the Audit Committee and the Board believe it is in the best interests of Walmart and our company’s shareholders to retain E&Y as our company’s independent accountants for fiscal 2015.
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Representatives of E&Y will attend the 2014 Annual Shareholders’ Meeting. They will have the opportunity to make a statement if they desire to do so and to respond to appropriate questions.
E&Y’s fees billed for fiscal 2014 and fiscal 2013 were as follows:
A description of the types of services provided in each category is as follows:
Audit Fees – Includes the audit of the company’s annual consolidated financial statements, the audit of the effectiveness of internal control over financial reporting, the review of the company’s quarterly reports on Form 10-Q, statutory audits required internationally, and consents for and review of registration statements filed with the SEC.
Audit-Related Fees – Includes audits of the company’s employee benefit plans, due diligence in connection with acquisitions, accounting consultations related to GAAP, the application of GAAP to proposed transactions, statutory financial statement audits of non-consolidated affiliates, and work related to the company’s compliance with its obligations under SOX.
Tax Fees – Includes tax compliance at international locations, domestic and international tax advice and planning, assistance with tax audits and appeals, and tax planning for acquisitions and restructurings.
None of the services described above were approved pursuant to the de minimis exception provided in Rule 2-01(c)(7)(i)(C) of Regulation S-X promulgated by the SEC.
For the above reasons, the Board recommends that the shareholders vote FOR the ratification of E&Y as the company’s independent accountants for fiscal 2015.
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Compensation Discussion and Analysis
In the following pages, we highlight the principal executive compensation practices that we have implemented to help achieve our company’s performance objectives and serve the long-term interests of our shareholders. We also discuss how our CEO, CFO, and certain other Executive Officers (our NEOs) were compensated in fiscal 2014 (February 1, 2013 through January 31, 2014) and describe how their fiscal 2014 compensation fits within our executive compensation philosophy. For fiscal 2014, our NEOs were:
Disclosure regarding Ms. Brewer’s compensation for fiscal 2014 is not required under SEC rules. Nevertheless, we have included fiscal 2014 compensation information for Ms. Brewer in this proxy statement on the same basis as our other NEOs. We chose to include this information in the proxy statement in order to provide shareholders with compensation information regarding the leaders of each of our three operating segments. Including this information regarding Ms. Brewer’s compensation also provides shareholders an opportunity to review the performance of our Sam’s Club segment and how Sam’s Club performance fits into our incentive plans.
During fiscal 2014, we operated in a challenging global environment for retail. Low inflation, relatively high unemployment, fragile consumer confidence, and reductions in government benefits led to modest consumer spending in the U.S., while some international markets were impacted by higher taxes and tighter consumer credit. During fiscal 2014:
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The CNGC sets challenging goals for our annual and long-term incentive programs. The fiscal 2014 performance described above did not achieve target goals set by the CNGC under these programs, and therefore resulted in below-target payouts under these programs (see pages 45-46).
For more information regarding our financial performance during fiscal 2014, see our Annual Report on Form 10-K for fiscal 2014 filed with the SEC on March 21, 2014. Our ROI, the constant currency consolidated net sales, excluding acquisitions, of our company during fiscal 2014 and the increase in such net sales over fiscal 2013, the increase in constant currency net sales, excluding acquisitions, of Walmart International during fiscal 2014, the increase in net sales and operating income, excluding fuel, of Sam’s Club during fiscal 2014, and other financial measures discussed above are considered to be non-GAAP measures under SEC rules. Information about how we calculate these financial measures, reconciliations to the most directly comparable financial measures calculated in accordance with GAAP, and other information relating to these financial measures, can be found in Annex A to this proxy statement, which is incorporated by reference into this CD&A.
Our executive compensation program is intended to:
There are three components of our executives’ total direct compensation, or TDC: base salary, annual cash incentive, and long-term equity (consisting of a mix of performance shares and restricted stock):
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For fiscal 2014, our NEO compensation packages were once again heavily weighted towards performance and aligned with our key financial priorities – growth, leverage, and returns:
Consistent with our pay-for-performance philosophy, a significant majority of our NEOs’ target TDC for fiscal 2014 was performance-based, as well as exposed to fluctuations in the price of our common stock. In addition, our fiscal 2014 TDC packages sought to reward both long-term and annual performance, as shown in the charts below.
