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Walmart Engineers Fat Executive Raises As Customers Struggle To Eat

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WALMART CEO
President and CEO of Walmart International Doug McMillon addresses the crowd on the company's 2012 worldwide sales during the Walmart shareholders meeting in Fayetteville, Ark., Friday, June 7, 2013. (AP Photo/Gareth Patterson) | ASSOCIATED PRESS

Low-income Americans have had a rough year, which means Walmart has, too. Good news, though: The company's executives aren't going to suffer.

When figuring out the performance-based pay of its corporate officers for this year, the giant retailer ignored the effects of November's cuts to the government's Supplemental Nutrition Assistance Program -- aka food stamps -- which executives have cited as a reason for lagging sales in the past several months. Leaving SNAP cuts out of the equation makes Walmart's performance look better, which in turn ratchets up the pay of Walmart executives.

Corporate governance groups are calling foul, saying that Walmart CEO Doug McMillon, U.S. CEO Bill Simon and other executives are getting paid more than they should.

"I don't think I've ever seen an explicit adjustment for a change in public policy and public spending," said Richard Clayton, research director at CTW Investment Group. "It's completely remarkable that they've made this decision."

It's not uncommon for companies to tweak their math when calculating performance-based pay. In theory, the goal is to correct for factors that were truly outside of executives' control. But in many cases, critics claim, such adjustments serve only to boost executive paychecks, even when those executives haven't delivered strong results.

Clayton called the SNAP adjustment "mind-boggling," saying the government's decision to slash food stamps was manageable and predictable. After all, he said, Walmart's public action committee gave money to legislators who supported SNAP cuts.

And here's the irony of it all: Walmart has repeatedly acknowledged that when poor customers have fewer resources, the company's sales suffer. But instead of raising the wages of some of its many low-income workers, the company is giving its already wealthy executives a boost.

"They get that if working-class people have higher income, they'd be spending more money at Walmart," said Clayton, "but that doesn't translate into the way they think about how they allocate resources."

With more than 1 million U.S. employees, Clayton said, "Walmart uniquely has the ability to directly impact the standard of living of a great many Americans."

The company's average hourly pay for a full-time worker is $12.81, according to the company's website.

Clayton's group has urged Walmart shareholders to reject Walmart's executive-pay plan and oust Linda Wolf, the director who oversees compensation, at the company's shareholder meeting on June 6. Institutional Shareholder Services Inc., which advises large shareholder groups, has also recommended that shareholders vote down the pay plan.

The SNAP adjustment was just one of many decisions that troubled ISS and CTW. Walmart also disregarded costs associated with store closures in Brazil and China, the restructuring of Sam's Club and the end of a joint venture in India when calculating executive pay.

Walmart spokesman Randy Hargrove said the company's adjustments for SNAP cuts were much smaller than some of its other adjustments, and claimed the cuts weren't something executives could have predicted. He added that the company has always been transparent about its adjustments, which in some years have actually resulted in less pay for executives.

"We're making decisions that are in the best interest of the company," Hargrove said. "We don't want to delay a restructuring or store closings [...] because management might take into consideration how it might affect their bonus."

That likely won't satisfy Walmart's critics. Walmart's U.S. same-store sales, an important retail bellwether that measures performance for stores open a year or more, have dropped for at least five straight quarters.

At the same time, Walmart directors have proposed giving McMillon more than $25 million and Simon more than $13 million in total compensation. A large share of that pay is performance-based.

"It's really a disgrace to pay huge amounts to these executives when the performance isn't there," said Eleanor Bloxham, the CEO of Value Alliance, a corporate-governance advocacy group.

This isn't the first year that Walmart has been accused of tweaking metrics to ensure its executives take home a large paycheck. In 2011, the company came under fire for replacing same-store sales with total sales when calculating executive performance. As The New York Times pointed out, that change came as Walmart was in the midst of a same-store sales decline. The company's total sales, however, were up.

"If the board is doing its job, those adjustments would more align pay with performance," said David Larcker, director of the Corporate Governance Research Program at Stanford's Graduate School of Business. "For an outsider like you or I or shareholders, it's hard to know. From [critics'] view it's too much discretion. You're kind of changing things after the fact, and from their view that's inappropriate."

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