Company Name: Wal-Mart Stores, Inc.
Public Availability Date: March 21, 2005
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
INQUIRY LETTER
[INQUIRY LETTER]
January 20, 2005
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D. C. 20549
Re: Wal-Mart Stores, Inc.Notice of Intent to Omit Shareholder Proposal from
Proxy Materials Regarding Performance-Based Equity Awards
Ladies and Gentlemen:
Wal-Mart Stores, Inc., a Delaware corporation ("Wal-Mart," or the "Company")
files this letter under Rule 14a-8(j) under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), to notify the Securities and Exchange
Commission (the "Commission") of Wal-Mart's intention to exclude a shareholder
proposal (the "Proposal") from the proxy materials for Wal-Mart's 2005 Annual
Meeting of Shareholders (the "2005 Proxy Materials"). The Proposal was submitted
by the American Federation of Labor and Congress of Industrial Organizations
(the "Proponent"). Wal-Mart asks that the staff of the Division of Corporation
Finance of the Commission (the "Staff") not recommend to the Commission that any
enforcement action be taken if Wal-Mart excludes the Proposal from its 2005
Proxy Materials for the reasons described below. A copy of the Proposal and
cover letter is attached to this letter as Exhibit A. In accordance with Rule
14a-8(j), six copies of this letter and its attachments are enclosed.
Due to the volume of proxy materials that the Company must produce and
distribute to its shareholders, Wal-Mart plans to commence the printing of the
2005 Proxy Statement on or about April 12, so that it may commence mailing by no
later than April 15, 2005. Accordingly, we would appreciate the Staff's prompt
advice with respect to this matter.
The Proposal
Wal-Mart received the Proposal on December 15, 2004. The Proposal requests that
Wal-Mart adopt a policy that a significant portion of future equity compensation
grants to senior executives be in shares that vest upon the achievement of
performance goals.
Grounds for Exclusion
Wal-Mart intends to omit the Proposal from its 2005 Proxy Materials pursuant to
Rule 14a-8(i)(10) because the Proposal has been substantially implemented.
A company may omit from its proxy materials a proposal that has already been
substantially implemented as provided in Rule 14a-8(i)(10). The Proposal
requests that the Company adopt a policy that "a significant portion of future
equity compensation grants to senior executives shall be shares of stock that
require the achievement of performance goals as a prerequisite to vesting
('performance-vesting shares')."
Wal-Mart's Board of Directors has delegated the responsibility of issuing
equity-based awards for executive officers to the Compensation, Nominating and
Governance Committee of the Board of Directors (the "CNGC"). In January 2005,
the CNGC adopted a new compensation practice of awarding performance shares
under Wal-Mart's Stock Incentive Plan of 1998 to executive officers that
constitutes a significant portion of all equity-based compensation, and the CNGC
awarded three cycles of an equal amount of performance shares. The first cycle
of performance shares awarded to the executive officers represents approximately
one-third of each executive officer's equity-based compensation package when
taking into consideration the Black-Scholes value of the stock options awarded
and the current value of restricted stock awarded in January 2005. These awards
will be described in the 2005 Proxy Materials.
The performance shares are tied to the Company's stock price and may be paid out
at the election of the executive officer in cash, shares, or a combination of
both. The performance share grants are subject to shareholder approval of the
material terms of the performance goals at the Annual Shareholders' Meeting,
pursuant to the regulations promulgated under Section 162(m) of the Internal
Revenue Code. The first cycle of performance shares will vest on January 31,
2006 only if the Company reaches pre-established return on investment and
revenue growth targets. If the Company meets the threshold performance targets,
only 50% of the performance shares awarded will vest. If the Company exceeds the
threshold performance targets, up to 150% of the performance shares awarded will
vest. As a result, if maximum performance targets are reached, the performance
shares will represent over 40% of the value of the equity-based compensation
package awarded in January 2005. The same will be true for the second cycle and
third cycle of performance shares, which will vest only upon reaching or
exceeding the pre-established average return on investment and average revenue
growth performance targets for the fiscal years ending January 31, 2007 and
January 31, 2008, respectively.