The compensation earned by our NEOs for fiscal 2014 shows that our performance-based incentive plans are working as designed. As noted above, our financial performance during fiscal 2014 was below our expectations at the beginning of the fiscal year. As a result, payouts under our incentive programs were below target levels.
Fiscal 2014 Cash Incentive Plan
Our annual cash incentive plan is based primarily on operating income performance. As noted above, during fiscal 2014, our operating income was lower than we expected at the beginning of the fiscal year and when the CNGC established performance targets for fiscal 2014. As a result, for fiscal 2014, each of our NEOs received a cash incentive payout less than his or her target payout under this plan. Our CEO earned a cash incentive payment for fiscal 2014 that was approximately $1.5 million less than his cash incentive payment for fiscal 2013, and approximately $1.6 million less than his target cash incentive payment.
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Fiscal 2014 Performance Share Program
Our long-term performance share program is based on a mix of sales and ROI goals. As noted above, during fiscal 2014, our ROI decreased, and excluding certain discrete items, our ROI was less than our target ROI performance goal under this program. Additionally, each of our operating segments fell short of its target sales goals, and our total company and our Sam’s Club segment fell short of their threshold sales goals under this program. As a result, the fiscal 2014 performance for each of our NEOs was significantly less than target, and were at the lowest levels of the last several years. Under our performance share program, fiscal 2014 performance was averaged with the prior two fiscal years’ performance, resulting in the following payouts of performance shares to our NEOs for the three-year performance cycle applicable to those performance shares:
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At each of our last three annual shareholders’ meetings, our shareholders had an opportunity to cast an advisory vote to approve our NEOs’ compensation. At each of these meetings, more than 98 percent of the votes cast on this matter were voted to approve our NEOs’ compensation. The CNGC considered that level of support when establishing our NEOs’ compensation opportunities for fiscal 2014. As a result, the CNGC made no material changes in the structure of our executive compensation program for fiscal 2014 or the performance measures used in our executive compensation program for fiscal 2014. At the 2014 Annual Shareholders’ Meeting, we will again hold an annual advisory vote to approve executive compensation (see page 74). The CNGC will consider the results from this year’s and future years’ advisory votes on executive compensation when making decisions about our executive compensation program.
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Components of NEO Compensation and Pay Mix
Our NEOs each receive a base salary, annual cash incentive opportunity, long-term performance shares, and service-based restricted stock. These elements comprise each NEO’s total direct compensation, or TDC.
Base Salary. We pay base salaries commensurate with an NEO’s position and experience. 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.
Annual Cash Incentive. Under our Management Incentive Plan, most salaried Associates, including our NEOs, are eligible to earn an annual cash incentive payment. Each NEO’s annual target cash incentive award 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 CEO’s target opportunity is 320 percent of his base salary, and his actual payout can range from 120 percent of his base salary at threshold, up to a
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maximum of 400 percent of his base salary. No payout will be made unless the threshold performance goal is met for a particular performance measure. The CNGC sets the performance goals under our Management Incentive Plan during the first quarter of each fiscal year.
Long-Term Equity. The balance of TDC – and generally the largest portion of TDC – is 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 and also serve as a retention tool for our company’s executives. Consistent with our philosophy of tying compensation to performance, 75 percent of our annual long-term equity awards 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 recipient the right to receive a number of Shares if we meet certain pre-defined performance goals during a specified performance period. Generally, performance shares granted to our executives have a three-year performance period, with the performance measures and goals set annually by the CNGC. The number of Shares that an NEO receives at the end of the performance period is based on the average performance as compared to these performance goals during each of these three years. Our NEOs can earn from 50 percent at threshold to a maximum of 150 percent of the target number of Shares linked to each performance metric at the time of payout. For purposes of establishing the number of performance shares granted to our NEOs, performance shares are valued by multiplying the number of shares by the Share price on the date of grant (which differs from the grant date fair value reported on the Summary Compensation table on page 64 due to the fact that performance shares do not receive dividends or dividend equivalents prior to vesting).
