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 Connecticut Treasurer Denise Nappier, whose office oversees $40
million worth of Wal-Mart shares in state pension and trust funds,
in December submitted a proposal calling for the incentive pay of
senior executives to be tied in part to a measure of "employee
engagement", according to previously unreported filings to the
Securities and Exchange Commission.
Wal-Mart is fighting to keep this and other select proposals off the
ballot for its annual meeting in June, filings show. Because the
Walton family controls a majority of shares, outside proposals can
be easily defeated even if they are put to a vote, and in any case
are usually non-binding.
But even a losing battle could raise pressure on the retailer,
potentially leading to compromise.
The proposal by Nappier, a Democrat, shows how some investors are
searching for new ways to tackle social issues which they argue are
key to a company's financial success. This includes the belief,
shared by a growing number of investors of all political stripes,
that low-wage employers have underinvested in people to the
detriment of long-term returns.
Some are aligned with labor groups fighting for a "living wage" and
better conditions at retailers and fast-food chains: Connecticut's
proposal is a revised version of a union-supported submission that
failed to make the Wal-Mart ballot last year.
In another proposal, a group of Catholic nuns is urging Wal-Mart to
disclose a comparison of the pay of top executives to the median
store employee wage and explain changes in the gap over time.
Wal-Mart is not the only low-wage employer to face scrutiny over
pay. McDonald's Corp <MCD.N> and other fast-food chains have also
been the target of nationwide protests calling for the wage floor to
be set at $15 an hour.
Wal-Mart last week said it was raising its minimum U.S. hourly wage
to $9 in April and $10 for current employees next year, compared to
the federal minimum of $7.25. Wal-Mart spokesman Randy Hargrove said
its $1 billion investment in wages and training would reduce
turnover and improve engagement - addressing the same issue targeted
in Connecticut's plan.
In a statement to Reuters, Nappier commended the wage hikes as a
"step in the right direction toward investing in human capital". She
said she would urge the SEC to allow a vote on the proposal to
"ensure that Wal-Mart is committed over the long-haul on this
important element of sustainable growth."
The SEC declined to comment.
FLASHPOINT
Lawyers for Wal-Mart argue the proposal involves "ordinary business"
matters, a common SEC criteria for exclusion, and that it has
already been implemented in other ways, citing a diversity and
inclusion metric that partially determines pay in an annual
incentive plan.
The Connecticut proposal defines engagement as the extent to which
workers are motivated to "apply discretionary effort to accomplish
organizational goals". It calls on the compensation committee to
work with outside experts to measure engagement, which would
complement financial metrics in determining pay.
Wal-Mart has long been a flashpoint in the debate over employee
treatment. Of the roughly 350 proposals that appeared on U.S.
shareholder ballots over the past decade related to human capital
management, 16 were at Wal-Mart, the most of any company, data from
Institutional Shareholder Services shows.
The growing debate about worsening income inequality in the United
States has put a spotlight on how fast-food chains and retailers
treat their staff, both as a social issue and from the perspective
of investment returns.
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"Our message to any retailer would be that employees are your front
line. You need to treat your human capital as you would treat your
financial capital," said Anne Sheehan, director of corporate
governance at the California State Teachers' Retirement System,
which holds nearly $400 million worth of Wal-Mart shares.
Sheehan declined to comment specifically on Wal-Mart because the
fund is suing current and former executives over allegations of
bribery in Mexico that first surfaced in a New York Times article in
2012. Hargrove declined to comment on that matter, citing an ongoing
investigation.
SEEKING MORE
With the wage hike, Wal-Mart showed it "can stand up to the plate
and be a better company," said Cynthia Murray, an employee,
shareholder and member of the OUR Walmart labor activist group, who
submitted her own proposal calling for the company to address
gender-based pay inequity. "Why should we stop at that? We need
more."
Hargrove said the company had included 27 proposals over the past 6
years and only seeks to exclude those they believe don't meet SEC
guidelines or involve topics better left to management or the board.
"Shareholders have varying views and they are important and we take
them into consideration," he said.
Lawyers for Wal-Mart are arguing against inclusion of six proposals
in 2015, including one calling for an independent board chairman
that has been on the ballot the past two years, according to letters
filed with the SEC.
The independent chairman proposal was supported by 15.4 percent of
the vote in 2014, short of the 20 to 30 percent threshold governance
experts say can generally prompt a board to seriously consider an
issue or take action.
But excluding the Walton block of stock, the measure got 40 percent
of the "independent" vote, up from 36 percent in 2013.
Submitted by the International Brotherhood of Teamsters General
Fund, the proposal cites the allegations of bribery in Mexico as one
of the factors underlining the need for improved oversight. The
current board chairman is Rob Walton, scion of the billionaire
family that founded the retailer.
The Teamsters fund is contesting Wal-Mart's argument that the
proposal should be excluded because it is vague, correspondence with
the SEC shows.
As examples of independent oversight, Hargrove noted that 70 percent
of the board is independent, that it has an independent lead
director and has long separated the roles of chairman and CEO.
(reporting by Nathan Layne; editing by Peter Henderson and Stuart
Grudgings)
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