The Company notes that the Proponent did not define the word "significant" in
the Proposal. On January 11, 2005, the Company contacted the Proponent and
explained the Company's compensation practices, including the new performance
share awards, to a representative of the Proponent. As of the date of this
letter, we have not had a response from the Proponent with regard to the
continued validity of the Proposal.
Nonetheless, The Company believes that the performance share awards are a
significant portion of the equity-based compensation for executive officers. The
textbook definition of "significant" is "having meaning" or "having or likely to
have influence or effect." Merriam-Webster Online Dictionary, Merriam-Webster,
Inc. (2005), at http://www.merriam-webster.com. The Company asserts that
one-third of an executive officer's equity-based compensation has meaning and
will influence the executive officer to attain the highest return on investment
and revenue growth possible in order to obtain the maximum number of performance
shares. Likewise, the loss of one-third of an equity-based compensation package
will have a significant affect on the executive officer's total compensation.
Furthermore, the one-third threshold is more conservative than certain standards
adopted by the Commission in its use of the term significant (e.g., financial
measures for determining whether a subsidiary is significant are set at 10
percent under Rule 12b-2 under the Exchange Act (codified at 12 C.F.R. Section
240.12b-2), or for determining whether an obligor is significant are set at 10
percent under Rule 1101(k) of Regulation AB (codified at 12 C.F.R. Section
229.1101)). Given that the Proponent did not define the term significant in its
Proposal, we respectfully submit that the amount of performance shares awarded
to the executive officers is consistent with the accepted usage of such term and
should be determinative in this matter. Therefore, the Company believes that the
direction taken by the CNGC substantially reflects the intent and purposes
sought to be achieved by the Proposal, and for that reason, the Proposal has
been substantially implemented and does not need to be included in the Company's
2005 Proxy Materials.
Conclusion
Based on the foregoing representations, Wal-Mart hereby requests that the Staff
confirm that it will not recommend any enforcement action if Wal-Mart excludes
the Proposal from the 2005 Proxy Materials. Should you disagree with the
conclusions set forth herein, we would appreciate the opportunity to confer with
you prior to the issuance of the Staff's response. Moreover, Wal-Mart reserves
the right to submit to the Staff additional bases upon which the Proposal may
properly be excluded from the 2005 Proxy Materials.
By copy of this letter, the Proponent is being notified of Wal-Mart's intention
to omit the Proposal from its 2005 Proxy Materials.
Please acknowledge receipt of this letter by date-stamping the accompanying
acknowledgment copy and returning it to the undersigned in the self-addressed
postage pre-paid envelope provided. Please call the undersigned at (479)
277-3302 or Jeffrey J. Gearhart, Vice President and General Counsel, at (479)
277-2345 if you require additional information or wish to discuss this
submission further.
Thank you for your consideration.
Respectfully Submitted,
/s/
Samuel A. Guess
cc: William B. Patterson
Director, Officer of Investment
AFL-CIO
815 Sixteenth Street, N.W.
Washington, D.C. 20006
(202) 637-5000
Enclosures
[INQUIRY LETTER]
December 14, 2004
By Facsimile and UPS Next Day Air
Thomas D. Hyde
Secretary
Wal-Mart Stores, Inc.
702 S.W. 8th Street
Bentonville, Arkansas 72716
Dear Mr. Hyde:
On behalf of the AFL-CIO Reserve Fund (the "Fund"), I write to give notice that
pursuant to the 2004 proxy statement of Wal-Mart Stores, Inc. (the "Company"),
the Fund intends to present the attached proposal (the "Proposal") at the 2005
annual meeting of shareholders (the "Annual Meeting"). The Fund requests that
the Company include the Proposal in the Company's proxy statement for the Annual
Meeting. The Fund is the beneficial owner of 2,700 shares of voting common stock
(the "Shares") of the Company, and has held the Shares for over one year. In
addition, the Fund intends to hold the Shares through the date on which the
Annual Meeting is held.
The Proposal is attached. I represent that the Fund or its agent intends to
appear in person or by proxy at the Annual Meeting to present the Proposal. I
declare that the Fund has no "material interest" other than that believed to be
shared by stockholders of the Company generally. Please direct all questions or
correspondence regarding the Proposal to Brandon Rees at (202) 637-3900.