Restricted Stock. The remaining 25 percent of the long-term equity value is in the form of restricted stock, which vests on the third anniversary of the grant date, provided that the NEO remains employed by our company through the vesting date.
As shown in the table below, fiscal 2014 target TDC represents the amounts our NEOs would have received if target performance goals were achieved. Maximum TDC represents the amounts our NEOs would have received if maximum performance goals were achieved, and therefore is intended to reflect the amounts our NEOs would receive only in the event of superior performance. All dollar amounts are rounded to the nearest thousand.
For a variety of reasons, the amounts in the Summary Compensation table may differ significantly from the TDC amounts shown above. For example, we generally grant equity awards to Section 16 officers, including our NEOs, for the upcoming fiscal year in January of each year, before the end of the prior fiscal year. The value of the awards made in January 2014 is reflected in the fiscal 2014 Summary Compensation table on page 64 below. We consider these grants as part of our NEOs’ fiscal 2015 TDC, and therefore they are not reflected in the fiscal 2014 TDC shown above, which instead include annual grants to our NEOs made in January 2013.
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As shown in the chart below, a substantial majority of our NEOs’ fiscal 2014 target TDC was performance-based. Base salary represented less than 7 percent of our CEO’s target TDC for fiscal 2014, while more than 75 percent of his target TDC was tied to performance goals. For each of our other NEOs, the percentage of target TDC that was performance-based ranged from approximately 70 percent to approximately 73 percent. The percentages may not total 100.00 percent due to rounding.
There were no significant changes to the basic TDC structure for NEOs in fiscal 2014 compared to fiscal 2013. For fiscal 2014, our NEOs received base salary increases ranging from approximately 3 percent to approximately 6 percent, based on benchmarking described below and annual performance evaluations. The annual cash incentive opportunity for each of our NEOs, expressed as a percentage of base salary, was unchanged for fiscal 2014. As part of their fiscal 2014 compensation packages approved in January 2013, four of our NEOs received increases in the target value of their annual equity awards (comprised of performance shares and restricted stock), as follows:
These increases were intended to reflect these NEOs’ continued experience in their leadership roles and to align their TDC more closely with comparable positions at companies within our external peer groups.
Mr. Ashe was an NEO during fiscal 2014 after not being an NEO for fiscal 2013. A portion of Mr. Ashe’s annual cash incentive is based on the gross merchandise value of our global eCommerce operations, reflective of our growth priorities in the area of eCommerce.
In addition to the financial performance measures described above, for the first time, in fiscal 2014 our executive compensation program also included a compliance component. As disclosed in our 2013 proxy statement, our NEOs’ fiscal 2014 cash incentive payments were subject to achieving adequate progress in implementing key enhancements to the company’s compliance policies, processes, and controls. See pages 54-55 for more information regarding our NEOs’ fiscal 2014 compliance objectives.
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For fiscal 2015, our executive incentive compensation programs continue to be based on the financial performance measures of sales, operating income, and ROI, which are aligned with our strategic priorities of growth, leverage, and returns. Mr. Ashe’s annual cash incentive will be based in part on the gross merchandise value of the global eCommerce operations of our operating segments on a combined basis, which is aligned with our strategic priority of growth. For fiscal 2015, the CNGC added a sales-related performance measure to a portion of the cash incentive plan for our NEOs, and as a result, a portion (ranging from 12.5 percent to 25 percent) of the fiscal 2015 cash incentive opportunities for our current NEOs will be based on the sales performance of our total company or one of its operating segments or areas of responsibility. The CNGC approved this change to emphasize the importance of sales growth as a priority for our company, and to align our NEOs with the officers and associates within their organizations, many of whom already have a sales-related performance measure as part of their cash incentive opportunity. See footnote 1 to the Fiscal 2014 Grants of Plan-Based Awards table on pages 66-67 for more information regarding our NEOs’ performance metrics under our cash incentive plan for fiscal 2015.
