Investors address board on wage disparity

By Jennifer Waters

(Corrects reference to the proportional relationship of top-executive salaries to store-worker pay.)

CHICAGO (MarketWatch) -- Along with all the hoopla and grandstanding planned for Wal-Mart Stores Inc.'s marathon annual meeting Friday, there will be a shareholder proposal aimed at reining in the 1,000-to-1 difference in pay scales between executives and store associates.

The proposal is one of five offered by investors that will go to the board during the four-hour meeting with nearly 16,000 shareholders at the Bud Walton Arena at the University of Arkansas.

Annual meetings for the Bentonville, Ark.-based discount giant are known for their earsplitting corporate cheers and surprise appearances by some of the nation's top performers -- many of whom sell lots of CDs, apparel and other products through Wal-Mart. These gatherings also outshine the usually sober shareholder meetings of some other companies.

But there is corporate business that has to be covered at Wal-Mart events, and they often include a number of very pointed proposals for the board. This year's proxy lists concerns ranging from humane treatment of animals to the compensation disparity -- probably the most controversial of all of them.

At the top end of the wage scale is Chief Executive Lee Scott, whose estimated $17.54 million compensation package last year included his salary, health and pension benefits, bonuses, profit sharing and stock options, as well as other perks, according to the Interfaith Center on Corporate Responsibility.

At the lowest rung is the average pay of the Wal-Mart associate, who makes just north of $17,617 a year, according to the ICCR's math. The organization used an hourly wage of $9.68 -- reported by Wal-Mart -- and multiplied that by 35 hours a week and then again by 52 weeks in the year.

That disparity is much larger than the average difference between the chief executive's pay and that of the lowest-paid workers. According to a study completed last year by the Institute for Public Studies, the ratio of chief's pay to the average worker was 431 to 1 in 2004. That was an increase from 2003's 301 to 1 and a gigantic leap from 1990, when top executives made just 107 times that of their average production workers.

"You would call that excessive," said Sister Patricia Wolf, ICCR's executive director, about Scott's pay. "And there's not a relationship here with executive compensation and performance."

The proposal was filed by an order of nuns that belongs to ICCR, the Benedictine Sisters of Boeme, Texas, and it asks the board to review Wal-Mart's compensation policies for its senior executives and prepare a comparison with that of the lowest-paid U.S. workers from July 1995 to July 2005.

In addition, the proposal calls for an analysis of the disparity "and the rationale justifying the trend," according to the proxy.

Fraud suit

"An example of why we believe that executive compensation at Wal-Mart is out of control: Wal-Mart's own lawsuit against its former vice chairman [Thomas Coughlin] for fraud against the company by misappropriating Wal-Mart's money was dismissed, because his $15 million retirement package contained a clause forbidding Wal-Mart to sue him for prior events," the proxy stated.

Wolf said that the proposal is ICCR's last-ditch attempt to get Wal-Mart's attention. She and her members have worked with the company on a variety of issues for 13 years and are disappointed that there has been no action on this matter. "We aren't satisfied with their response," she added.

The organization is also unsatisfied with a delay on a promised public-sustainability report that addresses strategies on economic, social and environmental issues. Chief among them: sweatshops.

That proposal asks that the report be completed by December.

Wal-Mart has made progress with supply-chain issues such as child labor, no forced labor, fair and safe working environments and credit for overtime workers in international countries, according to Wolf. "But there's still a great deal more to do with Wal-Mart in terms of transparency in its supply chain," she said.

"The downside of not wanting to take some control of this is the potential of being branded a sweatshop," Wolf added. "It takes a long time to eliminate that kind of image."

In the proxy, Wal-Mart said that it is working on the report. Wolf said that the company has told ICCR much the same, but it won't disclose what will be in the report.

"For a company that we have worked with for so many years, they should be beyond that point. ... We have a developed a level of mutual respect with management and we did expect that they would be forthcoming," the sister asserted.

Fighting over children

Child labor is among the issues that WakeUpWalMart.com -- one of a handful of organized efforts devoted to taking on Wal-Mart -- is targeting in fliers that it seeks to hand out to shareholders and also to feature in local advertising.

"It would be so easy for Wal-Mart to implement a zero-tolerance policy on child labor," said its spokesman, Chris Kofinas. "We don't understand why they won't do that."

The proposal is supported by a number of shareholders, including the California Public Employees' Retirement fund. With more than 19.8 million shares, Calpers already has voted for the proposal and believes it "poses no long-term harm to the company," the pension fund said.

Wal-Mart did not comment on any of the proposals.

Also making its third appearance on the Wal-Mart proxy is a proposal asking the company's board to document, by race and gender, who received stock options and stock awards as a percentage of compensation.

"We want Wal-Mart to look at the ways in which they disperse their options and their compensation," said Margaret Covert, shareholder-action coordinator for NorthStar Asset Management, "Other companies do it. Coca-Cola, for one, does it quite willingly and very nicely."

While acknowledging that she doesn't know what the current breakdown is, Covert estimated 60% of the company's associates, or salespeople and store clerks, are women and nearly 30% are of color. "What we can surmise is that the disparity is fairly large," she said. "We know that the top five options receivers last year were all white men."

Calpers supports that proposal too, as well as all the others.

Wal-Mart opposes the proposal, saying that it has taken diversity into consideration for all of the company's officers.

Accounting for money

The International Brotherhood of Teamsters is behind a proposal to open the books on political contributions and so-called soft money. With support from the Center for Political Accountability, the proposal is seeking disclosure on where funds from Wal-Mart's political-action committee, Wal-PAC, is allocated, for example.

"The problem is that much of Wal-Mart's political spending is not disclosed or easily discovered," said Louis Malizia, assistant director of the Teamster's capital strategies department.

The Teamsters worry, for instance, that some funds could be earmarked toward trade associations and tax-exempt organizations that might support ideals that shareholders don't endorse.

"Far be it from the Teamsters or any investors to say that Wal-Mart should not be active politically," added Malizia. "It's a powerful entity that has to seek the best advantages for its shareholders and the corporation through the political process. But shareholders need to gauge where [Wal-Mart] is spending and if it's in line with their interests."

Wal-Mart opposes the measure, noting that federal and state laws mandate a number of disclosures. "The board has concluded that ample disclosure exists regarding Wal-Mart's political contributions to alleviate the concerns cited," according to the proxy.

Jennifer Waters is a reporter for MarketWatch based in Chicago.