Director Compensation Project: Wal-Mart

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009’s Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards. Directors are not independent if they received over $120,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii). This is a looser restriction than the equivalent NASDAQ Rule, 5605(a)(2), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Wal-Mart’s (WMT-NYSE) 2009 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Aida M. Alvarez	60,000	160,000	-	-	220,000
James W. Breyer	75,000	160,000	-	1,646	236,646
M. Michele Burns	60,000	160,000	4,509	-	224,509
James I. Cash, Jr.	60,000	160,000	-	1,006	221,006
Roger C. Corbett	60,000	160,000	-	46,490	266,490
Douglas N. Daft	60,000	160,000	2,787	-	222,787
David D. Glass	60,000	160,000	472	113	220,585
Roland A. Hernandez*	36,896	-	457	109	37,462
Gregory B. Penner	34,121	160,000	-	109	194,230
Allen I. Questrom	60,000	160,000	-	209	220,209
Jack C. Shewmaker*	26,044	-	-	188	26,232
Arne M. Sorenson	34,121	160,000	-	1,633	195,754
Jim C. Walton	60,000	160,000	-	828	220,828
Christopher J. Williams	89,217	160,000	-	115	249,332
Linda S. Wolf	80,687	160,000	-	96	240,783

* Roland A. Hernandez and Jack C. Shewmaker served on the Board until their successors were elected at the 2008 Annual Shareholders’ Meeting on June6, 2008.

Director Compensation. Wal-Mart’s board met seven times in 2008. All directors attended at least 75% of the board meetings. Each director received a $60,000 base retainer, supplemented by additional retainers for committee service. All but three of the directors received between $60,000 and $90,000 in cash compensation. Additionally, each director received $160,000 in stock awards. Within 5 years of their election, Wal-Mart’s non-management directors must own shares, restricted stock, or stock units valued at an amount equal to five times the annual director retainer for the year they were elected; all of the non-management directors fulfilled this requirement.

Director Tenure. Only two of the sixteen active directors served on the board prior to 2001. Mr. Walton, who serves as Chairman of the Board, has the longest tenure, serving since 1978. Mr. Scott is the second-longest, joining the Board in 1999. Several directors also sit on other boards. Mr. Cash, a director since 2006, also sits on the boards of The Chubb Corporation, General Electric Company, Phase Forward, Inc., and Microsoft Corporation. Mr. Breyer, a Board member since 2001, also serves as a director for Dell, Inc., Marvel Entertainment, Inc., and various private companies.

CEO Compensation. H. Lee Scott, Jr., who served as President and CEO in 2008, received $30,156,490 in total compensation that year. Mr. Scott received $1,456,000 as base salary, $17,403,219 in stock awards, $4,382,214 in option awards, and $5,824,000 in incentive compensation. Mr. Scott also received $652,485 in additional compensation, $149,093 of which accounted for personal use of company aircraft. Also included in Mr. Scott’s “all other compensation” were company contributions to the profit sharing/401(k) plan, term life insurance premiums for Mr. Scott’s benefit, health examinations, and monitoring and maintenance costs for home security. Mr. Scott retired as President and CEO effective January 31, 2009, and will continue to serve as Chairman of the Executive Committee in 2009.

Michael T. Duke served as Vice Chairman during 2008, receiving $12,238,209 in total compensation. Mr. Duke received $1,050,000 as base salary, $6,456,876 in stock awards, $1,076,205 in option awards, and $3,064,951 in incentive compensation. Wal-Mart reported that it paid Mr. Duke $380,343 in “all other compensation,” including 401(k) contributions, term life insurance premiums for Mr. Duke’s benefit, health examinations, and home security monitoring and maintenance. Also included was Mr. Duke’s personal use of company aircraft, which was valued at $107,482. Mr. Duke became Wal-Mart’s President and CEO on February 1, 2009.