In addition to these financial performance measures, for fiscal 2015 our executive compensation program will continue to include a compliance component. As in fiscal 2014, our company’s senior leadership prepared a timetable for further enhancements to our global compliance policies, processes, and controls to be achieved during fiscal 2015 (the “Fiscal 2015 Compliance Objectives”). These enhancements will include improvements to the company’s compliance-related systems, the hiring or designation of additional compliance specialists in various business units, the installation and testing of anti-corruption controls, and the implementation of a substantial compliance-related training program. Senior management will continue to provide quarterly reports to the Audit Committee on the progress in implementing the Fiscal 2015 Compliance Objectives. If, in the judgment of the Audit Committee, the company has not achieved adequate progress in implementing the Fiscal 2015 Compliance Objectives, then the CNGC may reduce or eliminate fiscal 2015 annual cash incentive compensation for the relevant Executive Officers, including our NEOs.
Effective February 1, 2014, Mr. McMillon succeeded Mr. Duke as the CEO of our company. Because the CNGC granted equity awards that are part of fiscal 2015 compensation in January 2014, the Summary Compensation table on page 64 reflects Mr. McMillon’s equity awards granted in connection with his new position. Pursuant to the terms of his retirement agreement, Mr. Duke did not receive any equity awards for fiscal 2015, as reflected on the Summary Compensation table.
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Fiscal 2014 Performance Measures and Performance Goals
Each of our NEO’s performance measures was based on the performance of our total company or a combination of the performance of our total company and the NEO’s respective operating segment or area of responsibility. This approach is consistent with our objective of compensating officers based on performance within their control or influence, while continuing to align a significant portion of executive compensation to the performance of the overall company, thereby continuing to drive the company’s overall business strategies and performance. The performance measures applicable to our NEOs’ fiscal 2014 compensation were:
The CNGC chose these performance measures to align our executive compensation program with the company’s strategic priorities of growth, leverage, and returns. The CNGC concluded that the combination of these performance measures was likely to motivate 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 measures helps to mitigate the risk that our executives would be motivated to pursue results with respect to one measure 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 operating income, resulting increases in performance share payouts should generally be offset by decreases in annual cash incentive payouts.
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The following charts show the portion of each of our NEO’s target TDC that was subject to each of these measures during fiscal 2014. The percentages may not total 100.00 percent due to rounding:
Annual Cash Incentive Payment Goals. The growth goals applicable to our cash incentive payments for fiscal 2014 are expressed in terms of a percentage increase or decrease as compared to our prior fiscal year performance. For fiscal 2014, the threshold, target, and maximum performance goals under our cash incentive plan, and our actual performance, are shown in the following table:
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The results shown above resulted in the following annual cash incentive payments to our NEOs for fiscal 2014:
Diversity Goals. A portion of each NEO’s cash incentive payment is also subject to satisfying diversity objectives, and each NEO’s cash incentive payment can be reduced by up to 15 percent if he or she does not satisfy these objectives. The CNGC established these diversity goals because it believes that diversity and inclusion contributes to an engaged and effective workforce. For fiscal 2014, these objectives consisted of one or both of two components: good faith efforts and placement objectives. 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 U.S. and/or Sam’s Club field operations is also subject to placement objectives. For fiscal 2014, Mr. Duke, Mr. Simon, and Ms. Brewer were subject to placement objectives. The determination as to whether an NEO satisfied his or her placement objectives during the prior fiscal year is based on several factors, including the relative number of diverse candidates placed in specified positions within the NEO’s organization; the NEO’s engagement and participation in a diversity and inclusion strategy; the NEO’s leadership efforts in implementing these strategies; and the NEO’s efforts in recruiting and developing diverse Associates. Applying these factors, at the end of each fiscal year, our chief diversity officer reviews each NEO’s 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 or her diversity goals for fiscal 2014.
