Walmart: Getting Executive Compensation Right

Given the broad concern about the high levels of corporate executive compensation these days, and the millions earned annually by Walmart’s top executives, I recognize that a commentary praising Walmart’s board’s handling of their executive compensation might not be popular.

That notwithstanding, from my point a view — based on over 40 years of consulting on executive compensation in all sectors of the economy — Walmart’s board of directors has got everything right. Their most recent proxy statement describes in transparent and useful detail the processes they use to determine pay and incentives for their top officers. And these processes can be useful for any organization that wants to get its pay policies right.

Here are just a few of the elements of their policy:

· The measurements of market compensation for comparable positions are based on a group of approximately publicly traded 40 U.S. companies, focusing on large retailers. The screening process that produces this group assures that there can be no “cherry picking” to slant the comparisons to higher-paying peer organizations.

· The incentive compensation for Walmart executives is based on measurements that balance growth and profitability and that emphasize company-wide performance, avoiding situations where executives are incented to achieve divisional or short-term objectives to the detriment of the organization as a whole.

· The annual incentive plans have maximum payout limits, avoiding excessive bonuses.

· All Walmart executives have robust stock ownership guidelines, requiring them to own sufficient Walmart stock to align their interests strongly with independent shareholders.

· Claw-back provisions to require repayment of incentives if executives are not in compliance with Walmart’s ethics policies.

· Shareholders are asked annually to provide an advisory vote on the Board’s compensation recommendations.

· The compensation consultants advising the board’s compensation committee work primarily for the committee, with any work done for Walmart management requiring prior approval by the committee.

Walmart is not the only U.S. company governing compensation effectively, but doing so is the exception rather the rule, and it is difficult to imagine that it could be done any better.

Pete Smith

Founding Partner, SmithPilot Inc.

January 2021