Sincerely,
/s/
William B. Patterson
Director, Office of Investment
Enclosure
[APPENDIX]
Shareholder Proposal
RESOLVED, that the shareholders of Wal-Mart Stores, Inc. (the "Company") urge
the Board of Directors to adopt a policy that a significant portion of future
equity compensation grants to senior executives shall be shares of stock that
require the achievement of performance goals as a prerequisite to vesting
("performance-vesting shares").
This policy shall apply to existing employment agreements and equity
compensation plans only if the use of performance-vesting shares can be legally
implemented by the Company. and will otherwise apply to the design of all future
plans and agreements.
Supporting Statement
We believe that our Company's compensation policies should encourage the
ownership of stock by senior executives in order to align their interests with
those of shareholders. To achieve this goal, we favor granting senior executives
actual shares of stock for meeting specified performance goals. In our opinion,
performance-vesting shares are a better form of equity compensation than
fixed-price stock options or time-vesting restricted stock.
Fixed-price stock option grants provide senior executives with incentives that
may not be in the best interests of long-term shareholders. In our view, stock
option grants promise executives all the benefit of share price increases with
none of the risk of share price declines. Stock options can reward short-term
decision-making because many executives' options can be exercised just one year
after the grant date. Furthermore, we believe that stock options can create a
strong incentive to manipulate a company's stock price through questionable or
even fraudulent accounting.
Leading investors and regulators have questioned the use of stock options to
compensate executives. Berkshire Hathaway CEO Warren Buffet has characterized
fixed-price stock options as "really a royalty on the passage of time." Federal
Reserve Chairman Alan Greenspan blamed poorly-structured options for the
`infectious greed' of the 1990s, because "they failed to properly align the
long-term interests of shareholders and managers."
Similarly, we oppose granting executives time-vesting restricted stock that does
not include any performance requirements. In our view, time-vesting restricted
stock rewards tenure, not performance. Instead, we believe vesting requirements
should be tailored to measure each individual executive's performance through
disclosed benchmarks, in addition to the Company's share price. To align their
incentives with those of long-term shareholders, we also-believe that senior
executives should be required to hold a significant portion of these
performance-vesting shares for as long as they remain executives of the Company.
Executive compensation consultant Pearl Meyer has said "if a company is going to
issue restricted stock grants as a way of making sure executives are owners
rather than optionees, the grant should be earned on a performance basisit
shouldn't be just a giveaway." Former SEC Chairman Richard Breeden has stated
that "there is not a strong reason for granting restricted stock rather than
simply paying cash unless there are performance hurdles to vesting."
[INQUIRY LETTER]
February 8, 2005
VIA COURIER
Office of Chief Counsel
Division of Corporate Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Request by Wal-Mart Stores to omit shareholder proposal submitted by AFL-CIO
Reserve Fund
Dear Sir/Madam:
I. Introduction
This letter is submitted in response to the claim of Wal-Mart Stores, Inc.
("Wal-Mart" or the "Company") by letter dated January 20, 2005 (the "No-Action
Request"), that it may exclude a shareholder proposal (the "Proposal") of the
AFL-CIO Reserve Fund from its 2005 proxy materials. The Proposal urges
the Board of Directors to adopt a policy that a significant portion of future
equity compensation grants to senior executives shall be shares of stock that
require the achievement of performance goals as a prerequisite to vesting
("performance-vesting shares").
This policy shall apply to existing employment agreements and equity
compensation plans only if the use of performance-vesting shares can be legally
implemented by the Company, and will otherwise apply to the design of all future
plans and agreements.
Wal-Mart argues that the Proposal is excludable under Rule 14a-8(i)(10) because
the Proposal has been substantially implemented. Because there are significant
differences between the action Wal-Mart has taken regarding performance-vesting
shares and the policy requested by the Proposal, Wal-Mart has failed to meet its
burden of proving that it has substantially implemented the Proposal.
II. The Proposal Has Not Been Substantially Implemented by the Company
Under Rule 14a-8(g), "the burden is on the company to demonstrate that it is
entitled to exclude a proposal." We submit that Wal-Mart has failed to meet this
burden because there is no merit to its claims that the Proposal has been
substantially implemented. Rule 14a-8(i)(10) permits a company to exclude a
shareholder proposal from its proxy materials if "the company has already
substantially implemented the proposal."