Compliance Program Enhancements. Beginning in fiscal 2014, our Executive Officers’ cash incentive payments were also subject to achieving adequate progress in implementing enhancements to the company’s global compliance program. Our company is committed to having and maintaining a strong and effective global compliance program in every country in which we operate. In furtherance of that commitment, over the past few years, our company has made significant improvements to our compliance programs around the world. To further emphasize our commitment to compliance, in early fiscal 2014, our company’s senior leadership developed a timetable for implementing further enhancements to our global compliance program on a prioritized basis (the “Fiscal 2014 Compliance Objectives”). The Fiscal 2014 Compliance Objectives covered such subject matters as anti-corruption, anti-money laundering, health and wellness compliance, environmental compliance, health and safety compliance, labor and employment compliance, and licensing and permits. The Fiscal 2014 Compliance Objectives sought to enhance key elements of a corporate compliance program, including but not limited to developing and implementing enhanced compliance protocols and procedures, hiring and training of key compliance personnel, monitoring and assessment of various elements of the program, internal communications, and access to information.
As disclosed in our 2013 proxy statement, if, in the judgment of the Audit Committee, the company had not achieved adequate progress in implementing the Fiscal 2014 Compliance Objectives, then the CNGC could have exercised negative discretion to reduce or eliminate the fiscal 2014 cash incentive payments
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to our Executive Officers. During fiscal 2014, management reported regularly to the Audit Committee regarding ongoing enhancements to our global compliance program and progress in implementing the Fiscal 2014 Compliance Objectives. At the end of fiscal 2014, the Audit Committee determined that, in its qualitative judgment, adequate progress had been achieved in implementing the Fiscal 2014 Compliance Objectives, and reported its determination to the CNGC. Factors relied on by the Audit Committee in making this determination included the progress achieved on workstreams in a variety of compliance areas and the extent to which that progress reflected sustainable, long-term change in the company’s people, processes, systems, and culture. Based on the qualitative assessment of the Audit Committee, the CNGC determined not to exercise negative discretion to reduce or eliminate the cash incentive payments to any of our Executive Officers for fiscal 2014.
For more information about specific enhancements to our global compliance program during fiscal 2014, please see Walmart’s Global Compliance Program Report on Fiscal Year 2014, which is available on our website at http://corporate.walmart.com/global-responsibility/global-compliance-program-report-on-fiscal-year-2014.
Performance Shares. The following table shows the performance goals set by the CNGC for fiscal 2014 under our performance share program, and our performance as compared to those goals:
These adjusted results were averaged with the adjusted results for fiscal 2012 and fiscal 2013, the other two fiscal years within the three-year performance period ended January 31, 2014, 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 ended January 31, 2014 shown on page 46 above.
Adjustments. In determining actual performance for purposes of our performance-based plans (i.e., annual cash incentive and performance shares), the CNGC made certain positive and negative adjustments to our reported results of operations, as provided for by the terms of the applicable plans. Adjustments are permitted by the terms of the plans and contemplated at the time goals are established and are intended to enable results to be computed on a comparable basis from performance period to performance period. For fiscal 2014, the most significant adjustments to operating income under our cash incentive plan were to adjust for the impact of: costs associated with the company’s termination of its joint venture with Bharti Enterprises in India; costs associated with store closures in Brazil and China; charges related to a change in historical lease accounting practices in China; an increase in estimated contingent liabilities related to non-income taxes in Brazil; charges for increased contingent liabilities and to account for settlements related to employment claims in Brazil; and a charge relating to the restructuring of the in-club leadership and staff structure of our Sam’s Club segment. The most significant adjustments to sales under our performance share program for fiscal 2014 were to adjust for the impact of: the pending sale of our Vips restaurant operations in Mexico (the results of which are now included in our financial statements as discontinued operations); legislative changes resulting in reductions in SNAP benefits; the sale of Walmart’s interest in 1-800-Contacts; and the impact of decisions not to open previously planned stores and unexpected delays in store openings in certain international markets. For fiscal 2014, these adjustments had the effect of increasing the payments under our performance-based plans payable to our NEOs, and the percentage changes in fiscal 2014 operating income over that of fiscal 2013 shown in the tables above are higher than the changes in operating income reflected in our publicly reported operating results for fiscal 2014 as calculated in accordance with GAAP.
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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 NEO’s annual compensation, the special awards are not included in the TDC amounts shown above.
