Wal-Mart’s younger board members invested heavily in retailer’s stock and turnaround

by Kim Souza ([email protected]) 314 views 

Wal-Mart Board Chairman Greg Penner addresses the audience at the 2016 Shareholders Meeting.

It’s customary for directors for publicly traded companies to own stock in the business. But Wal-Mart Stores requires board members to own stock up to five-times the value of their annual retainer fee within five years of joining the board, a requirement that’s not common, according to Alan Ellstrand, corporate governance expert at the University of Arkansas.

He said having directors own a stake in the company hasn’t always been popular but it’s a growing trend. Ellstrand gives Wal-Mart credit for trying to ensure its board is more closely aligned with shareholders.

“It seems like a good practice to me. It probably means more on paper than in reality, but overall having a board that is vested is probably a good move,” he said.

Often directors choose to be paid in shares for their board service. Directors for Walmart are asked to attend six meetings a year and every one them is assigned to roles to help the company succeed. Those roles include committee service on compensation and governance, audits, technology and e-commerce as well as strategic planning and finance, and executive. In several cases the independent directors are active in more than one committee.

Wal-Mart noted in its recent Proxy filing that nine of the 11 incumbent directors had perfect attendance at the meetings last year. Because the Wal-Mart board is an active body, the retailer pays its directors better than average.

Outside (non-employee, non-family) directors at Wal-Mart earn annual base compensation of $175,000 paid shares of Wal-Mart stock and $90,000 in cash. Other retainers paid for leadership roles include $200,000 paid to the non-executive chairman in the form of 50% stock and 50% cash. Greg Penner, son-in-law to immediate past chairman Rob Walton, is the non-executive board chair.

Ellstrand said the pay may sound high for the average person, but it’s important to realize the caliber of professionals that Wal-Mart attracts to its board. He said the board is no longer full of retired executives but is increasingly becoming a board of active CEOs with the likes of Marissa Mayer, CEO of Yahoo!, and Kevin Systrom, founder and CEO of Instagram.

He said with more board members who still run their own operations, Wal-Mart sees the value of their time spent on board business. He said the Wal-Mart board increasingly is shifting toward a younger perspective given the shift of retail to online.

The board size was trimmed from 15 to 12 for this fiscal year and there were four years shaved off the mean age which is now 54, one of the youngest boards among Fortune 100 companies. The lead independent director earns a cash retainer of $30,000, while the audit and governance committee members earn an additional $25,000 for time spent. The strategic planning and technology committee members earn a stipend cash pay of $20,000 annually. Wal-Mart said because of the ongoing investigation of alleged Foreign Corrupt Practice Act violations the audit committee put in more time last year getting updates on this probe. For that added service Walmart paid the audit committee chairman an additional $57,500 while other audit committee members earned a $45,000 fee.

The vested interest of Wal-Mart board stock holdings are worth approximately $295.573 million at the trading price of $71.01 on Thursday (June 9). Rob Walton, heir to the Walton Family fortune, has direct stock holdings of $207.889 million or the lion’s share of the director’s holdings.

Other directors for Wal-Mart have also amassed substantial stock in exchange for their board service. Wal-Mart Stores CEO Doug McMillon owns 792,101 shares of the company stock. His personal stock value not including retirement accounts and children’s trusts is worth $56.247 million. Board Chairman Greg Penner directly owns stock valued at $2.843 billion.

Other directors’ Wal-Mart stock holdings values are: James Cash, $2.511 million; Linda Wolf, $2.708 million; Marissa Mayer, $2.143 million; Timothy Flynn, $2.146 million; Steven Reinemund, $1.393 million; Kevin Systrom, $611,822; and Pamela Craig. $610,472.

Directors, like shareholders, have benefited from higher stock prices this year. Since the start of fiscal 2017 which began Feb 1, Wal-Mart shares are trading 6.5% higher. Each $1 move in Wal-Mart’s share price impacts the board’s holdings by more than $4.16 million. Roughly 70% of the gain or loss is felt by Rob Walton.

Wal-Mart management has said it does not operate the business quarter-to-quarter but is taking a longer term approach given the transformation taking place in the retail sector. Insiders recently told Talk Business & Politics that company executives do look at share performance and that does have a direct impact on day-to-day operations and one of the reasons Wal-Mart revamped supplier contracts last year amid a volatility in the share price.

One other benefit for shareholders over the years has been the dividends the company pays. While Wall Street largely sees Walmart as a defensive play given its size, the retailer sees itself as growth stock in part because of the $6.3 billion paid in dividends last year and the $4.3 billion it spent repurchasing its own stock.

Wall Street is looking more favorably at Wal-Mart these days. Analysts with Jeffries recently updated Wal-Mart shares to a buy from a hold rating. That upgrade was based on indications the retail giant’s store improvements are yielding sales results.

Jefferies also raised Wal-Mart’s price target to $82 from $60. Jefferies analysts conducted checks and surveys to determine that the company’s staff investments, price cutting, inventory management, grocery sourcing, and other efforts will produce long-lasting results. The analysts noted the efforts by Wal-Mart to turnaround its U.S. business “should lead to upside in sales and an upward earnings per share revision cycle.”

The bank also believes online grocery will improve market share and lead to e-commerce sales growth overtime.

“Our Google consumer surveys showed those customers that were aware that Walmart is about to make incremental price investments were also those that expressed a willingness to shop Walmart more in the next year, suggesting that these actions should improve traffic,” bank analysts said.