The Company asserts that the recent direction taken by the Compensation,
Nominating and Governance Committee of the Board of Directors (the "CNGC")
"substantially reflects the intent and purposes sought to be achieved by the
Proposal, and for that reason, the Proposal has been substantially
implemented..." As noted in the Company's no-action request, "the CNGC awarded
three cycles of an equal amount of performance shares" to senior executives in
January, 2005. This is the first and only time that performance-shares have been
granted to senior executives at Wal-Mart in recent history.
Wal-Mart's attempt to define "significant" and its subsequent claim that their
"practice" meets this definition are immaterial. The Company's new compensation
practice does not substantially implement the Proponent's request for a policy
of using performance shares in future equity compensation grants to senior
executives. A practice does not make a policy, and is immaterial to the goals
sought by the Proposal.
In The Boeing Company (February 18, 2003), the company sought to exclude a
shareholder proposal that requested that the Board of Directors adopt an
executive compensation policy that all future stock options to senior executives
shall be performance based. Boeing sought exclusion under Rule 14a-8(i)(10)
"because the Company has already implemented a Performance Share Program that is
similar in operation and goals to the program described in the Proposal."
In particular, Boeing argued that five years prior to the proposal the company
had implemented its Performance Share Program which compared "favorably to the
program recommended in the Proposal." Even though Boeing had fully implemented a
program at the time of the proposal the Staff found that "we are unable to
concur in your view that Boeing may exclude the proposal under rule
14a-8(i)(10)."
Wal-Mart's January 2005 adoption of a new compensation practice does not rise to
a level whereby the Company has substantially implemented the Proposal.
Wal-Mart's "practice" of awarding performance share awards faces a gradual,
incremental phase-in over three years which could undergo significant
alterations in the interim, and which may be terminated at any time. Moreover,
this "practice" of awarding performance share awards only applies to a
three-cycle grant, starting in January 2005.
In contrast, the Proposal urges the Board of Directors to adopt a policy that
future equity compensation grants to senior executives include performance share
awards. Merriam-Webster Online Dictionary defines a policy as "a definite course
or method of action selected from among alternatives and in light of given
conditions to guide and determine present and future decisions" (emphasis added)
or "high-level overall plan embracing the general goals and acceptable
procedures especially of a governmental body."
The Company's No-Action Request goes to great lengths to avoid using the term
"policy" to describe the equity compensation awards made by the CNGC in January,
2005. Instead, the No-Action Request describes a one-time decision to grant
performance shares. Absent the Board adopting a policy as urged by the Proposal,
there is no guarantee that performance-vesting shares will be utilized in future
decisions as sought by the Proposal. While the CNGC has made one three-cycle
grant of performance shares, the Board has not committed to a policy of using
performance shares in future awards.
III. Conclusion
For the reasons set forth above, we submit that Wal-Mart has failed to meet its
burden of demonstrating "that it is entitled" to exclude the Proposal from its
proxy materials (See Rule 14a-8 (g). The request for a no-action letter should
be denied.
If you have any questions or need additional information, please do not hesitate
to call me at (202) 637-5379. I have enclosed six copies of this letter for the
staff, and am sending copies to counsel for the Company.
Very truly yours,
/s/
Daniel F. Pedrotty
Financial Initiatives Counsel
cc: Samuel A. Guess, Wal-Mart
[INQUIRY LETTER]
March 21, 2005
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Wal-Mart Stores, Inc. Incoming letter dated January 20, 2005
The proposal urges the board of directors to adopt a policy that a significant
portion of future equity compensation grants to senior executives shall be
shares of stock that require the achievement of performance goals as a
prerequisite to vesting and that the policy shall apply to the design of all
future plans and agreements.
We are unable to concur in your view that Wal-Mart may exclude the proposal
under rule 14a-8(i)(10). Accordingly, we do not believe that Wal-Mart may omit
the proposal from its proxy materials in reliance on rule 14a-8(i)(10).
Sincerely,
/s/
Rebekah J. Toton
Attorney-Advisor
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