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 was contingent on meeting performance goals for fiscal 2014. In order for Mr. Simon to earn the portion of the award contingent on fiscal 2014 performance, total sales of our Walmart U.S. operating segment had to increase by at least 2.0 percent, subject to adjustments to enable results for fiscal 2014 to be computed on a comparable basis to results for fiscal 2013. The purpose of this award was for retention purposes and to continue to emphasize the importance of Walmart U.S. sales growth to our company’s overall strategy. As disclosed above, on an adjusted basis, Walmart U.S. sales performance during fiscal 2014 exceeded this goal, and therefore Mr. Simon earned $1.5 million of this award for fiscal 2014 performance. This $1.5 million is included in Mr. Simon’s fiscal 2014 compensation shown on the Summary Compensation table on page 64.
In January 2014, the CNGC approved special restricted stock awards of $2,500,000 to Mr. Simon; of $2,000,000 to Mr. Ashe; and of $1,000,000 to each of Ms. Brewer and Mr. Holley. These awards were intended primarily for retention purposes. The awards to Mr. Simon and Mr. Holley vest on January 31, 2016. The award to Mr. Ashe vests in equal parts approximately one and three years from the grant date, and the award to Ms. Brewer vests approximately one year from the grant date. Additionally, as is customary with Executive Officer promotions, in January 2014, in connection with his promotion to President and CEO, Mr. McMillon received two additional performance share grants vesting at the conclusion of the performance cycles ending January 31, 2015 and January 31, 2016. These additional performance share awards were intended to increase Mr. McMillon’s target performance share opportunity for each of those cycles to $10,875,000, which is equal to the target value of his annual performance share award granted in January 2014 for the performance cycle ending January 31, 2017. Finally, in connection with increases in their annual award values in January 2014, Ms. Brewer and Mr. Ashe also received two additional performance share grants vesting at the conclusion of the performance cycles ending January 31, 2015 and January 31, 2016. These additional performance share awards were intended to increase Ms. Brewer’s and Mr. Ashe’s target performance share opportunity for each of those cycles, to $4,500,000 and $5,250,000, respectively, which is equal to the respective target values of their annual performance share awards granted in January 2014 for the performance cycle ending January 31, 2017.
Also in January 2014, the CNGC approved a special performance-based cash award opportunity for Mr. Simon in the amount of $2,500,000. The vesting of this award is contingent on Walmart U.S. Neighborhood Markets achieving certain sales objectives during fiscal 2015. The purpose of this award is for retention purposes and to emphasize our smaller-format growth strategy in the U.S.
Our NEOs receive a limited number of perquisites and supplemental benefits. We cover the cost of annual physical examinations for our NEOs and 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. Additionally, our NEOs are entitled to benefits available to officers generally, such as participation in the Deferred Compensation Matching 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 our 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, and we believe their limited cost is outweighed by these benefits to our company.
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Executive Compensation Process and Governance
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. All members of the CNGC are independent (see page 26 for more information on the CNGC).
The CNGC met seven times in fiscal 2014. During each of these meetings, the CNGC considered executive compensation matters, including matters such as the review and approval of compensation for our NEOs; the selection of performance measures and performance goals applicable to the NEOs’ performance-based compensation; and the review of performance against those goals, including compliance and diversity goals.
The process of setting TDC is a dynamic one. The CNGC considers, among other things:
As a general guideline, our NEOs’ target TDC (which would be earned if target performance goals are achieved) should place the NEOs near the 75th percentile of comparable positions within our peer groups. The CNGC believes that it is generally appropriate to position our NEOs’ target TDC at this level because, as the world’s largest retailer, the company’s size, extensive international presence, and complex operations result in our NEOs’ jobs having a greater level of complexity than similar jobs at many of our peer group companies. The target TDC opportunity for a particular NEO may be higher or lower than the 75th percentile of the peer groups, and may differ from the TDCs of our other NEOs, depending on a number of factors, particularly time and experience in the NEO’s current role or in a similar role; expertise; individual performance; historical compensation levels; peer benchmarking; retention and succession considerations; and individual performance. In evaluating individual performance, the CNGC relied on annual performance evaluations for each NEO and discussions with the NEO’s supervisor. The TDC levels set forth in the chart above on page 49 represent the CNGC’s judgment as to the appropriate fiscal 2014 compensation opportunities for our NEOs in light of these factors.
The goals for our performance-based compensation plans are established in light of the operating plans for our company and each of its operating segments, as well as operating plans for other areas of responsibility. The company’s operating plans for reaching 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 company’s operating plans are generally intended to be challenging, and fiscal 2014 was no exception, and were made more so in fiscal 2014 by the impact of the overall economic environment on our customers, as well as other factors that negatively impacted our financial results during fiscal 2014, such as increased payroll taxes and frequent and severe winter storms.
Once operating plans are established by the Board, the CNGC then sets performance goals that are intended to be aligned with our operating plans. In order to achieve the target goals in our performance-based plans, our company and company segments and other areas of responsibility 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 company segments and other areas of responsibility would have to exceed those expectations to a significant degree. Generally, goals for our International operating segment require greater increases in operating income and sales relative to our other segments. This reflects our strategic growth plans
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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 payout. The CNGC’s independent compensation consultant evaluates the difficulty of the performance goals and advises the CNGC in this regard.
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 CEO’s performance evaluation with the CNGC and makes recommendations to the CNGC regarding our CEO’s 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 and has never performed any other services for Walmart. The CNGC’s independent consultant attends and participates in CNGC meetings at which executive compensation matters are considered, and performs analyses for the CNGC at the CNGC’s request, including benchmarking, realizable pay analyses, analyses of the correlation between performance measures and shareholder return, and assessments of the difficulty of attaining these performance goals. The CNGC has reviewed the independence of Pay Governance in light of new SEC rules and NYSE Listed Company Rules regarding compensation consultant independence and has affirmatively concluded that Pay Governance is independent from Walmart and has no conflicts of interest relating to its engagement by the CNGC.
Our company is the world’s largest retailer by a substantial margin, is one of the world’s largest employers, 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. Because 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 against which our NEOs’ compensation can be benchmarked.
The CNGC uses benchmarking data when allocating each NEO’s 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. The CNGC 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 segments and global eCommerce. These executives have significant responsibilities and lead organizations that are, considered separately from the rest of our company, larger than many of the other retailers in the retail peer group, and we believe that these positions are often comparable to CEO positions at many of our peer group companies. In addition, from a competitive standpoint, we believe that it is more likely that these leaders would be recruited for a CEO position in the retail industry or elsewhere, rather than for a lateral move. Therefore, the CNGC also benchmarks these executives’ compensation against the compensation of CEOs within our retail peer group.
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Retail Industry Survey. This survey allows the CNGC to compare our NEO compensation to that of our primary competitors in the retail industry. For fiscal 2014, 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 2014 target TDC of our NEOs was in the top quartile of TDC when compared to peer positions within the Retail Industry Survey. When compared to CEO positions within the Retail Industry Survey, the respective TDCs of Mr. McMillon, Mr. Simon, Ms. Brewer, and Mr. Ashe were each below the 50th percentile.
Select Fortune 100. The CNGC also benchmarks 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 from the CNGC’s 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 2014 compensation were:
The fiscal 2014 target TDC for Mr. Duke and Mr. Holley fell between the 50th and 75th percentiles of peer TDC within the Select Fortune 100. The respective target TDCs for Mr. Simon and Mr. McMillon were slightly above the 75th percentile when compared to peer positions within the Select Fortune 100. The respective target TDCs for Ms. Brewer and Mr. Ashe were slightly below the 50th percentile when compared to peer positions within this survey group.
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Top 50. At the time of our benchmarking for fiscal 2014, we were approximately 17 times larger in terms of annual revenue, and approximately 18 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, the CNGC also benchmarks 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 2014 target TDC for Mr. Duke fell between the 50th and 75th percentiles of peer TDC within the Top 50. Mr. Simon’s and Mr. McMillon’s respective fiscal 2014 target TDCs were in the top quartile for peer positions within this survey group. Mr. Ashe’s, Ms. Brewer’s, and Mr. Holley’s respective target TDCs were near the 50th percentile when compared to peer positions within this survey group.
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 and Realizable Compensation. The CNGC 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 company’s Global People division. These tally sheets summarize the total value of the compensation realizable by each NEO for the upcoming 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. As noted above on page 47, our shareholders have expressed strong support for our executive compensation program at our last three annual shareholders’ meetings. The CNGC considered that support when establishing our NEOs’ compensation opportunities for fiscal 2014. The CNGC will continue to consider the outcome of these annual shareholder advisory votes when making future compensation decisions for our NEOs.
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Timing of Equity Awards. The CNGC meets each January to approve and grant annual equity awards to our Executive Officers, including our NEOs, that are part of the compensation packages for those Executive Officers 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.
Option Exercise Prices. We have not granted stock options to our Executive Officers for several years, 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. If and when we grant stock options, the exercise price is and will be equal to the fair market value of our common stock on the date of grant.
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 by our company unless it is performance-based. A significant portion of the compensation awarded to our NEOs is intended to satisfy the requirements for deductibility under Section 162(m). Moreover, the terms of equity awards granted to our NEOs generally provide that, upon vesting, the receipt of such equity will be deferred if the payment of such equity would not be deductible for federal income tax purposes. When designing NEO compensation, the CNGC considers whether particular elements of that compensation will be deductible for federal income tax purposes. However, to maintain flexibility to compensate our executive officers in a manner designed to promote our long-term goals and objectives, the CNGC has not adopted a policy that all compensation must be deductible or have the most favorable tax or accounting treatment available to our company; rather, 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.
Except for an agreement with Mr. Duke in connection with his retirement as President and CEO that provides that he will continue to serve as an Associate of our company through fiscal 2015 (described below in “Potential Payments Upon Termination or Change in Control”), we do not have employment agreements with any of our NEOs. Our NEOs and other Executive Officers are employed on an at-will basis.
We have entered into a post-termination and non-competition agreement with each NEO. Each agreement provides that, if we terminate the NEO’s employment for any reason other than his or her violation of company policy, we will generally pay the NEO an amount equal to two times the NEO’s 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 or her termination of employment, he or she will not participate in a business that competes with us and will not solicit our Associates for employment. For purposes of these agreements, a competing business generally means any retail, wholesale, or merchandising business that sells products of the type sold by Walmart with annual revenues in excess of certain thresholds. 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.
See “Potential Payments Upon Termination or Change in Control” beginning on page 72 for more information.
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Our NEOs are eligible for the same retirement benefits as our officers generally, such as participation in our Deferred Compensation Matching 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.
Yes. Our MIP and our Stock Incentive Plan both provide that we will recoup awards to the extent required by Walmart policies. Furthermore, our MIP 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. In addition, both the MIP and the SIP provide that all awards under these plans, whether or not previously paid or deferred, will be subject to the company’s policies and applicable law regarding clawbacks in effect from time to time.
To further align the long-term interests of our executives and our shareholders, the Board has approved stock ownership guidelines applicable to our CEO and other senior officers.
In June 2013, our Board strengthened the stock ownership guidelines applicable to our CEO and senior officers, as follows:
The CEO and other senior officers must satisfy these stock ownership guidelines no later than the fifth anniversary of his or her appointment to a position covered by the 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 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. Further, as noted below, any Shares that have been pledged will not be counted when determining whether the officer is 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 deem appropriate. Currently, each of our NEOs is in compliance with our stock ownership guidelines, as illustrated by the following graph:
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Yes. Our Insider Trading Policy contains the following restrictions:
Currently, none of our Independent Directors or Executive Officers has any pledging arrangements in place involving Walmart stock. One Outside Director has pledged Shares representing less than one percent of his sole and shared beneficial ownership as security for a line of credit, as disclosed on page 76 under “Holdings of Officers and Directors.”
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, including any risks that may arise from our compensation program. 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.
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The Summary Compensation table below summarizes the compensation for each of our NEOs for the fiscal years shown.